<PAGE>
As filed with the Securities and Exchange Commission on September 12, 1997
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------------------
CODDLE CREEK FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
North Carolina 6039 56-
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
347 North Main Street/Post Office Box 117
Mooresville, North Carolina 28115
(704) 664-4888
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
---------------------
GEORGE W. BRAWLEY, JR., President
Coddle Creek Financial Corp.
347 North Main Street
Mooresville, North Carolina 28115
(704) 664-4888
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
EDWARD C. WINSLOW III
ELLEN P. HAMRICK
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
2000 Renaissance Plaza
Post Office Box 26000
Greensboro, North Carolina 27420
--------------------
Approximate date of commencement of the proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [ X ]
-----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to be Amount to Offering Price Aggregate Registration
Registered be Registered Per Share Offering Price Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value..... 608,350/(1)/ $50.00 $30,417,500 $9,217.42
====================================================================================================================
</TABLE>
(1) The estimated maximum number of shares to be registered is based upon
the maximum of the valuation range of Mooresville Savings Bank, SSB and
the Registrant, as established by an independent appraisal, divided by
the proposed offering price per share.
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>
CODDLE CREEK FINANCIAL CORP.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item Caption or Location
Number in Prospectus
------ -------------------
<S> <C> <C>
1 Forepart of the Registration Statement and Outside Front Cover Page
Front Cover Page of Prospectus
2 Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Table of Contents;
Prospectus Outside Back Cover Page
3 Summary Information, Risk Factors and Ratio of Summary; Selected Financial and Other Data
Earnings to Fixed Charges of The Bank; Risk Factors
4 Use of Proceeds Summary; Use of Proceeds
5 Determination of Offering Price Summary; The Conversion
6 Dilution Not Applicable
7 Selling Security Holders Not Applicable
8 Plan of Distribution Summary; Use of Proceeds; The Conversion
9 Description of Securities to be Registered Dividend Policy; Description of Capital
Stock; Anti-Takeover Provisions Affecting
The Company and The Bank
10 Interests of Named Experts and Counsel Not Applicable
11 Information with Respect to the Registrant Summary; Selected Financial and Other Data
of The Bank; Coddle Creek Financial Corp.;
Mooresville Savings Bank, SSB; Dividend Policy,
Market for Common Stock; Management's Discussion
and Analysis of Financial Condition and
Operating Results; Business of The Company;
Business of The Bank; Management of The Bank;
Financial Statements
12 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
CODDLE CREEK FINANCIAL CORP.
(Proposed Holding Company for Mooresville Savings Bank, SSB)
Up to 608,350 Shares of Common Stock
Coddle Creek Financial Corp., a North Carolina corporation (the
"Company"), is offering up to 608,350 shares of its common stock, no par value
(the "Common Stock"), in connection with the conversion of Mooresville Savings
Bank, SSB (the "Bank") from a North Carolina-chartered mutual savings bank to a
North Carolina-chartered stock savings bank (the "Conversion"). The purchase
price for the Common Stock is $50.00 per share. The minimum number of shares
that any subscriber may purchase is ten shares, for an aggregate minimum
purchase price of $500. As part of the Conversion, the Company will become the
sole stockholder and parent holding company of the Bank. See "THE CONVERSION".
Rights ("Subscription Rights") to subscribe for shares of Common Stock of the
Company in a subscription offering (the "Subscription Offering") have been
granted to certain depositors and borrowers of the Bank, the Bank's Employee
Stock Ownership Plan (the "ESOP") and certain others in accordance with the
Bank's Plan of Holding Company Conversion (the "Plan"). The Subscription
Offering will expire at 12:00 Noon, Eastern Time, on
(cover continued on next page)
-------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY EACH PROSPECTIVE INVESTOR, SEE "RISK FACTORS"
BEGINNING ON PAGE 16.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"), THE ADMINISTRATOR, SAVINGS INSTITUTIONS
DIVISION, NORTH CAROLINA DEPARTMENT OF COMMERCE (THE "ADMINISTRATOR"), ANY STATE
SECURITIES COMMISSION, OR THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE
"FDIC"); NOR HAS THE SEC, THE ADMINISTRATOR, ANY SUCH STATE COMMISSION, OR THE
FDIC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS (THE "PROSPECTUS").
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===================================================================================================================
Estimated Underwriting,
Marketing and Other Fees Estimated Net Conversion
Purchase Price and Proceeds/(4)/
Expenses/(3)/
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share at Minimum................ $50.00 $1.97 $48.03
Per Share at MidPoint............... $50.00 $1.83 $48.17
Per Share at Maximum................ $50.00 $1.74 $48.26
Per Share at Maximum, as adjusted... $50.00 $1.65 $48.35
Total at Minimum/(1)/............... $19,550,000 $769,280 $16,434,720
Total at Midpoint/(1)/.............. $23,000,000 $843,800 $19,396,200
Total at Maximum/(1)/............... $26,450,000 $918,320 $22,357,680
Total at Maximum, as adjusted/(2)/.. $30,417,500 $1,004,018 $25,763,382
===================================================================================================================
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by
JMP Financial, Inc. ("JMP Financial") dated September 2, 1997, which
states that the estimated aggregate pro forma market value of the
Company and the Bank ranged from $19,550,000 to $26,450,000 ("Valuation
Range") or between 391,000 and 529,000 shares of Common Stock at the
purchase price of $50.00 per share, which is the amount to be paid for
each share of Common Stock purchased in the Offerings (as hereinafter
defined). See "THE CONVERSION -- Purchase Price of Common Stock and
Number of Shares Offered."
(2) As adjusted to give effect to an increase in the number of shares
that could be sold in the Conversion due to an increase of up to 15%
above the maximum of the Valuation Range and the related increase of up
to 15% above the maximum number of shares which may be offered in the
Conversion at such maximum, without the resolicitation of subscribers
or any right to cancel or modify subscription orders, to reflect
changes in market and financial conditions following commencement of
the Subscription Offering.
(3) Consists of the estimated costs to the Bank and the Company arising
from the Conversion, including estimated fixed expenses of
approximately $387,000 (including reimbursable out-of-pocket expenses
to be paid to Trident Securities, Inc.) and management and marketing
fees and commissions to be paid to Trident Securities, Inc. Total fees
and commissions to be paid to Trident Securities, Inc. are estimated to
be between $382,280 and $617,018 at the minimum and maximum, as
adjusted, of the Valuation Range, respectively. See "PRO FORMA DATA"
for the assumptions used to arrive at these estimates. Trident
Securities, Inc. may be deemed to be an underwriter, and such fees may
be deemed to be underwriting fees. The Bank and the Company have agreed
to indemnify Trident Securities, Inc. against certain claims or
liabilities, including claims under the Securities Act of 1933, as
amended. See "THE CONVERSION -- Marketing Arrangements."
(4) Includes estimated net proceeds from the sale of 8% of the shares to
be issued which are to be purchased by the Bank's Employee Stock
Ownership Plan (the "ESOP") with funds loaned to the ESOP by the
Company. Actual net proceeds may vary substantially from the estimated
amount, depending upon the number of shares sold respectively in the
Subscription Offering, any Community Offering and any Syndicated
Community Offering (as hereinafter defined), actual expenses and other
factors. See "USE OF PROCEEDS", "CAPITALIZATION", "PRO FORMA DATA" and
"THE CONVERSION -- Purchase Price of Common Stock and Number of Shares
Offered."
<PAGE>
TRIDENT SECURITIES, INC.
The date of this Prospectus is __________, 1997.
___________, 1997, unless extended by the Bank and the Company with the approval
of the Administrator (the "Expiration Time"). See "THE CONVERSION -Subscription
Offering." Subscription Rights are not transferable; persons who attempt to
transfer Subscription Rights may lose their right to purchase Common Stock and
may be subject to other sanctions. See "The Conversion -- Certain Restrictions
on Transfer of Subscription Rights; False or Misleading Order Forms."
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a community offering (the "Community Offering") to
members of the general public with priority being given to natural persons
residing in Iredell, Mecklenburg, Lincoln, Rowan and Cabarrus counties, North
Carolina (the "Local Community"), including IRAs, Keogh accounts and similar
retirement accounts established for the benefit of natural persons who are
residents of the Local Community. The Community Offering, if one is held, may
begin at any time thereafter, but not later than __________, 199___, unless
further extended with the consent of the Administrator. See "THE CONVERSION --
Community Offering."
It is anticipated that any shares of Common Stock not subscribed for in the
Subscription and Community Offerings will be offered to certain members of the
general public on a best efforts basis through a selected dealers arrangement
(the "Syndicated Community Offering"). The Subscription, Community and
Syndicated Community Offerings are referred to collectively as the "Offerings."
The Bank and the Company have engaged Trident Securities, Inc. ("Trident
Securities") as financial advisor and to assist in the sale of shares of Common
Stock, on a best efforts basis, in the Offerings. Trident Securities is under no
obligation to purchase any shares of Common Stock in any of the Offerings. See
"THE CONVERSION -- Marketing Arrangements."
The Boards of Directors and management of the Bank and the Company make no
recommendation concerning whether any person or entity should purchase shares of
Common Stock. Subscribers are urged to consult with their own financial advisors
with respect to suitability of an investment in the Common Stock. Trident
Securities has not prepared any fairness opinion with respect to the terms of
the Offerings or any opinion with respect to the price at which shares of Common
Stock may trade. See "RISK FACTORS -- Best Efforts Offering."
The sale of the Common Stock in the Subscription Offering, and in the
Community and Syndicated Community Offerings, if necessary, must be completed
within 45 days after the Expiration Time unless such period is extended with the
approval of the Administrator. In the event such an extension is approved,
subscribers would be resolicited. Subject to the foregoing, an executed Stock
Order Form, once received by the Bank, is irrevocable and may not be modified,
amended or rescinded without the consent of the Bank. See "THE CONVERSION --
Exercise of Subscription Rights and Purchases in the Community Offering."
The Conversion and the acceptance of subscriptions are, among other things,
contingent upon approval of the Conversion by the Bank's members at a special
meeting scheduled to be held on December _____, 1997 (the "Special Meeting") and
upon the sale of shares of Common Stock for an aggregate purchase price of not
less than $19,550,000 nor more than $30,417,500. See "THE CONVERSION -- Offering
of Common Stock."
The Company, as a newly organized company, has never issued capital stock,
and consequently, there is no established market for the Common Stock at this
time. The Company has received conditional approval to have the Common Stock
listed on the Nasdaq National Market (the "National Market"). There can be no
assurance that the Common Stock will in fact be listed on the National Market.
If the Common Stock is quoted on the National Market, Trident Securities intends
to act as a market maker and to encourage at least one other market maker to
make a market in the Common Stock. If the Common Stock is not listed on the
National Market, the Company will use its best efforts to have it listed on the
Nasdaq SmallCap Market or to encourage or assist a market maker.
An active and liquid public trading market for the securities of any
issuer, including the Common Stock, depends upon the presence in the marketplace
of both willing buyers and willing sellers of the securities at any given time.
Although the Company has received preliminary approval to have its shares quoted
on the National Market, subject to certain conditions which the Company believes
will be met, due to the size of the Company's offering (460,000 shares at the
midpoint of the Valuation Range), it is unlikely that a stockholder base
sufficiently large enough to create an active trading market will develop and be
maintained. Further, even if a market develops, there can be no assurance that
the shares of Common Stock offered in the Conversion can be resold at or above
the purchase price after completion of the Conversion. 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 COMMON STOCK."
A Stock Information Center has been established at the Bank's headquarters
office at 347 North Main Street, Mooresville, North Carolina, in an area
separate from the Bank's banking operations. The telephone number of the Stock
Information Center is (704) 660-0408.
2
<PAGE>
[Map of Bank market area appears here]
3
<PAGE>
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT
CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN
"RISK FACTORS" BEGINNING ON PAGE ___ OF THIS PROSPECTUS.
SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the more detailed information and financial statements
appearing elsewhere herein. Certain terms used in this summary are defined
elsewhere herein.
Coddle Creek Financial Corp. The Company is a North Carolina corporation
recently organized by the Board of Directors of
the Bank to acquire all of the capital stock
that the Bank will issue upon its conversion
from the mutual to stock form of ownership. The
conversion of the Bank to stock form, the
issuance of the Bank's capital stock to the
Company, and the offer and sale of the Common
Stock of the Company are referred to in this
Prospectus as the "Conversion." The Company has
not yet engaged in any business. Upon completion
of the Conversion, its business will initially
consist solely of owning the Bank, investing the
proceeds of the Conversion that are retained by
the Company and holding the indebtedness to be
outstanding from the ESOP. The Company has
received the approval of the Administrator and
the Board of Governors of the Federal Reserve
System (the "Federal Reserve") to acquire the
Bank.
The executive office of the Company is located
at 347 North Main Street, Mooresville, North
Carolina, and its telephone number is (704)
664-4888.
Mooresville Savings Bank, SSB The Bank is a North Carolina-chartered mutual
savings bank headquartered in Mooresville, North
Carolina and has been in operation since 1937.
The Bank has been a member of the Federal Home
Loan Bank ("FHLB") system, and its deposits have
been federally insured since 1947. The Bank's
deposits are now insured by the Savings
Association Insurance Fund (the "SAIF") of the
FDIC to the maximum amount permitted by law.
The Bank conducts business through three full
service offices in Mooresville, Cornelius and
Huntersville, North Carolina. The Bank's primary
market area consists of the communities within
an approximately 15-mile radius of its
Mooresville office, which includes portions of
Iredell, Mecklenburg, Lincoln, Catawba, Rowan
and Cabarrus counties in North Carolina. At June
30, 1997, the Bank had total assets of $114.2
million, net loans of $100.5 million, deposits
of $95.9 million and retained earnings of $14.7
million.
The Bank is primarily engaged in the business of
attracting deposits from the general public and
using such deposits to make mortgage loans
secured by one-to-four family residential real
estate located in the Bank's primary market
area. The Bank also makes equity line of credit
loans, commercial loans, construction loans,
loans secured by deposit accounts, and various
types of secured and unsecured consumer loans.
The Bank is a portfolio lender in that it does
not originate its fixed or adjustable rate loans
for sale in the secondary market. See "BUSINESS
OF THE BANK." The Bank has been and intends to
continue to be a community-oriented
4
<PAGE>
financial institution offering a variety of
financial services to meet the needs of the
communities it serves.
Highlights of the Bank's operations include:
. Profitability. For the six months ended
June 30, 1997 and for the fiscal years
ended December 31, 1996 and 1995 and the
nine months ended December 31, 1994, the
Bank had net income of $287,000, $721,000,
$780,000 and $675,000, respectively, and a
return on average assets of .51%, .66%,
.75% and .68%, respectively. Future
profitability of the Bank will be affected
by changes in market interest rates and
other factors. See "RISK FACTORS."
. Capital Position. As of June 30, 1997, the
Bank's ratios of Tier I capital to total
assets and total capital to risk-weighted
assets were 12.85% and 25.06%,
respectively, which substantially exceeded
the FDIC's requirements. On such date, the
Bank's ratio of net worth to total assets,
calculated under the Administrator's
regulations, was 13.39%, which
substantially exceeded the North Carolina
requirement. See "SUPERVISION AND
REGULATION -- Regulation of the Bank --
Capital Requirements Applicable to the
Bank."
. Emphasis on One-to-Four Family Residential
Lending. Historically, the Bank has been
predominantly a one-to-four family
residential lender. As of June 30, 1997,
82.07% of the Bank's loan portfolio, before
net items, was composed of permanent one-
to-four family residential loans and 11.19%
of its loan portfolio, before net items,
was composed of construction and equity
line loans.
. Asset Quality. On June 30, 1997 and
December 31, 1996, the Bank's ratio of
nonperforming assets to total assets was
.96% and 1.11%, respectively. See "BUSINESS
OF THE BANK -- Lending Activities --
Nonperforming Assets and Asset
Classification."
. Interest Rate Risk. The Bank has a
significant amount of interest rate risk.
As of June 30, 1997, the Bank's one-year
interest sensitivity gap was a negative
54.53% of total interest-earning assets,
and its three year cumulative interest
sensitivity gap was a negative 69.38%.
Other modeling used by the Bank indicates
that, as of June 30, 1997, its net
portfolio value (present values of cash
flows from assets, liabilities and off-
balance sheet items) would decrease by
22.85% in the event of an instantaneous and
permanent 200 basis point increase in
market interest rates and would increase by
9.77% in the event of a 200 basis point
decrease in market interest rates. Such
modeling also indicates that, as of June
30, 1997, such a 200 basis point increase
in market interest rates would result in a
7.00% decrease in net interest income and
that a 200 basis point decrease in such
rates would result in a 7.97% increase in
net interest income. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --
Asset/Liability Management."
. Unpredictability of Earnings. The earnings
of financial institutions can be
5
<PAGE>
significantly impacted by changes in
interest income and by the interest
sensitivity of its assets and liabilities.
As is described above, the Bank's
asset/liability structure presents a
significant amount of interest rate risk,
and the Bank's earnings have been slightly
reduced during periods of increasing
interest rates and are likely to be
significantly and negatively impacted if
interest rates increase. The Bank has not
established a consistent source of
noninterest income to stabilize its net
income. As a result, the Bank's earnings
are significantly tied to market interest
rates and are, therefore, not highly
predictable.
. Nonconforming Loans. The Bank originates
loans with the intention that they will not
be sold in the secondary market. As of June
30, 1997, the Bank had $25.8 million in
adjustable rate nonconforming mortgage
loans and $60.2 million in fixed rate
nonconforming mortgage loans. Although
management believes that many of such loans
could be saleable to investors, some of
such loans could be sold only after
incurring certain costs and/or discounting
the purchase price; as a result, the Bank's
loan portfolio may be less liquid. See
"RISK FACTORS -- Risk Associated with
Nonconforming Loans" and "BUSINESS OF THE
BANK -- Lending Activities -- Origination
and Sale of Loans."
. Management Experience. The Bank's six
current directors have an average tenure of
18 years on the Bank's Board. In addition,
the Bank's three executive officers have 70
years of combined service with the Bank.
Turnover is low with other staff members as
well, with such persons having an average
of ten years tenure with the Bank.
Management is actively involved in
community activities and has important
business ties in the Bank's primary market
area.
The Conversion The Bank was organized and has operated as a
traditional savings institution. It recognizes
that the banking and financial services
industries are in the process of fundamental
changes, reflecting changes in the local,
national and international economies,
technological changes and changes in state and
federal laws. As a result, for several years the
Bank has been studying the environment in which
it operates and its strategic options.
As a result of its study of its strategic
options, the Bank adopted the Plan, which
provides for conversion of the bank from a North
Carolina-chartered mutual savings bank to a
North Carolina-chartered stock savings bank. The
Bank believes that converting the bank from the
mutual to stock form and organizing the Company
will provide increased flexibility for the Bank
and the Company to react to changes in their
operating environment.
Consummation of the Conversion is contingent
upon receipt of the approvals of the
Administrator and the Federal Reserve which are
necessary for the Company to acquire the Bank
and the approvals of the FDIC and the
Administrator which are necessary for the Bank
to convert from mutual to stock form. The
Administrator has conditionally approved the
Conversion and the Company's acquisition
application, subject to approval by the Bank's
members and satisfaction of certain other
conditions. The Federal Reserve has
conditionally approved the Company's acquisition
application, subject to the satisfaction of
certain conditions. The FDIC
6
<PAGE>
has issued a notice of non-objection with
respect to the Conversion, subject to certain
conditions. See "THE CONVERSION -- General."
If the Conversion is not approved by the Bank's
members, the Bank will remain a North Carolina-
chartered mutual savings bank, all subscription
funds will be returned, and all deposit
withdrawal authorizations will be canceled.
Assuming the consummation of the Conversion, the
Company and the Bank intend to pursue a business
strategy to remain an independent financial
institution with the goal of enhancing
shareholder value over the long term. Neither
the Company nor the Bank has any existing plan
to consider any business combination, and
neither company has any agreement or
understanding with respect to any possible
business combination.
The Offerings Pursuant to the Plan, between 391,000 shares and
608,350 shares of Common Stock are being offered
by the Company at the price of $50.00 per share
in the Subscription Offering to the following
persons in the following order of priority: (i)
the Bank's depositors as of December 31, 1995
who had aggregate deposits at the close of
business on such date of at least $50 ("Eligible
Account Holders"); (ii) the Bank's Employee
Stock Ownership Plan (the "ESOP"); (iii) the
Bank's depositors as of _______, 1997 (the
"Supplemental Eligibility Record Date"), who had
aggregate deposits at the close of business on
such date of at least $50 ("Supplemental
Eligible Account Holders"); (iv) the Bank's
depositor and borrower members as of _______,
1997, who are not Eligible Account Holders or
Supplemental Eligible Account Holders ("Other
Members"); and (v) directors, officers and
employees of the Bank who are not Eligible
Account Holders, Supplemental Eligible Account
Holders or Other Members. Beneficial owners of
individual retirement accounts ("IRAs"), Keogh
savings accounts and other similar retirement
accounts have been deemed to be holders of such
accounts for purposes of the exercise of
Subscription Rights. See "THE CONVERSION --
Subscription Offering."
Shares of Common Stock not subscribed for in the
Subscription Offering will be offered in a
Community Offering to members of the general
public, with priority given to natural persons
or trusts of natural persons who are residents
of the Local Community, including IRAs, Keogh
accounts and similar retirement accounts
established for the benefit of natural persons
who are residents of the Local Community. The
Company and the Bank have the absolute right to
reject orders in the Community Offering in whole
or in part. See "THE CONVERSION -- Community
Offering." If there is a Community Offering, it
is anticipated that all shares of Common Stock
not purchased in the Community Offering will be
offered for sale by the Company to the general
public in the Syndicated Community Offering. See
"THE CONVERSION -- Syndicated Community
Offering."
The Subscription Offering and Subscription
Rights in the Subscription Offering expire at
the Expiration Time, which is 12:00 Noon.,
Eastern Time, on ___________, 1997, unless
extended. The Community Offering, if any, may
commence at any time after the commencement of
the Subscription Offering and may terminate at
the Expiration Time or at any time thereafter,
but not later than __________, 1997, unless
extended with the approval of the Administrator.
7
<PAGE>
Stock Purchase Limitations The maximum aggregate number of shares of Common
Stock for which any (i) person or entity (other
than the ESOP), (ii) persons or entities
exercising Subscription Rights through a single
account or (iii) persons "acting in concert" (as
defined in the Plan), may subscribe in the
Offerings is 6,000 shares. In addition, no
person or entity, or group of persons or
entities acting in concert, together with any
"associates" (as defined in the Plan), may
subscribe for more than 12,000 shares of Common
Stock sold in the Conversion. However, the
Bank's Board of Directors has the right, at any
time prior to completion of the Conversion, to
decrease the maximum purchase limitations to an
amount not less than 1% of the shares issued in
the Conversion or increase such maximum purchase
limitations to an amount up to 5% of the shares
issued in the Conversion. The ESOP may purchase
up to 8% of the shares of Common Stock issued in
the Conversion (between 31,280 and 48,668 shares
assuming the issuance of between 391,000 and
608,350 shares). If because there is an
oversubscription or for any other reason the
ESOP is unable to purchase in the aggregate up
to 8% of the shares of Common Stock issued in
the Conversion, it is expected that the ESOP
will purchase shares of Common Stock in the open
market so that after such purchases a number of
shares of Common Stock up to 8% of the number of
shares issued in the Conversion will have been
acquired by the ESOP. See "RISK FACTORS -- Cost
of ESOP." No person or entity may subscribe for
less than ten shares of Common Stock, or an
aggregate dollar amount of less than $500.
Subscription Rights; Purchase
of Shares Subscription Rights are exercisable and
purchases may be made in the Offerings only by
returning the original of the stock order form
and form of certification accompanying this
Prospectus (the "Stock Order Forms") properly
completed with full payment for the aggregate
dollar amount of Common Stock desired. Stock
Order Forms and required payments for purchases
in the Subscription Offering must be received
prior to the deadlines designated for the
Subscription and Community Offerings. Payment
may be made in cash, by check, bank draft,
negotiable order of withdrawal or money order,
or by authorization of withdrawal from certain
deposit accounts maintained with the Bank.
Persons wishing to use their Bank IRA's to
purchase shares of Common Stock must visit the
Stock Information Center on or before
__________, 1997 in order for the necessary
paperwork for such purchases to be completed and
executed prior to the Expiration Time. See "THE
CONVERSION -- Exercise of Subscription Rights
and Purchases in the Community Offering."
Non-transferability of
Subscription Rights The Subscription Rights granted under the Plan
are non-transferable. Subscription Rights may be
exercised only by the person to whom they are
issued and only for his or her own account.
Persons exercising Subscription Rights are
required to certify that they are purchasing
shares for their own accounts within the
purchase limitations set forth in the Plan and
that they have no agreement or understanding for
the sale or transfer of such shares. See "THE
CONVERSION -- Certain Restrictions on Transfer
of Subscription Rights; False or Misleading
Order Forms."
Appraisal The Plan requires that the aggregate purchase
price of the Common Stock be based upon an
independent valuation of the estimated aggregate
pro forma market value of the Company and the
Bank. JMP Financial, Inc., of Grosse Pointe
Park,
8
<PAGE>
Michigan ("JMP Financial"), an independent
financial consulting firm, has advised the Bank
and the Company that in its opinion, at June 30,
1997, the Valuation Range of the aggregate
estimated pro forma market value of the Company
and the Bank was from $19,550,000 to
$26,450,000. The appraisal will be reviewed and,
if appropriate, revised by JMP Financial upon
conclusion of the Offerings. The appraisal by
JMP Financial is not intended and should not be
construed as a recommendation of any kind as to
the advisability of purchasing the Common Stock.
See "MARKET FOR COMMON STOCK," "PRO FORMA DATA"
and "THE CONVERSION -- Purchase Price of Common
Stock and Number of Shares Offered."
Stock Pricing and Number of
Shares to be Offered The purchase price of the Common Stock offered
in the Subscription Offering and the price at
which the Common Stock is sold in the Community
and Syndicated Community Offerings, if any, will
be $50.00 per share. The aggregate dollar amount
of Common Stock that may be sold in the
Conversion will be determined by the Board of
Directors of the Bank and the Company based upon
the independent appraisal of the pro forma
market value of the Company and the Bank
prepared by JMP Financial. Depending on market
and financial conditions following commencement
of the Subscription Offering, the number of
shares offered and sold in the Conversion may be
increased or decreased. With the consent of the
Administrator and the FDIC and in order to
reflect changes in market and financial
conditions following commencement of the
Subscription Offering, the aggregate purchase
price of the shares of Common Stock issued in
the Conversion may be increased, without any
solicitation of subscriptions or right to
cancel, rescind or change subscription orders,
to up to 15% above the maximum of the Valuation
Range. However, the aggregate dollar amount of
Common Stock that may be sold in the Conversion
will not be more than $30,417,500 or less than
$19,550,000 without a resolicitation of
subscribers. Any change in the total dollar
amount of the Offerings outside of the current
Valuation Range will be subject to the receipt
of an updated appraisal confirming such
valuation and regulatory approvals. See "THE
CONVERSION -- Purchase Price of Common Stock and
Number of Shares Offered."
Use of Proceeds The net proceeds from the sale of the Common
Stock in the Conversion, including shares
purchased by the ESOP with funds loaned by the
Company, are estimated to be between $16,434,720
and $22,357,680, depending upon the actual
expenses of the Conversion and other factors.
See "PRO FORMA DATA." The Company intends to use
a portion of the net proceeds of the Offerings
(estimated between $1,564,000 and $2,433,400
assuming the ESOP's purchase of between 31,280
and 48,668 shares at $50.00 per share) to fund
the loan made to the ESOP to purchase shares of
Common Stock in the Conversion. After deducting
the amount of such loan from the proceeds, the
Company is expected to retain approximately 50%
of the remaining net proceeds from the issuance
of the Common Stock. The Company will initially
invest these proceeds primarily in interest-
earning deposits, U.S. government, federal
agency and other marketable securities and
mortgage-backed securities. See "USE OF
PROCEEDS."
The remainder of the net proceeds from the sale
of the Common Stock will be paid by the Company
to the Bank in exchange for all of the capital
stock of the Bank. The net proceeds paid to the
Bank will become part of the Bank's general
funds, and
9
<PAGE>
will initially be invested in mortgage and other
loans, and investments consisting primarily of
U.S. government and federal agency obligations,
interest-earning deposits and other marketable
securities in accordance with the Bank's lending
and investment policies.
Net proceeds will also be used for other general
corporate purposes. The Bank and the Company may
consider opening one or more branch offices in
its primary market area and other nearby
communities, and such proceeds could be used for
such purposes. However, the Company and the Bank
have no current plans to open any additional
office.
At any time following consummation of the
Conversion, the Bank's Management Recognition
Plan Trust (the "MRP Trust") is expected to
acquire a number of shares of Common Stock equal
to 4% of the number of shares issued in the
Conversion. See "MANAGEMENT OF THE BANK--
Proposed Management Recognition Plan." 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. Such shares may either
be acquired in the open market or acquired
through the Company's issuance of authorized but
unissued shares. In the event shares are
acquired in the open market, the funds for such
purchase may be provided by the Bank from the
proceeds of the Conversion. It is estimated that
between 15,640 and 21,160 shares will be
acquired by the MRP Trust, assuming the issuance
of between 391,000 and 529,000 shares in the
Conversion. If all such shares were acquired by
the MRP Trust in the open market, and if such
shares were acquired at a price of $50.00 per
share, the Bank would contribute between
$782,000 and $1,058,000, respectively, to the
MRP Trust for this purpose. Additional shares
would be acquired if the number of shares issued
in the Conversion exceeds 529,000, and the price
per share paid by the MRP Trust could be more or
less than $50.00 per share, either of which
would change the total contribution to the MRP
Trust. See "RISK FACTORS -- Cost and Possible
Dilutive Effect of the MRP Trust and Stock
Option Plan" and "MANAGEMENT OF THE BANK --
Proposed Management Recognition Plan." No awards
will be made under the MRP until the MRP is
approved by the Company's stockholders.
At any time following consummation of the
Conversion, the Company or the Bank is expected
to contribute sufficient funds to a grantor
trust to purchase a number of shares equal to
10% of the number of shares issued in the
Conversion, which shares will be held to satisfy
options granted under the Company's Stock Option
Plan (the "Stock Option Plan"). Such shares
would be held by the trust for issuance to
option holders upon the exercise of options in
the event the Stock 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. To the extent
the grantor trust does not acquire sufficient
shares in the open market to satisfy options
granted under the Stock Option Plan, the Company
will reserve authorized but unissued shares for
this purpose. See "MANAGEMENT OF THE BANK --
Proposed Stock Option Plan." The funds for any
purchases in the open market may be provided by
the Company or the Bank from the proceeds of the
Conversion. It is estimated that between 39,100
and 52,900 shares could be acquired by the
grantor trust in the open market and/or reserved
for issuance by the Company, assuming the
issuance of between 391,000 and 529,000 shares
in the Conversion. If shares are acquired in the
open market, the Company or the Bank would
contribute between $1,955,000 and
10
<PAGE>
$2,645,000, respectively, to the grantor trust
for this purpose, assuming such shares are
acquired at a price of $50.00 per share.
Additional shares would be acquired if the
number of shares issued in the Conversion
exceeds 529,000, and the price could be more or
less than $50.00 per share, which would change
the contribution to the grantor trust
accordingly. See "RISK FACTORS --Cost and
Possible Dilutive Effect of the MRP and Stock
Option Plan" and "MANAGEMENT OF THE BANK --
Proposed Stock Option Plan."
Dividends Following the Conversion, the Company currently
expects to pay quarterly cash dividends on the
Common Stock. Annual dividends are expected to
be approximately $1.00 per share. In addition,
the Company may determine from time to time that
it is prudent to pay special cash dividends.
Payment of dividends will be subject to
determination and declaration by the Company's
Board of Directors. The Board of Directors will
periodically review its dividend policy in view
of the operating results and financial condition
of the Company and the Bank, net worth and
capital requirements, regulatory restrictions,
tax consequences, industry standards, and
general economic conditions, and it will
authorize cash dividends to be paid if it deems
such payment appropriate and in compliance with
applicable law. There can be no assurance that
dividends will in fact be paid on the Common
Stock or that, if paid, such dividends will not
be reduced or eliminated in future periods.
Also, there are certain regulatory limits on the
Company's ability to pay dividends and the
Bank's ability to pay dividends to the Company.
See "DIVIDEND POLICY" and "SUPERVISION AND
REGULATION -- Regulation of the Bank --
Restrictions on Dividends and Other Capital
Distributions." In addition, see "TAXATION" for
a discussion of federal income tax provisions
that may limit the ability of the Bank to pay
dividends to the Company without incurring a
recapture tax.
Market for Common Stock The Company, as a newly organized company, has
never issued capital stock, and consequently,
there is no market for the Common Stock at this
time. The Company has received conditional
approval to have the Common Stock listed on the
National Market under the symbol "_____." There
can be no assurance that the Common Stock will
in fact be listed for quotation on the National
Market. A public market having the desirable
characteristics of depth, liquidity and
orderliness will depend upon the presence in the
market place of both willing buyers and willing
sellers at any given time. No assurance can be
given that an active trading market will develop
and be maintained.
Stock Ownership by
Management The directors and executive officers of the
Company and of the Bank and their associates
currently anticipate subscribing for Common
Stock in the aggregate amount of $2,250,000, or
45,000 shares. As a result, such persons
anticipate subscribing for 11.51% to 8.51% of
the shares of Common Stock issued in the
Conversion based upon the minimum and maximum of
the Valuation Range, respectively. See
"ANTICIPATED STOCK PURCHASES BY MANAGEMENT." In
addition, it is expected that the ESOP will
subscribe for 8% of the shares of Common Stock
issued in the Conversion (between 31,280 and
48,668 shares, assuming the issuance of between
391,000 and 608,350 shares). See "MANAGEMENT OF
THE BANK --Employee Stock Ownership Plan." It is
expected that directors and certain employees of
the Company and the Bank will also receive
restricted stock grants under the MRP for a
number of shares of
11
<PAGE>
Common Stock equal to 4% of the number of shares
issued in the Conversion and will receive
options under the Stock Option Plan to purchase
a number of shares of Common Stock equal to 10%
of the number of shares issued in the
Conversion, if such plans are approved by the
stockholders of the Company at a meeting of
stockholders following the Conversion. See "--
Benefits to Directors and Officers" and
"MANAGEMENT OF THE BANK" --Proposed Management
Recognition Plan" and "--Proposed Stock Option
Plan."
If (i) the Stock Option Plan is approved by the
stockholders of the Company within one year
after the Conversion and all of the stock
options which could be granted to directors and
executive officers under the Stock Option Plan
are granted and exercised or the shares for such
options are acquired by the grantor trust and
all option shares are acquired in the open
market, (ii) the MRP is approved by the
stockholders of the Company within one year
after the Conversion, all of the MRP shares
which could be granted to directors and
executive officers are granted and issued and
all such shares are acquired in the open market,
(iii) the ESOP acquires 8% of the shares issued
in the Conversion and none of such shares are
allocated, and (iv) the Company did not issue
any additional shares of its Common Stock, the
shares held by directors and executive officers
and their associates as a group, including (a)
shares purchased outright in the Conversion, (b)
shares purchased by the ESOP, (c) shares
purchased pursuant to the Stock Option Plan and
(d) shares granted under the MRP, would give
such persons effective control over as much as
29.39% or 25.79%, at the minimum and maximum of
the Valuation Range, respectively, of the Common
Stock issued and outstanding.
Benefits to Directors and
Executive Officers In connection with the Conversion, certain
benefits will be provided to directors, officers
and employees of the Bank.
Employment Agreements. In connection with the
Conversion, the Bank expects to enter into
employment agreements with George W. Brawley,
Jr., President and Chief Executive Officer, Dale
W. Brawley, Executive Vice President and
Treasurer, and Billy R. Williams, Secretary and
Controller. The employment agreements provide
for initial annual salaries of $139,200, $84,000
and $56,400 for Mr. G. Brawley, Mr. D. Brawley
and Mr. Williams, respectively. See "MANAGEMENT
OF THE BANK --Employment Agreements." Mr. G.
Brawley, Mr. D. Brawley and Mr. Williams, along
with all other employees, are also eligible to
receive holiday bonuses as declared by the
Bank's Board of Directors. During the fiscal
year ended December 31, 1996, the Bank's
employees received holiday bonuses based on a
percentage basis, depending on the employee's
salary. See "MANAGEMENT OF THE BANK -- Bonus
Compensation."
ESOP. In connection with the Conversion, the
Bank has established the ESOP. As part of the
Conversion, the ESOP intends to borrow funds
from the Company and to use such funds to
purchase 8% of the shares of Common Stock to be
issued in the Conversion, estimated to be
between 31,280 and 48,668 shares, assuming the
issuance of between 391,000 and 608,350 shares.
See "MANAGEMENT OF THE BANK-- Employee Stock
Ownership Plan."
MRP. Pursuant to the MRP, which is expected to
be adopted by the Boards of Directors of the
Company and the Bank, directors and certain
12
<PAGE>
employees of the Bank could receive restricted
stock grants of a number of shares of Common
Stock equal to 4% of the shares issued in the
Conversion (between 15,640 and 21,160 shares,
assuming the issuance of between 391,000 and
529,000 shares). Assuming that the shares issued
pursuant to the MRP had a value of $50.00 per
share, such shares would have a value of between
$782,000 and $1,058,000.
Under applicable regulations, if the proposed
MRP is submitted to and approved by the
stockholders of the Company within one year
after consummation of the Conversion, (i) no
employee of the Bank (including Mr. G. Brawley,
Mr. D. Brawley and Mr. Williams) could receive
more than 25% of the shares issued under the
MRP, or 5,290 shares, assuming the issuance of
529,000 shares in the Conversion, (ii) the five
non-employee directors of the Bank could receive
restricted stock grants for an aggregate of not
more than 25% of the shares issued under the
MRP, or 6,348 shares, assuming the issuance of
529,000 shares in the Conversion and (iii) none
of the five non-employee directors of the Bank
could receive individually more than 5% of the
shares issued under the MRP, or 1,058 shares,
assuming the issuance of 529,000 shares in the
Conversion. Assuming the MRP shares had a value
of $50.00 per share, 5,290 shares would have a
value of $264,500, 6,348 shares would have a
value of $317,400 and 1,058 shares would have a
value of $52,900. If the MRP is submitted to and
approved by the Company's stockholders more than
one year after consummation of the Conversion,
the regulatory percentage limitations set forth
above would not apply.
The MRP will only be implemented if approved by
the stockholders of the Company at a meeting of
stockholders to be held no sooner than six
months following the Conversion. Recipients of
restricted stock under the MRP will not have to
pay for their restricted shares. See "MANAGEMENT
OF THE BANK" --Proposed Management Recognition
Plan."
Stock Options. Pursuant to the Stock Option Plan
which is expected to be adopted by the Boards of
Directors of the Company and the Bank, directors
and certain employees of the Bank could receive
options to purchase a number of shares of Common
Stock equal to 10% of the shares issued in the
Conversion (between 39,100 and 52,900 shares,
assuming the issuance of between 391,000 and
529,000 shares).
Under applicable regulations, if the proposed
Stock Option Plan is submitted to and approved
by the stockholders of the Company within one
year after consummation of the Conversion, (i)
no employee of the Bank (including Mr. G.
Brawley, Mr. D. Brawley and Mr. Williams) could
receive more than 25% of the options issued
under the Stock Option Plan, or options to
purchase 13,225 shares, assuming the issuance of
529,000 shares in the Conversion, (ii) the five
non-employee directors of the Bank could not
receive in the aggregate more than 25% of the
options issued under the Stock Option Plan, or
options to purchase 15,870 shares, assuming the
issuance of 529,000 shares in the Conversion,
and (iii) none of the five non-employee
directors of the Bank could receive individually
more than 5% of the options issued under the
Stock Option Plan, or options to purchase 2,645
shares, assuming the issuance of 529,000 shares
in the Conversion. If the Stock Option Plan is
submitted to and approved by the Company's
stockholders more than one year after
consummation of the Conversion, the regulatory
percentage limitations set forth above would not
apply.
13
<PAGE>
The Stock Option Plan will only be implemented
if approved by the stockholders of the Company
at a meeting of stockholders to be held no
sooner than six months following the Conversion.
The exercise price of the options will be the
fair market value of the Common Stock at the
time the options are granted (which will be
after the Stock Option Plan is approved by the
Company's stockholders), and the options will
have terms of ten years or less. Recipients of
options under the Stock Option Plan will not
have to pay for the options issued to them. See
"MANAGEMENT OF THE BANK" -- Proposed Stock
Option Plan."
Income Tax Consequences
of Subscription Rights If the Subscription Rights granted in connection
with the Conversion were deemed to have an
ascertainable value, receipt of such rights
would be taxable to recipients who exercise such
Subscription Rights, either as ordinary income
or capital gain, in an amount not in excess of
such value. Whether such Subscription Rights are
considered to have any ascertainable value is an
inherently factual determination. The Bank has
received an opinion from JMP Financial stating
that the Subscription Rights do not have any
ascertainable value. The opinion of JMP
Financial is not binding on the Internal Revenue
Service ("IRS"). See "THE CONVERSION -- Income
Tax Consequences."
Anti-Takeover Provisions The Articles of Incorporation and Bylaws of the
Company and the Bank contain certain
restrictions that are intended to discourage
non-negotiated attempts to acquire control of
the Company or the Bank. The Board of Directors
of the Company believes that these provisions
encourage potential acquirors to negotiate
directly with the Board of Directors. However,
these provisions may discourage an attempt to
acquire control of the Company which
stockholders might deem to be in their best
interests or in which they might receive a
premium over the then market price of their
shares. These provisions may also render the
removal of a director or the entire Board of
Directors of the Company more difficult and may
deter or delay changes in control which have not
received the requisite approval of the Company's
Board of Directors. Other factors, such as
voting control of directors and officers and
agreements with employees, may also have an
anti-takeover effect. See "RISK FACTORS -- Anti-
Takeover Considerations" and "ANTI-TAKEOVER
PROVISIONS AFFECTING THE COMPANY AND THE BANK."
Risk Factors Special attention should be given to the "RISK
FACTORS" section of this Prospectus, which
discusses the possible effects of changes in
interest rates on the Bank and the thrift
industry in general, anticipated low return on
equity following the Conversion, the limited
market for the Common Stock, the cost of the
ESOP, the cost and possible dilutive effect of
the MRP and stock option plan, potential
financial institution regulation and
legislation, competition, the risk associated
with the Bank's nonconforming loans, the
concentration of large residential mortgage
loans in the Lake Norman area, certain anti-
takeover considerations, and certain other
matters that potential purchasers should
consider before deciding whether to subscribe
for the Common Stock offered hereby.
14
<PAGE>
SELECTED FINANCIAL
AND OTHER DATA OF THE BANK
Set forth below are summaries of historical financial and other data of
the Bank. This information is derived in part from, and should be read in
conjunction with, the Financial Statements and Notes to Financial Statements of
the Bank presented elsewhere herein and with the section of this Prospectus
entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
<TABLE>
<CAPTION>
At or for the Six Months
Ended June 30, At or for the Year Ended December 31,
--------------------------- ---------------------------------------
1997/(8)/ 1996/(8)/ 1996/(8)/ 1995/(8)/ 1994/(2)/,/(8)/
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Financial condition data:
Total assets $ 114,162 $ 109,427 $ 112,552 $ 108,033 $ 99,966
Investments/(1)/ 10,032 11,750 10,889 13,903 14,220
Loans receivable, net/(3)/ 100,506 94,134 97,951 90,555 82,453
Deposits 95,872 92,949 93,785 92,103 85,105
Retained earnings 14,691 14,039 14,412 13,726 12,883
Operating data/(2)/:
Interest income $ 4,433 $ 4,257 $ 8,679 $ 7,946 $ 5,544
Interest expense 2,366 2,310 4,658 4,416 2,607
----------- ---------- ---------- ---------- -----------
Net interest income 2,067 1,947 4,021 3,530 2,937
Provision for loan losses 230 -- -- 12 18
----------- ---------- ---------- ---------- -----------
Net interest income after
provision for loan losses 1,837 1,947 4,021 3,518 2,919
Non-interest income 87 104 200 190 149
Non-interest expense 1,428 1,365 3,146 2,624 2,032
----------- ---------- ---------- ---------- -----------
Income before income taxes 496 686 1,075 1,084 1,036
Income tax expense 209 257 354 304 361
----------- ---------- ---------- ---------- -----------
Income before cumulative effect of a
change in accounting principle 287 429 721 780 675
Cumulative effect on prior years of
changing to a different method of
accounting for income taxes -- -- -- -- --
----------- ---------- ---------- ---------- -----------
Net income $ 287 $ 429 $ 721 $ 780 $ 675
=========== ========== ========== ========== ===========
Other selected data:
Number of outstanding loans 2,497 2,480 2,476 2,432 2,281
Number of deposit accounts 7,728 7,783 7,752 7,730 7,248
Number of full-service offices open 3 3 3 3 3
Return on average assets/(4)/ 0.51% 0.79% 0.66% 0.75% 0.68%
Return on average equity/(4)/ 3.99% 6.25% 5.37% 6.05% 5.55%
Average equity to average assets 12.76% 12.62% 12.27% 12.37% 12.21%
Interest rate spread/(5)/ 3.10% 2.96% 3.08% 2.85% 3.53%
Net yield on average interest-
earning assets/(6)/ 3.77% 3.64% 3.74% 3.49% 4.05%
Average interest-earning assets
to average interest-bearing liabilities 115.25% 115.93% 115.21% 114.59% 114.44%
Ratio of non-interest expense to
average total assets/(4)/ 2.53% 2.51% 2.88% 2.52% 2.04%
Nonperforming assets to total assets/(7)/ 0.96% 1.09% 1.11% 1.11% 1.18%
Nonperforming loans to total loans/(7)/ 1.05% 1.21% 1.23% 1.25% 1.37%
Allowance for loan losses to total loans 0.61% 0.42% 0.40% 0.44% 0.48%
Allowance for loan losses to
nonperforming loans/(7)/ 56.24% 32.72% 31.11% 32.95% 33.67%
Provision for loan losses to total
loans receivable, net/(4)/ 0.46% 0.00% 0.00% 0.01% 0.03%
Net charge-offs to average loans outstanding 0.00% 0.00% 0.01% 0.01% 0.01%
Retained earnings to total assets 12.87% 12.83% 12.80% 12.71% 12.89%
<CAPTION>
At or for the Year
Ended March 31,
--------------------------
1994/(9)/ 1993/(9)/
---- ----
(Dollars in Thousands)
<S> <C> <C>
Financial condition data:
Total assets $ 98,869 $ 100,048
Investments/(1)/ 16,585 16,760
Loans receivable, net/(3)/ 79,031 80,189
Deposits 84,863 87,222
Retained earnings 12,208 11,414
Operating data/(2)/:
Interest income $ 7,386 $ 8,135
Interest expense 3,804 4,614
----------- ----------
Net interest income 3,582 3,521
Provision for loan losses 103 126
----------- ----------
Net interest income after
provision for loan losses 3,479 3,395
Non-interest income 233 238
Non-interest expense 2,578 2,160
----------- ----------
Income before income taxes 1,134 1,473
Income tax expense 418 542
----------- ----------
Income before cumulative effect of a
change in accounting principle 716 931
Cumulative effect on prior years of
changing to a different method of
accounting for income taxes 78 --
----------- ----------
Net income $ 794 $ 931
=========== ==========
Other selected data:
Number of outstanding loans 2,259 2,479
Number of deposit accounts 7,599 7,831
Number of full-service offices open 3 3
Return on average assets/(4)/ 0.80% 0.92%
Return on average equity/(4)/ 6.72% 8.50%
Average equity to average assets 11.88% 10.87%
Interest rate spread/(5)/ 3.25% 3.09%
Net yield on average interest-
earning assets/(6)/ 4.16% 3.61%
Average interest-earning assets
to average interest-bearing liabilities 111.90% 110.82%
Ratio of non-interest expense to
average total assets/(4)/ 2.59% 2.14%
Nonperforming assets to total assets/(7)/ 2.33% 2.56%
Nonperforming loans to total loans/(7)/ 2.80% 3.12%
Allowance for loan losses to total loans 0.49% 0.36%
Allowance for loan losses to
nonperforming loans/(7)/ 16.75% 11.22%
Provision for loan losses to total
loans receivable, net/(4)/ 0.13% 0.16%
Net charge-offs to average loans outstanding 0.01% 0.07%
Retained earnings to total assets 12.35% 11.41%
</TABLE>
15
<PAGE>
- ---------------------------------------
(1) Includes interest-bearing deposits, certificates of deposit, FHLB stock and
investment securities.
(2) The operating data for December 31, 1994 is for the nine-month period
beginning April 1, 1994 and ending December 31, 1994 due to change in year
ends.
(3) Loans, net, represents gross loans less net deferred loan fees, undisbursed
loan funds and allowance for loan losses.
(4) Annualized for the six months ended June 30, 1997 and 1996 and the nine
months ended December 31, 1994.
(5) The interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the weighted-average
cost of interest- bearing liabilities.
(6) The net yield on average interest-earning assets represents net interest
income as a percent of average interest-earning assets.
(7) Nonperforming assets include nonaccrual loans and accruing loans past due 90
days or more.
(8) Ratios are derived from monthly balances except for ratios derived from
period-end balances and are annualized where appropriate. Management does
not believe the use of month-end balances has caused a material difference
in the information provided.
(9) Ratios are derived from quarterly balances except for ratios derived from
period-end balances and are annualized where appropriate. Management does
not believe the use of quarter-end balances has caused a material difference
in the information provided.
RISK FACTORS
The following factors, in addition to the information presented
elsewhere in this Prospectus, should be considered by investors before deciding
whether to purchase the Common Stock offered hereby.
Potential Impact of Changes in Interest Rates
The results of operations of the Bank, as with savings institutions
generally, are dependent to a large degree on its net interest income, which is
generally the difference between interest income from loans and investments and
interest expense on deposits and borrowings. The Bank's interest income and
interest expense are significantly affected by general economic conditions and
by policies of the federal government and various regulatory agencies.
In recent years, the assets of many savings institutions, including the
Bank, have been negatively "gapped"--which means that the dollar amount of
interest-bearing liabilities which reprice within specific time periods, either
through maturity or rate adjustment, exceeds the dollar amount of
interest-earning assets which reprice within such time periods. As a result, the
net interest income of these savings institutions, including the Bank, would be
expected to be negatively impacted by increases in interest rates.
In addition to the interest rate gap analysis discussed above, the
Bank's management monitors interest rate sensitivity through the use of a model
which estimates the change in net portfolio value ("NPV") and net interest
income in response to a range of assumed changes in market interest rates. NPV
is the present value of expected cash flows from assets, liabilities and
off-balance sheet items. The model estimates the effect on the Bank's NPV and
net interest income of instantaneous and permanent 100 to 200 basis point
increases and decreases in market interest rates. The Bank's Board of Directors
has established maximum acceptable decreases in NPV and net interest income for
various rate scenarios. Computations as of June 30, 1997, indicated that a 200
basis point increase in interest rates could result in a 22.85% decrease in the
Bank's NPV but that a 200 basis point decrease in interest rates could result in
a 9.77% increase in the Bank's NPV. Such computations also indicate that the
same 200 basis point increase in interest rates could result in a 7.00% decrease
in net interest income and that the 200 basis point decrease in interest rates
would result in a 7.97% increase in net interest income. Computations of the
prospective effects of hypothetical interest rate changes in determining the
effect on NPV and net interest income are based on numerous assumptions,
including relative levels of market interest rates, loan prepayments and deposit
decay and should not be relied upon as indicative of actual results. Further,
such computations and the gap computations described above do not incorporate
any actions management may undertake in response to changes in interest rates.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION -- Asset/Liability Management."
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At June 30, 1997, the Bank's cumulative one year gap as a percentage of
total interest-earning assets was a negative 54.53%, and its cumulative three
year gap as a percentage of total interest-earning assets was a negative 69.38%.
The Bank's computes its gap position using certain loan prepayment, deposit
decay and other assumptions. The results of the Bank's gap computations could be
substantially different if other assumptions were used.
The computations described above indicate that the Bank's asset and
liability structure presents significant interest rate risk and that the Bank's
portfolio value and net interest income would be negatively impacted by
increases in interest rates. In order to mitigate and manage interest rate risk,
the Bank has adopted the following policies: (i) investing excess liquidity in
shorter term or adjustable rate instruments, with maturities or repricing
periods of three years or less; (ii) promoting mortgage loans with bi-weekly
payment options, ten-year balloons, or 15-year amortizations; (iii) promoting
adjustable rate equity line of credit loans; (iv) promoting longer term
certificates of deposit; (v) increasing the level of interest-earning assets
relative to interest-bearing liabilities; and (vi) maintaining a relatively low
level of operating expenses and non-earning assets.
The Bank's results of operations will continue to be significantly
affected by changes in interest rates due, among other factors, to (i) the fact
that a large percentage of the Bank's adjustable rate assets reprice only once a
year, (ii) the fact that the Bank originates significant amounts of fixed rate
mortgage loans and does not sell such loans in the secondary market, (iii) the
fact that a large percentage of the Bank's deposit accounts are subject to
immediate repricing or to repricing within one year, (iv) the fact that the
Bank's interest-earning assets and interest-bearing liabilities reprice at
different times and with different frequencies, (v) the effects of periodic and
lifetime interest rate caps on the Bank's interest-earning assets, (vi) the fact
that interest rates on the Bank's assets and liabilities respond differently to
economic, market and competitive factors, (vii) the fact that sustained high
levels of interest rates may adversely affect real estate and lending markets in
general, and (viii) the fact that the Bank has an insignificant amount of
non-interest income. Changes in the level of interest rates also can affect the
amount of loans originated by the Bank. In addition, changes in interest rates
can result in disintermediation, which is the flow of funds away from banks into
direct investments, such as U.S. government and corporate securities, and other
investment vehicles which, because of the absence of federal deposit insurance
premiums and reserve requirements, generally can pay higher rates of interest
than financial institutions. The Bank does not originate its fixed rate or
adjustable rate loans for sale, or sell its loans in the secondary market, and
this tends to increase its exposure to interest rate risk. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Asset/Liability Management."
Risk Associated with Nonconforming Loans
Historically, the Bank has not originated its one-to-four family loans
with the intention that they will be sold in the secondary market. The Bank
generally originates loans satisfying its underwriting requirements which are
tailored for its local community. Specifically, the Bank does not obtain
property surveys, uses in-house appraisers only for loans over $250,000 and
sometimes accepts higher than normal debt-to-income ratios and may waive other
Federal Home Loan Mortgage Corporation ("FHLMC") or Federal National Mortgage
Association ("FNMA") requirements on a case-by-case basis. As a result, such
loans are not readily saleable in the secondary market and the Bank's loan
portfolio is less liquid than would be the case if it was composed of loans
originated in conformity with secondary market requirements. In addition, loans
which are not originated in conformity with the purchase requirements of FHLMC
and FNMA, or nonconforming loans, are generally thought to have greater risks of
default and nonperformance. See "BUSINESS OF THE BANK -- Origination and Sale of
Loans." These loans satisfy a need in the Bank's local community and generally
produce a higher yield than would be produced by conforming loans. The Bank
plans to continue to originate a significant amount of nonconforming loans.
Therefore, in periods of economic downturn, the Bank's level of nonperforming
assets may be greater than its peer group.
Risk Associated with Concentration of Large Residential Mortgage Loans
As of June 30, 1997, the Bank has 48 loan relationships with individual
borrowers in excess of $200,000,
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totaling approximately $12.4 million or 11.81% of the Bank's total loan
portfolio. The principal balance of five individual loans exceeds $350,000, with
the largest single loan balance in excess of $495,000. The majority of these
loans are secured by residential real estate located near or on Lake Norman,
North Carolina, which is located in parts of Catawba, Iredell, Lincoln and
Mecklenburg counties. While these loans are performing according to the terms of
their loan documents, an economic downturn in the Bank's primary market area, in
which Lake Norman is located, could have an adverse effect on the performance of
these loans.
Anticipated Low Return on Equity Following Conversion
The Bank's return on capital was below industry standards for the six
months ended June 30, 1997. At June 30, 1997, the Bank's ratio of average equity
to average assets was 12.76%. On a pro forma basis at June 30, 1997, assuming
the sale of 460,000 shares of Common Stock in the Conversion, the Bank's ratio
of equity to assets would have been 19.97%. With its higher capital position as
a result of the Conversion, it is doubtful that the Bank will be able to quickly
deploy the capital raised in the Conversion in loans and other assets in a
manner consistent with its business plan and operating philosophies and in a
manner which will generate earnings to support its high capital position. The
cost of the implementation of an ESOP, MRP and Stock Option Plan following the
Conversion are also expected to reduce the Company's return on equity. As a
result, it is expected that the Bank's return on equity initially will be below
industry norms. Consequently, investors expecting a return on equity which will
meet or exceed industry norms for the foreseeable future should carefully
evaluate and consider the risk that such returns will not be achieved.
Following the Conversion, the Company may consider plans to reduce
capital if the opportunities to deploy it are not found. Such plans may include
payment of cash dividends and repurchasing shares. Any such steps would be taken
based on conditions as they exist following the Conversion and in compliance
with applicable regulations which limit the Company's ability to pay dividends
and repurchase its stock. See "USE OF PROCEEDS," "DIVIDEND POLICY" and
"SUPERVISION AND REGULATION -- Regulation of the Company -- General" and "--
Dividend Limitations" and "SUPERVISION AND REGULATION -- Regulation of the Bank
- -- Restrictions on Dividends and Other Capital Distributions."
Cost of ESOP
It is expected that the ESOP will purchase 8% of the shares of Common
Stock issued in the Conversion with funds borrowed from the Company. See
"MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan." Assuming the issuance
of 460,000 shares in the Conversion, it is expected that 36,800 shares will be
purchased by the ESOP, which--if such shares are acquired at $50.00 per
share--would have a value of $1,840,000. If, because there is an
oversubscription for shares of Common Stock or for any other reason, the ESOP is
unable to purchase in the Conversion 8% of the total number of shares offered in
the Conversion, then the Board of Directors of the Company may approve the
purchase by the ESOP in the open market after the Conversion, of such shares as
are necessary for the ESOP to own a number of shares equal to 8% of the shares
of Common Stock issued in the Conversion. In such event, the actual cost of the
ESOP may be more or less than the amounts set forth above because the ESOP will
be purchasing its shares in the open market and the price paid for its shares
will depend upon the price at which shares can be acquired in the open market.
The purchase of Common Stock by the ESOP will reduce the pro forma stockholders'
equity of the Bank. See "PRO FORMA DATA."
In November 1993, the American Institute of Certified Public
Accountants approved Statement of Position ("SOP") 93-6, "Employers' Accounting
for Employee Stock Ownership Plans." SOP 93-6, among other things, changes the
measure of compensation recorded by employers from the cost of ESOP shares to
the fair value of ESOP shares. Since the fair value of the shares following the
Offerings cannot be predicted, the Bank cannot reasonably estimate the impact of
SOP 93-6 on its financial statements. While an increase in such fair value will
cause an increase in ESOP-related expenses for accounting purposes, an increase
in the fair value of the shares should not increase the actual out-of-pocket
cost to the Bank of the ESOP. Also, earnings per share will be increased as a
result of the implementation of SOP 93-6 because only shares which have been
committed to be released by the ESOP are included as outstanding
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shares in the computation.
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Cost and Possible Dilutive Effect of the MRP and Stock Option Plan
It is expected that the stockholders of the Company will be asked to
approve the Stock Option Plan and the MRP at a meeting of stockholders after the
Conversion. Under the MRP, directors and certain employees of the Bank are
expected to be awarded an aggregate amount of Common Stock equal to 4% of the
shares issued in the Conversion. Under the Stock Option Plan, directors and
certain employees of the Bank are expected to be granted options to purchase an
aggregate amount of Common Stock equal to 10% of the shares issued in the
Conversion at exercise prices equal to the market price of the Common Stock on
the date of grants. Shares issued to directors and certain employees under the
MRP and the Stock Option Plan may be from authorized but unissued shares of
Common Stock or they may be purchased in the open market. In the event the
shares issued under the MRP and the Stock Option Plan consist of newly issued
shares of Common Stock, the interests of existing stockholders would be diluted.
If 529,000 shares of the Common Stock are issued in the Conversion, it is
expected that options to acquire 52,900 shares of the Common Stock could be
granted under the Stock Option Plan, and awards of an additional 21,160 shares
could be made under the MRP. At the maximum of the Valuation Range, if all
shares under the MRP and the Stock Option Plan were newly issued, the exercise
price was $50.00 for the shares issued pursuant to the options, and all of the
options were exercised, the number of outstanding shares of Common Stock would
increase from 529,000 to 603,060, the pro forma book value per share of the
outstanding Common Stock at June 30, 1997 would have been $67.58 compared with
$72.04 if such plans did not exist, and the pro forma net income per share of
the outstanding Common Stock for the six months ended June 30, 1997 would have
been $2.08 compared with $2.49 if such plans did not exist. The cost of the
shares acquired by the MRP will be expensed over any vesting period set forth in
the MRP. If 529,000 shares of Common Stock are issued in the Conversion and the
MRP acquired 21,160 shares at a cost of $50.00 per share, the total annual
pre-tax expense of the MRP would be $211,600 per year assuming a straight line
amortization method over a five-year life. See "PRO FORMA DATA" and "MANAGEMENT
OF THE BANK -- Proposed Management Recognition Plan" and "-- Proposed Stock
Option Plan."
Anti-Takeover Considerations
Provisions in the Articles of Incorporation and Bylaws. The Company's
Articles of Incorporation and Bylaws contain certain provisions that may
discourage attempts to acquire control of the Company that are not negotiated
with the Company's Board of Directors. These provisions may result in the
Company being less attractive to a potential acquiror and may result in
stockholders receiving less for their shares than otherwise might be available
in the event of a takeover attempt. In addition, these provisions may have the
effect of discouraging takeover attempts that some stockholders might deem to be
in their best interests, including takeover proposals in which stockholders
might receive a premium for their shares over the then-current market price, as
well as making it more difficult for individual stockholders or a group of
stockholders to elect directors or to remove incumbent management. The Company's
Board of Directors believes, however, that these provisions are in the best
interests of the Company and its stockholders because such provisions encourage
potential acquirors to negotiate directly with the Board of Directors, which the
Board of Directors believes is in the best position to act on behalf of all
stockholders.
These provisions include, among others, that (1) the Board of Directors
has the authority to change the number of directors within a range from five to
15; (2) stockholders who intend to nominate a candidate for election to the
Board of Directors must give advance notice to the Secretary of the Company; (3)
terms for directors will be staggered at any time that the number of directors
exceeds nine; (4) certain merger, consolidation, or other business combinations
(as defined in the Articles of Incorporation) must receive the affirmative vote
of at least 75% of the Continuing Directors (as defined in the Articles of
Incorporation); (5) special meetings of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer, the President or by the
Board of Directors and (6) directors may be removed from office prior to the end
of their term only for cause.
In addition, the Articles of Incorporation do not provide for
cumulative voting for any purpose. As a result, a majority of shareholders will
be able to approve matters presented to the shareholders for consideration,
except such matters as require more than a majority vote for approval. The
Company's Articles of Incorporation state that the Board
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of Directors, without the approval of the stockholders, may authorize the
issuance of shares of preferred stock with such voting rights, designations,
preferences, limitations and relative rights as the Board of Directors shall
determine. As a result, the Board of Directors has the power, to the extent
consistent with its fiduciary duties, to issue preferred stock to persons
friendly to management or otherwise in order to impede attempts by third parties
to acquire voting control of the Company and to impede other transactions not
favored by management. The amended Certificate of Incorporation and Bylaws of
the Bank upon its conversion to stock form also contain certain provisions that
might discourage potential takeover attempts of the Bank. See "ANTI-TAKEOVER
PROVISIONS AFFECTING THE COMPANY AND THE BANK."
Regulatory Provisions. Regulations of the Administrator contain
provisions that, for a period of three years after the Conversion is
consummated, prohibit any person from directly or indirectly acquiring or
offering to acquire beneficial ownership of more than 10% of any class of equity
security of the Company or the Bank, with certain exceptions, without the prior
approval of the Administrator. If any person should acquire beneficial ownership
of more than 10% of any class of equity security without prior approval, any
shares beneficially owned in excess of 10% would not be counted as shares
entitled to vote and would not be voted in connection with any matter submitted
to the stockholders for a vote. Regulations provide that the Administrator will
give his approval of such an acquisition during the first year after the
Conversion only to protect the safety and soundness of the Company and the Bank.
Approval will be given during the second and third years after the Conversion
upon a finding by the Administrator that (i) the acquisition is necessary to
protect the safety and soundness of the Company and the Bank or the Board of
Directors of the Company supports the acquisition and (ii) the acquiror is of
good character and integrity and possesses satisfactory managerial skills, after
the acquisition the acquiror will be a source of financial strength to the
Company and the Bank, and the interests of the public will not be adversely
affected by the acquisition. Approval is not required for (i) any offer with a
view toward public resale made exclusively to the Company or its underwriters or
the selling group acting on its behalf or (ii) any offer to acquire or
acquisition of beneficial ownership of more than 10% of the common stock of the
Company by a corporation whose ownership is or will be substantially the same as
the ownership of the Company, provided that the offer or acquisition is made
more than one year following the consummation of the Conversion. See
"ANTI-TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK."
The Change in Bank Control Act, together with North Carolina
regulations, require that the consent of the Administrator and Federal Reserve
be obtained prior to any person or company acquiring "control" of a savings bank
or a savings bank holding company. Control is conclusively presumed to exist if,
among other things, an individual or company acquires the power, directly or
indirectly, to direct the management or policies of the Company or the Bank or
to vote 25% or more of any class of voting stock. Control is rebuttably presumed
to exist under the Change in Bank Control Act if, among other things, a person
acquires more than 10% of any class of voting stock and (i) the issuer's
securities are registered under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as the Company's securities will be, or
(ii) the person would be the single largest stockholder. Restrictions applicable
to the operations of bank holding companies and conditions imposed by the
Federal Reserve in connection with its approval of such acquisitions may deter
potential acquirors from seeking to obtain control of the Company. See
"SUPERVISION AND REGULATION -- Regulation of the Company."
Voting Control of Officers, Directors and Employees. Directors and
executive officers of the Bank and the Company and their associates expect to
purchase approximately 11.51% to 8.51% of the shares of Common Stock issued in
the Conversion based upon the minimum and the maximum of the Valuation Range,
respectively. See "ANTICIPATED STOCK PURCHASES BY MANAGEMENT."
In addition, it is expected that the ESOP will acquire a number of
shares equal to 8% of the shares issued in the Conversion. Employees will vote
the shares allocated to them under the ESOP. The ESOP trustees (directors of the
Bank) will vote unallocated shares, and allocated shares for which no voting
instructions have been received, in their discretion, subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended.
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Under the proposed MRP, if approved by the stockholders of the Company,
a number of shares equal to 4% of the shares issued in the Conversion could be
issued to directors and certain employees of the Bank. Such shares could be
purchased in the open market or could be issued out of authorized but unissued
shares. Recipients of shares under the MRP will have voting control over such
shares regardless of whether such shares have vested. See "MANAGEMENT OF THE
BANK -- Proposed Management Recognition Plan." Under the proposed Stock Option
Plan, if approved by the stockholders of the Company, directors and certain
employees of the Bank could receive options to purchase a number of shares equal
to 10% of the shares issued in the Conversion. Shares to fund such options could
be acquired in the open market or could be acquired through the issuance of
authorized but unissued shares. If shares are acquired in the open market and
held by a grantor trust prior to the exercise of options under the Plan, holders
of unexercised options will have voting control over the shares held to fund
their options. See "MANAGEMENT OF THE BANK -- Proposed Stock Option Plan."
If (i) the Stock Option Plan is approved by the stockholders of the
Company within one year after the Conversion and all of the stock options which
could be granted to directors and executive officers under the Stock Option Plan
are granted and exercised or the shares for such options are acquired by a
grantor trust and all option shares are acquired in the open market, (ii) the
MRP is approved by the stockholders of the Company within one year after the
Conversion, all of the MRP shares which could be granted to directors and
executive officers are granted and issued and all such shares are acquired in
the open market, (iii) the ESOP acquires 8% of the shares issued in the
Conversion and none of such shares are allocated, and (iv) the Company did not
issue any additional shares of its Common Stock, the shares held by directors
and executive officers and their associates as a group, including (a) shares
purchased outright in the Conversion, (b) shares purchased by the ESOP, (c)
shares purchased pursuant to the Stock Option Plan and (d) shares granted under
the MRP, would give such persons effective control over as much as 29.39% or
25.79%, at the minimum and maximum of the Valuation Range, respectively, of the
Common Stock issued and outstanding.
Because the Company's Articles of Incorporation requires the
affirmative vote of 75% of the outstanding shares entitled to vote in order to
approve certain mergers, consolidations or other business combinations, the
directors, officers and employees, as a group, could potentially block such
transactions. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK
- -- The Company -- Supermajority Voting Provisions."
Agreements With Employees. In connection with the Conversion, the Bank
will enter into employment agreements with George W. Brawley, Jr., President and
Chief Executive Officer, Dale W. Brawley, Executive Vice President and
Treasurer, and Billy R. Williams, Secretary and Controller. See "MANAGEMENT OF
THE BANK -- Employment Agreements." In addition, the Bank intends to adopt a
Severance Plan which would benefit its employees in the event there is a change
in control of the Company or the Bank. See "MANAGEMENT OF THE BANK -- Severance
Plan." The existence of the employment agreements and severance plan may tend to
discourage mergers, consolidations, acquisitions or other transactions that
would result in a change in control of the Company or the Bank. See "ANTI-
TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK -- The Company --
Anti-Takeover Effect of Employment Agreements and Benefit Plans."
Financial Institution Regulation and Possible Legislation
The Bank is subject to extensive regulation and supervision as a North
Carolina-chartered savings bank. In addition, the Company, as a bank holding
company, is subject to extensive regulation and supervision. Any change in the
regulatory structure or the applicable statutes or regulations, whether by the
Administrator, the Federal Reserve, the FDIC, the North Carolina General
Assembly or the U.S. Congress, could have a material impact on the Company, the
Bank, or the Conversion.
The U.S. Congress is expected to consider legislation that may
eliminate the thrift industry as a separate industry. The Deposit Insurance
Funds Act of 1996 ("DIF Act") provides that the Savings Association Insurance
Fund ("SAIF") will be merged with the Bank Insurance Fund ("BIF") on January 1,
1999, but only if there are no thrift
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institutions in existence. The DIF Act requires the Treasury Department to study
the development of a common charter for banks and thrifts and to submit a report
of its finding to Congress, which the Treasury Department has done, the Company
cannot predict whether any legislation will result from this process or what any
such legislation may provide. If Congress does not act to end the separate
existence of the thrift industry, the merger of the SAIF and BIF contemplated by
the DIF Act will not occur, without some amendment of the DIF Act. Although the
SAIF currently meets its statutory reserve ratios, there can be no assurance
that it will continue to do so. The financial burden of any future
recapitalization of the SAIF, if imposed solely on insured savings associations,
would fall on a smaller assessment base than in the past. This could increase
the burden on individual institutions, including the Bank. See "REGULATION AND
SUPERVISION."
Because the Bank is a North Carolina-chartered state savings bank, any
federal legislation providing for a common charter for banks and thrifts is not
expected to apply directly to the Bank. However, in addition to eliminating a
separate thrift industry, Congress is expected to consider legislation that will
restructure the banking and financial services industries generally. While such
legislation may not affect the Bank or the Company directly, it may restructure
the regulatory and competitive environments in which they operate. The Company
cannot predict the effects of such restructuring.
Competition
The Bank's market area is a highly competitive market, and the Bank
faces significant competition both in attracting deposits and in originating
loans. The Bank faces direct competition from a number of financial
institutions, many with a state-wide or regional presence, and, in some cases, a
national presence. Competition arises from other savings institutions,
commercial banks, credit unions and other providers of financial services, many
of which are significantly larger than the Bank and, therefore, have greater
financial and marketing resources than the Bank. Management estimates that,
based upon 1996 comparative data, the Bank had 22% of the deposits in
Mooresville and 7.2% of the deposits in Iredell County. See "BUSINESS OF THE
BANK -- Competition."
Limited Market for the Common Stock
The Company, as a newly organized company, has never issued capital
stock, and consequently, there is no established market for the Common Stock at
this time. The Company has received conditional approval to have the Common
Stock listed on the National Market under the symbol "____." There can be no
assurance that the Common Stock will in fact be listed on the National Market or
that it will trade on the National Market. If the Common Stock is quoted on the
National Market, Trident Securities intends to act as a market maker and to
encourage at least one other market maker to make a market in the Common Stock.
If the Common Stock is not listed on the National Market, the Company will use
its best efforts to have it listed on the Nasdaq SmallCap Market or to encourage
or assist a market maker.
An active and liquid public trading market for the securities of any
issuer, including the Common Stock, depends upon the presence in the marketplace
of both willing buyers and willing sellers of the securities at any given time.
Although the Company expects to receive preliminary approval to have its shares
quoted on the National Market, subject to certain conditions which the Company
believes will be met, due to the size of the Company's offering (460,000 shares
at the midpoint of the Valuation Range), it is unlikely that a stockholder base
sufficiently large enough to create an active trading market will develop and be
maintained. Further, even if a market develops, there can be no assurance that
the shares of Common Stock offered in the Conversion can be resold at or above
the purchase price after completion of the Conversion. Purchasers of Common
Stock should consider the potentially illiquid and long-term nature of their
investment in the shares being offered hereby. The aggregate price of the Common
Stock is based upon an independent appraisal of the pro forma market value of
the Common Stock. However, there can be no assurance that an investor will be
able to sell the Common Stock purchased in the Conversion at or above the
purchase price.
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Best Efforts Offering
The Bank has engaged Trident Securities to consult with and advise the
Bank with respect to the Conversion and to assist, on a best-efforts basis, in
connection with the solicitation of subscriptions and purchase orders for shares
of Common Stock in the Offerings. Trident Securities is under no obligation to
purchase any shares of Common Stock in any of the Offerings. Trident Securities
has not prepared or delivered any opinion or recommendation with respect to the
appropriateness of the amount of Common Stock to be issued in the Conversion.
Trident Securities has not prepared any fairness opinion with respect to the
terms of the Offerings or any opinion with respect to the price at which shares
of Common Stock may trade.
CODDLE CREEK FINANCIAL CORP.
The Company was incorporated under North Carolina law in August 1997 at
the direction of the Bank for the purpose of acquiring and holding all of the
outstanding capital stock of the Bank to be issued in connection with the
Conversion. The Company has received conditional approval from the Federal
Reserve and the Administrator to become a bank holding company and as such will
be subject to regulation by the Federal Reserve and the Administrator. The
Company structure will give the Company greater flexibility than the Bank
currently has to expand and diversify its business activities, although there
are no current plans regarding expansion or diversification. See "SUPERVISION
AND REGULATION -- Regulation of the Company."
Prior to completion of the Conversion, the Company will not own any
material assets or transact any material business. Upon completion of the
Conversion, on an unconsolidated basis, the Company will have no significant
assets other than the stock of the Bank acquired in the Conversion, the loan
receivable with respect to the loan made to the ESOP to enable the ESOP to
purchase shares of Common Stock in the Conversion, and the portion of the net
proceeds from the sale of Common Stock in the Conversion which are retained by
it. The Company will have no significant liabilities upon completion of the
Conversion. The management of the Company is set forth under "MANAGEMENT OF THE
COMPANY." The executive office of the Company is located at the headquarters
office of the Bank at 347 North Main Street, Mooresville, North Carolina.
The existing management of the Company believes that it will be in the
best interests of the Company, the Bank and the Company's stockholders for the
Company to remain an independent company.
MOORESVILLE SAVINGS BANK, SSB
The Bank is a North Carolina-chartered mutual savings bank. The Bank
was organized in 1937 and has been a member of the FHLB system since that time.
Its deposits have been federally insured since 1947. The deposits of the Bank
are insured by the SAIF of the FDIC to the maximum amount permitted by law.
The Bank is a member of the FHLB of Atlanta, which is one of the twelve
regional banks for federally insured savings institutions and other eligible
members comprising the FHLB system. As a North Carolina-chartered savings bank,
the Bank is regulated by the Administrator. The Bank is also subject to
regulations of the FDIC with respect to certain other matters and, as a
subsidiary of the Company, will be indirectly subject to regulation by the
Federal Reserve. See "SUPERVISION AND REGULATION -- Regulation of the Company"
and "-- Regulation of the Bank."
The Bank conducts business through its three full service offices in
Mooresville, Cornelius and Huntersville, North Carolina. The Bank's primary
market area encompasses the communities within an approximately 15-mile radius
of its Mooresville office, which includes portions of Iredell, Mecklenburg,
Lincoln, Catawba, Rowan and Cabarrus counties in North Carolina. At June 30,
1997, the Bank had total assets of $114.2 million, net loans of $100.5 million,
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deposits of $95.9 million and retained earnings of $14.7 million.
The Bank is a community-oriented financial institution which offers a
variety of financial services to meet the needs of the communities it serves.
The Bank is principally engaged in the business of attracting deposits from the
general public and using such deposits to make one-to-four family residential
real estate loans, multi-family residential and commercial loans, construction
loans, equity line of credit loans, other secured and unsecured consumer loans
and other investments.
Revenues of the Bank are derived primarily from interest on loans. The
Bank also receives interest income from its investments and interest-earning
deposit balances. The Bank also receives non-interest income from transaction
and service fees and other sources. The major expenses of the Bank are interest
on deposits and general and administrative expenses such as compensation and
employee benefits, federal deposit insurance premiums, data processing expenses
and occupancy and related expenses.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Conversion is completed, it is presently
estimated that such net proceeds will be between $16,434,720 and $22,357,680,
based on the current Valuation Range. If the gross proceeds of the shares sold
are increased to 15% above the maximum of the Valuation Range, it is estimated
that net proceeds will equal $25,763,382. See "PRO FORMA DATA" for the
assumptions used to arrive at these amounts. The actual net proceeds may vary
materially from the estimated amounts described herein. The estimated amount of
net proceeds includes proceeds from the sale of the shares which are expected to
be purchased by the ESOP in the Subscription Offering at $50.00 per share with
funds borrowed from the Company. The amount loaned to the ESOP to enable such
purchases is estimated to range from $1,564,000 if 391,000 shares are issued) to
$2,433,400 (if 608,350 shares are issued). If for any reason the ESOP is unable
to purchase its shares in the Subscription Offering, the ESOP is expected to
purchase its shares in the open market--in which event the cost of the purchases
may be higher or lower because the purchase price per share may be higher or
lower than $50.00. See "MANAGEMENT OF THE BANK -- Employee Stock Ownership
Plan."
After first deducting the amount of the net proceeds used by the
Company to make the loan to the ESOP (estimated to range from $1,564,000 to
$2,433,400), it is expected that the Company will retain approximately 50% of
the remaining net proceeds of the Offerings and will pay the balance of the net
proceeds to the Bank in exchange for all of the common stock of the Bank to be
issued in connection with the Conversion. The Company expects to use the portion
of the net proceeds it retains for working capital and investment purposes. The
Company does not expect to have significant operating expenses and anticipates
that it will initially invest the net proceeds it retains primarily in
interest-earning deposits, U.S. government, federal agency and other marketable
securities and mortgage-backed securities. The types and amounts of such
investments will vary from time to time based upon the interest rate
environment, asset/liability mix considerations and other factors.
Net proceeds paid to the Bank initially will become part of the Bank's
general funds and will be invested primarily in mortgage, consumer and other
loans, and investments consisting primarily of interest-earning deposit
balances, U.S. government and federal agency obligations and other marketable
securities in accordance with the Bank's lending and investment policies. The
relative amounts to be invested in each of these types of investments will
depend upon loan demand, rates of return and asset/liability matching
considerations at the time the investments are to be made. Management is not
able to predict the yields which will be produced by the investment of the
proceeds of the Offerings because such yields will be significantly influenced
by general economic conditions and the interest rate environment existing at the
time the investments are made. Remaining net proceeds paid to the Bank will be
used for general corporate purposes.
25
<PAGE>
The proceeds of the Offerings will result in an increase in the Bank's
net worth and regulatory capital and may enhance the potential for growth
through increased lending and investment activities, branch expansion,
additional ATMs or otherwise. The net proceeds retained by the Company could be
used to support the future expansion of operations of the Company through the
opening of one or more branch offices in or near the Bank's primary market area.
The Company has no current plans to open any additional office. Payments for
shares of Common Stock of the Company made through the withdrawal of existing
deposit accounts at the Bank will not result in the receipt of new funds for
investment by the Bank.
Upon completion of the Conversion, the Board of Directors will have the
authority to adopt stock repurchase plans, subject to statutory and regulatory
requirements. Based upon facts and circumstances which may arise following the
Conversion, the Board of Directors may determine to repurchase stock in the
future. Such facts and circumstances may include but are not limited to (i)
market and economic factors such as the price at which the Common Stock is
trading, the volume of trading, the attractiveness of other investment
alternatives in terms of the rates of return and risks involved in the
investments, (ii) the ability to increase the book value and earnings per share
of the remaining outstanding shares, and improve the Company's return on equity;
(iii) the reduction of dilution to stockholders caused by having to issue
additional shares to cover the exercise of stock options or to fund employee
stock benefit plans; and (iv) 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 Board
of Directors that both the Company and the Bank will be capitalized in excess of
applicable regulatory requirements after any such repurchases and that capital
will be adequate taking into account, among other things, the level of
nonperforming assets and other risks, the Company's and the Bank's current and
projected results of operations and asset/liability structure, the economic
environment and tax and other regulatory considerations. Federal regulations
require that, subject to certain exceptions, the Company must obtain approval of
the Federal Reserve prior to repurchasing Common Stock in excess of 10% of its
net worth during any twelve-month period. See "SUPERVISION AND REGULATION --
Regulation of the Company -- Dividend and Repurchase Limitations." The Company
does not intend to repurchase any Common Stock during the first year following
the Conversion.
At any time following consummation of the Conversion, it is expected
that the MRP will acquire a number of shares of Common Stock equal to 4% of the
number of shares issued in the Conversion. See "MANAGEMENT OF THE BANK --
Proposed Management Recognition Plan." Such shares may be acquired in the open
market or acquired through the Company's issuance of authorized but unissued
shares. In the event shares are acquired in the open market, the funds for such
purchase may be provided by the Bank from the proceeds of the Conversion. It is
estimated that between 15,640 and 21,160 shares will be acquired by the MRP
Trust, assuming the issuance of between 391,000 and 529,000 shares,
respectively, in the Conversion. If all such shares were acquired by the MRP in
the open market, and if such shares were acquired at a price of $50.00 per
share, the Bank would contribute between $782,000 and $1,058,000, respectively,
to the MRP for this purpose.
At any time following consummation of the Conversion, it is expected
that a grantor trust will acquire a number of shares of Common Stock in the open
market equal to 10% of the number of shares issued in the Conversion. These
shares would be held by the grantor trust for issuance upon the exercise of
stock options. To the extent the grantor trust does not acquire sufficient
shares to satisfy options granted under the Stock Option Plan, the Company will
reserve authorized but unissued shares for this purpose. See "MANAGEMENT OF THE
BANK -- Proposed Stock Option Plan." In the event shares are acquired in the
open market, the funds for such purchase may be provided by the Company or the
Bank from the proceeds of the Conversion. It is estimated that between 39,100
and 52,900 shares will be acquired by the grantor trust, assuming the issuance
of between 391,000 and 529,000 shares, respectively, in the Conversion. If all
such shares were acquired by the grantor trust in the open market, and if such
shares were acquired at a price of $50.00 per share, the Company or the Bank
would contribute between $1,955,000 and $2,645,000, respectively, to the grantor
trust for this purpose.
26
<PAGE>
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare quarterly dividends on the Common Stock, subject to
statutory and regulatory requirements. The Company expects to pay annual
dividends on the Common Stock at a rate of $1.00 per share which is equal to 2%
of the offering price for the Common Stock in the Conversion. In addition, the
Board of Directors may determine from time to time that it is prudent to pay
special nonrecurring cash dividends. Special cash dividends, if paid, may be in
addition to, or in lieu of, regular cash dividends. The Company's Board of
Directors will periodically review its policy concerning dividends. Declarations
of dividends, if any, by the Board of Directors will depend upon a number of
factors, including investment opportunities available to the Company and the
Bank, capital requirements, regulatory limitations, the Company's and the Bank's
results of operations and financial condition, tax considerations and general
economic conditions. Upon review of such considerations, the Board of Directors
of the Company may authorize dividends to be paid in the future if it deems such
payment appropriate and in compliance with applicable law and regulation. No
assurances can be given that any dividends will in fact be paid on the Common
Stock or, if dividends are paid, that they will not be reduced or discontinued
in the future.
In connection with the Conversion, the Bank has agreed with the FDIC
that, within the first year after completion of the Conversion, neither the
Company nor the Bank will pay any dividend or make any distribution that
represents, or is characterized as, or is treated for tax purposes as a return
of capital.
The sources of income to the Company initially will consist of earnings
on the capital retained by the Company and dividends paid by the Bank to the
Company, if any. Consequently, future declarations of cash dividends by the
Company may depend upon dividend payments by the Bank to the Company, which
payments are subject to various restrictions. Under current North Carolina
regulations, the Bank could not declare or pay a cash dividend if the effect
thereof would be to reduce its net worth to an amount which is less than the
minimum required by the FDIC and the Administrator. In addition, for a period of
five years after the consummation of the Conversion, the Bank will be required,
under existing regulations, to obtain the prior written approval of the
Administrator before it can declare and pay a cash dividend on its capital stock
in an amount in excess of one-half of the greater of (i) its net income for the
most recent fiscal year, or (ii) the average of its net income after dividends
for the most recent fiscal year and not more than two of the immediately
preceding fiscal years, if applicable. See "SUPERVISION AND REGULATION --
Regulation of the Bank -- Restrictions on Dividends and Other Capital
Distributions." As a result of this limitation, if the Bank had been a stock
institution at the end of fiscal 1996 and for the two preceding fiscal years, it
could not have paid a dividend in excess of $362,000 without the approval of the
Administrator. As a converted institution, the Bank also will be subject to the
regulatory restriction that it will not be permitted to declare or pay a
dividend on or repurchase any of its capital stock if the effect thereof would
be to cause its regulatory capital to be reduced below the amount required for
the liquidation account established in connection with the Conversion. See "THE
CONVERSION -- Effects of Conversion -- Liquidation Rights" and "-- Liquidation
Rights After the Conversion." Also, see "TAXATION -- Federal Income Taxation"
for a discussion of federal income tax provisions that may limit the ability of
the Bank to pay dividends to the Company without incurring a recapture tax.
MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital
stock, and consequently, there is no established market for the Common Stock at
this time. The Company has received conditional approval to have the Common
Stock listed on the National Market under the symbol "____." There can be no
assurance that the Common Stock will in fact be listed on the National Market or
that it will trade on the National Market. If the Common Stock is quoted on the
National Market, Trident Securities intends to act as a market maker and to
encourage at least one other market maker to make a market in the Common Stock.
If the Common Stock is not listed on the National Market, the
27
<PAGE>
Company will use its best efforts to have it listed on the Nasdaq SmallCap
Market or to encourage or assist a market maker.
An active and liquid public trading market for the securities of any
issuer, including the Common Stock, depends upon the presence in the marketplace
of both willing buyers and willing sellers of the securities at any given time.
Although the Company expects to receive preliminary approval to have its shares
quoted on the National Market, subject to certain conditions which the Company
believes will be met, due to the size of the Company's offering (460,000 shares
at the midpoint of the Valuation Range), it is unlikely that a stockholder base
sufficiently large enough to create an active trading market will develop and be
maintained. Further, even if a market develops, there can be no assurance that
the shares of Common Stock offered in the Conversion can be resold at or above
the purchase price after completion of the Conversion. Purchasers of Common
Stock should consider the potentially illiquid and long-term nature of their
investment in the shares being offered hereby. The aggregate price of the Common
Stock is based upon an independent appraisal of the pro forma market value of
the Common Stock. However, there can be no assurance that an investor will be
able to sell the Common Stock purchased in the Conversion at or above the
purchase price.
CAPITALIZATION
The following tables present the historical capitalization of the Bank
at June 30, 1997 and December 31, 1996 and the pro forma capitalization of the
Company at such dates after giving effect to the sale of the Common Stock and
application of the assumptions set forth under "PRO FORMA DATA," assuming that
391,000, 460,000, 529,000 and 608,350 shares of Common stock are sold at $50.00
per share (the minimum, midpoint, maximum and 15% above the maximum of the
current Valuation Range). A change in the number of shares issued in the
Conversion may materially affect such pro forma capitalization. See "USE OF
PROCEEDS" and "THE CONVERSION -- Purchase Price of Common Stock and Number of
Shares Offered."
28
<PAGE>
<TABLE>
<CAPTION>
Company Pro Forma Capitalization at
June 30, 1997
Based Upon Sale of
-------------------------------------
391,000 460,000
shares at a shares at a
Historical price of price of
Capitalization $50.00 per share $50.00 per share
-------------- ---------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Deposits $ 95,872 $ 95,872 $ 95,872
Advances from FHLB 1,000 1,000 1,000
--------- --------- ---------
Deposits and advances from FHLB/(2)/ $ 96,872 $ 96,872 $ 96,872
========= ========= =========
Stockholders' equity
Common stock, no par value:
Authorized shares: 20,000,000
Assumed outstanding shares as shown in column headings $ -- $ 18,781 $ 22,156
Preferred stock:
Authorized shares: 5,000,000
No shares outstanding
Additional paid-in capital -- -- --
Less: Common stock to be acquired by the MRP/(3)/ -- (782) (920)
Less: Common stock to be acquired by the ESOP/(3)/ -- (1,564) (1,840)
Retained earnings/(4)/ 14,691 14,691 14,691
--------- --------- ---------
Total $ 14,691 $ 31,126 $ 34,087
========= ========= =========
Total deposits and stockholders' equity $ 111,563 $ 127,998 $ 130,959
========= ========= =========
<CAPTION>
Company Pro Forma Capitalization at
June 30, 1997
Based Upon Sale of
----------------------------------------
529,000 608,350
shares at a shares at a
price of price of
$50.00 per share $50.00 per share/(1)/
---------------- -------------------
(In Thousands)
<S> <C> <C>
Deposits $ 95,872 $ 95,872
Advances from FHLB 1,000 1,000
--------- ---------
Deposits and advances from FHLB/(2)/ $ 96,872 $ 96,872
========= =========
Stockholders' equity
Common stock, no par value:
Authorized shares: 20,000,000
Assumed outstanding shares as shown in column headings $ 25,532 $ 29,414
Preferred stock:
Authorized shares: 5,000,000
No shares outstanding
Additional paid-in capital -- --
Less: Common stock to be acquired by the MRP/(3)/ (1,058) (1,217)
Less: Common stock to be acquired by the ESOP/(3)/ (2,116) (2,433)
Retained earnings/(4)/ 14,691 14,691
--------- ---------
Total $ 37,049 $ 40,455
========= =========
Total deposits and stockholders' equity $ 133,921 $ 137,327
========= =========
</TABLE>
(1) Represents the number of shares of Common Stock that would be issued in
the Conversion after giving effect to a 15% increase in maximum
valuation in the Valuation Range.
(2) Withdrawals from deposit accounts for the purchase of Common Stock are
not reflected. Any such withdrawals would reduce pro forma deposits by
the amount of such withdrawals.
(3) Assumes that 8% of the shares of Common Stock offered hereby will be
purchased by the ESOP in the Conversion. The funds used to acquire the
ESOP shares will be borrowed from the Company. Additionally, assumes
that, after the Conversion, a number of shares equal to 4% of the
shares of Common Stock offered hereby will be purchased by the MRP with
funds contributed by the Bank. The Common Stock acquired by both the
ESOP and the MRP is reflected as a reduction of stockholders' equity.
See "MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan" and "--
Proposed Management Recognition Plan."
29
<PAGE>
(4) Retained earnings is net of unrealized holding gains or losses on
available-for-sale securities.
30
<PAGE>
<TABLE>
<CAPTION>
Company Pro Forma Capitalization at
December 31, 1996
Based Upon Sale of
-------------------------------------
391,000 460,000
shares at a shares at a
Historical price of price of
Capitalization $50.00 per share $50.00 per share
-------------- ---------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Deposits $ 93,785 $ 93,785 $ 93,785
Advances from FHLB 2,000 2,000 2,000
--------- --------- ---------
Deposits and advances from FHLB/(2)/ $ 95,785 $ 95,785 $ 95,785
========= ========= =========
Stockholders' equity
Common stock, no par value:
Authorized shares: 20,000,000
Assumed outstanding shares as shown in column headings $ -- $ 18,781 $ 22,156
Preferred stock:
Authorized shares: 5,000,000
No shares outstanding
Additional paid-in capital -- -- --
Less: Common stock to be acquired by the MRP/(3)/ -- (782) (920)
Less: Common stock to be acquired by the ESOP/(3)/ -- (1,564) (1,840)
Retained earnings/(4)/ 14,412 14,412 14,412
--------- --------- ---------
Total $ 14,412 $ 30,847 $ 33,808
========= ========= =========
Total deposits and stockholders' equity $ 110,197 $ 126,632 $ 129,593
========= ========= =========
<CAPTION>
Company Pro Forma Capitalization at
December 31, 1996
Based Upon Sale of
-------------------------------------------
529,000 608,350
shares at a shares at a
price of price of
$50.00 per share $50.00 per share/(1)/
---------------- ---------------------
(In Thousands)
<S> <C> <C>
Deposits $ 93,785 $ 93,785
Advances from FHLB 2,000 2,000
--------- ---------
Deposits and advances from FHLB/(2)/ $ 95,785 $ 95,785
========= =========
Stockholders' equity
Common stock, no par value:
Authorized shares: 20,000,000
Assumed outstanding shares as shown in column headings $ 25,532 $ 29,414
Preferred stock:
Authorized shares: 5,000,000
No shares outstanding
Additional paid-in capital -- --
Less: Common stock to be acquired by the MRP/(3)/ (1,058) (1,217)
Less: Common stock to be acquired by the ESOP/(3)/ (2,116) (2,433)
Retained earnings/(4)/ 14,412 14,412
--------- ---------
Total $ 36,770 $ 40,176
========= =========
Total deposits and stockholders' equity $ 132,555 $ 135,961
========= =========
</TABLE>
(1) Represents the number of shares of Common Stock that would be issued in
the Conversion after giving effect to a 15% increase in maximum
valuation in the Valuation Range.
(2) Withdrawals from deposit accounts for the purchase of Common Stock are
not reflected. Any such withdrawals would reduce pro forma deposits by
the amount of such withdrawals.
(3) Assumes that 8% of the shares of Common Stock offered hereby will be
purchased by the ESOP in the Conversion. The funds used to acquire the
ESOP shares will be borrowed from the Company. Additionally, assumes
that, after the Conversion, a number of shares equal to 4% of the
shares of Common Stock offered hereby will be purchased by the MRP with
funds contributed by the Bank. The Common Stock acquired by both the
ESOP and the MRP is reflected as a reduction of stockholders' equity.
See "MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan" and "--
Proposed Management Recognition Plan."
(4) Retained earnings is net of unrealized holding gains or losses on
available-for-sale securities.
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $18,781,000 and $25,532,000 (excluding net
proceeds from shares expected to be purchased by the ESOP with funds borrowed
from the Company), based upon the following assumptions: (i) 19.51%, 17.78%,
16.51% and 15.40% of the Common Stock sold in the Conversion at the minimum,
midpoint, maximum and 15% above the maximum, respectively, of the Valuation
Range will be sold to the ESOP, directors and executive officers and their
associates (and that Trident Securities will not receive certain compensation
with respect to such sales), and none of the shares of Common Stock will be sold
in any Syndicated Community Offering pursuant to selected dealer agreements;
(ii) fees will be payable to Trident Securities with respect to the Subscription
and Community Offerings as described in "THE CONVERSION -- Marketing
Arrangements;" and (iii) Conversion expenses, excluding the fees and commissions
to Trident Securities, will be approximately $387,000. Actual net proceeds may
vary depending upon the number of shares sold to the ESOP and to directors,
executive officers and their associates, the number of shares, if any, sold in
the Syndicated Community Offering pursuant to selected dealer arrangements and
the actual expenses of the Conversion. Payments for shares made through
withdrawals from the existing Bank deposit accounts will not result in the
receipt of new funds for investment by the Bank. However, capital will increase
and interest-bearing liabilities will decrease by the amount of such
withdrawals. See "THE CONVERSION -- Purchase Price of Common Stock and Number of
Shares Offered."
Under the Plan, the Common Stock must be sold at an aggregate price
equal to not less than the minimum nor more than the maximum of the Valuation
Range based upon an independent appraisal. The Valuation Range as of June 30,
1997 is from a minimum of $19,550,000 to a maximum of $26,450,000 with a
midpoint of $23,000,000. However, with the consent of the Administrator and the
FDIC, the aggregate price of the Common Stock sold may be increased to up to 15%
above the maximum of the Valuation Range, or to $30,417,500, without a
resolicitation and without any right to cancel, rescind or change subscription
orders, to reflect changes in market and financial conditions following
commencement of the Subscription Offering. See "THE CONVERSION -- Purchase Price
of Common Stock and Number of Shares Offered."
Pro forma consolidated net earnings and book value of the Company at or
for the six months ended June 30, 1997 and the year ended December 31, 1996 have
been based upon the following assumptions: (i) the sale of shares of Common
Stock in connection with the Conversion occurred at January 1, 1997 for the six
months ended June 30, 1997, and at January 1, 1996 for the year ended December
31, 1996, and yielded net proceeds available for investment of approximately
$16,435,000, $19,396,200, $22,358,000 and $25,764,000 (based upon the issuance
of 391,000, 460,000, 529,000 and 608,350 shares, respectively, at $50.00 per
share) on such dates; and (ii) such net proceeds were invested on a consolidated
basis at the beginning of the period at a yield of 5.42%, which represents the
average one-year treasury rate for the last week of June 1997. The Company did
not use the arithmetic average of the Bank's weighted-average yield on
interest-earning assets and weighted-average interest rate paid on deposits
during the six months ended June 30, 1997 or the year ended December 31, 1996.
Management believes that the one-year Treasury rate is a more appropriate rate
for purposes of preparing the pro forma data because proceeds from the
Conversion are expected to be initially invested in instruments with similar
yields and maturities. The effect of withdrawals from deposit accounts for the
purchase of Common Stock has not been reflected. Such withdrawals have no effect
on pro forma stockholders' equity, and management does not believe that such
withdrawals will have a material impact on pro forma net earnings or pro forma
net earnings per share. In calculating pro forma net earnings, an effective tax
rate of 39.00% has been assumed, resulting in a yield after taxes of 3.30%.
Historical and pro forma per share amounts have been calculated by dividing the
Bank's historical amounts and the Company's pro forma amounts by the indicated
number of shares of Common Stock, assuming that such number of shares had been
outstanding during the entire period.
The following pro forma information is not intended to represent the
market value of the Common Stock, the value of net assets and liabilities or of
future results of operations. The assumption regarding investment yields should
not be considered indicative of actual yields for future periods. The following
information is not intended to be used as
32
<PAGE>
a basis for projection of results of operations for future periods.
33
<PAGE>
<TABLE>
<CAPTION>
At or For the Six Months Ended June 30, 1997
---------------------------------------------
391,000 460,000 529,000 608,350
shares at $50.00 shares at $50.00 shares at $50.00 shares at $50.00
per share per share per share per share
(Minimum) (Midpoint) (Maximum) (15% above Max.)
--------- ---------- --------- ----------------
(Dollars in Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 19,550 $ 23,000 $ 26,450 $ 30,418
Less Offering expenses and commissions (769) (844) (918) (1,004)
-------- --------- --------- ---------
Estimated net conversion proceeds 18,781 22,156 25,532 29,414
Less shares to be acquired by ESOP/(1)/ (1,564) (1,840) (2,116) (2,433)
Less shares to be acquired by MRP/(2)/ (782) ( 920) (1,058) (1,217)
-------- --------- --------- ---------
Adjusted estimated net conversion proceeds $ 16,435 $ 19,396 $ 22,358 $ 25,764
======== ========= ========= =========
Pro forma net income:
Historical net income $ 287 $ 287 $ 287 $ 287
Pro Forma adjustments:
Pro forma income on net proceeds 271 320 369 425
Pro forma ESOP adjustments/(1)/ (48) (56) (65) (74)
Pro forma MRP adjustments/(2)/ (48) (56) (65) (74)
-------- --------- --------- ---------
Pro forma net income $ 462 $ 495 $ 526 $ 564
======== ========= ========= =========
Pro forma net income per share/(4)(5)/:
Historical net income per share $ 1.58 $ 1.36 $ 1.18 $ 1.02
Pro forma adjustments:
Pro forma income on net proceeds 1.50 1.48 1.48 1.50
Pro forma ESOP adjustments/(1)/ (0.26) (0.26) (0.26) (0.26)
Pro forma MRP adjustments/(2)/ (0.26) (0.26) (0.26) (0.26)
-------- --------- --------- ---------
Pro forma net income per share $ 2.56 $ 2.32 $ 2.14 $ 2.00
======== ========= ========= =========
Ratio of price per share to pro forma income
per share/(4)(5)/ 19.5X 21.6X 23.4X 25.0X
======== ========= ========= =========
Pro forma stockholders' equity (book value)/(3)/:
Historical retained earnings $ 14,691 $ 14,691 $ 14,691 $ 14,691
Estimated net conversion proceeds 18,781 22,156 25,532 29,414
Less shares to be acquired by:
ESOP/(1)/ (1,564) (1,840) (2,116) (2,433)
MRP/(2)/ (782) (920) (1,058) (1,217)
-------- --------- --------- ---------
Pro forma stockholders' equity/(3)/ $ 31,126 $ 34,087 $ 37,049 $ 40,455
======== ========= ========= =========
Pro forma stockholders' equity per share/(4)/:
Historical retained earnings $ 37.58 $ 31.94 $ 27.77 $ 24.15
Estimated net conversion proceeds 48.03 48.16 48.26 48.35
Less shares to be acquired by:
ESOP/(1)/ (4.00) (4.00) (4.00) (4.00)
MRP/(2)/ (2.00) (2.00) (2.00) (2.00)
-------- --------- --------- ---------
Pro forma stockholders' equity per share/(3)/ $ 79.61 $ 74.10 $ 70.03 $ 66.50
======== ========= ========= =========
Pro forma price to book value 62.81% 67.48% 71.40% 75.19%
======== ========= ========= =========
Number of shares used to calculate income per share/(4)/ 361,284 425,040 488,796 562,115
======== ========= ========= =========
Number of shares used to calculate stockholders' equity
per share/(3)/ 391,000 460,000 529,000 608,350
======== ========= ========= =========
</TABLE>
- -----------------------------------------
(1) It is assumed that 8% of the shares of Common Stock in the Conversion
will be purchased by the ESOP. Pro forma ESOP adjustments assume that
10% of the shares will be committed to be released each year, and that
expense is reduced by a 39% tax rate. See "MANAGEMENT OF THE BANK --
Employee Stock Ownership Plan."
(2) It is assumed that the MRP will purchase a number of shares equal to 4%
of the shares of Common Stock issued in the Conversion.
(3) The retained earnings of the Bank will be substantially restricted
after the Conversion. See "DIVIDEND POLICY," "SUPERVISION AND
REGULATION -- Regulation of the Bank -- Restrictions on Dividends and
Other Capital Distributions." Pursuant to SOP 93-6, stockholders'
equity per share is calculated based on all ESOP shares issuable.
(4) Earnings per share is calculated based on the number of shares
outstanding indicated in the previous tables which include shares to be
acquired by the ESOP and the MRP. Pursuant to SOP 93-6, earnings per
share is calculated based on the ESOP shares released for the period
according to scheduled contributions. The FASB has issued Statement
#128, Earnings per Share (EPS), which requires presentation of EPS for
basic and diluted per-share amounts. Diluted per-share amounts assume
the conversion, exercise or issuance of all potential common stock
instruments. Application is required for annual and interim periods
ending after December 15, 1997 with earlier application not permitted.
(5) Pro forma net earnings per share have been annualized for purposes of
this ratio.
34
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1996
---------------------------------------------------------------------
391,000 460,000 529,000 608,350
shares at $50.00 shares at $50.00 shares at $50.00 shares at $50.00
per share per share per share per share
(Minimum) (Midpoint) (Maximum) (15% above Max.)
--------- ---------- --------- ----------------
(Dollars in Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 19,550 $ 23,000 $ 26,450 $ 30,418
Less Offering expenses and commissions (769) (844) (918) (1,004)
--------- --------- --------- ---------
Estimated net conversion proceeds 18,781 22,156 25,532 29,414
Less shares to be acquired by ESOP/(1)/ (1,564) (1,840) (2,116) (2,433)
Less shares to be acquired by MRP/(2)/ (782) (920) (1,058) (1,217)
--------- --------- --------- ---------
Adjusted estimated net conversion proceeds $ 16,435 $ 19,396 $ 22,358 $ 25,764
========= ========= ========= =========
Pro forma net income:
Historical net income $ 721 $ 721 $ 721 $ 721
Pro Forma adjustments:
Pro forma income on net proceeds 542 640 738 850
Pro forma ESOP adjustments/(1)/ (95) (112) (129) (148)
Pro forma MRP adjustments/(2)/ (95) (112) (129) (148)
--------- --------- --------- ---------
Pro forma net income $ 1,073 $ 1,137 $ 1,201 $ 1,275
========= ========= ========= =========
Pro forma net income per share/(4)/:
Historical net income per share $ 1.99 $ 1.69 $ 1.47 $ 1.28
Pro forma adjustments:
Pro forma income on net proceeds 1.49 1.50 1.50 1.50
Pro forma ESOP adjustments/(1)/ (0.26) (0.26) (0.26) (0.26)
Pro forma MRP adjustments/(2)/ (0.26) (0.26) (0.26) (0.26)
--------- --------- --------- ---------
Pro forma net income per share $ 2.96 $ 2.67 $ 2.45 $ 2.26
========== ========== ========== ==========
Ratio of price per share to pro forma income per share/(4)/ 16.9X 18.7X 20.4X 22.1X
========== ========== ========== ==========
Pro forma stockholders' equity (book value)/(3)/:
Historical retained earnings $ 14,412 $ 14,412 $ 14,412 $ 14,412
Estimated net conversion proceeds 18,781 22,156 25,532 29,414
Less shares to be acquired by:
ESOP/(1)/ (1,564) (1,840) (2,116) (2,433)
MRP/(2)/ (782) (920) (1,058) (1,217)
--------- --------- --------- ---------
Pro forma stockholders' equity/(3)/ $ 30,847 $ 33,808 $ 36,770 $ 40,176
========= ========= ========= =========
Pro forma stockholders' equity per share/(4)/:
Historical retained earnings $ 36.86 $ 31.33 $ 27.24 $ 23.69
Estimated net conversion proceeds 48.03 48.16 48.26 48.35
Less shares to be acquired by:
ESOP/(1)/ (4.00) (4.00) (4.00) (4.00)
MRP/(2)/ (2.00) (2.00) (2.00) (2.00)
--------- --------- --------- ---------
Pro forma stockholders' equity per share/(3)/ $ 78.89 $ 73.49 $ 69.50 $ 66.04
========= ========= ========= =========
Pro forma price to book value 63.38% 68.04% 71.94% 78.71%
========= ========= ========= =========
Number of shares used to calculate income per share/(4)/ 362,848 426,880 490,912 564,549
========= ========= ========= =========
Number of shares used to calculate stockholders' equity
per share/(3)/ 391,000 460,000 529,000 608,350
========= ========= ========= =========
</TABLE>
- ------------------------------------------
(1) It is assumed that 8% of the shares of Common Stock in the Conversion
will be purchased by the ESOP. Pro forma ESOP adjustments assume that
10% of the shares will be committed to be released each year, and that
expense is reduced by a 39% tax rate. See "MANAGEMENT OF THE BANK --
Employee Stock Ownership Plan."
(2) It is assumed that the MRP will purchase a number of shares equal to 4%
of the shares of Common Stock issued in the Conversion.
(3) The retained earnings of the Bank will be substantially restricted
after the Conversion. See "DIVIDEND POLICY," "SUPERVISION AND
REGULATION -- Regulation of the Bank -- Restrictions on Dividends and
Other Capital Distributions." Pursuant to SOP 93-6, stockholders'
equity per share is calculated based on all ESOP shares issuable.
(4) Earnings per share is calculated based on the number of shares
outstanding indicated in the previous tables which include shares to be
acquired by the ESOP and the MRP. Pursuant to SOP 93-6, earnings per
share is calculated based on the ESOP shares released for the period
according to scheduled contributions. The FASB has issued Statement
#128, Earnings per Share (EPS), which requires presentation of EPS for
basic and diluted per-share amounts. Diluted per-share amounts assume
the conversion, exercise or issuance of all potential common stock
instruments. Application is required for annual and interim periods
ending after December 15, 1997 with earlier application not permitted.
35
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The Bank is subject to the North Carolina savings bank requirement that
net worth, computed in accordance with the requirements of the Administrator,
equal or exceed 5% of total assets. As of June 30, 1997, the Bank's net worth,
computed in accordance with such requirements, was 13.39% of total assets. In
addition, the Bank is subject to the capital requirements of the FDIC. The FDIC
requires that institutions which receive the highest rating during their
examination process and are not experiencing or anticipating significant growth
must maintain a leverage ratio of Tier I capital to total assets (as defined in
FDIC regulations) of at least 3%. All other institutions are required to
maintain a ratio of 1% or 2% above the 3% minimum with an absolute minimum
leverage ratio of not less than 4%. The FDIC also imposes requirements that (i)
the ratio of Tier I capital to risk-weighted assets equal at least 4% and (ii)
the ratio of total capital to risk-weighted assets equal at least 8%. As
demonstrated in the table below, the Bank exceeds the FDIC Tier I and risk-based
capital requirements and North Carolina capital requirements on a historical and
pro forma basis.
The following table presents (i) the Bank's historical regulatory
capital position on June 30, 1997 and December 31, 1996 and (ii) the Bank's pro
forma regulatory capital position on such dates after giving effect to the
assumptions set forth under "PRO FORMA DATA" and "CAPITALIZATION" and further
assuming that the Company will retain 50% of the net proceeds of the Common
Stock sold in the Conversion after deducting the amount necessary to fund the
loan to the ESOP.
36
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Regulatory Capital Position at June 30, 1997
---------------------------------------------------------
Bank's
Historical
Regulatory Capital
Position at
June 30, 1997
--------------------
391,000 460,000
Shares sold at Shares sold at
Price of $50.00 Price of $50.00
per share per share
----------------------- ----------------------
Percent of Percent of Percent of
Regulatory Regulatory Regulatory
Amount Assets/(1)/ Amount Assets/(1)/ Amount Assets/(1)/
------ ------ ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 (leverage) capital $14,671 12.85% $23,280 18.96% $24,829 19.97%
Tier 1 (leverage) capital requirement (2) 4,567 4.00% 4,911 4.00% 4,973 4.00%
------- ------ ------- ------ ------- ------
Excess $10,104 8.85% $18,369 14.96% $19,856 15.97%
======= ====== ======= ====== ======= ======
Tier 1 risk based capital $14,671 24.05% $23,280 37.12% $24,829 39.39%
Tier 1 risk based capital requirement 2,440 4.00% 2,509 4.00% 2,521 4.00%
------- ------ ------- ------ ------- ------
Excess $12,231 20.05% $20,771 33.12% $22,308 35.39%
======= ====== ======= ====== ======= ======
Total risk based capital $15,288 25.06% $23,897 38.10% $25,446 40.37%
Total risk based capital requirement 4,880 8.00% 5,018 8.00% 5,042 8.00%
------- ------ ------- ------ ------- ------
Excess $10,408 17.06% $18,879 30.10% $20,404 32.37%
======= ====== ======= ====== ======= ======
NC regulatory capital $15,288 13.39% $23,897 19.47% $25,446 20.47%
NC regulatory capital requirement 5,708 5.00% 6,138 5.00% 6,215 5.00%
------- ------ ------- ------ ------- ------
Excess $ 9,580 8.39% $17,759 14.47% $19,231 15.47%
======= ====== ======= ====== ======= ======
<CAPTION>
Pro Forma Regulatory Capital Position at June 30, 1997
--------------------------------------------------------
529,000 608,350
Shares sold at Shares sold at
Price of $50.00 Price of $50.00
per share per share
----------------------- ---------------------
Percent of Percent of
Regulatory Regulatory
Amount Assets/(1)/ Amount Assets/(1)/
------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tier 1 (leverage) capital $26,379 20.96% $28,161 22.06%
Tier 1 (leverage) capital requirement (2) 5,035 4.00% 5,106 4.00%
------- ------ ------- ------
Excess $21,344 16.96% $23,055 18.06%
======= ====== ======= ======
Tier 1 risk based capital $26,779 41.65% $28,161 44.21%
Tier 1 risk based capital requirement 2,534 4.00% 2,548 4.00%
------- ------ ------- ------
Excess $24,245 37.65% $25,613 40.21%
======= ====== ======= ======
Total risk based capital $26,996 42.62% $28,778 45.08%
Total risk based capital requirement 5,068 8.00% 5,096 8.00%
------- ------ ------- ------
Excess $21,928 34.62% $23,682 37.08%
======= ====== ======= ======
NC regulatory capital $26,996 21.45% $28,778 22.50%
NC regulatory capital requirement 6,293 5.00% 6,383 5.00%
------- ------ ------- ------
Excess $20,703 16.45% $22,395 17.50%
======= ====== ======= ======
</TABLE>
- --------------------------------
(1) For the Tier 1 (leverage) capital and North Carolina regulatory capital
calculations, percent is of total average assets. For the Tier 1
risk-based capital and total risk-based capital calculations, percent
is of total risk-weighted assets. Net proceeds (after ESOP and MRP)
were assumed to be invested in short-term treasury securities (0%
risk-weight) and one-to-four family residential mortgage loans (50%
risk-weight) with a weighted average risk-weight of 20%.
(2) As a North Carolina-chartered savings bank, the Bank is subject to the
capital requirements of the FDIC and the Administrator. The FDIC
requires state-chartered savings banks, including the Bank, to have a
minimum leverage ratio of Tier 1 capital to total assets of at least
3%; provided, however, that all institutions, other than those (i)
receiving the highest rating during the examination process and (ii)
not anticipating any significant growth, are required to maintain a
ratio of 1% to 2% above the stated minimum, with an absolute minimum
leverage ratio of at least 4%. For the purposes of this table, the Bank
has assumed that its leverage capital requirement is 4% of total
average assets.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Regulatory Capital Position at December 31, 1996
---------------------------------------------------------------
Bank's
Historical
Regulatory Capital
Position at
December, 31 1996
--------------------
391,000 460,000
Shares sold at Shares sold at
Price of $50.00 Price of $50.00
per share per share
----------------------- ----------------------
Percent of Percent of Percent of
Regulatory Regulatory Regulatory
Amount Assets/(1)/ Amount Assets/(1)/ Amount Assets/(1)/
------ ------ ------ ------ ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 (leverage) capital $14,384 12.78% $22,992 18.98% $24,542 20.00%
Tier 1 (leverage) capital requirement/(2)/ 4,502 4.00% 4,846 4.00% 4,908 4.00%
------- ------ ------- ------ ------- ------
Excess $ 9,882 8.78% $18,146 14.98% $19,634 16.00%
======= ====== ======= ====== ======= ======
Tier 1 risk based capital $14,384 24.40% $22,992 37.89% $24,542 40.24%
Tier 1 risk based capital requirement 2,358 4.00% 2,427 4.00% 2,439 4.00%
------- ------ ------- ------ ------- ------
Excess $12,026 20.40% $20,565 33.89% $22,103 36.24%
======= ====== ======= ====== ======= ======
Total risk based capital $14,772 25.06% $23,380 38.53% $24,930 40.88%
Total risk based capital requirement 4,716 8.00% 4,854 8.00% 4,878 8.00%
------- ------ ------- ------ ------- ------
Excess $10,056 17.06% $18,526 30.53% $20,052 32.88%
======= ====== ======= ====== ======= ======
NC regulatory capital $14,772 13.12% $23,380 19.30% $24,930 20.32%
NC regulatory capital requirement 5,628 5.00% 6,058 5.00% 6,135 5.00%
------- ------ ------- ------ ------- ------
Excess $ 9,144 8.12% $17,322 14.30% $18,795 15.32%
======= ====== ======= ====== ======= ======
<CAPTION>
Pro Forma Regulatory Capital Position at December 31, 1996
------------------------------------------------------------
529,000 608,350
Shares sold at Shares sold at
Price of $50.00 Price of $50.00
per share per share
----------------------- ---------------------
Percent of Percent of
Regulatory Regulatory
Amount Assets/(1)/ Amount Assets/(1)/
------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tier 1 (leverage) capital $26,092 21.00% $27,874 22.11%
Tier 1 (leverage) capital requirement/(2)/ 4,970 4.00% 5,041 4.00%
------- ------- --------- -------
Excess $21,122 17.00% $22,833 18.11%
======= ====== ======= ======
Tier 1 risk based capital $26,092 42.57% $27,874 45.21%
Tier 1 risk based capital requirement 2,452 4.00% 2,466 4.00%
------- ------- --------- -------
Excess $23,640 38.57% $25,408 41.21%
======= ====== ======= ======
Total risk based capital $26,480 43.20% $28,262 45.84%
Total risk based capital requirement 4,904 8.00% 4,932 8.00%
------- ------- --------- -------
Excess $21,576 35.20% $23,330 37.84%
======= ====== ======= ======
NC regulatory capital $26,480 21.31% $28,262 22.42%
NC regulatory capital requirement 6,213 5.00% 6,303 5.00%
------- ------- --------- -------
Excess $20,267 16.31% $21,959 17.42%
======= ====== ======= ======
</TABLE>
- --------------------------------
(1) For the Tier 1 (leverage) capital and North Carolina regulatory capital
calculations, percent is of total average assets. For the Tier 1
risk-based capital and total risk-based capital calculations, percent
is of total risk-weighted assets. Net proceeds (after ESOP and MRP)
were assumed to be invested in short-term treasury securities (0%
risk-weight) and one-to-four family residential mortgage loans (50%
risk-weight) with a weighted average risk-weight of 20%.
(2) As a North Carolina-chartered savings bank, the Bank is subject to the
capital requirements of the FDIC and the Administrator. The FDIC
requires state-chartered savings banks, including the Bank, to have a
minimum leverage ratio of Tier 1 capital to total assets of at least
3%; provided, however, that all institutions, other than those (i)
receiving the highest rating during the examination process and (ii)
not anticipating any significant growth, are required to maintain a
ratio of 1% to 2% above the stated minimum, with an absolute minimum
leverage ratio of at least 4%. For the purposes of this table, the Bank
has assumed that its leverage capital requirement is 4% of total
average assets.
<PAGE>
STOCK PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
Directors, officers and employees of the Bank will be entitled to
subscribe for shares of Common Stock in the Subscription Offering in their
capacities as such and to the extent they qualify as Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members. Shares purchased by
such persons will be purchased at the same price per share--$50.00--that will be
paid by other purchasers in the Offerings. They may also purchase Common Stock
in the Community Offering or in the Syndicated Community Offering, if any,
subject to the maximum purchase limitations applicable to all purchasers of
shares in the Conversion.
The following table sets forth for each of the executive officers and
directors of the Bank who intends to purchase Common Stock, and for all
executive officers and directors as a group (including in each case all
associates of such persons) the aggregate dollar amount of Common Stock for
which such director or executive officer has informed the Bank he intends to
subscribe. The amounts reflected in the table are estimates only and the actual
shares of Common Stock actually subscribed for by the listed individuals may
differ from the amounts reflected in the table. The following table assumes that
sufficient shares will be available to satisfy the subscriptions of the Bank's
executive officers and directors.
<TABLE>
<CAPTION>
Anticipated
Anticipated Number
Amount of Shares As a Percent
to be Paid to be of Shares
Name for Shares Purchased/(1)/ Issued/(2)/
- ---- ---------- --------- ------
<S> <C> <C> <C>
Willis L. Barnette, Director $ 300,000 6,000 1.30%
Donald R. Belk, Director 300,000 6,000 1.30
Dale W. Brawley, Director, Executive Vice President
and Treasurer 250,000 5,000 1.09
George W. Brawley, Jr., Director, President and
Chief Executive Officer 300,000 6,000 1.30
Jack G. Lawler, Director 300,000 6,000 1.30
Calvin E. Tyner, Director 300,000 6,000 1.30
Claude U. Voils, Jr., Director 300,000 6,000 1.30
Billy R. Williams, Secretary and Controller 200,000 4,000 0.87
---------- ------ -----
Total $2,250,000 45,000 9.78%
========== ====== =====
</TABLE>
- ----------------------
(1) Subscriptions by the ESOP are not aggregated with shares of Common
Stock purchased by the executive officers and directors listed above.
See "MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan." Also,
grants under the proposed MRP and shares subject to option under the
Stock Option Plan, if approved by the stockholders of the Company at a
meeting of stockholders following the Conversion, are not aggregated
with shares of Common Stock purchased by the executive officers and
directors listed above. It is expected that the ESOP will acquire 8% of
the shares issued in the Conversion. Recipients of shares under the
ESOP will have voting control over the shares allocated to them, and
trustees of the ESOP (directors of the Bank) will have voting control
over unallocated shares. See "MANAGEMENT OF THE BANK -- Employee Stock
Ownership Plan." Under the proposed MRP, if approved by the
stockholders of the Company, a number of shares equal to 4% of the
shares issued in the Conversion are expected to be issued to directors
and certain employees of the Bank. Such shares could be purchased in
the open market at any time following consummation of the Conversion or
could be issued out of authorized but unissued shares. Recipients of
shares under the MRP will have voting control over such shares
regardless of whether such shares have vested. See "MANAGEMENT OF THE
BANK -- Proposed Management Recognition Plan." Under the proposed Stock
Option Plan, if approved by the stockholders of the Company, directors
and certain employees of the Bank are expected to receive options to
purchase a number of shares equal to 10% of the shares issued in the
Conversion. Shares to fund such options could be acquired in the open
market or could be acquired through the issuance of authorized but
unissued shares. If shares are acquired in the open market and held by
a grantor trust prior to the exercise of options under the Plan,
holders of unexercised options will have voting control over the shares
held to fund their options. See "MANAGEMENT OF THE BANK -- Proposed
Stock Option Plan."
39
<PAGE>
(2) Based upon the issuance of 460,000 shares of Common Stock which is the
number of shares to be issued at the midpoint of the Valuation Range.
Without the prior written consent of the Administrator, shares of
Common Stock purchased by directors or executive officers of the Bank in the
Conversion cannot be sold during a period of one year following the Conversion,
except upon death of the director or executive officer. Such restriction also
applies to any shares issued to such person as a stock dividend, stock split or
otherwise with respect to any of such originally restricted stock.
In addition, the North Carolina conversion regulations provide that
directors and executive officers and their associates are prohibited from
purchasing outstanding shares of Common Stock for a period of three years
following the Conversion, except from or through a broker or dealer registered
with the SEC or Secretary of State of North Carolina, unless the prior written
approval of the Administrator is obtained. This provision does not apply to
negotiated transactions involving more than 1% of the Company's outstanding
Common Stock or to purchases of stock made by or held by one or more
tax-qualified or non-tax-qualified employee stock benefit plans of the Bank or
the Company which may be attributable to individual executive officers or
directors. Purchases and sales of Common Stock by officers and directors will
also be subject to the short-swing trading prohibitions contained in Section
16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), and the
short-swing trading and other rules promulgated pursuant to the Exchange Act.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results
of operations is intended to assist in understanding the financial condition and
changes therein and results of operations of the Bank. The discussion contains
certain forward-looking statements consisting of estimates with respect to the
financial condition, result of operations and other business of the Bank that
are subject to various factors which could cause actual results to differ
materially from those estimates. Factors which could influence the estimates
include changes in the national, regional and local market conditions,
legislative and regulatory conditions, and an adverse interest rate environment.
The information contained in this section should be read in conjunction with the
Financial Statements, the accompanying Notes to Financial Statements, and the
information sections contained in this Prospectus.
The Company was incorporated under North Carolina law in August 1997 at
the direction of the Bank for the purpose of acquiring and holding all of the
outstanding stock of the Bank to be issued in the Conversion. The Company's
principal business activities after the Conversion are expected to be conducted
solely through the Bank.
The Bank's results of operations depend primarily on net interest
income, which is the difference between interest income from interest-earning
assets and interest expense on interest-bearing liabilities. The Bank's
operations are affected to a much lesser degree by non-interest income, such as
transaction and other service fee income, and other sources of income. The
Bank's principal operating expenses, aside from interest expense, consist of
compensation and employee benefits, office occupancy costs, data processing
expenses and federal deposit insurance premiums.
40
<PAGE>
Capital Resources and Liquidity
The objective of the Bank's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.
The Bank's primary sources of internally generated funds are principal
and interest payments on loans receivable, cash flows generated from operations,
and cash flows generated by investment maturities. External sources of funds
include increases in deposits and advances from the FHLB of Atlanta. Advances
from the FHLB of Atlanta have not historically been a primary source of
liquidity for the Bank.
Operating activities generated cash of $502,000, $549,000, $724,000,
$693,000 and $857,000 for the six-month periods ended June 30, 1997 and 1996 and
the years ended December 31, 1996 and 1995 and the nine months ended December
31, 1994, respectively. Historically, in addition to cash provided by operating
activities, financing activities have provided the Bank with sources of funds
for asset growth and liquidity. For the six month periods ended June 30, 1997
and 1996, deposits grew $2.1 million and $825,000, respectively, while for the
years ended December 31, 1996 and 1995 deposits grew $1.7 million and $6.9
million, respectively. During the six months ended June 30, 1997 and the year
ended December 31, 1996, the Bank decreased by $1 million and increased by $2
million, respectively, advances from the FHLB of Atlanta with whom they have a
readily available source of credit. Such funds were used primarily to fund
increasing loan demand. The Bank did not utilize FHLB advances during the six
months ended June 30, 1996, the year ended December 31, 1995 or the nine months
ended December 31, 1994.
Cash provided by operating and financing activities is used by the Bank
to originate new loans to customers, to maintain investment portfolios and to
meet liquidity requirements. During the six months ended June 30, 1997 and 1996
and the years ended December 31, 1996 and 1995 and the nine months ended
December 31, 1994, loans outstanding increased $2.7 million, $3.5 million, $7.3
million, $8.0 million, and $3.3 million, respectively. During the six months
ended June 30, 1997 and 1996 and the years ended December 31, 1996 and 1995 and
the nine months ended December 31, 1994, proceeds from maturities of investment
securities exceeded purchases of such investments by $939,000, $1.2 million,
$2.6 million, $969,000 and $136,000, respectively.
North Carolina-chartered savings banks must maintain liquid assets
equal to at least 10% of total assets. The computation of liquidity under North
Carolina regulation allows the inclusion of mortgage-backed securities and
investments with readily marketable value, including investments with maturities
in excess of five years. The Bank's liquidity ratio on June 30, 1997, as
computed under North Carolina regulations, was approximately 10.29%. The Bank
believes that it will have sufficient funds available to meet its anticipated
future loan commitments as well as other liquidity needs.
41
<PAGE>
Following the Conversion, the Company will initially conduct no
business other than holding the capital stock of the Bank and the loan it will
make to the ESOP. In order to provide sufficient funds for its operations, the
Company expects to retain at the Company level and invest 50% of the net
proceeds of the Conversion remaining after making the loan to the ESOP. In the
future, the Company's primary source of funds, other than income from its
investments and principal and interest payments received from the ESOP with
respect to the ESOP loan, is expected to be dividends from the Bank. As a North
Carolina-chartered stock savings bank, the Bank may not declare or pay a cash
dividend on or repurchase any of its capital stock if the effect of such
transaction would be to reduce the net worth of the institution to an amount
which is less than the minimum amount required by applicable federal and state
regulations. At June 30, 1997, the Bank was in compliance with all applicable
capital requirements. In addition, for a period of five years after the
Conversion, the Bank must obtain written approval from the Administrator before
declaring or paying a cash dividend on its capital stock in an amount in excess
of one-half of the greater of (i) its net income for the most recent fiscal year
end, or (ii) the average of its net income after dividends for the most recent
fiscal year end and not more than two of the immediately preceding fiscal
year-ends. As a result of this limitation, if the Bank had been a stock
institution at the end of fiscal 1996 and for the two preceding years, it could
not have been paid a cash dividend in excess of $362,000 without approval of the
Administrator.
In connection with the Conversion, the Company and the Bank have agreed
with the FDIC that, within the first year after completion of the Conversion,
they will not pay any dividend or make any distribution that represents, or is
characterized as, or is treated for tax purposes as a return of capital. In
addition, after the Conversion, the Bank will be subject to the restriction that
it will not be permitted to declare or pay a cash dividend on or repurchase any
of its capital stock if the effect thereof would be to cause its net worth to be
reduced below the amount required for the liquidation account to be established
in connection with the Conversion. See "THE CONVERSION -- Effects of Conversion
- -- Liquidation Rights -- Liquidation Rights After the Conversion".
42
<PAGE>
Operating Strategy
The primary goals of management are to increase the Bank's
profitability, monitor its capital position and enhance its banking franchise.
The Bank's results of operations are dependent primarily on net interest income,
which is the difference between the income earned on its interest-earning
assets, such as loans and investments, and the cost of its interest-bearing
liabilities, consisting of deposits. The Bank's operations are affected to a
much lesser degree by non-interest income, such as transaction and other service
fee income, and other sources of income. The Bank's net income is also affected
by, among other things, provisions for loan losses and operating expenses. The
Bank's principal operating expenses, aside from interest expense, consists of
compensation and employee benefits, office occupancy costs, data processing
expenses and federal deposit insurance premiums. The Bank's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government
legislation and policies concerning monetary and fiscal affairs, housing and
financial institutions and the attendant actions of regulatory authorities.
In guiding the operations of the Bank, management has implemented
various strategies designed to continue the institution's profitability while
maintaining its safety and soundness. These strategies include: (i) emphasizing
one-to-four family residential lending; (ii) maintaining asset quality; (iii)
controlling operating expenses; and (iv) monitoring interest-rate risk. It is
anticipated, subject to market conditions, that the strategies presently in
place will be continued following completion of the Conversion.
Emphasis on One-to-Four Family Residential Housing. Historically, the
Bank has been predominantly a one-to-four family residential lender. As of June
30, 1997, approximately 82.07% of its loan portfolio, before net items, was
composed of permanent one-to-four residential loans. As of such date, an
additional 11.19% of its loan portfolio, before net items, was composed of
construction loans and equity line loans. As a result, the Bank has developed
expertise in mortgage loan underwriting and origination. The Bank has
established methods to expand its loan originations through contacts with
Realtors, homebuilders and past and present customers. The Bank also uses
advertising and community involvement to gain exposure within the communities is
operates. As of June 30, 1997, approximately 31.51% of the Bank's loan
portfolio, before net items, was composed of adjustable rate loans.
Maintenance of Asset Quality. At June 30, 1997, the Bank's ratio of
nonperforming assets to total assets was 0.96%. Since March 31, 1992, annual net
loan charge-offs have averaged 0.02% of average loans outstanding. The Bank has
attempted to maintain asset quality through its underwriting and collection
procedures.
Monitoring of Interest-Rate Risk. Although the Bank has a significant
"negative gap" and its net interest income would likely be negatively impacted
by increases in interest rates. However, in order to reduce the impact on the
Bank's net income resulting from changes in interest rates, as described below,
management has implemented several strategies.
See "-- Interest Rate Risk".
43
<PAGE>
Control of General and Administrative Expenses. The Bank closely
monitors its general and administrative expenses and seeks to control them while
maintaining the necessary personnel to properly serve its customers. Since March
31, 1992, the Bank's ratio of general and administrative expenses to average
assets has averaged 2.44%.
Interest Rate Risk
The Bank's asset/liability management, or interest rate risk
management, program is focused primarily on evaluating and managing the
composition of its assets and liabilities in view of various interest rate
scenarios. Factors beyond the Bank's control, such as market interest rates and
competition, may also have an impact on the Bank's interest income and interest
expense.
44
<PAGE>
In the absence of other factors, the yield or return associated with
the Bank's earning assets generally will increase from existing levels when
interest rates rise over an extended period of time, and conversely interest
income will decrease when interest rates decrease. In general, interest expense
will increase when interest rates rise over an extended period of time, and
conversely interest expense will decrease when interest rates decrease.
Therefore, by controlling the increases and decreases in its interest income and
interest expense which are brought about by changes in market and interest
rates, the Bank can significantly influence its net interest income.
Net Portfolio Value and Net Interest Income Analysis. In addition to
the interest rate gap analysis as discussed below, management monitors the
Bank's interest rate sensitivity through the use of a model which estimates the
change in net portfolio value ("NPV") and net interest income in response to a
range of assumed changes in market interest rates. NPV is the present value of
expected cash flows from assets, liabilities, and off-balance sheet items. The
model estimates the effect on the Bank's NPV and net interest income of
instantaneous and permanent 100 to 200 basis point increases and decreases in
market interest rates.
The following table presents information regarding possible changes in
the Bank's NPV as of June 30, 1997.
<TABLE>
<CAPTION>
Percentage Change in
Net Portfolio Value
-------------------------------------------
Change
in Market
Interest Rates
-------------- Board
Projected Policy
Change/(1)/ Limit/(2)/
----------- ----------
<S> <C> <C>
Up 200 (22.85)% (85.00)%
Up 150 (17.42) (60.00)
Up 100 (11.73) (45.00)
Up 50 (5.78) (30.00)
Static -- 0
Down 50 5.01 0
Down 100 7.68 5.00
Down 150 9.06 5.00
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Percentage Change in
Net Portfolio Value
-------------------------------------------
Change
in Market
Interest Rates
-------------- Board
Projected Policy
Change/(1)/ Limit/(2)/
----------- ----------
<S> <C> <C>
Down 200 9.77 10.00
The following table presents the predicted effects, based on
Sheshnnoff's interest rate risk model, on the Bank's net interest income as of
June 30, 1997 of instantaneous and permanent 100 to 200 basis point changes in
market interest rates.
Percentage Change in
Net Portfolio Value
-------------------------------------------
Change
in Market
Interest Rates
-------------- Board
Projected Policy
Change/(1)/ Limit/(2)/
----------- ----------
<S> <C> <C>
Up 200 (7.00)% (65.00)%
Up 150 (5.23) (50.00)
Up 100 (3.46) (40.00)
Up 50 (1.72) (20.00)
Static -- 0
Down 50 2.38 0
Down 100 4.46 0
Down 150 6.28 5.00
Down 200 7.97 5.00
</TABLE>
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposit decay, and should not be relied
upon as indicative of actual results. Further, the computations do not reflect
any actions management may undertake in response to changes in interest rates.
The tables set forth above indicate that, in the event of a 200 basis
point decrease in interest rates, the Bank would be expected to experience a
9.77% increase in NPV and a 7.97% increase in net interest income. In the event
of a 200 basis point increase in interest rates, the Bank would be expected to
experience a 22.85% decrease in NPV and a 7.00% decrease in net interest income.
Certain shortcomings are inherent in the method of analysis presented
in both the NPV and net interest income computations and in the gap computations
46
<PAGE>
presented in the above tables. Although certain assets and liabilities may have
similar maturities or periods within which they will reprice, they may react
differently 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, adjustable-rate mortgages have interest rate caps
which restrict changes in interest rates on a short-term basis and over the life
of the assets. The proportion of adjustable-rate loans could be reduced in
future periods if market interest rates should decline and remain at lower
levels for a sustained period due to increased refinancing 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 a sustained interest rate increase.
The Bank's net interest income during recent periods has been slightly
negatively impacted by increasing interest rates, however, its net interest
income in the near future is likely to be reduced if interest rates increase. In
order to better control its interest rate risk, the Bank has begun (i)
attempting to originate adjustable rate loans when market conditions permit,
including an emphasis on adjustable rate equity line of credit loans; (ii)
maintaining a short-term investment portfolio; and (iii) attempting to lengthen
deposit maturities. In addition, checking and transaction accounts are generally
considered to be less interest rate sensitive deposits. As a result, the Bank
has begun to emphasize the origination of those accounts - even though an
increase in such accounts will not improve the Bank's one-year interest rate
sensitivity gap, as the Bank presently computes its interest rate gap, because,
for purposes of such computation, all of such accounts are assumed to reprice
within one year.
The Bank does not originate its fixed rate or adjustable rate loans for
sale, or sell its loans, in the secondary market. This tends to increase its
exposure to interest rate risk.
Interest Rate Gap Analysis. As a part of the Bank's interest rate risk
management policy, the Bank calculates an interest rate "gap". Interest rate
"gap" analysis is a common, though imperfect, measure of interest rate risk,
which measures the relative dollar amounts of interest-earning assets and
interest-bearing liabilities which reprice within a specific time period, either
through maturity or rate adjustment. The "gap" is the difference between the
amounts of such assets and liabilities that are subject to repricing. A
"negative gap" for a given period means that the amount of interest-bearing
liabilities maturing or otherwise repricing within that period exceeds the
amount of interest-earning assets maturing or otherwise repricing within the
same period. Accordingly, in a declining interest rate environment, an
institution with a negative gap would generally be expected, absent the effects
of other factors, to experience a lower decrease in the yield of its assets
relative to the cost of its liabilities and its income should be positively
affected. Conversely, the cost of funds for an institution with a negative gap
would generally be expected to increase more quickly that the yield on its
assets in a rising interest rate environment, and such institution's net
47
<PAGE>
interest income generally would be expected to be adversely affected by rising
interest rates. Changes in interest rates generally have the opposite effect on
an institution with a "positive gap".
The Bank's one-year interest sensitivity gap as a percentage of total
interest-earning assets at June 30, 1997 was a negative 54.53%. At June 30,
1997, the Bank's three-year and five-year cumulative interest sensitivity gaps
as a percentage of total interest-earning assets were a negative 69.38% and
negative 69.16%, respectively.
The following table sets forth the amounts of interest-earning assets
and interest-bearing-liabilities outstanding at June 30, 1997 which are
projected to reprice or mature in each of the future time periods shown. Except
as stated below, the amounts of assets and liabilities shown which reprice or
mature within a particular time period were determined in accordance with the
contractual terms of the asset or liability. Loans with adjustable rates are
shown as being due at the end of the next upcoming adjustment period. Passbook
savings, money market deposit accounts and negotiable order of withdrawal or
other transaction accounts are assumed to be subject to immediate repricing and
depositor availability and have been placed in the shortest period. In making
the gap computations, no assumptions were made regarding prepayment rates and
deposit decay rates used for any interest-earning assets or interest-bearing
liabilities. In addition, the table does not reflect scheduled principal
repayments which will be received throughout the lives of the loans. The
interest rate sensitivity of the Bank's assets and liabilities illustrated in
the following table would vary substantially if different assumptions were used
or if actual experience differs from that indicated by such assumptions.
48
<PAGE>
<TABLE>
<CAPTION>
Terms to Repricing at June 30, 1997
--------------------------------------------------------------------
More Than More Than
1 Year 1 Year to 3 Years to More Than
or Less 3 Years 5 Years 5 Years Total
------- --------- --------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS/(1)/:
Loans receivable:
Adjustable rate residential 1-4 family $ 21 $ 65 $ 471 $ 25,273 $ 25,830
Fixed rate residential 1-4 family 55 616 952 58,663 60,286
Nonresidential - adjustable 9 -- 14 1,529 1,552
Nonresidential - fixed 172 -- 7 1,072 1,251
Other real estate loans - adjustable 5,684 -- -- -- 5,684
Other real estate loans - fixed 209 323 535 825 1,892
Construction 304 2 -- 2,143 2,449
Other loans 857 621 604 97 2,179
----------- ----------- ----------- -------- ---------
Total loans 7,311 1,627 2,583 89,602 101,123
Interest-bearing deposits 2,348 -- -- -- 2,348
Investments 2,206 2,587 933 1,028 6,754
FHLB stock -- -- -- 930 930
----------- ----------- ----------- -------- ---------
Total interest-earning assets $ 11,865 $ 4,214 $ 3,516 $ 91,560 $ 111,155
=========== =========== =========== ======== =========
INTEREST-BEARING LIABILITIES:
Deposits:
Certificates of deposit $ 47,806 $ 20,717 $ 3,271 $ -- $ 71,794
Money market deposit accounts 4,485 -- -- -- 4,485
NOW accounts 5,842 -- -- -- 5,842
Passbook savings 11,564 -- -- -- 11,564
Noninterest-bearing 1,782 -- -- -- 1,782
----------- ----------- ----------- -------- ---------
Total deposits 71,479 20,717 3,271 -- 95,467
----------- ----------- ----------- -------- ---------
Advances from FHLB 1,000 -- -- -- 1,000
----------- ----------- ----------- -------- ---------
Total interest-bearing liabilities $ 72,479 $ 20,717 $ 3,271 $ -- $ 96,467
=========== =========== =========== ======== =========
INTEREST SENSITIVITY GAP PER PERIOD $ (60,614) $ (16,503) $ 245 $ 91,560 $ 14,688
CUMULATIVE INTEREST SENSITIVITY GAP (60,614) (77,117) (76,872) 14,688 14,688
CUMULATIVE GAP AS A PERCENTAGE OF TOTAL
INTEREST-EARNING ASSETS -54.53% -69.38% -69.16% 13.21% 13.21%
CUMULATIVE INTEREST-EARNING ASSETS AS A
PERCENTAGE OF INTEREST-BEARING LIABILITIES 16.37% 17.25% 20.31% 115.23% 115.23%
</TABLE>
- ----------------------------
/(1)/ Interest-earning assets are included in the period in which balances are
expected to be redeployed and/or repriced as a result of scheduled rate
adjustments and contractual maturities.
49
<PAGE>
Net Interest Income
Net interest income represents the difference between income derived from
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities ("net
earning balance"). The following table sets forth information relating to
average balances of the Bank's assets and liabilities for the six months ended
June 30, 1997 and 1996 and for the years ended December 31, 1996 and 1995 and
the nine months ended December 31, 1994. For the periods indicated, the table
reflects the average yield on interest-earning assets and the average cost of
interest-bearing liabilities (derived by dividing income or expense by the
monthly average balance of interest-earning assets or interest-bearing
liabilities, respectively) as well as the net yield on interest-earning assets
(which reflects the impact of the net earning balance).
50
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
At --------------------------------------------------------------
June 30,
1997 1997 1996
---------- ----------------------------- -----------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/
Rate(6) Balance Interest Rate(4) Balance Interest Rate(4)
-------- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest-bearing deposits 4.20% $ 2,308 $ 52 4.51% $ 2,074 $ 49 4.73%
Investments(1) 6.26% 8,108 251 6.19% 11,573 319 5.51%
Loans receivable, net(5) 6.18% 99,380 4,130 8.31% 90,213 3,889 8.34%
------- ------- ------- -------
Total interest-earning assets 7.96% 109,796 $ 4,433 8.07% 106,860 $ 4,257 7.97%
------- -------
Non-interest-earning assets 3,092 1,939
------- -------
Total $112,688 $108,799
======= =======
Liabilities and retained earnings:
Interest-bearing liabilities:
NOW & Money Market accounts 1.85% $ 11,239 $ 104 1.85% $ 11,429 $ 123 2.15%
Passbook accounts 3.04% 11,365 177 3.11% 11,531 166 2.88%
Certificates of deposit 5.72% 70,993 2,027 5.71% 69,050 2,016 5.84%
------- -------- ------- -------
Total deposits 4.84% 93,597 2,308 4.93% 92,010 2,305 5.01%
FHLB advances 5.82% 1,667 58 6.96% 166 5 6.02%
------- -------- ------- -------
Total interest-bearing liabilities 4.95% 95,264 $ 2,366 4.97% 92,176 $ 2,310 5.01%
-------- -------
Non-interest-bearing liabilities 3,222 2,894
Equity 14,402 13,729
------- -------
Total $112,888 $108,799
======= =======
Net interest income and interest
rate spread (2) 3.01% $ 2,067 3.10% $ 1,947 2.96%
========= ========
Net yield on interest-earning
assets(3) 3.77% 3.77% 3.64%
Ratio of interest-earning assets to 115.25% 115.93%
interest-bearing liabilities
<CAPTION>
For the Nine Months
For the Year Ended December 31, Ended December 31,
--------------------------------------------------------- ------------------------
1996 1995 1994
------------------------- --------------------------- ------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest-bearing deposits $ 1,900 $ 88 4.63% $ 2,773 $ 158 5.70% $ 2,990 $ 107 4.77%
Investments(1) 10,141 628 6.19% 11,871 670 5.64% 12,339 476 5.14%
Loans receivable, net(5) 95,453 7,963 8.34% 86,446 7,118 8.23% 81,309 4,961 8.14%
------- ------ -------- ------- ------- ------
Total interest-earning assets 107,494 $ 8,679 8.07% 101,090 $ 7,946 7.86% 96,638 $ 5,544 7.65%
------ ------- ======
Non-interest-earning assets 1,901 3,079 3,004
------- -------- -------
Total $109,395 $ 104,169 $ 99,642
======= ======== =======
Liabilities and retained earnings:
Interest-bearing liabilities:
NOW & Money Market accounts $ 11,113 $ 220 1.98% $ 11,611 $ 278 2.39% $ 13,424 $ 225 2.23%
Passbook accounts 11,480 322 2.80% 11,006 365 3.32% 11,221 267 3.17%
Certificates of deposit 69,877 4,082 5.84% 65,602 3,773 5.75% 59,802 2,115 4.72%
------- ------ -------- ------ -------- ------
Total deposits 92,470 4,624 5.00% 88,219 4,416 5.00% 84,447 2,607 4.12%
FHLB advances 833 34 4.08% -- -- --% -- -- --%
------- ------ -------- ------ -------- ------
Total interest-bearing liabilities 93,303 $ 4,658 4.99% $ 88,219 $ 4,416 5.01% 84,447 $ 2,607 4.12%
------ -------- ------
Non-interest-bearing liabilities 3,503 3,065 3,023
Equity 13,422 12,885 12,172
-------- -------- -------
Total $ 110,228 $ 104,169 $ 99,642
======== ======== =======
Net interest income and interest
rate spread(2) $ 4,021 3.08% $ 3,500 2.85% $ 2,937 3.53%
====== ====== ======
Net yield on interest-earning
assets(3) 3.74% 3.49% 4.05%
Ratio of interest-earning assets to 115.21% 114.59% 114.44%
interest-bearing liabilities
</TABLE>
- ----------------------------------------------------
(1) Includes investment securities and FHLB of Atlanta common stock.
(2) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income
divided by average interest-earning assets.
(4) Average yield/rate for the six months ended June 30, 1997 and 1996, and
the nine months ended December 31, 1994 have been annualized.
(5) Loans placed on nonperforming status have been included in the computation
of average balances.
(6) The weighted average rate represents the coupon associated with each asset
and liability, weighted by the principle balance associated with each
asset and liability.
<PAGE>
Rate/Volume Analysis
The following table analyzes the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), and (iii) net change (the sum of the previous columns).
The change attributable to both rate and volume (changes in rate multiplied by
changes in volume) has been allocated equally to both the changes attributable
to volume and the changes attributable to rate.
52
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 vs. 1996
-----------------------------------------
Increase (Decrease) Attributable to
-----------------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(In Thousands)
<S> <C> <C> <C> <C>
Interest income on:
Interest-earning deposits in other banks $ 6 $ (3) $ -- $ 3
Investments (95) 39 (12) (68)
Loans receivable 257 (14) (2) 241
--------- --------- --------- ---------
Total interest income on
interest-earning assets 168 22 (14) 176
--------- --------- --------- ---------
Interest expense on:
NOW and Money Market accounts (2) (17) -- (19)
Passbook accounts (2) 13 -- 11
Certificates of Deposit 57 (45) (1) 11
FHLB advances 45 1 7 53
--------- --------- --------- ---------
Total interest expense on
interest-bearing liabilities 98 (48) 6 56
--------- --------- --------- ---------
Increase (decrease) in net interest income $ 70 $ 70 $ (20) $ 120
========= ========= ========= =========
<CAPTION>
Year Ended December 31,
1996 vs. 1995
-----------------------------------------
Increase (Decrease) Attributable to
-----------------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(In Thousands)
<S> <C> <C> <C> <C>
Interest income on:
Interest-earning deposits in other banks $ (50) $ (30) $ 10 $ (70)
Investments (98) 65 (9) (42)
Loans receivable 741 95 9 845
--------- --------- --------- ---------
Total interest income on
interest-earning assets 593 130 10 733
--------- --------- --------- ---------
Interest expense on:
NOW and Money Market accounts (12) (48) 2 (58)
Passbook accounts 16 (57) (2) (43)
Certificates of Deposit 246 59 4 309
FHLB advances -- -- 34 34
--------- --------- --------- ---------
Total interest expense on
interest-bearing liabilities 250 (46) 38 242
--------- --------- --------- ---------
Increase (decrease) in net interest income $ 343 $ 176 $ (28) $ 491
========= ========= ========= =========
<CAPTION>
Year Ended December 31, 1995 vs.
Nine Months Ended December 31, 1994
-----------------------------------------
Increase (Decrease) Attributable to
-----------------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(In Thousands)
<S> <C> <C> <C> <C>
Interest income on:
Interest-earning deposits in other banks $ (8) $ 64 $ (5) $ 51
Investments (18) 220 (8) 194
Loans receivable 314 1,728 115 2,157
--------- --------- --------- ---------
Total interest income on
interest-earning assets 288 2,012 102 2,402
--------- --------- --------- ---------
Interest expense on:
NOW and Money Market accounts (30) 96 (13) 53
Passbook accounts (5) 106 (2) 99
Certificates of Deposit 205 1,324 128 1,657
FHLB advances -- -- -- --
--------- --------- --------- ---------
Total interest expense on
interest-bearing liabilities 170 1,526 113 1,809
--------- --------- --------- ---------
Increase (decrease) in net interest income $ 118 $ 486 $ (11) $ 593
========= ========= ========= =========
</TABLE>
53
<PAGE>
Comparison of Financial Condition at June 30, 1997, December 31, 1996 and 1995
At June 30, 1997, and December 31, 1996 and 1995 assets totaled $114.2
million, $112.6 million and $108.0 million, respectively. The growth from
December 31, 1995 to June 30, 1997 can primarily be attributed to the increase
in loans receivable, funded by savings deposit growth and a decrease in
investment securities, which has been utilized to originate loans. Loans
receivable, net, increased from $90.6 million to $100.5 million at June 30,
1997, a $9.9 million or a 10.99% increase. Savings deposits increased $3.8
million from $92.1 million at December 31, 1995 to $95.9 million at June 30,
1997, for a 4.13% increase. Investment securities, including interest-bearing
deposits, decreased $3.9 million from $13.9 million at December 31, 1995 to
$10.0 million at June 30, 1997 or a 27.84% decrease.
The principal category of earning assets is loans. During the six month
period ended June 30, 1997 loans receivable, net, increased by $2.6 million,
primarily from $6.4 million and $2.0 million originations in residential
one-to-four family dwellings and equity line loans, respectively. Such loan
types account for a $0.9 million and $1.1 million increase in loans receivable,
net for the six-month period ended June 30, 1997. During the years ended
December 31, 1996 and 1995 loans receivable, net, increased by $7.4 million and
$8.1 million, respectively, and residential one-to-four family dwelling loans
increases accounted for $6.3 million and $3.8 million, respectively, while
equity line loan increases accounted for $2.1 million and $2.7 million,
respectively. During 1997, 1996 and 1995, the Bank continued its emphasis on
marketing mortgage lending while more recently emphasizing home equity loans as
well.
The Bank's investment portfolio, including interest-bearing deposits,
remained relatively unchanged, totaling $10.0 million at June 30, 1997 and
December 31, 1996. During the 1996 fiscal year, the investment portfolio
declined by approximately $3.9 million to $10.0 million from $13.9 million at
December 31, 1995, as the Bank utilized maturing investments to fund loan
originations.
Savings deposits increased $2.1 million or 2.23% during the six months
ended June 30, 1997 to $95.9 million from $93.8 million at December 31, 1996, as
the Bank focused marketing on building deposit relationships through increased
core deposits in passbook and statement savings and in checking accounts.
Savings deposits increased $1.7 million and $7.0 million for the years ended
December 31, 1996 and 1995 to $93.8 million and $92.1 million from $92.1 million
and $85.1 million at December 31, 1995 and 1994, respectively. The increase in
fiscal 1996 and 1995 was due primarily to what management believes to be better
marketing of the Bank's products and a policy of setting its deposit rates in
the local market to compete favorably with rates offered by competitors.
Equity increased due to net income of $287,000, $721,000, and $780,000
for the six months ended June 30, 1997 and the fiscal years ended December 31,
1996 and 1995, respectively. The Bank has adopted SFAS No. 115 and records its
available for sale securities at their estimated fair market value. The
unrealized gain, net of tax, on securities available for sale was $20,000,
54
<PAGE>
$28,000 and $63,000 at June 30, 1997 and December 31, 1996 and 1995,
respectively.
At June 30, 1997, the Bank was required to maintain net worth to total
assets of 5% under the Administrator's regulations, and the Bank had regulatory
adjusted net worth of $15.3 million, or net worth to total assets of 13.39%.
Additionally, at June 30, 1997, the Bank had Tier 1 risk adjusted capital,
leverage capital, and total risk-based capital of $14.7 million, $14.7 million
and $15.3 million, respectively, exceeding the regulatory capital requirements
by $12.2 million, $10.1 million and $10.4 million, respectively.
Comparison of Operating Results for the Six-Month Periods Ended June 30, 1997
and 1996
Net Income. Net income for the six-month periods ended June 30, 1997 and
June 30, 1996 was $287,000 and $429,000, respectively. Net income decreased in
1997 from 1996 primarily due to a increase in noninterest expenses offset
somewhat by a higher net interest income due to a larger interest rate spread in
1997. Additionally, the Bank provided additional provisions for loan losses
during the six-month period ended June 30, 1997, to reflect peer group bank
levels of reserves and for risk in the portfolio resulting from the changing
economic environment in the Bank's market area.
Net Interest Income. Net interest income amounted to $2.1 million and
$1.9 million during the six-month periods ended June 30, 1997 and 1996,
respectively. The average balance of interest-earning assets and
interest-bearing liabilities increased by a net of $2.9 million during 1997 and
the Bank's interest rate spread increased from 2.96% in 1996 to 3.10% in 1997 as
a result of a slight decrease in the Bank's cost of funds coupled with a slight
increase in the Bank's yield on interest earning assets. The Bank's spread in
1997 had a positive impact on net interest income along with the higher balance
of net interest-earning assets outstanding during 1996.
See the table on page 47 which analyzes the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. The table distinguishes between (i)
changes attributable to volume (changes in volume multiplied by the prior
period's rate) (ii) changes attributable to rate (changes in rate multiplied by
the prior period's volume) and (iii) mixed changes (changes in volume multiplied
by changes in rate).
Interest Income. Interest income amounted to $4.4 million and $4.3
million for the six-month periods ended June 30, 1997 and 1996, respectively, an
increase of $176,000 or 4.13% . The Bank experienced a 10 basis point increase
in total yield, along with the increase in the Bank's average balances of
interest-earning assets. The increase in average balances was primarily in loans
receivable.
Interest Expense. Interest expense increased $56,000 for the six-month
period ended June 30, 1997 to $2.4 million from $2.3 million for the same period
ended June 30, 1996. The Bank's average balance of outstanding deposits
55
<PAGE>
increased $1.6 million, while the average cost of funds decreased from 5.01%
during 1996 to 4.97% during 1997. The decrease in cost of funds was primarily in
certificates of deposit which decreased from 5.84% during 1996 to 5.72% during
1997. The increase in outstanding average balances was primarily due to an
increase in certificate of deposit balances, while core deposits of passbook
savings, NOW and money market accounts remained stable. Management believes the
Bank's cost of funds was indicative of changes in overall market rates.
See the table on page ___ for additional information concerning the
Bank's yields on interest-earning assets and cost of funds on interest-bearing
liabilities for the six-month periods ended June 30, 1997 and 1996.
Provisions for Loan Losses and Asset Quality. The Bank's provision for
loan losses amounted to $230,000 and $0 in 1997 and 1996. The provision, which
is charged to operations, and the resulting loan loss allowances, are amounts
the Bank's management believes necessary to absorb potential losses on existing
loans that may become uncollectible. Loans are charged off against the allowance
when management believes collectibility is unlikely. The evaluation to increase
or decrease the provision and resulting allowances is based on both prior loan
loss experience and other factors, such as changes in the mix and volume of the
loan portfolio, overall portfolio quality, and current economic conditions.
During the six months ended June 30, 1997, management determined that its
allowance for loan losses should be increased to reflect peer group bank levels
of reserves and for risk in the portfolio resulting from the changing economic
environment in the Bank's market area.
The Bank's level of nonperforming loans, defined as nonaccrual loans and
loans past due 90 days or more, has historically been low as a percentage of
total loans outstanding. The Bank had loans amounting to $1.1 million which were
delinquent more than 90 days or were in nonaccrual status at June 30, 1997. In
addition, the Bank had no real estate owned at June 30, 1997. The Bank has
adopted policies to monitor, and increase when necessary, levels of loan loss
allowances. At June 30, 1997, the Bank's level of general valuation allowances
for loan losses amounted to $617,000.
Noninterest Income. Noninterest income amounted to $87,000 and $104,000
for the six-month periods ended June 30, 1997 and 1996, respectively.
Noninterest income consists primarily of service charges and fees associated
with the Bank's checking accounts. The Bank's level of noninterest income has
remained fairly stable over the periods.
Noninterest Expense. Noninterest expense consists primarily of operating
expenses for compensation and employee benefits, occupancy, federal deposit
insurance premiums, data processing charges and other operating expenses.
Noninterest expense amounted to $1.4 million for both of the six-month periods
ended June 30, 1997 and 1996, respectively. Compensation increased $128,000 for
the six-month period ended June 30, 1997 from the same period ended 1996 due to
inflationary increases and unfunded deferred compensation expense. Occupancy
expenses and data processing expense remained level while deposit insurance
premiums declined $89,000 from 1996 levels due to new premium assessment rates
effective during the six months ended June 30, 1997.
56
<PAGE>
Income Taxes. The Bank's effective income tax rate was 42.13% and 37.46%
for the six-month periods ended June 30, 1997 and 1996, respectively, and
reflect normal expected rates on taxable income.
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995
and the Nine-Months Ended December 31, 1994
Net Income. Net income for the years ended December 1996 and 1995 and
the nine months ended December 31, 1994 amounted to $721,000, $780,000 and
$675,000, respectively. Net interest income was stable during 1996 and 1994 (on
an annualized basis). A decrease in interest rate spread offset somewhat by an
increase in net average balances of interest-earning assets over
interest-bearing liabilities resulted in a $386,000 decrease (annualizing 1994)
in net interest income for the year ended December 31, 1995. The Bank also
incurred an increase in non-interest expenses during 1996 primarily as a result
of a special SAIF assessment.
Net Interest Income. Net interest income for the years ended December
31, 1996 and 1995 and the nine months ended December 31, 1994 amounted to $4.0
million, $3.5 million and $2.9 million, respectively. The net average
outstanding balances of interest-earning assets and interest-bearing liabilities
was relatively stable during 1995 and 1994 amounting to $12.9 million and $12.2
million, respectively, and increased to $14.2 million during 1996. The Bank's
interest rate spread decreased 88 basis points to 2.85% in 1995 from 3.53% in
1994, but increased in 1996 to 3.08%. The 23 basis point increase in interest
rate spread in 1996, coupled with a $1.3 million increase in net average
balances of interest-earning assets over interest-bearing liabilities, increased
net interest income $491,000 during the year ended December 31, 1996. The 88
basis point decrease in interest rate spread in 1995 offset slightly by a
$680,000 increase in net interest-earning assets over interest-bearing
liabilities decreased net interest income by $380,000 (annualizing 1994) for the
year ended December 31, 1995.
The table on page 47 analyzes the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume) and (iii) mixed changes (changes in volume multiplied by
changes in rate).
Interest Income. Interest income amounted to $8.7 million, $7.9 million
and $5.5 million for the years ended December 31, 1996 and 1995 and the nine
months ended December 31, 1994, respectively. The Bank's average yield on
interest-earning assets increased to 8.07% in 1996 from 7.86% in 1995 and 7.65%
in 1994. The Bank's primary interest-earning asset is loans receivable which
experienced an increase in both average yield and average outstanding balances
during 1996 and 1995. Outstanding average balances on loans increased $9.0
million to $95.5 million during 1996 from $86.4 million during 1995 and
increased $5.1 million to $86.4 million during 1995 from $81.3 million during
57
<PAGE>
1994. Additionally, average yields on loans increased to 8.34% in 1996 from
8.23% in 1995 and 8.14% in 1994.
Interest Expense. Interest expense amounted to $4.7 million, $4.4
million and $2.6 million for the years ended December 31, 1996 and 1995 and the
nine months ended December 31, 1994, respectively. Interest expense increased
$242,000 in 1996 as average outstanding balances increased $4.3 million while
cost of funds remained flat at 5.00%. The primary interest-bearing liability is
certificates of deposit which increased $4.3 million during the year ended
December 31, 1996 and the cost of funds on certificates of deposit increased 9
basis points to 5.84% from 5.75% during 1995. Interest expense during 1995
increased $940,000 (1994 expense annualized) due to an increase in average
outstanding balances of $3.8 million to $88.2 million during 1995 from $84.4
million during 1994 and an increase in average cost of funds of 88 basis points
to 5.01% from 4.12% during 1994.
The table on page 45 provides additional information concerning the
Bank's yields on interest-earning assets and cost of funds on interest-bearing
liabilities at June 30, 1997, for the six-month periods ended June 30, 1997 and
1996, and for the years ended December 31, 1996 and 1995 and the nine months
ended December 31, 1994.
Provision for Loan Losses and Asset Quality. The Bank had no provision
for loan losses in 1996 and minimal provision for 1995 and 1994. The loan loss
allowances are amounts the Bank's management believes necessary to absorb
potential losses on existing loans that may become uncollectible. Loans are
charged off against the allowance when management believes that collectibility
is unlikely. The evaluation to increase or decrease the provision and resulting
allowances is based both on prior loan loss experience and other factors, such
as changes in the nature and volume of the loan portfolio, overall portfolio
quality and current economic conditions.
The Bank's level of nonperforming loans, defined as nonaccrual loans and
accruing loans past due 90 days or more, has historically been low as a
percentage of total loans outstanding. Loans outstanding which were delinquent
more than 90 days were approximately $1.2 million at each of December 31, 1996,
1995 and 1994. Foreclosures or real estate transfers in lieu of foreclosures
amounted to $0, $0, and $93,000 in 1996, 1995 and 1994, respectively. The Bank
has adopted policies to monitor, and increase when necessary, levels of loan
loss allowances. At June 30, 1997, the Bank's level of general valuation
allowances for loan losses amounted to $617,000.
Noninterest Income. Noninterest income amounted to $200,000, $190,000
and $149,000 for the years ended December 31, 1996 and 1995 and the nine months
ended December 31, 1994, respectively. Noninterest income consists primarily of
service charges and fees associated with the Bank's checking accounts. The
Bank's level of noninterest income has remained fairly stable over the two-year
and nine-month period ended December 31, 1996.
Noninterest Expense. Noninterest expense consists primarily of operating
expenses for compensation and employee benefit, occupancy, federal deposit
58
<PAGE>
insurance premiums, data processing charges, pension expense and other operating
expenses. Noninterest expense amounted to $3.1 million, $2.6 million and $2.0
million for the years ended December 31, 1996 and 1995 and the nine months ended
December 31, 1994, respectively. Compensation expense increased (decreased)
$145,000 and $(90,000) (1994 annualized) during the years ended December 31,
1996 and 1995, respectively. The increases were due to a special one-time SAIF
assessment of $520,000, additional personnel, inflationary increases and pension
and supplemental income benefit expense. Data processing, regular federal
insurance premium and other operating expenses increased nominally during the
two-year and nine-month period ended December 31, 1996. Occupancy expense
decreased $97,000 during 1996 and remained relatively stable during 1995 (1994
annualized).
Income Taxes. The Bank's effective income tax rate was 32.93%, 28.04%
and 34.85% for the years ended December 31, 1996 and 1995 and the nine months
ended December 31, 1994, respectively, and reflect normal expected rates on
taxable income.
Impact of Inflation and Changing Prices
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with generally accepting accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of the Bank's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Bank are monetary in
nature. As a result, interest rates have a greater impact on the Bank's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.
Impact of New Reporting and Accounting Standards
The FASB has issued SFAS No. 123, Accounting for Stock-Based
Compensation, which the Bank has not been required to adopt as of June 30, 1997.
The Statement, which will be in effect for the Bank's fiscal year ending
December 31, 1997, will require that an entity account for stock based
compensation plans using a fair value based method which measures compensation
cost at the grant date based upon the value of the award, which is then
recognized over the service period, usually the vesting period. The accounting
requirements of the Statement apply to grants of awards entered into in fiscal
years that begin after December 15, 1995. The Statement allows entities to
continue to use APB Opinion No. 25 to measure compensation cost, but requires
that the proforma effects on net income and earnings per share be disclosed to
reflect the difference between the compensation cost, if any, from applying APB
Opinion No. 25 and the related cost measured by the fair value method defined in
the Statement. The Statement is not expected to have a material effect on the
Bank's financial statements, should the Bank elect to adopt a restricted stock
plan subsequent to conversion to the stock form, because management is expected
to elect to continue to use the accounting and reporting permitted by APB
59
<PAGE>
Opinion No. 25 and will disclose the differences, if any, in notes to the
financial statements as proforma effects of not utilizing the fair value method
prescribed in SFAS No. 123.
The Accounting Standards Division of the AICPA approved SOP 93-6,
"Employers' Accounting for Employee Stock Ownership Plans", which is effective
for fiscal years beginning after December 31, 1993 and applies to shares of
capital stock of sponsoring employers acquired by employee stock ownership plans
after December 31 1992 that had not been committed to be released as of January
1, 1992. SOP 93-6, among other things, changed the measure of compensation
recorded by employers from the cost of employee stock ownership plan shares to
the fair value of such shares. To the extent that the fair value of the ESOP
shares, committed to be released directly to compensate employees, differs from
the cost of such shares, compensation expenses and a related charge or credit to
additional paid-in capital will be reported in the Bank's financial statements.
The FASB has issued SFAS No. 128, Earning Per Share, which the Bank has
not been required to adopt as of June 30, 1997. The Statement, which will be
effective for the Bank's first interim period as a public stock company ending
after December 15, 1997, specifies the computation, presentation and disclosure
requirements for earnings per share.
The FASB has issued SFAS No. 130, Reporting Comprehensive Income, which
the Bank has not been required to adopt as of June 30, 1997. The Statement,
which is effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement requires that all items
that are recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
BUSINESS OF THE COMPANY
Prior to the Conversion, the Company will not transact any material
business. Following the Conversion, in addition to directing, planning and
coordinating the business activities of the Bank, the Company will invest the
proceeds of the Conversion which are retained by it. See "USE OF PROCEEDS." Upon
consummation of the Conversion, the Company will have no significant assets
other than the shares of the Bank's capital stock acquired in the Conversion,
the loan receivable held with respect to its loan to the ESOP and that portion
of the net proceeds of the Conversion retained by it, and it will have no
significant liabilities. Cash flow to the Company will be dependent upon
investment earnings from the net proceeds retained by it, payments on the ESOP
loan and any dividends received from the Bank. Initially, 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 its officers (who are not anticipated to be
separately compensated by the Company), but 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 its business in the future. In the future, the
Company may consider using some of the proceeds of the Conversion retained by it
to expand its operations in its existing primary market and other nearby areas
by acquiring other financial institutions or their branches. The Company has no
current plans with respect to any such acquisitions, however. Existing
management of the Company believes that it is in the best interest of the
Company and its shareholders for the Company to remain an independent company.
60
<PAGE>
BUSINESS OF THE BANK
General
The Bank is engaged primarily in the business of attracting deposits
from the general public and using such deposits to make mortgage loans secured
by real estate. The Bank makes one-to-four family residential real estate loans,
loans secured by multi-family residential and commercial real property,
construction loans and equity line of credit loans. The Bank also makes loans
which are not secured by real property, such as loans secured by pledged deposit
accounts and various types of secured and unsecured consumer loans. The Bank's
primary source of revenue is interest income from its lending activities. The
Bank's other major sources of revenue are interest and dividend income from
investments, interest income from its interest-earning deposit balances in other
depository institutions, and transaction and fee income from its lending and
deposit activities. The major expenses of the Bank are interest on deposits and
general and administrative expenses such as employee compensation and benefits,
federal deposit insurance premiums, data processing expenses and occupancy
expenses.
As a North Carolina-chartered savings bank, the Bank is subject to
examination and regulation by the FDIC and the Administrator. Upon consummation
of the Conversion, the Bank, as a subsidiary of the Company, will be subject to
indirect regulation by the Federal Reserve. The business and regulation of the
Bank are subject to legislative and regulatory changes from time to time. See
"SUPERVISION AND REGULATION -- Regulation of the Bank."
Market Area
The Bank's primary market area consists of the communities in an
approximately 15-mile radius around its headquarters office in Mooresville,
North Carolina. This area includes portions of Iredell, Mecklenburg, Lincoln,
Catawba, Rowan and Cabarrus counties in North Carolina. Mooresville is located
only 30 miles north of Charlotte, North Carolina, and the Bank's primary market
area is and will continue to be significantly affected by its close proximity to
this major metropolitan area.
Employment in the Bank's primary market area is diversified among
manufacturing, agricultural, retail and wholesale trade, government, services
and utilities. Draymore Manufacturing (textiles manufacturer) is the largest
employer in Mooresville. Other major employers include Burlington Industries
(textiles manufacturer) and Lake Norman Regional Medical Center.
Based upon 1996 comparative data, the Bank had approximately 22% and
7.2% of the deposits in Mooresville and Iredell County, respectively. Employment
in the Bank's primary market area as of June 1997 was strong, with an
unemployment rate below that of North Carolina and national averages.
Comparative data indicates that the income levels in the Bank's primary market
area approximate the national average and are above the North Carolina average
for 1997. Mooresville has a significant elderly population, slightly in excess
of state and national averages. Residential housing construction increased
approximately 155% in Iredell County from 1991 to 1996, more than double the
state average and more than triple the national average. From 1990 to 1995, the
population in Iredell County, where most of the Bank's deposits and loans are
originated, and Mooresville increased by approximately 11.3% and 20.2%,
respectively, which was well above national and North Carolina averages. This
growth trend is expected to continue into the foreseeable future.
Lending Activities
General. The Bank's primary source of revenue is interest and fee income
from its lending activities, consisting primarily of mortgage loans for the
purchase or refinancing of one-to-four family residential real property located
in its primary market area. The Bank also makes loans secured by multi-family
and nonresidential properties, construction loans, equity line loans, savings
account loans and various types of secured and unsecured consumer loans. Only
3.25% of the Bank's loan portfolio, before net items, is not secured by real
estate. On June 30, 1997, the Bank's largest
61
<PAGE>
single outstanding loan had a balance of approximately $495,000. In addition to
interest earned on loans, the Bank receives fees in connection with loan
originations, loan modifications, late payments, loan assumptions and other
miscellaneous services. The Bank generally does not sell its loans; both fixed
and adjustable rate loans are originated with the intention that they will be
held in the Bank's loan portfolio.
Loan Portfolio Composition. The Bank's net loan portfolio totaled
approximately $100.5 million at June 30, 1997 representing 88.04% of the Bank's
total assets at such date. At June 30, 1997, 82.07% of the Bank's loan
portfolio, before net items, was composed of one-to-four family residential
mortgage loans. Multi-family residential and nonresidential real estate loans
represented 3.50% of the Bank's loan portfolio, before net items, on such date.
Construction loans and equity line loans represented 5.44% and 5.75%,
respectively, of the Bank's loan portfolio, before net items, on such date. As
of June 30, 1997, 31.52% of the loans in the Bank's loan portfolio, before net
items, had adjustable interest rates.
The following table sets forth the composition of the Bank's loan
portfolio by type of loan at the dates indicated.
62
<PAGE>
<TABLE>
<CAPTION>
At December 31,
---------------------
At June 30, 1997 1996
------------------ ---------------------
% of % of
Amount Total Amount Total
------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One-to-four family residential $ 86,117 85.68% $ 85,341 87.13%
Multi-family residential 870 0.87% 761 0.78%
Nonresidential 2,803 2.79% 2,711 2.76%
Construction 5,710 5.68% 4,086 4.17%
Equity line 6,031 6.00% 4,947 5.05%
-------- ------- -------- -------
Total real estate loans 101,531 101.02% 97,846 99.89%
-------- ------- -------- -------
Consumer loans:
Installment loan 2,447 2.43% 2,397 2.45%
Other consumer and commercial 959 0.95% 941 0.96%
-------- ------- -------- -------
Total consumer loans 3,406 3.38% 3,338 3.41%
-------- ------- -------- -------
Total gross loans 104,937 104.40% 101,184 103.30%
-------- ------- -------- -------
Less:
Construction loans in process 3,261 3.24% 2,321 2.37%
Deferred loan fees 553 0.55% 524 0.53%
Allowance for loan losses 617 0.61% 388 0.40%
-------- ------- -------- -------
Total reductions 4,431 4.40% 3,233 3.30%
-------- ------- -------- -------
Total loans receivable, net $100,506 100.00% $ 97,951 100.00%
======== ======= ======== =======
<CAPTION>
At December 31,
--------------------------------------------------
1995 1994
--------------------- --------------------
% of % of
Amount Total Amount Total
------ ----- ------ -----
<S> <C> <C> <C> <C>
Real estate loans:
One-to-four family residential $ 78,693 86.90% $74,904 90.85%
Multi-family residential 748 0.82% 643 0.78%
Nonresidential 2,044 2.26% 1,988 2.41%
Construction 8,673 9.58% 5,052 6.13%
Equity line 2,891 3.19% 207 0.25%
-------- ------- ------- -------
Total real estate loans 93,049 102.75% 82,794 100.42%
-------- ------- ------- -------
Consumer loans:
Installment loan 2,403 2.66% 2,396 2.91%
Other consumer and commercial 907 1.00% 625 0.76%
-------- ------- ------- -------
Total consumer loans 3,310 3.66% 3,021 3.67%
-------- ------- ------- -------
Total gross loans 96,359 106.41% 85,815 104.09%
-------- ------- ------- -------
Less:
Construction loans in process 4,930 5.44% 2,580 3.14%
Deferred loan fees 478 0.53% 386 0.47%
Allowance for loan losses 396 0.44% 396 0.48%
-------- ------- ------- -------
Total reductions 5,804 6.41% 3,362 4.09%
-------- ------- ------- -------
Total loans receivable, net $ 90,555 100.00% $ 82,453 100.00%
======== ======= ======== =======
</TABLE>
<PAGE>
The following table sets forth the time to contractual maturity of the
Bank's loan portfolio at June 30, 1997. Loans which have adjustable rates are
shown as being due in the period during which rates are next subject to change,
while fixed rate and other loans are shown as due in the period of contractual
maturity. Demand loans, loans having no stated maturity and overdrafts are
reported as due in one year or less. The table does not include prepayments or
scheduled principal repayments. Amounts in the table are net of loans in process
and are net of unamortized loan fees.
<TABLE>
<CAPTION>
At June 30, 1997
----------------------------------------------------------------
More Than
1 Year 1 Year to Greater Than
or Less 5 Years 5 Years Total
------- --------- --------- -----
(In Thousands)
TOTAL LOANS:
- -----------
<S> <C> <C> <C> <C>
Real estate loans:
Adjustable rate residential 1-4 family $ 21 $ 503 $ 25,273 $ 25,797
Fixed rate residential 1-4 family 55 1,048 58,604 59,767
Residential multi-family - fixed -- -- 870 870
Nonresidential - adjustable 9 14 1,529 1,552
Nonresidential - fixed 172 7 1,072 1,251
Equity line 6,031 -- -- 6,031
Construction 304 2 2,143 2,449
Commercial - adjustable 57 237 38 332
Other loans 648 2,367 59 3,074
Less:
Allowance for loan losses (617) -- -- (617)
-------- ------- -------- --------
Totals $ 6,680 $ 4,178 $ 89,588 $100,506
======== ======= ======== ========
</TABLE>
The following table sets forth the dollar amount at June 30, 1997 of all
loans maturing or repricing on or after June 30, 1998 which have fixed or
adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Adjustable
Rates Rates
----- -----
(In Thousands)
<S> <C> <C>
Real estate loans 1-4 family $59,712 $25,776
Other loans 5,880 2,398
------- -------
$65,592 $28,174
======= =======
</TABLE>
Origination and Sale of Loans. Historically, the Bank has generally not
originated its one-to-four family residential mortgage or other loans with the
intention that they will be sold in the secondary market. Although the Bank
believes that many of its one-to-four family residential loans could be sold to
investors, some of such loans could be sold only after the Bank incurred certain
costs and/or discounted the purchase price. As a result, the Bank's loan
64
<PAGE>
portfolio is less liquid than would be the case if it was composed entirely of
loans originated in conformity with secondary market requirements.
The table below sets forth the Bank's loan origination, purchase and sale
activity and loan portfolio repayment experience during the periods indicated.
65
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended
June 30, Year Ended December 31, December 31,
----------------------- ------------------------- -------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans receivable, net, beginning of period $ 97,951 $ 90,555 $ 90,555 $ 82,453 $ 79,031
-------- -------- -------- -------- --------
Loan originations:
Residential 1-4 family 6,745 6,856 13,392 12,604 7,502
Residential multi-family 125 20 40 128 105
Nonresidential real estate 297 28 168 169 539
Residential construction 3,834 3,628 6,356 7,965 4,912
Equity line 2,030 1,797 3,661 4,051 642
Consumer 1,068 1,050 2,294 2,237 1,729
-------- -------- -------- -------- --------
Total loan originations 14,099 13,379 25,911 27,154 15,429
-------- -------- -------- -------- --------
Loans purchased -- -- -- -- --
Loan sales -- -- -- -- --
Principal repayments (11,394) (9,862) (18,657) (19,179) (12,101)
Other changes, net (1) (150) 71 142 127 94
-------- -------- -------- -------- --------
Increase in loans receivable 2,555 3,588 7,396 8,102 3,422
-------- -------- -------- -------- --------
Loans receivable, net, end of period $100,506 $ 94,143 $ 97,951 $ 90,555 $ 82,453
======== ======== ======== ======== ========
</TABLE>
(1) Includes changes in deferred loan fees and the allowance for loan losses.
66
<PAGE>
One-to-Four Family Residential Real Estate Lending. The Bank's primary
lending activity, which it intends to continue to emphasize, is the origination
of fixed and adjustable rate first mortgage loans to enable borrowers to
purchase or refinance one-to-four family residential real property. Consistent
with the Bank's emphasis on being a community- oriented financial institution,
it is and has been the Bank's strategy to focus its lending efforts in its
primary market area. On June 30, 1997, approximately 82.07% of the Bank's real
estate loan portfolio, before net items, consisted of one-to-four family
residential real estate loans. These include both loans secured by detached
single-family residences and condominiums and loans secured by housing
containing not more than four separate dwelling units. Of such loan amounts,
24.59% had adjustable interest rates.
Historically, the Bank has not originated its one-to-four family loans with
the intention that they will be sold in the secondary market. The Bank generally
originates loans satisfying its underwriting requirements which are tailored for
its local community. Specifically, the Bank does not obtain property surveys,
uses in-house appraisers only for loans over $250,000 and sometimes accepts
higher than normal debt-to-income ratios and may waive other FHLMC or FNMA
requirements on a case-by-case basis. As a result, such loans are not readily
saleable in the secondary market and the Bank's loan portfolio is less liquid
than would be the case if it was composed of loans originated in conformity with
secondary market requirements. In addition, loans which are not originated in
conformity with the purchase requirements of FHLMC and FNMA, or nonconforming
loans, are generally thought to have greater risks of default and
nonperformance. However, the Bank does not make loans with a loan-to-value ratio
in excess of 80%. See "BUSINESS OF THE BANK -- Origination and Sale of Loans."
These loans satisfy a need in the Bank's local community and generally produce a
higher yield than would be produced by conforming loans. The Bank plans to
continue to originate a significant amount of nonconforming loans. Therefore, in
periods of economic downturn, the Bank's level of nonperforming assets may be
greater than its peer group.
The Bank originates conventional mortgage loans secured by owner occupied
property in amounts of up to 95% of the value of the property. Private mortgage
insurance is generally required if the loan amount exceeds 80% of the value of
the property. The loans have both fixed and adjustable rates. The maximum term
for fixed and adjustable rate loans is 30 years. The interest rates on
adjustable rate loans are generally adjustable every year and are tied to the
one-year United States treasury bill rate. The loans have rate caps which limit
the amount of changes at the time of each adjustment and over the lives of the
loans. The Bank offers loans which require monthly payments.
Adjustable rate loans are generally considered to involve a greater degree
of credit risk than fixed rate loans because borrowers may have difficulty
meeting their payment obligations if interest rates and required payment amounts
increase substantially. Substantially all of the fixed-rate loans in the Bank's
mortgage loan portfolio have due on sale provisions allowing the Bank to declare
the unpaid balance due and payable in full upon the sale or transfer of an
interest in the property securing the loan.
While one-to-four family residential loans are normally originated for up
to 30 year terms, such loans customarily remain outstanding for substantially
shorter periods because borrowers often prepay their loans in full upon sale of
the property pledged as security or upon refinancing the original loan. Thus,
average loan maturity is a function of, among other factors, the level of
purchase and sale activity in the real estate market, prevailing interest rates,
and the interest rates payable on outstanding loans.
The Bank generally requires title insurance for its one-to-four family
residential loans. The Bank also generally requires that fire and extended
coverage casualty insurance (and, if appropriate, flood insurance) be maintained
in an amount at least equal to the loan amount or replacement cost of the
improvements on the property securing the loans, whichever is greater.
As of June 30, 1997, the Bank has 48 loan relationships with individual
borrowers in excess of $200,000, totaling approximately $12.4 million or 11.81%
of the Bank's total loan portfolio. The principal balance of five individual
loans exceeds $350,000, with the largest single loan balance in excess of
$495,000. The majority of these loans are secured by residential real estate
located near or on Lake Norman, North Carolina, which is located in parts of
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Catawba, Iredell, Lincoln and Mecklenburg counties. While these loans are
performing according to the terms of their loan documents, an economic downturn
in the Bank's primary market area, in which Lake Norman is located, could have
an adverse effect on the performance of these loans.
Multi-family Residential and Nonresidential Real Estate Lending. On June
30, 1997, the Bank had $3.7 million outstanding in loans secured by multi-family
residential and nonresidential properties, comprising approximately 3.50% of its
loan portfolio, before net items, as of that date. These loans are secured by
apartments, office, retail and other nonresidential real estate, and church
properties, with the majority having adjustable interest rates. These loans
generally do not exceed 80% of the appraised value of the real estate securing
the loans. Multi-family residential loans have terms of up to 30 years.
Nonresidential real estate loans have terms of up to 15 years. The loans
generally use the same index and rate change limitations as are used in one-to-
four family residential lending. See "-- One-to-Four Family Residential Real
Estate Lending."
The Bank generally requires title insurance in connection with its multi-
family residential and nonresidential real estate loans. The Bank also requires
that fire and extended coverage casualty insurance (and, if appropriate, flood
insurance) be maintained in an amount at least equal to the loan amount or the
replacement cost of the improvements on the property securing the loans,
whichever is greater.
Loans secured by multi-family and nonresidential real estate generally are
larger than one-to-four family residential loans and involve greater
concentration of assets and a greater degree of risk. Payments on these loans
depend to a large degree on results of operations and management of the
properties and may be affected to a greater extent by adverse conditions in the
real estate market or the economy in general. Since commercial lending is
frequently secured by leased or operating commercial properties, repayment
frequently depends upon the results of operations of the tenant or operating
entity. Multi-family and residential and nonresidential loans also generally
involve more specialized and complicated underwriting decisions than one-to-four
family residential real estate lending. The Bank intends to continue to make
multi-family residential and commercial real estate loans. Any significant
expansion into commercial real estate lending activities will require additional
personnel with commercial lending experience.
Construction Lending. The Bank makes construction loans for the
construction of single-family dwellings, and for the construction of multi-
family and commercial buildings. The aggregate outstanding balance of such loans
on June 30, 1997 was approximately $5.7 million, representing approximately
5.44% of the Bank's loan portfolio, before net items, and included construction
loans in process of approximately $3.3 million. Some of these loans were made to
persons who are constructing properties for the purpose of occupying them;
others were made to builders who were constructing properties for sale. Loans
made to builders are generally "pure construction" loans which require the
payment of interest during the construction period of generally one year or less
and the payment of the principal in full at the end of the construction period.
Loans made to individual property owners are both pure construction loans and
"construction- permanent" loans which generally provide for the payment of
interest only during a construction period, after which the loans convert to a
permanent loan at fixed or adjustable interest rates having terms similar to
one-to-four family residential loans.
Construction loans for one-to-four family real estate to be occupied by the
borrower generally have a maximum loan-to-value ratio of 85% of the appraised
value of the property. Other construction loans are made at loan to value ratios
of up to 80%. Title insurance is generally required for construction loans. In
addition, the Bank generally requires builders risk or casualty insurance (and,
if appropriate, flood insurance) on such loans.
Construction loans are generally considered to involve a higher degree of
risk than long-term financing secured by real estate which is already occupied.
A lender's risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at the completion of
construction and the estimated cost (including interest) of construction. If the
estimate of construction costs proves to be inaccurate, the lender may be
required to advance funds beyond the amount originally committed in order to
permit completion of construction. If
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<PAGE>
the estimate of anticipated value proves to be inaccurate, the lender may have
security which has value insufficient to assure full repayment. In addition,
repayment of loans made to builders to finance construction of properties is
often dependent upon the builder's ability to sell the property once
construction is completed.
Equity Line of Credit Lending. At June 30, 1997, the Bank had approximately
$6.0 million in equity line of credit loans, representing approximately 5.75% of
its loan portfolio, before net items. In addition, at such date, the Bank had
unfunded equity lines of credit totaling $3.0 million. The Bank's equity lines
of credit have adjustable interest rates tied to prime interest rates plus a
margin. The equity lines of credit require the payments of principal and
interest monthly, and all outstanding amounts must be paid in full at the end of
15 years. Equity lines of credit are generally secured by subordinate liens
against residential real property. The Bank requires title opinions from
attorneys in connection with these loans. The Bank requires that fire and
extended coverage casualty insurance (and, if appropriate, flood insurance) be
maintained in an amount at least sufficient to cover its loan. Equity loans are
generally limited so that the amount of such loans, along with any senior
indebtedness, does not exceed 90% of the value of the real estate security.
Because equity loans involve revolving lines of credit which can be drawn over a
period of time, the Bank faces risks associated with changes in the borrower's
financial condition. Because equity loans have adjustable interest rates with no
rate caps (other than usury limitations), increased delinquencies could occur if
interest rate increases occur and borrowers are unable to satisfy higher payment
requirements. The risks faced associated with equity line of credit loans are
also greater due to the fact that most such loans have a junior lien position.
However, the Bank will continue to emphasize the origination of equity lines of
credit in an effort to increase its adjustable rate loan portfolio and reduce
its interest rate risk.
Consumer Loans. The Bank offers various consumer loans, including home
improvement loans, automobile loans and other secured and unsecured loans. At
June 30, 1997, the Bank's consumer loan portfolio totaled $3.4 million,
representing 3.25% of its total loan portfolio, before net items. Unsecured
loans constituted 0.49% of the total loan portfolio or $512,000. Automobile
loans generally have terms not exceeding 48 months, have fixed interest rates
and do not exceed 80% of the fair market value of the automobile securing the
loan. Home improvement loans are generally secured by a subordinate lien on the
property being improved, do not exceed 80% of the value of such property less
the amount secured by any prior liens, and have terms of no more than 15 years.
Consumer lending usually involves more risk than residential mortgage lending
because payment patterns are more significantly influenced by general economic
conditions and because any collateral for such loans frequently consists of
depreciating property.
Loans Secured by Deposits. The Bank also offers loans secured by deposit
accounts. At June 30, 1997, such loans totaled $591,000, representing 0.56% of
the Bank's loan portfolio, before net items. The interest rates on these loans
are variable and are generally 2% above the interest rate being paid on the
deposit account serving as collateral. The maximum amounts of these loans is
generally 90% of the related deposit account.
Loan Solicitation, Processing and Underwriting. Loan originations are
derived from a number of sources such as referrals from real estate brokers,
present depositors and borrowers, builders, attorneys, walk-in customers and in
some instances, other lenders.
During its loan approval process, the Bank assesses the applicant's ability
to make principal and interest payments on the loan and the value of the
property securing the loan. The Bank obtains detailed written loan applications
to determine the borrower's ability to repay and verifies responses on the loan
application through the use of credit reports, financial statements, and other
confirmations. Under current practice, the responsible officer or loan officer
of the Bank analyzes the loan application and the property involved, and an
appraiser inspects and appraises the property. The Bank generally requires
independent fee appraisals only on loans in excess of $250,000 originated
primarily on the basis of real estate collateral. The Bank also obtains
information concerning the income, financial condition, employment and the
credit history of the applicant.
All real estate loans, except equity loans, must be approved by the Bank's
loan committee which includes three
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<PAGE>
loan officers appointed annually by the Board of Directors. Real estate loans in
excess of $250,000 must be approved by the Board of Directors. Equity and
consumer loans, up to $250,000, may be approved by George W. Brawley, Jr.,
President and Chief Executive Officer, or Dale W. Brawley, Executive Vice
President and Treasurer. All loans must be reported to the Board of Directors
monthly.
Normally, upon approval of a residential mortgage loan application, the
Bank gives a commitment to the applicant that it will make the approved loan at
a stipulated rate any time within a 15-day period. The loan is typically funded
at such rate of interest and on other terms which are based on market conditions
existing as of the date of the commitment. As of June 30, 1997, the Bank had
$1.3 million in such unfunded mortgage loan commitments. In addition, on such
date the Bank had $3.3 million in undisbursed construction loans and $367,000 in
unfunded commitments for unused lines of credit.
Interest Rates, Terms, Points and Fees. Interest rates and fees charged on
the Bank's loans are affected primarily by the market demand for loans,
competition, the supply of money available for lending purposes and the Bank's
cost of funds. These factors are affected by, among other things, general
economic conditions and the policies of the federal government, including the
Federal Reserve, tax policies and governmental budgetary matters.
In addition to earning interest on loans, the Bank receives fees in
connection with originating loans. Fees for loan modifications, late payments,
loan assumptions and other miscellaneous services in connection with loans are
also charged by the Bank.
Nonperforming Assets and Asset Classification. When a borrower fails to
make a required payment on a loan and does not cure the delinquency promptly,
the loan is classified as delinquent. In this event, the normal procedure
followed by the Bank is to make contact with the borrower at prescribed
intervals in an effort to bring the loan to a current status, and late charges
are assessed as allowed by law. In most cases, delinquencies are cured. If a
delinquency is not cured, the Bank normally, subject to any required prior
notice to the borrower, commences foreclosure proceedings. If the loan is not
reinstated within the time permitted for reinstatement, or the property is not
redeemed prior to sale, the property may be sold at a foreclosure sale. In
foreclosure sales, the Bank may acquire title to the property through
foreclosure, in which case the property so acquired is offered for sale and may
be financed by a loan involving terms more favorable to the borrower than those
normally offered. Any property acquired as a result of foreclosure or by deed in
lieu of foreclosure is classified as real estate owned until such time as it is
sold or otherwise disposed of by the Bank in an effort to recover its
investment. As of June 30, 1997, the Bank had no real estate acquired in
settlement of loans. Real estate acquired through, or in lieu of, loan
foreclosure is initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management, and the real estate is carried at the lower of cost or
fair value minus costs to sell. Costs relating to the development and
improvement of the property are capitalized, and costs relating to holding the
property are charged to expenses. See Note 3 to "Notes to Financial Statements."
Interest on loans is recorded as borrowers' monthly payments become due.
Accrual of interest on loans is suspended when interest becomes 90 days past due
or earlier when, in management's judgment, doubts exist as to the collectibility
of additional interest. Interest more than 90 days past due is reserved. Loans
begin accruing interest again when interest is brought current.
The following table sets forth information with respect to nonperforming
assets identified by the Bank, including nonaccrual loans and accruing loans
past due 90 days or more at the dates indicated.
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<PAGE>
<TABLE>
<CAPTION>
At June 30, At December 31,
------------------------- -------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 793 $ 958 $ 1,104 $ 518 $ 560
Accruing loans past due 90 days or more 304 243 143 684 616
Foreclosed real estate -- -- -- -- --
---------- ---------- ---------- ---------- ---------
Total nonperforming assets $ 1,097 $ 1,201 $ 1,247 $ 1,202 $ 1,176
========== ========== ========== ========== =========
Nonperforming loans to total gross loans 1.05% 1.21% 1.23% 1.25% 1.37%
========== ========== ========== ========== =========
Nonperforming assets to total assets 0.96% 1.09% 1.11% 1.11% 1.18%
========== ========== ========== ========== =========
Total assets $114,162 $109,699 $112,552 $108,033 $ 99,966
Total gross loans $104,937 $ 99,042 $101,184 $ 96,359 $ 85,815
</TABLE>
During the six months ended June 30, 1997 and the fiscal year ended December 31,
1996, gross interest income of $44,000 and $54,000, respectively, would have
been recorded on nonperforming assets if such assets had been current in
accordance with their terms and had been outstanding throughout the period or
since origination, if held for part of such period. The amount of gross interest
income actually recorded on such nonperforming assets during such periods was
$6,000 and $20,000, respectively.
Applicable regulations require the Bank to "classify" its own assets on a
regular basis. In addition, in connection with examinations of savings
institutions, regulatory examiners have authority to identify problem assets
and, if appropriate, classify them. Problem assets are classified as
"substandard," "doubtful" or "loss," depending on the presence of certain
characteristics as discussed below.
An asset is considered "substandard" if not adequately protected by the
current net worth and paying capacity of the obligor or the collateral pledged,
if any. "Substandard" assets include those characterized by well-defined
weakness with possible risk of loss if the deficiency is not corrected. Assets
classified as "doubtful" have all of the weaknesses inherent in those classified
"substandard" with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable." Assets classified "loss" are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a loss reserve is not warranted.
As of June 30, 1997, the Bank had approximately $1.1 million of loans
internally classified as "substandard," no loans classified as "doubtful" and no
loans classified as "loss." Total classified loans as of December 31, 1996 and
1995 were approximately $1.3 million and approximately $1.2 million,
respectively.
The following table sets forth at June 30, 1997, the Bank's aggregate
carrying value of the assets classified as substandard, doubtful, loss or
"special mention":
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<PAGE>
<TABLE>
<CAPTION>
Special Mention List Substandard Doubtful Loss
-------------------- ----------------- ------------------- ----------------
Number Amount Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family 29 $ 1,258 15 $ 891 -- $ -- -- $ --
Residential multi-family -- -- -- -- -- -- -- --
Nonresidential -- -- -- -- -- -- -- --
Construction -- -- -- -- -- -- -- --
Equity line 3 23 1 11 -- -- -- --
------- -------- ------- ------- ------- ------- ------- -------
Total real estate loans 32 1,281 16 902 -- -- -- --
------- -------- ------- ------- ------- ------- ------- -------
Consumer loans:
Installment loan -- -- 1 23 -- -- -- --
Other consumer and commercial 5 20 7 171 -- -- -- --
------- -------- ------- ------- ------- ------- ------- -------
Total consumer loans 5 20 8 194 -- -- -- --
------- -------- ------- ------- ------- ------- ------- -------
Total 37 $ 1,301 24 $ 1,096 -- $ -- -- $ --
======= ======== ======= ======= ======= ======= ======= =======
</TABLE>
When an insured institution classifies problem assets as either substandard
or doubtful, it is required to establish general allowances for loan losses in
an amount deemed prudent by management. These allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities and the risks associated with particular problem assets.
When an insured institution classifies problem assets as "loss," it charges off,
or writes down the balance of, the asset. The Bank's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the FDIC and the Administrator which can order the
establishment of additional loss allowances.
The Bank also identifies assets which possess credit deficiencies or
potential weaknesses deserving close attention by management. These assets are
maintained on a "watch list" and do not yet warrant adverse classification. At
June 30, 1997, the Bank's watch list consisted of 13 loans with an aggregate
outstanding balance of approximately $1.3 million.
Allowance for Loan Losses. In originating loans, the Bank recognizes that
credit losses will be experienced and that the risk of loss will vary with,
among other things, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a secured loan, the
quality of the security for the loan as well as general economic conditions. It
is management's policy to maintain an allowance for loan losses based on, among
other things, the Bank's historical loan loss experience, evaluation of economic
conditions and regular reviews of delinquencies and loan portfolio quality.
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 loans.
Management continues to actively monitor the Bank's asset quality, to
charge off loans against the allowance for loan losses when appropriate and to
provide specific loss reserves when necessary. Although management believes it
uses the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ substantially from the economic conditions in the assumptions
used in making the initial determinations. The Bank increased its loan loss
reserves by $230,000 in the quarter ended June 30, 1997, in order to establish a
reserves level closer to industry standards.
The following table describes the activity related to the Bank's allowance
for loan losses for the periods indicated.
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<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended
June 30, Year Ended December 31, December 31,
--------------------- ------------------------ -----------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 388 $ 396 $ 396 $ 396 $ 385
-------- -------- --------- --------- ---------
Charge-offs:
Residential 1-4 family -- 8 13 -- --
Other 2 -- -- 13 10
-------- -------- --------- --------- ---------
Total loans charged off 2 8 13 13 10
-------- -------- --------- --------- ---------
Recoveries:
Residential 1-4 family -- -- -- 1 --
Other 1 5 5 -- 3
-------- -------- --------- --------- ---------
Net charge-offs 1 3 8 12 7
-------- -------- --------- --------- ---------
Provision for loan losses 230 -- -- 12 18
-------- -------- --------- --------- ---------
Balance, end of period $ 617 $ 393 $ 388 $ 396 $ 396
======== ======== ========= ========= =========
Ratio of nonperforming loans to total loans/(1)/ 1.05% 1.21% 1.23% 1.25% 1.37%
======== ======== ========= ========= =========
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.00% 0.00% 0.01% 0.01% 0.01%
======== ======== ========= ========= =========
Allowance for loan losses to nonperforming
loans 56.24% 32.72% 31.11% 32.95% 33.67%
===== ===== ===== ===== =====
</TABLE>
- --------------------------
(1) Nonperforming loans included nonaccrual loans and accruing loans past due
90 days or more.
The following table sets forth the composition of the allowance for loan
losses by type of loan at the dates indicated. The allowance is allocated to
specific categories of loans for statistical purposes only, and may be applied
to loan losses incurred in any loan category.
73
<PAGE>
<TABLE>
<CAPTION>
At December 31,
------------------------------------
At June 30, 1997 1996
-------------------------------------- ------------------------------------
Percent of Amount Percent of Amount
Allowance of Loans Allowance of Loans
Amount of to Total to Gross Amount of to Total to Gross
Allowance Allowance Loans Allowance Allowance Loans
--------- --------- ------- --------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $ 241 39.06% 82.07% $ 258 66.49% 84.34%
Residential multi-family -- --% 0.83% -- --% 0.75%
Nonresidential -- --% 2.64% -- --% 2.68%
Construction -- --% 5.44% -- --% 4.04%
Equity line 32 5.19% 5.75% 19 4.90% 4.89%
-------- -------- -------- -------- -------- --------
Total real estate loans 273 44.25% 96.76% 277 71.39% 96.70%
-------- -------- -------- -------- -------- --------
Consumer loans:
Installment loans 23 3.73% 2.33% 27 6.96% 2.37%
Other consumer and commercial 7 1.13% 0.91% 4 1.03% 0.93%
-------- -------- -------- -------- -------- --------
Total consumer loans 30 4.86% 3.24% 31 7.99% 3.30%
-------- -------- -------- -------- -------- --------
Unallocated 314 50.89% --% 80 20.62% --
-------- -------- -------- -------- -------- --------
Total allowance for loan losses $ 617 100.00% 100.00% $ 388 100.00% 100.00%
======== ======== ======== ======== ======== ========
<CAPTION>
At December 31,
--------------------------------------------------------------------------
1995 1994
----------------------------------- ---------------------------------
Percent of Amount Percent of Amount
Allowance of Loans Allowance of Loans
Amount of to Total to Gross Amount of to Total to Gross
Allowance Allowance Loans Allowance Allowance Loans
--------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $ 356 89.90% 81.67% $ 335 84.60% 87.28%
Residential multi-family -- --% 0.78% -- --% 0.75%
Nonresidential -- --% 2.12% -- --% 2.32%
Construction -- --% 9.00% -- --% 5.89%
Equity line 13 3.28% 3.00% -- --% 0.24%
-------- -------- -------- -------- -------- --------
Total real estate loans 369 93.18% 96.57% 335 84.60% 96.48%
-------- -------- -------- -------- -------- --------
Consumer loans:
Installment loans 15 3.79% 2.49% 15 3.79% 2.79%
Other consumer and commercial 4 1.01% 0.94% -- --% 0.73%
-------- -------- -------- -------- -------- --------
Total consumer loans 19 4.80% 3.43% 15 3.79% 3.52%
-------- -------- -------- -------- -------- --------
Unallocated 8 2.02% --% 46 11.61% --
-------- -------- -------- -------- -------- --------
Total allowance for loan losses $ 396 100.00% 100.00% $ 396 100.00% 100.00%
======== ======== ======== ======== ======== ========
</TABLE>
74
<PAGE>
Investment Securities
Interest and dividend income from investment securities generally
provides the second largest source of income to the Bank after interest on
loans. In addition, the Bank receives interest income from deposits in other
financial institutions. At June 30, 1997, the Bank's investment portfolio
totaled approximately $10.0 million and consisted of U.S. government and agency
securities, municipal bonds, interest-earning deposits in other financial
institutions, certificates of deposit and stock of the FHLB of Atlanta.
The FASB has issued SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" which addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. These investments are to be classified
in three categories and accounted for as follows: (1) debt securities that the
entity has the positive intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost; (2) debt and equity securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities and reported at fair value, with net
unrealized gains and losses included in earnings; and (3) debt and equity
securities not classified as either held-to-maturity or trading securities are
classified as securities available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of equity. At June 30, 1997, the Bank had no trading securities. The
Bank adopted SFAS No. 115 as of April 1, 1994. The adoption affected only the
held-to-maturity and available-for-sale classifications. Net unrealized
securities gains on the securities available-for-sale of $20,000, net of related
deferred tax assets of $14,000, are reported as a separate component of equity
in its financial statements at June 30, 1997. See Note 2 of "Notes to Financial
Statements."
The amortized cost of securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest income from
investments. Interest and dividends are included in interest income from
investments. Realized gains and losses, and declines in value judged to be other
than temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method. Prior to the
adoption of SFAS No. 115, the Bank stated its debt securities at amortized cost
and its marketable equity securities at the lower of cost or market. Accumulated
changes in net unrealized losses on marketable equity securities were included
in retained earnings.
As a member of the FHLB of Atlanta, the Bank is required to maintain an
investment in stock of the FHLB of Atlanta equal to the greater of 1% of the
Bank's outstanding home loans or 5% of its outstanding advances from the FHLB of
Atlanta. No ready market exists for such stock, which is carried at cost. As of
June 30, 1997, the Bank's investment in stock of the FHLB of Atlanta was
$930,000.
North Carolina regulations require the Bank to maintain a minimum amount
of liquid assets which may be invested in specified short-term securities. See
"SUPERVISION AND REGULATION -- Regulation of the Bank -- Liquidity." The Bank is
also permitted to make certain other securities investments.
The Bank's current investment policy provides that investment decisions
will be made by George W. Brawley, Jr., President and Chief Executive Officer,
or by Dale W. Brawley, Executive President and Treasurer, in his absence, and
reviewed monthly by the Board of Directors. The investment policy provides that
the objectives of the investment portfolio are to: (i) establish an acceptable
level of interest rate and credit risk for all investments; (ii) generate an
acceptable rate of return on investments; (iii) provide for adequate levels of
liquidity for the Bank; and (iv) provide guidance to management by the Board of
Directors on the investments desired for the Bank.
The investment policy permits investment in the general obligations of
municipalities primarily located within North Carolina. At June 30, 1997, 14.68%
of the Bank's investment portfolio consisted of municipal bonds issued by
municipalities located in North Carolina.
The following table sets forth certain information regarding the Bank's
investment portfolio at the dates
75
<PAGE>
indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------
At June 30, 1997 1996 1995 1994
----------------- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agencies $ 2,345 $ 2,859 $ 3,512 $ --
FHLB bonds 1,101 1,100 -- --
-------- -------- -------- --------
Total securities available for sale 3,446 3,959 3,512 --
-------- -------- -------- --------
Securities held to maturity:
U.S. government and agencies 500 1,600 4,201 6,207
FHLB bonds 1,225 625 1,025 2,850
Municipal bonds 1,473 1,473 1,474 2,018
Other 10 10 10 10
-------- -------- -------- --------
Total securities held to maturity 3,208 3,708 6,710 11,085
-------- -------- -------- --------
Total investment securities 6,654 7,667 10,222 11,085
Interest-bearing deposits 2,348 2,253 2,657 2,111
Federal Home Loan Bank stock 930 869 824 824
Certificates of deposit 100 100 200 200
-------- -------- -------- --------
Total investments $ 10,032 $ 10,889 $ 13,903 $ 14,220
======== ======== ======== ========
</TABLE>
At June 30, 1997, the market value of the Bank's investment securities
available for sale and held to maturity were $3.4 million and $3.2 million,
respectively.
The following table sets forth certain information regarding the
carrying value, weighted average yields and contractual maturities of the Bank's
investment portfolio as of June 30, 1997.
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<PAGE>
<TABLE>
<CAPTION>
After One Year After Five Years
One Year or Less Through Five Years Through Ten Years
---------------------- -------------------- --------------------
Weighted Weighted Weighted
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 and agencies $ 806 6.62% $ 1,539 7.24% $ -- --%
FHLB bonds -- -- 1,101 5.88 -- --
Securities held to maturity:
U.S. government and agencies 400 6.03 100 6.38 -- --
FHLB bonds 700 6.61 525 6.19 -- --
Municipal bonds 200 5.00 255 5.12 1,018 4.62
Other -- -- -- -- -- --
Other:
Interest-earning deposits 2,348 4.20 -- -- -- --
Federal Home Loan Bank stock -- -- -- -- -- --
Certificates of deposit 100 6.10 -- -- -- --
------- ------- ------- ------- ------- -------
Total $ 4,554 5.24% $ 3,520 6.48% $ 1,018 4.62%
======= ====== ======= ====== ======= ======
<CAPTION>
After Ten Years Total
-------------------- ---------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
-------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agencies $ -- --% $ 2,345 7.03%
FHLB bonds -- -- 1,101 5.88
Securities held to maturity:
U.S. government and agencies -- -- 500 6.10
FHLB bonds -- -- 1,225 6.43
Municipal bonds -- 1,473 4.76
Other 10 4.80 10 4.80
Other:
Interest-earning deposits -- -- 2,348 4.20
Federal Home Loan Bank stock 930 7.02 930 7.02
Certificates of deposit -- -- 100 6.10
-------- -------- -------- --------
Total $ 940 7.00% $ 10,032 5.78%
======== ======== ======== ========
</TABLE>
77
<PAGE>
Deposits and Borrowings
General. Deposits are the primary source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank derives funds
from loan principal repayments, interest payments, investment income and
principal repayments, interest from its own interest-earning deposits, interest
income and advances from the FHLB of Atlanta and otherwise from its operations.
Loan repayments are a relatively stable source of funds while deposit inflows
and outflows may be 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. They may also be
used on a longer term basis for general business purposes.
Deposits. The Bank attracts both short-term and long-term deposits from
the general public by offering a variety of accounts and rates. The Bank offers
passbook savings accounts, statement savings accounts, negotiable order of
withdrawal accounts, money market demand accounts, non-interest-bearing
accounts, and fixed interest rate certificates with varying maturities. At June
30, 1997, 75.20% of the Bank's deposits consisted of certificate accounts,
12.11% consisted of passbook savings accounts, 10.82% consisted of
interest-bearing transaction accounts and 1.87% consisted of noninterest-
bearing transaction accounts. Deposit flows are greatly influenced by economic
conditions, the general level of interest rates, competition, and other factors,
including the restructuring of the thrift industry. The Bank's savings deposits
traditionally have been obtained primarily from its primary market area. The
Bank utilizes traditional marketing methods to attract new customers and savings
deposits, including print, television and radio media advertising and direct
mailings. The Bank does not advertise for deposits outside of its local market
area or utilize the services of deposit brokers.
The following table sets forth information relating to the Bank's
deposit flows during the periods shown and total deposits at the end of such
periods.
<TABLE>
<CAPTION>
At or for the Six Months At or for the Year At or for the Nine Months
Ended June 30, Ended December 31, Ended December 31,
------------------------ ------------------- -------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total deposits at beginning of period $93,785 $92,103 $92,103 $85,105 $84,863
Net increase (decrease) before interest
credited (279) (1,464) (2,976) 2,582 (2,365)
Interest credited 2,366 2,310 4,658 4,416 2,607
------- ------- ------- ------- -------
Total deposits at end of period $95,872 $92,949 $93,785 $92,103 $85,105
======= ======= ======= ======= =======
</TABLE>
The following table sets forth certain other information regarding the
Bank's savings deposits at the dates indicated.
78
<PAGE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------
At June 30, 1997
---------------------------------- 1996
---------------------------------
Weighted Weighted
Average % of Average % of
Amount Rate Deposits Amount Rate Deposits
------ -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Demand accounts:
Passbook savings $11,564 3.04% 12.06% $11,487 3.00% 12.24%
NOW accounts 5,842 1.10% 6.09% 5,644 1.08% 6.02%
Money market deposit accounts 4,485 2.82% 4.68% 4,180 2.91% 4.46%
Non-interest bearing accounts 1,782 --% 1.86% 1,319 --% 1.41%
------- ----- ------ ------- ----- ------
Total demand deposits 23,673 2.28% 24.69% 22,630 2.33% 24.13%
------- ----- ------ ------- ----- ------
Certificates of deposit 71,794 5.72% 74.89% 70,742 5.78% 75.43%
------- ----- ------ ------- ----- ------
Accrued interest 405 0.42% 413 0.44%
------- ----- ------ ------- ----- ------
Total deposits $95,872 4.84% 100.00% $93,785 4.92% 100.00%
======= ===== ====== ======= ===== ======
<CAPTION>
At December 31,
------------------------------------------------------------------
1995 1994
------------------------------ ------------------------------
Weighted Weighted
Average % of Average % of
Amount Rate Deposits Amount Rate Deposits
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Demand accounts:
Passbook savings $11,225 3.50% 12.19% $11,597 3.50% 13.63%
NOW accounts 7,359 2.40% 7.99% 5,736 2.25% 6.74%
Money market deposit accounts 4,826 3.00% 5.24% 6,243 3.00% 7.34%
Non-interest bearing accounts 943 --% 1.02% 870 --% 1.02%
------- ----- ------ ------- ----- ------
Total demand deposits 24,353 2.94% 26.44% 24,446 2.96% 28.73%
------- ----- ------ ------- ----- ------
Certificates of deposit 67,365 5.80% 73.14% 60,357 4.94% 70.92%
------- ----- ------ ------- ----- ------
Accrued interest 385 0.42% 302 0.35%
------- ------ ------- ------
Total deposits $92,103 5.03% 100.00% $85,105 4.35% 100.00%
======= ===== ====== ======= ===== ======
</TABLE>
79
<PAGE>
The following table presents the maturities by 200 point basis rate paid
on all certificates of deposit as of June 30, 1997.
<TABLE>
<CAPTION>
Amount Due During the Year Ending June 30,
---------------------------------------------------------------------
1998 1999 2000 2001 2002 Total
---- ---- ---- ---- ---- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificates of deposit
2.00% to 3.99% $ 130 $ 140 $ -- $ -- $ -- $ 270
4.00% to 5.99% 41,122 6,221 991 1,722 911 50,967
6.00% to 7.99% 5,927 2,384 10,657 638 -- 19,606
8.00% to 9.99% 574 324 -- -- -- 898
10.00% to 11.99% 53 -- -- -- -- 53
-------- --------- --------- --------- --------- --------
Total $ 47,806 $ 9,069 $ 11,648 $ 2,360 $ 911 $ 71,794
======== ========= ========= ========= ========= ========
</TABLE>
As of June 30, 1997, the aggregate amount of time certificates of
deposit in amounts greater than or equal to $100,000 outstanding was
approximately $13.1 million, representing 18.22% of all certificates of deposit
on such date. Management believes that most of these deposits are held by
long-time, local customers of the Bank. Some of these deposits were deposits of
state and local governments which are subject to rebidding from time to time and
to securitization requirements. The following table presents the maturity of
these time certificates of deposit at such date.
<TABLE>
<CAPTION>
At
June 30, 1997
-------------
(In Thousands)
<S> <C>
3 Months or less $ 2,202
Over 3 months through 6 months 2,442
Over 6 months through 12 months 3,891
Over 12 months 4,548
-------
Total $13,083
=======
</TABLE>
Borrowings. The Bank's principal source of long-term borrowings are
advances from the FHLB of Atlanta. The FHLB system functions in a reserve credit
capacity for savings institutions. As a member, the Bank is required to own
capital stock in the FHLB of Atlanta and is authorized to apply for advances
from the FHLB of Atlanta on the security of that stock and a floating lien on
certain of its real estate secured loans and other assets. Each credit program
has its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based either on a fixed percentage of
an institution's net worth or on the FHLB of Atlanta's assessment of the
institution's creditworthiness. At June 30, 1997, the Bank had $1.0 million in
borrowings outstanding from the FHLB of Atlanta.
Subsidiaries
As a North Carolina-chartered savings bank, the Bank is able to invest
up to 10% of its total assets in subsidiary service corporations. However, any
investment in service corporations which would cause the Bank to
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<PAGE>
exceed an investment of 3% of assets must receive prior approval of the FDIC.
The Bank has no subsidiaries.
Properties
The following table sets forth the location of the Bank's headquarters
office in Mooresville, and branch offices in Cornelius and Huntersville, North
Carolina, as well as certain other information relating to these offices as of
June 30, 1997:
<TABLE>
<CAPTION>
Net Book
Value of
Property or Owned or
Improvements Leased
------------ --------
<S> <C> <C>
347 North Main Street
Mooresville, North Carolina 28115 $252,683 Owned
20209 Highway 73 West
Cornelius, North Carolina 28031 293,033 Owned
401 Gilead Road
Huntersville, North Carolina 28078 195,348 Owned
</TABLE>
In addition, the Bank owns a 1.24 acre lot located at Highway 150 West,
239 West Plaza Drive, Mooresville, North Carolina, purchased in 1988 for future
expansion purposes. The net book value of this property at June 30, 1997 was
$65,000. The total net book value of the Bank's furniture, fixtures and
equipment at June 30, 1997 was $102,133. The properties are considered by the
Bank's management to be in good condition.
Legal Proceedings
From time to time, the Bank is a party to legal proceedings which arise
in the ordinary course of its business. Most commonly, such proceedings are
commenced by the Bank to enforce obligations owed to it. From time to time,
claims are asserted against the Bank directly or as defenses and counterclaims
in actions filed by the Bank. At this time, the Bank is not a party to any legal
proceeding which is expected to have a material effect on its financial
condition or results of operations.
Competition
The Bank has operated in the Mooresville community for more than 60
years and is the only financial institution headquartered in Mooresville.
However, the Bank faces strong competition both in attracting deposits and
making real estate and other loans. Its most direct competition for deposits has
historically come from other savings institutions, credit unions, brokerage
firms and commercial banks located in its primary market area, including large
financial institutions which have greater financial and marketing resources
available to them. Two national money center commercial banks are headquartered
in Charlotte, North Carolina, only 30 miles from the Bank's primary market area.
As of June 30, 1997, there were eight, nine and six depository institutions with
sixteen, nine and six offices in Mooresville, Cornelius and Huntersville, North
Carolina, respectively. Based upon 1996 comparative data, the Bank had 22% and
7.2% of the deposits in Mooresville and Iredell County, respectively. As a
result of this intense competition, the Bank's branch offices, excluding the
Mooresville office, have lower levels of deposits than the industry average.
The Bank has also faced additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities. While the Bank's market share of deposits has
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<PAGE>
decreased in recent years, its deposit base has grown principally due to
economic growth in the Bank's market area. The ability of the Bank to attract
and retain savings deposits depends on its ability to generally provide a rate
of return, liquidity and risk comparable to that offered by competing investment
opportunities.
The Bank experiences strong competition for real estate loans from other
savings institutions, commercial banks, and mortgage banking companies. The Bank
competes for loans primarily through the interest rates and loan fees it
charges, the efficiency and quality of services it provides borrowers, and its
more flexible underwriting standards. Competition may increase as a result of
the continuing reduction of restrictions on the interstate operations of
financial institutions. See "RISK FACTORS -- Competition."
Employees
As of June 30, 1997, the Bank had 28 full-time employees and 3 part-time
employees. The Bank provides its employees with basic and major medical
insurance, dental insurance, disability insurance, life insurance, sick leave
and vacation benefits. The Bank maintains a 401(k) retirement plan pursuant to
which the Bank may make discretionary matches up to six percent of each
employee's salary. Effective October 20, 1997, the Bank terminated its defined
benefit pension plan. Additional plan funding in the approximate amount of
$350,000 has been made by the Bank to facilitate the plan termination.
In connection with the Conversion, the Bank has adopted the ESOP, which
will provide benefits to employees of the Bank. See "MANAGEMENT OF THE BANK --
Employee Stock Ownership Plan." Also, the Boards of Directors of the Company and
the Bank are expected to adopt, and stockholders of the Company will be asked to
approve, a MRP and a Stock Option Plan at a meeting of stockholders after the
first anniversary following the Conversion. See "MANAGEMENT OF THE BANK --
Proposed Stock Option Plan" and "-- Proposed Management Recognition Plan."
A limited number of employees participate in other benefit plans. See
"MANAGEMENT OF THE BANK -- Deferred Compensation, Supplemental Compensation and
Salary Continuation Agreements."
Employees are not represented by any union or collective bargaining
group, and the Bank considers its employee relations to be good.
TAXATION
Federal Income Taxation
Savings institutions such as the Bank are subject to the taxing
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), for
corporations, as modified by certain provisions specifically applicable for
financial or thrift institutions. Income is reported using the accrual method of
accounting. The maximum corporate federal income tax rate is 35%.
For fiscal years beginning prior to December 31, 1995, thrift
institutions which qualified under certain definitional tests and other
conditions of the Code were permitted certain favorable provisions regarding
their deductions from taxable income for annual additions to their bad debt
reserve. A reserve could be established for bad debts on qualifying real
property loans (generally loans secured by interests in real property improved
or to be improved) under (i) a method based on a percentage of the institution's
taxable income, as adjusted (the "percentage of taxable income method") or (ii)
a method based on actual loss experience (the "experience method"). The reserve
for nonqualifying loans was computed using the experience method.
The addition to the bad debt reserve under the percentage of taxable
income method was limited to 8% of
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<PAGE>
taxable income. This method could not raise the reserve to exceed 6% of
qualifying real property loans at the end of the year. Moreover, the current
year addition for qualifying real property loans, when added to the experience
method deduction for nonqualifying loans, could not exceed the amount by which
12% of total deposits or withdrawable accounts exceeded the sum of surplus,
undivided profits and reserves at the beginning of the year. The experience
method was the amount necessary to increase the balance of the reserve at the
close of the year to the greater of (i) the amount which bore the same ratio to
loans outstanding at the close of the year as the total net bad debts sustained
during the current and five preceding years bore to the sum of the loans
outstanding at the close of such six years or (ii) the balance in the reserve
account at the close of the last taxable year beginning before 1988 (assuming
that the loans outstanding have not declined since such date).
In order to qualify for the percentage of taxable income method, an
institution had to have at least 60% of its assets as "qualifying assets," which
generally included, cash, obligations of the United States government or an
agency or instrumentality thereof or of a state or political subdivision,
residential real estate-related loans, or loans secured by savings accounts and
property used in the conduct of its business. In addition, it had to meet
certain other supervisory tests and operate principally for the purpose of
acquiring savings and investing in loans.
Institutions which became ineligible to use the percentage of taxable
income method had to change to either the reserve method or the specific
charge-off method that applied to banks. Large thrift institutions, those
generally exceeding $500 million in assets, had to convert to the specific
charge-off method. In computing its bad debt reserve for federal income taxes,
the Bank used the reserve method in fiscal years 1994, 1995, and 1996.
Bad debt reserve balances in excess of the balance computed under the
experience method or amounts maintained in a supplemental reserve built up prior
to 1962 ("excess bad debt reserve") must be included in taxable income upon
certain distributions to shareholders. Distributions in redemption or
liquidation of stock or distributions with respect to its stock in excess of
earnings and profits accumulated in years beginning after December 31, 1951, are
treated as a distribution from the excess bad debt reserve. When such a
distribution takes place, the thrift is required to reduce its reserve by such
amount and simultaneously recognize the amount as an item of taxable income
increased by the amount of income tax imposed on the inclusion. Dividends not in
excess of earnings and profits accumulated since December 31, 1951 will not
require inclusion of part or all of the bad debt reserve in taxable income. The
Bank has accumulated earnings and profits since December 31, 1951 and has an
excess bad debt reserve. Distributions in excess of current and accumulated
earnings and profits will increase taxable income. Net retained earnings at June
30, 1997 includes approximately $3.8 million for which no provision for federal
income tax has been made.
Legislation passed by the U.S. Congress and signed by the President in
August 1996 contains a provision that repeals the percentage of taxable income
method of accounting for thrift bad debt reserves for tax years beginning after
December 31, 1995. The legislation will trigger bad debt reserve recapture for
post-1987 excess reserves over a six-year period. At June 30, 1997, the Bank's
post-1987 excess reserves amounted to approximately $67,000. A special provision
suspends recapture of post-1987 excess reserves for up to two years if, during
those years, the institution satisfies a "residential loan requirement." This
requirement will be met if the principal amount of the institution's residential
loans exceeds a base year amount, which is determined by reference to the
average of the institution's residential loans during the six taxable years
ending before January 1, 1996. The Bank met the residential loan requirement for
1996 and was permitted to defer recapture of the excess reserves. However,
notwithstanding this special provision, recapture must begin no later than the
first taxable year beginning after December 31, 1997. See "RISK FACTORS --
Increased Tax Liability Resulting From Recapture of Bad Debt Reserves."
The Bank may also be subject to the corporate alternative minimum tax
("AMT"). This tax is applicable only to the extent it exceeds the regular
corporate income tax. The AMT is imposed at the rate of 20% of the corporation's
alternative minimum taxable income ("AMTI") subject to applicable statutory
exemptions. AMTI is calculated by adding certain tax preference items and making
certain adjustments to the corporation's regular
83
<PAGE>
taxable income. Preference items and adjustments generally applicable to
financial institutions include, but are not limited to, the following: (i) the
excess of the bad debt deduction over the amount that would have been allowable
on the basis of actual experience; (ii) interest on certain tax-exempt bonds
issued after August 7, 1986; and (iii) 75% of the excess, if any, of a
corporation's adjusted earnings and profits over its AMTI (as otherwise
determined with certain adjustments). Net operating loss carryovers, subject to
certain adjustments, may be utilized to offset up to 90% of the AMTI. Credit for
AMT paid may be available in future years to reduce future regular federal
income tax liability to the extent it exceeds the year's AMT. The Bank has not
been subject to the AMT in recent years.
The Bank's federal income tax returns have not been audited in the last
ten tax years.
State and Local Taxation
Under North Carolina law, the corporate income tax is 7.75% of federal
taxable income as computed under the Code, subject to certain prescribed
adjustments. In addition, for tax years beginning in 1991, 1992, 1993 and 1994,
corporate taxpayers were required to pay a surtax equal to 4%, 3%, 2% and 1%,
respectively, of the state income tax otherwise payable by it. An annual state
franchise tax is imposed at a rate of 0.15% applied to the greatest of the
institutions (i) capital stock, surplus and undivided profits, (ii) investment
in tangible property in North Carolina or (iii) appraised valuation of property
in North Carolina.
The North Carolina corporate tax rate will drop to 7.5% in 1997, 7.25%
in 1998, 7% in 1999, and 6.9% thereafter.
SUPERVISION AND REGULATION
Regulation of the Company
Bank holding companies and state savings banks are extensively regulated
under both federal and state law. The following is a brief summary of certain
statutes and rules and regulations that affect or will affect the Company and
the Bank. This summary is qualified in its entirety by reference to the
particular statute and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of the Company and the Bank. Supervision, regulation
and examination of the Company and the Bank by the regulatory agencies are
intended primarily for the protection of depositors rather than shareholders of
the Company.
General. The Company was organized for the purpose of acquiring and
holding all of the capital stock of the Bank to be issued in the Conversion. As
a savings bank holding company subject to the Bank Holding Company Act of 1956,
as amended ("BHCA"), the Company is subject to certain regulations of the
Federal Reserve. Under the BHCA, the Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the Federal Reserve determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. The
BHCA prohibits the Company from acquiring direct or indirect control of more
than 5% of the outstanding voting stock or substantially all of the assets of
any bank or savings bank or merging or consolidating with another bank holding
company or savings bank holding company without prior approval of the Federal
Reserve.
Additionally, the BHCA prohibits the Company from engaging in, or
acquiring ownership or control of, more than 5% of the outstanding voting stock
of any company engaged in a nonbanking business unless such business is
determined by the Federal Reserve to be so closely related to banking as to be
properly incident thereto.
Similarly, Federal Reserve approval (or, in certain cases,
non-disapproval) must be obtained prior to any
84
<PAGE>
person acquiring control of the Company. Control is conclusively presumed to
exist if, among other things, a person acquires more than 25% of any class of
voting stock of the holding company or controls in any manner the election of a
majority of the directors of the holding company. Control is presumed to exist
if a person acquires more than 10% of any class of voting stock and the stock is
registered under Section 12 of the Exchange Act or the acquiror will be the
largest shareholder after the acquisition.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss to the depositors
of such depository institutions and the FDIC insurance funds in the event the
depository institution becomes in danger of default or in default. For example,
to avoid receivership of an insured depository institution subsidiary, a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency up to the lesser of (i) an amount equal to 5%
of the institution's total assets at the time the institution became
undercapitalized or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
as of the time the institution fails to comply with such capital restoration
plan. Under a policy of the Federal Reserve with respect to bank holding company
operations, a bank holding company is required to serve as a source of financial
strength to its subsidiary depository institutions and to commit resources to
support such institutions in circumstances where it might not do so absent such
policy. The Federal Reserve under the BHCA also has the authority to require a
bank holding company to terminate any activity or to relinquish control of a
nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness and stability of any bank subsidiary of the bank
holding company.
In addition, insured depository institutions under common control are
required to reimburse the FDIC for any loss suffered by either the SAIF or the
BIF as a result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross-guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF or both. The FDIC's claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
Federal regulations require that the Company must notify the Federal
Reserve Bank of Richmond prior to repurchasing Common Stock in excess of ten
percent of its net worth during a rolling twelve month period.
As a result of the Company's ownership of the Bank, the Company is
registered under the savings bank holding company laws of North Carolina.
Accordingly, the Company is also subject to regulation and supervision by the
Administrator.
Capital Adequacy Guidelines for Holding Companies. The Federal Reserve
has adopted capital adequacy guidelines for bank holding companies and banks
that are members of the Federal Reserve system and have consolidated assets of
$150 million or more. For bank holding companies with less than $150 million in
consolidated assets, the guidelines are applied on a bank-only basis unless the
parent bank holding company (i) is engaged in nonbank activity involving
significant leverage or (ii) has a significant amount of outstanding debt that
is held by the general public.
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines. Under these regulations, the minimum ratio of
total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least half of the total
capital is required to be "Tier I capital," principally consisting of common
stockholders' equity, noncumulative perpetual preferred stock, and a limited
amount of cumulative perpetual preferred stock, less certain goodwill items. The
remainder ("Tier II capital") may consist of a limited amount of subordinated
debt, certain hybrid capital instruments and other debt securities, perpetual
preferred stock, and a limited amount of the general loan loss allowance. In
addition to the
85
<PAGE>
risk-based capital guidelines, the Federal Reserve has adopted a minimum Tier I
capital (leverage) ratio, under which a bank holding company must maintain a
minimum level of Tier I capital to average total consolidated assets of at least
3% in the case of a bank holding company which has the highest regulatory
examination rating and is not contemplating significant growth or expansion. All
other bank holding companies are expected to maintain a Tier I capital
(leverage) ratio of at least 1% to 2% above the stated minimum.
Dividend and Repurchase Limitations. In connection with the Conversion,
the Bank has agreed with the FDIC that, during the first year after consummation
of the Conversion, neither the Company nor the Bank will pay any dividend or
make any other distribution to its stockholders which represents, is
characterized as or is treated for federal tax purposes as, a return of capital.
In addition, the Company must obtain Federal Reserve approval prior to
repurchasing Common Stock for in excess of 10% of its net worth during any
twelve-month period unless the Company (i) both before and after the redemption
satisfies capital requirements for "well capitalized" state member banks; (ii)
received a one or two rating in its last examination; and (iii) is not the
subject of any unresolved supervisory issues. Although the payment of dividends
and repurchase of stock by the Company are subject to the requirements and
limitations of North Carolina corporate law, except as set forth in this
paragraph, neither the Administrator nor the FDIC have promulgated any
regulations specifically limiting the right of the Company to pay dividends and
repurchase shares. However, the ability of the Company to pay dividends or
repurchase shares may be dependent upon the Company's receipt of dividends from
the Bank. The Bank's ability to pay dividends is limited. See " -- Regulation of
the Bank -- Restrictions on Dividends and Other Capital Distributions."
Capital Maintenance Agreement. In connection with the Administrator's
approval of the Company's application to acquire control of the Bank, the
Company was required to execute a Capital Maintenance Agreement whereby it has
agreed to maintain the Bank's capital in an amount sufficient to enable the Bank
to satisfy all regulatory capital requirements.
Federal Securities Law. The Company has registered its Common Stock with
the SEC pursuant to Section 12(g) of the Exchange Act and will not deregister
the Common Stock for a period of three years following the completion of the
Conversion. As a result of such registration, the proxy and tender offer rules,
insider trading reporting requirements, annual and periodic reporting and other
requirements of the Exchange Act are applicable to the Company.
The registration under the Securities Act of the Offerings of the Common
Stock does not cover the resale of such shares. Shares of the Common Stock
purchased by persons who are not affiliates of the Company may be resold without
registration. Shares purchased by an affiliate of the Company are subject to the
resale provisions of Rule 144 under the Securities Act. So long as 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) will 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.
Regulation of the Bank
General. Federal and state legislation and regulation have significantly
affected the operations of federally insured savings institutions and other
federally regulated financial institutions in the past several years and have
increased competition among savings institutions, commercial banks and other
providers of financial services. In addition, federal legislation has imposed
new limitations on investment authority, and higher insurance and
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examination assessments on savings institutions and has made other changes that
may adversely affect the future operations and competitiveness of savings
institutions with other financial institutions, including commercial banks and
their holding companies. The operations of regulated depository institutions,
including the Bank, will continue to be subject to changes in applicable
statutes and regulations from time to time.
The Bank is a North Carolina-chartered savings bank, is a member of the
FHLB system, and its deposits are insured by the FDIC through the SAIF. It is
subject to examination and regulation by the FDIC and the Administrator and to
regulations governing such matters as capital standards, mergers, establishment
of branch offices, subsidiary investments and activities, and general investment
authority. Generally, North Carolina state chartered savings banks whose
deposits are issued by the SAIF are subject to restrictions with respect to
activities and investments, transactions with affiliates and loans-to-one
borrower similar to those applicable to SAIF insured savings associations. Such
examination and regulation is intended primarily for the protection of
depositors and the federal deposit insurance funds.
The Bank is subject to various regulations promulgated by the Federal
Reserve including, without limitation, Regulation B (Equal Credit Opportunity),
Regulation D (Reserves), Regulation E (Electronic Fund Transfers), Regulation O
(Loans to Executive Officers, Directors and Principal Shareholders), Regulation
Z (Truth in Lending), Regulation CC (Availability of Funds) and Regulation DD
(Truth in Savings). As creditors of loans secured by real property and as owners
of real property, financial institutions, including the Bank, may be subject to
potential liability under various statutes and regulations applicable to
property owners generally, including statutes and regulations relating to the
environmental condition of real property.
The FDIC has extensive enforcement authority over North
Carolina-chartered savings banks, including the Bank. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease and desist or removal orders and to initiate injunctive actions. In
general, these enforcement actions may be initiated in response to violations of
laws and regulations and unsafe or unsound practices.
The grounds for appointment of a conservator or receiver for a North
Carolina savings bank on the basis of an institution's financial condition
include: (i) insolvency, in that the assets of the savings bank are less than
its liabilities to depositors and others; (ii) substantial dissipation of assets
or earnings through violations of law or unsafe or unsound practices; (iii)
existence of an unsafe or unsound condition to transact business; (iv)
likelihood that the savings bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business; and (v)
insufficient capital or the incurring or likely incurring of losses that will
deplete substantially all of the institution's capital with no reasonable
prospect of replenishment of capital without federal assistance.
Transactions with Affiliates. Under current federal law, transactions
between the Bank and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of the Bank is any company or entity that
controls, is controlled by or is under common control with the savings bank.
Generally, subsidiaries of a bank, other than a bank subsidiary, and certain
other types of companies are not considered to be affiliates. Generally,
Sections 23A and 23B (i) limit the extent to which the Bank or its subsidiaries
may engage in "covered transactions" with any one affiliate to an amount equal
to 10% of such the Bank'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 Bank or the
subsidiary as those provided to a nonaffiliate. The term "covered transaction"
includes the making of loans or other extensions of credit to an affiliate, the
purchase of assets from an affiliate, the purchase of, or an investment in, the
securities of an affiliate, the acceptance of securities of an affiliate as
collateral for a loan or extension of credit to any person, or issuance of a
guarantee, acceptance or letter of credit on behalf of an affiliate.
Further, current federal law has extended to savings banks the
restrictions contained in Section 22(h) of the Federal Reserve Act and its
implementing regulations with respect to loans to directors, executive officers
and
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principal stockholders. Under Section 22(h), loans to directors, executive
officers and stockholders who own more than 10% of a savings bank, and certain
affiliated entities of any of the foregoing, may not exceed, together with all
other outstanding loans to such person and affiliated entities, the savings
bank's loans-to-one borrower limit as established by federal law and all loans
to such persons may not exceed the institution's unimpaired capital and
unimpaired surplus. Section 22(h) also prohibits loans above amounts prescribed
by the appropriate federal banking agency to directors, executive officers and
stockholders who own more than 10% of a savings bank, and their respective
affiliates, unless such loan is approved in advance by a majority of the
disinterested directors of the board of directors of the savings bank and the
Company. Any "interested" director may not participate in the voting. The
Federal Reserve 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 unimpaired
capital and unimpaired surplus (up to $500,000). Further, pursuant to Section
22(h) the Federal Reserve 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 and not involve more than the normal
risk of repayment or present other unfavorable features. Section 22(h) also
generally prohibits a depository institution from paying the overdrafts of any
of its executive officers or directors.
Deposit Insurance. The Bank's deposit accounts are insured by the FDIC
under the SAIF to the maximum extent permitted by law. The Bank pays deposit
insurance premiums to the FDIC based on a risk-based assessment system
established by the FDIC for all SAIF-member institutions. Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital ("well capitalized,"
"adequately capitalized" or "undercapitalized"), which are defined in the same
manner as the regulations establishing the prompt corrective action system
discussed below. The matrix so created results in nine assessment risk
classifications, with rates that, until September 30, 1996, ranged from 0.23%
for well capitalized, financially sound institutions with only a few minor
weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk to the SAIF unless effective corrective action is taken.
Pursuant to the DIF Act, which was enacted on September 30, 1996, the
FDIC imposed a special assessment on each depository institution with
SAIF-assessable deposits which resulted in the SAIF achieving its designated
reserve ratio. In connection therewith, the FDIC reduced the assessment schedule
for SAIF members, effective January 1, 1997, to a range of 0% to 0.27%, with
most institutions, including the Bank, paying 0%. This assessment schedule is
the same as that for the BIF, which reached its designated reserve ratio in
1995. In addition, since January 1, 1997, SAIF members are charged an assessment
of 0.065% of SAIF-assessable deposits for the purpose of paying interest on the
obligations issued by the Financing Corporation ("FICO") in the 1980s to help
fund the thrift industry cleanup. BIF- assessable deposits will be charged an
assessment to help pay interest on the FICO bonds at a rate of approximately
.013% until the earlier of December 31, 1999 or the date upon which the last
savings association ceases to exist, after which time the assessment will be the
same for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Bank.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Bank.
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Community Reinvestment Act. The Bank, like other financial institutions,
is subject to the Community Reinvestment Act, as amended ("CRA"). A purpose of
this Act is to encourage financial institutions to help meet the credit needs of
its entire community, including the needs of low- and moderate-income
neighborhoods. A savings bank is evaluated and rated under three categories: a
lending test, an investment test and a service test. For each of these three
tests, the savings bank is given a rating of either "outstanding," "high
satisfactory," "low satisfactory," "needs to improve" or "substantial
non-compliance." A set of criteria for each rating is included in the
regulation. If an institution disagrees with a particular rating, the
institution has the burden of rebutting the presumption by clearly establishing
that the quantative measures do not accurately present its actual performance,
or that demographics, competitive conditions or economic or legal limitations
peculiar to the service area should be considered. The ratings received under
the three tests are used to determine the overall composite CRA rating or
"outstanding," "satisfactory," "needs to improve" or "substantial non-
compliance."
During the Bank's last compliance examination, which was performed by
the FDIC under the old CRA regulations in July 1996, the Bank received a
"satisfactory" rating with respect to CRA compliance. The Bank's rating with
respect to CRA compliance would be a factor to be considered by the Federal
Reserve and FDIC in considering applications submitted by the Bank to acquire
branches or to acquire or combine with other financial institutions and take
other actions and could result in the denial of such applications.
Capital Requirements Applicable To The Bank. The FDIC requires the Bank
to have a minimum leverage ratio of Tier I capital (principally consisting of
common stockholders' equity, noncumulative perpetual preferred stock and
minority interests in consolidated subsidiaries, less certain intangible items,
goodwill items, identified losses and investments in securities subsidiaries) to
total assets of at least 3%; provided, however that all institutions, other than
those (i) receiving the highest rating during the examination process and (ii)
not anticipating or experiencing any significant growth, are required to
maintain a ratio of 1% or 2% above the stated minimum, with an absolute minimum
leverage ratio of not less than 4%. The FDIC also requires the Bank to have a
ratio of total capital to risk-weighted assets, including certain off-balance
sheet activities, such as standby letters of credit, of at least 8%. At least
half of the total capital is required to be Tier I capital. The remainder ("Tier
II capital") may consist of a limited amount of subordinated debt, certain
hybrid capital instruments, other debt securities, certain types of preferred
stock and a limited amount of loan loss allowance.
An institution which fails to meet minimum capital requirements may be
subject to a capital directive which is enforceable in the same manner and to
the same extent as a final cease and desist order, and must submit a capital
plan within 60 days to the FDIC. If the leverage ratio falls to 2% or less, the
bank may be deemed to be operating in an unsafe or unsound condition, allowing
the FDIC to take various enforcement actions, including possible termination of
insurance or placement of the institution in receivership. At June 30, 1997, the
Bank had a leverage ratio of 12.85%.
The Administrator requires that net worth equal at least 5% of total
assets. Intangible assets must be deducted from net worth and assets when
computing compliance with this requirement.
At June 30, 1997, the Bank complied with each of the capital
requirements of the FDIC and the Administrator. For a description of the Bank's
required and actual capital levels on June 30, 1997, see "HISTORICAL AND PRO
FORMA CAPITAL COMPLIANCE."
Each federal banking agency was required by law to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk, and the risk of nontraditional
activities, as well as reflect the actual performance and expected risk of loss
on multi-family mortgages. On August 2, 1995, the federal banking agencies
issued a joint notice of adoption of final risk-based
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capital rules to take account of interest rate risk. The final regulation
required an assessment of the need for additional capital on a case-by-case
basis, considering both the level of measured exposure and qualitative risk
factors. The final rule also stated an intent to, in the future, establish an
explicit minimum capital charge for interest rate risk based on the level of a
bank's measured interest rate risk exposure. The final regulation has not had a
material impact on the Bank's capital requirements.
Effective June 26, 1996, the federal banking agencies issued a joint
policy statement announcing the agencies' election not to adopt a standardized
measure and explicit capital charge for interest rate risk at that time. Rather,
the policy statement (i) identifies the main elements of sound interest rate
risk management, (ii) describes prudent principles and practices for each of
those elements, and (iii) describes the critical factors affecting the agencies'
evaluation of a bank's interest rate risk when making a determination of capital
adequacy. The joint policy statement is not expected to have a material impact
on the Bank's management of interest rate risk.
In December 1994, the FDIC adopted a final rule changing its risk-based
capital rules to recognize the effect of bilateral netting agreements in
reducing the credit risk of two types of financial derivatives - interest and
exchange rate contracts. Under the rule, savings banks are permitted to net
positive and negative mark-to-market values of rate contracts with the same
counterparty, subject to legally enforceable bilateral netting contracts that
meet certain criteria. This represents a change from the prior rules which
recognized only a very limited form of netting. The Bank does not anticipate
that this rule will have a material effect upon its financial condition or
results of operations.
Loans-To-One-Borrower. The Bank is subject to the Administrator's
loans-to-one-borrower limits. Under these limits, no loans and extensions of
credit to any borrower outstanding at one time and not fully secured by readily
marketable collateral shall exceed 15% of the net worth of the savings bank.
Loans and extensions of credit fully secured by readily marketable collateral
may comprise an additional 10% of net worth. These limits also authorize savings
banks to make loans-to-one-borrower, for any purpose, in an amount not to exceed
$500,000. A savings bank also is authorized to make loans-to-one-borrower to
develop domestic residential housing units, not to exceed the lesser of $30
million or 30% of the savings bank's net worth, provided that the purchase price
of each single-family dwelling in the development does not exceed $500,000 and
the aggregate amount of loans made under this authority does not exceed 150% of
net worth. These limits also authorize a savings bank to make
loans-to-one-borrower to finance the sale of real property acquired in
satisfaction of debts in an amount up to 50% of net worth.
As of June 30, 1997, the largest aggregate amount of loans which the
Bank had to any one borrower was $639,046. The Bank had no loans outstanding
which management believes violate the applicable loans-to-one-borrower limits.
The Bank does not believe that the loans-to-one-borrower limits will have a
significant impact on its business, operations and earnings.
Federal Home Loan Bank System. The FHLB system provides a central credit
facility for member institutions. As a member of the FHLB of Atlanta, the Bank
is required to own capital stock in the FHLB of Atlanta in an amount at least
equal to the greater of 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts and similar obligations at
the end of each calendar year, or 5% of its outstanding advances (borrowings)
from the FHLB of Atlanta. On June 30, 1997, the Bank was in compliance with this
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requirement with an investment in FHLB of Atlanta stock of $930,000.
Each FHLB is required to contribute at least 10% of its reserves and
undivided profits to fund the principal and a portion of the interest on certain
bonds and certain other obligations which are used to fund the resolution of
troubled savings association cases, and to transfer a percentage of its annual
net earnings to the Affordable Housing Program. These contributions continue to
reduce the FHLB of Atlanta's earnings and the Bank's dividends on its FHLB of
Atlanta stock.
Federal Reserve System. Federal Reserve regulations require savings
banks, not otherwise exempt from the regulations, to maintain reserves against
their transaction accounts (primarily negotiable order of withdrawal accounts)
and certain nonpersonal time deposits. The reserve requirements are subject to
adjustment by the Federal Reserve. As of June 30, 1997, the Bank was in
compliance with the applicable reserve requirements of the Federal Reserve.
Restrictions on Acquisitions. Federal law generally provides that no
"person," acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control," as that term is defined in FDIC
regulations, of a state savings bank without giving at least 60 days' written
notice to the FDIC and providing the FDIC an opportunity to disapprove the
proposed acquisition. Pursuant to regulations governing acquisitions of control,
control of an insured institution is conclusively deemed to have been acquired
by, among other things, the acquisition of more than 25% of any class of voting
stock. In addition, control is presumed to have been acquired, subject to
rebuttal, upon the acquisition of more than 10% of any class of voting stock.
Such acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings bank or prejudice the interests of its depositors; or
(iii) the competency, experience or integrity of the acquiring person or the
proposed management personnel indicates that it would not be in the interest of
the depositors or the public to permit the acquisitions of control by such
person.
For three years following completion of the Conversion, North Carolina
conversion regulations require the prior written approval of the Administrator
before any person may directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
Bank. If any person were to so acquire the beneficial ownership of more than 10%
of any class of any equity security without prior written approval, the
securities beneficially owned in excess of 10% would not be counted as shares
entitled to vote and would not be voted or counted as voting shares in
connection with any matter submitted to stockholders for a vote. Approval is not
required for (i) any offer with a view toward public resale made exclusively to
the Bank or its underwriters or the selling group acting on its behalf or (ii)
any offer to acquire or acquisition of beneficial ownership of more than 10% of
the common stock of the Bank by a corporation whose ownership is or will be
substantially the same as the ownership of the Bank, provided that the offer or
acquisition is made more than one year following the consummation of the
Conversion. The regulation provides that within one year following the
Conversion, the Administrator would approve the acquisition of more than 10% of
beneficial ownership only to protect the safety and soundness of the
institution. During the second and third years after the Conversion, the
Administrator may approve such an acquisition upon a finding that (i) the
acquisition is necessary to protect the safety and soundness of the Company and
the Bank or the Boards of Directors of the Company and the Bank support the
acquisition and (iii) the acquiror is of good character and integrity and
possesses satisfactory managerial skills, the acquiror will be a source of
financial strength to the Company and the Bank and the public interests will not
be adversely affected.
Liquidity. The Bank is subject to the Administrator's requirement that
the ratio of liquid assets to total assets equal at least 10%. The computation
of liquidity under North Carolina regulation allows the inclusion of
mortgage-backed securities and investments which, in the judgment of the
Administrator, have a readily marketable value, including investments with
maturities in excess of five years. On June 30, 1997, the Bank's liquidity
ratio, calculated in accordance with North Carolina regulations, was
approximately 10.29%.
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Additional Limitations on Activities. FDIC law and regulations generally
provide that the Bank may not engage as principal in any type of activity, or in
any activity in an amount, not permitted for national banks, or directly acquire
or retain any equity investment of a type or in an amount not permitted for
national banks. The FDIC has authority to grant exceptions from these
prohibitions (other than with respect to non-service corporation equity
investments) if it determines no significant risk to the insurance fund is posed
by the amount of the investment or the activity to be engaged in and if the Bank
is and continues to be in compliance with fully phased-in capital standards.
National banks are generally not permitted to hold equity investments other than
shares of service corporations and certain federal agency securities. Moreover,
the activities in which service corporations are permitted to engage are limited
to those of service corporations for national banks.
Savings banks are also generally prohibited from directly or indirectly
acquiring or retaining any corporate debt security that is not of investment
grade (generally referred to as "junk bonds"). State savings banks are also
required to notify the FDIC at least 30 days prior to the establishment or
acquisition of any subsidiary, or at least 30 days prior to conducting any such
new activity. Any such activities must be conducted in accordance with the
regulations and orders of the FDIC and the Administrator.
Prompt Corrective Regulatory Action. Federal law provides the federal
banking agencies with broad powers to take corrective action to resolve problems
of insured depository institutions. The extent of these powers depends upon
whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," or
"critically undercapitalized." Under the FDIC regulations applicable to the
Bank, an institution is considered "well capitalized" if it has (i) a total
risk-based capital ratio of 10% or greater, (ii) a Tier I risk-based capital
ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not
subject to any order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately capitalized" institution
is defined as one that has (i) a total risk-based capital ratio of 8% or
greater, (ii) a Tier I risk-based capital ratio of 4% or greater and (iii) a
leverage ratio of 4% or greater (or 3% or greater in the case of an institution
with the highest examination rating and which is not experiencing or
anticipating significant growth). An institution is considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of less than
8%, (ii) a Tier I risk-based capital ratio of less than 4% or (iii) a leverage
ratio of less than 4% (or 3% in the case of an institution with the highest
examination rating and which is not experiencing or anticipating significant
growth); (B) "significantly undercapitalized" if the institution has (i) a total
risk-based capital ratio of less than 6%, or (ii) a Tier I risk-based capital
ratio of less than 3% or (iii) a leverage ratio of less than 3% and (C)
"critically undercapitalized" if the institution has a ratio of tangible equity
to total assets equal to or less than 2%.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"), effective September 29,
1995, permits adequately capitalized bank and savings bank holding companies to
acquire control of banks and savings banks in any state. The states may
specifically permit interstate acquisitions prior to September 29, 1995, by
enacting legislation that provides for such transactions. North Carolina adopted
nationwide reciprocal interstate acquisition legislation in 1994.
Such interstate acquisitions are subject to certain restrictions. States
may require the bank or savings bank being acquired to have been in existence
for a certain length of time but not in excess of five years. In addition, no
bank or saving bank may acquire more than 10% of the insured deposits in the
United States or more than 30% of the insured deposits in any one state, unless
the state has specifically legislated a higher deposit cap. States are free to
legislate stricter deposit caps.
The Interstate Banking Act also provides for interstate branching,
effective June 1, 1997, allowing interstate branching in all states, provided
that a particular state has not specifically denied interstate branching by
legislation prior to such time. Unlike interstate acquisitions, a state may deny
interstate branching if it specifically elects to do so by June 1, 1997. States
may choose to allow interstate branching prior to June 1, 1997 by opting-in to a
group of states that permits these transactions. These states generally allow
interstate branching via a merger of an
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out-of-state bank with an in-state bank, or on a de novo basis. North Carolina
has enacted legislation permitting branching transactions.
It is anticipated that the Interstate Banking Act will increase
competition within the markets in which the Bank now operates, although the
extent to which such competition will increase in such markets or the timing of
such increase cannot be predicted.
Restrictions on Dividends and Other Capital Distributions. A North
Carolina-chartered stock savings bank may not declare or pay a cash dividend on,
or repurchase any of, its capital stock if the effect of such transaction would
be to reduce the net worth of the institution to an amount which is less than
the minimum amount required by applicable federal and state regulations. In
addition, a North Carolina-chartered stock savings bank, for a period of five
years after its conversion from mutual to stock form, must obtain the written
approval from the Administrator before declaring or paying a cash dividend on
its capital stock in an amount in excess of one-half of the greater of (i) the
institution's net income for the most recent fiscal year end, or (ii) the
average of the institution's net income after dividends for the most recent
fiscal year end and not more than two of the immediately preceding fiscal year
ends, if applicable. Under FDIC regulations, stock repurchases may be made by
the savings bank only upon receipt of FDIC approval.
Also, without the prior written approval of the Administrator, a North
Carolina-chartered stock savings bank, for a period of five years after its
conversion from mutual to stock form, may not repurchase any of its capital
stock. The Administrator will give approval to repurchase only upon a showing
that the proposed repurchase will not adversely affect the safety and soundness
of the institution.
In addition, the Bank is not permitted to declare or pay a cash dividend
on or repurchase any of its capital stock if the effect thereof would be to
cause its net worth to be reduced below the amount required for the liquidation
account established in connection with the Bank's conversion from mutual to
stock ownership.
In connection with the Conversion, the Bank has agreed with the FDIC
that, during the first year after the Conversion, neither the Company nor the
Bank will pay any dividend or make any other distribution to stockholders which
represents, is characterized as or is treated for federal tax purposes as, a
return of capital.
Restrictions on Benefit Plans. FDIC regulations provide that for a
period of one year from the date of the Conversion, the Bank may not implement
or adopt a stock option plan or restricted stock plan, other than a
tax-qualified plan or ESOP, unless: (1) the plans are fully disclosed in the
Conversion proxy soliciting and stock offering material, (2) all such plans are
approved by a majority of the Company's stockholders prior to implementation and
no earlier than six months following the Conversion, (3) for stock option plans,
the exercise price must be at least equal to the market price of the stock at
the time of grant, and (4) for restricted stock plans, no stock issued in
connection with the Conversion may be used to fund the plan.
The FDIC regulations provide that, in reviewing plans submitted to the
stockholders within one year after the consummation of the Conversion, the FDIC
will presume that excessive compensation will result if stock based benefit
plans fail to satisfy percentage limitations on management stock-based benefit
plans set forth in the regulations of the Office of Thrift Supervision ("OTS").
Those regulations provide that (1) for stock option plans, the total number of
shares for which options may be granted may not exceed 10% of the shares issued
in the Conversion, (2) for restricted stock plans, the shares issued may not
exceed 3% of the shares issued in the Conversion (4% for institutions with
tangible capital of 10% or greater after the Conversion), (3) the aggregate
amount of stock purchased by the ESOP shall not exceed 10% (8% for
well-capitalized institutions utilizing a 4% restricted stock plan), (4) no
individual employee may receive more than 25% of the available awards under any
plan, and (5) directors who are not employees may not receive more than 5%
individually or 30% in the aggregate of the awards under any plan. The awards
and grants to be made under the MRP and Stock Option Plan will conform to these
requirements if such plans are submitted for stockholder approval within one
year after the
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Conversion is consummated.
Other North Carolina Regulations. As a North Carolina-chartered savings
bank, the Bank derives its authority from, and is regulated by, the
Administrator. The Administrator has the right to promulgate rules and
regulations necessary for the supervision and regulation of North Carolina
savings banks under his jurisdiction and for the protection of the public
investing in such institutions. The regulatory authority of the Administrator
includes, but is not limited to, the establishment of reserve requirements; the
regulation of the payment of dividends; the regulation of stock repurchases, the
regulation of incorporators, stockholders, directors, officers and employees;
the establishment of permitted types of withdrawable accounts and types of
contracts for savings programs, loans and investments; and the regulation of the
conduct and management of savings banks, chartering and branching of
institutions, mergers, conversions and conflicts of interest. North Carolina law
requires that the Bank maintain federal deposit insurance as a condition of
doing business.
The Administrator conducts regular examinations of North
Carolina-chartered savings banks. The purpose of such examinations is to assure
that institutions are being operated in compliance with applicable North
Carolina law and regulations and in a safe and sound manner. These examinations
are usually conducted on a joint basis with the FDIC. In addition, the
Administrator is required to conduct an examination of any institution when he
has good reason to believe that the standing and responsibility of the
institution is of doubtful character or when he otherwise deems it prudent. The
Administrator is empowered to order the revocation of the license of an
institution if he finds that it has violated or is in violation of any North
Carolina law or regulation and that revocation is necessary in order to preserve
the assets of the institution and protect the interests of its depositors. The
Administrator has the power to issue cease and desist orders if any person or
institution is engaging in, or has engaged in, any unsafe or unsound practice or
unfair and discriminatory practice in the conduct of its business or in
violation of any other law, rule or regulation.
A North Carolina-chartered savings bank must maintain net worth,
computed in accordance with the Administrator's requirements, of 5% of total
assets and liquidity of 10% of total assets, as discussed above. Additionally, a
North Carolina-chartered savings bank is required to maintain general valuation
allowances and specific loss reserves in the same amounts as required by the
FDIC.
Subject to limitation by the Administrator, North Carolina-chartered
savings banks may make any loan or investment or engage in any activity which is
permitted to federally chartered institutions. However, a North Carolina-
chartered savings bank cannot invest more than 15% of its total assets in
business, commercial, corporate and agricultural loans. In addition to such
lending authority, North Carolina-chartered savings banks are authorized to
invest funds, in excess of loan demand, in certain statutorily permitted
investments, including but not limited to (i) obligations of the United States,
or those guaranteed by it; (ii) obligations of the State of North Carolina;
(iii) bank demand or time deposits; (iv) stock or obligations of the federal
deposit insurance fund or a FHLB; (v) savings accounts of any savings
institution as approved by the board of directors; and (vi) stock or obligations
of any agency of the State of North Carolina or of the United States or of any
corporation doing business in North Carolina whose principal business is to make
education loans.
North Carolina law provides a procedure by which savings institutions
may consolidate or merge, subject to approval of the Administrator. The approval
is conditioned upon findings by the Administrator that, among other things, such
merger or consolidation will promote the best interests of the members or
stockholders of the merging institutions. North Carolina law also provides for
simultaneous mergers and conversions and for supervisory mergers conducted by
the Administrator.
Future Requirements. Statutes and regulations are regularly introduced
which contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company and the Bank may be affected by such
statute or regulation.
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MANAGEMENT OF THE COMPANY
The Board of Directors of the Company currently consists of seven
directors: Willis L. Barnette, Donald R. Belk, Dale W. Brawley, George W.
Brawley, Jr., Jack G. Lawler, Calvin E. Tyner, and Claude U. Voils, Jr. Each of
these persons, except for Dale W. Brawley, is also a director of the Bank, and
biographical information with respect to each is set forth under "MANAGEMENT OF
THE BANK -- Directors" and " -- Executive Officers." Each director is elected
for a one-year term. However, at such time, if any, as the number of directors
is at least nine, the Articles of Incorporation and Bylaws of the Company
provide for staggered elections so that approximately one-third of the directors
will each be initially elected to one, two and three-year terms, respectively,
and thereafter, all directors will be elected to terms of three years each.
The executive officers of the Company, each of whom is also currently an
executive officer of the Bank, and each of whom serves at the discretion of the
Board of Directors of the Company, are as follows:
<TABLE>
<CAPTION>
Age at Position Held
Name June 30, 1997 With the Company
---- ------------- ----------------
<S> <C> <C>
George W. Brawley, Jr. 64 President and Chief Executive
Officer
Dale W. Brawley 40 Executive Vice President and
Treasurer
Billy R. Williams 37 Secretary and Controller
</TABLE>
Biographical information with respect to each of these officers is set
forth below under "MANAGEMENT OF THE BANK -- Executive Officers." There are no
other employees of the Company. No officer, director or employee of the Company
has received remuneration from the Company to date, and it is currently expected
that no compensation will be paid by the Company after the Conversion.
Information concerning the principal occupations and employment of, and
compensation paid by the Bank to, the directors and executive officers of the
Company is set forth under "MANAGEMENT OF THE BANK." See "MANAGEMENT OF THE
BANK --Employment Agreements" for a description of employment agreements
expected to be entered into with the executive officers of the Company and the
Bank.
MANAGEMENT OF THE BANK
Directors
The direction and control of the Bank, as a mutual North
Carolina-chartered savings bank, has been vested in its six-member Board of
Directors elected by the depositor and borrower members of the Bank. Upon
conversion of the Bank to capital stock form, each director of the Bank
immediately prior to the Conversion will continue to serve as a director of the
Bank as a stock institution. All directors currently serve for one-year terms.
The Bank's proposed Bylaws, which would become effective after the Conversion,
provide for staggered elections of its directors, if and when the number of
directors shall equal at least nine, so that approximately one-third of the
directors would be elected each year for three-year terms. Upon consummation of
the Conversion, the Company will own all of the issued and outstanding shares of
capital stock of the Bank, and the Company will elect the directors of the Bank.
The Company now plans to nominate and re-elect all members of the Bank's
existing board of directors when their existing terms expire. The following
table sets forth certain information with respect to the persons who currently
serve as members of the Board of Directors of the Bank.
95
<PAGE>
<TABLE>
<CAPTION>
Age on
June 30, Principal Occupation Director
Name 1997 During Last Five Years Since
- ---- ------ ---------------------- ------
<S> <C> <C> <C>
Willis L. Barnette 68 President, Custom Products, Inc. 1996
George W. Brawley, Jr. 64 President and Chief Executive Officer of the Bank 1968
Donald R. Belk 65 President, E. F. Belk & Son Electrical Contractors 1974
Jack G. Lawler 69 Retired President, Taltronics, division of Tally 1994
Industries, a precision instruments manufacturer
Calvin E. Tyner 73 Retired veterinarian 1963
Claude U. Voils, Jr. 68 Retired chemist, National Starch 1970
</TABLE>
Mr. G. Brawley is the father of Dale W. Brawley, Executive Vice President and
Treasurer, and the brother-in-law of Mr. Belk.
Board Meetings and Committees
The Bank's Board of Directors has regular monthly meetings, and held
twelve regular and special meetings in the fiscal year ended December 31, 1996.
The Board has also established three committees to whom certain responsibilities
have been delegated - an Executive Committee, an Audit Committee, and a
Buildings and Grounds Committee. No director attended fewer than 75% of the
total number of Board meetings and meetings of Board committees on which he
served during the year ended December 31, 1996.
The Executive Committee is composed of directors Calvin E. Tyner, Claude
U. Voils, Jr., George W. Brawley, Jr. and Donald R. Belk. The Executive
Committee makes recommendations to the full Board and acts on policies adopted
by the full Board in the absence of a meeting of the entire Board. The Executive
Committee met one time during the year ended December 31, 1996.
The Audit Committee is composed of all members of the Board of
Directors, except George W. Brawley, Jr. This committee is responsible for
meeting with and retaining independent auditors, overseeing the adequacy of
internal controls, insuring compliance with the Bank's policies and procedures
and with generally accepted accounting principles. The Audit Committee meets on
an as needed basis, and during the fiscal year ended December 31, 1996, met four
times.
Directors' Fees
For their service on the Bank's Board of Directors, all members of the
Bank's Board of Directors, except Mr. Brawley who is not compensated for his
service as a director, receive $1,200 per meeting attended. Board fees are
subject to adjustment annually. No fees are paid for service on Board
committees.
Deferred Compensation Agreements with Directors
Messrs. Belk, G. Brawley, Lawler, Tyner and Voils have entered one or
more unfunded deferred compensation agreements under seven substantially similar
but separate plans with the Bank under which the participating directors have
waived payment of their Board of Directors fees in specified amounts for a
period of five or six years, depending upon the plan. Upon attaining 55, 65 or
70 years of age, depending upon the plan, the
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directors will begin receiving a specified payment in equal monthly installments
over a period of 120 months. Such payments shall be made to the designated
beneficiary of the director should the director die prior to attaining the age
specified in the agreements. The agreements also provide for payment of benefits
in the event the director otherwise terminates his directorship, subject to a
five-year vesting schedule. Some agreements provide for the forfeiture of
benefits in some circumstances. The Bank has purchased life insurance policies
on the lives of the directors to assist the Bank in meeting its obligations
under the agreements. Messrs. Belk, Tyner and Voils have began receiving monthly
payments under some of their deferred compensation agreements.
Director Retirement Plan
In 1993, the Bank's Board of Directors approved the entering of
Retirement Plan Agreements with Messrs. Belk, G. Brawley, Tyner and Voils. The
agreements provide for a monthly payment of $1,000 upon retirement following a
director's attainment of age 65 (but no sooner than five years from the date of
the Retirement Plan Agreement), death or disability. The agreements also provide
for payment of benefits in the event the director otherwise terminates his
directorship, subject to a vesting schedule. Payments under the agreements are
to be made in equal monthly installments over a period of 120 months. The Bank
has purchased life insurance policies to assist the Bank in meeting its
obligations under the agreements.
Existing members of the Board of Directors may also receive additional
benefits following the Conversion. See "-- Stock Based Benefits."
Executive Officers
The Bank has three executive officers. The following table sets forth
certain information with respect to such executive officers:
97
<PAGE>
<TABLE>
<CAPTION>
Age on Positions and Occupations Employed By
Name June 30, 1997 During Last Five Years the Bank Since
- ---- ------------- ------------------------- --------------
<S> <C> <C> <C>
George W. Brawley, Jr. 64 President and Chief Executive 1957
Officer
Dale W. Brawley 40 Executive Vice President and 1980
Treasurer
Billy R. Williams 37 Secretary and Controller 1986
</TABLE>
George W. Brawley, Jr., President and Chief Executive Officer of the
Bank, holds a 50% ownership interest in Mooresville Insurance Agency, an
insurance agency which rents approximately 300 square feet of office space from,
and places insurance coverage for, the Bank. Mr. Brawley's wife holds a 40%
interest in the insurance agency and Mr. Brawley's son, Dale W. Brawley,
Executive Vice President and Treasurer of the Bank, holds a 10% ownership
interest. Mr. Brawley is not active in the management of the insurance agency,
the insurance agency rents its office space from the Bank at the market rate for
similar space in Mooresville and the Bank's customers are not referred to the
insurance agency. The insurance agency paid the Bank $1,040 in rent and the
insurance agency earned approximately $4,834 in insurance commissions on the
Bank's insurance coverage during the year ended December 31, 1996. The current
lease between the insurance agency and the Bank terminates on November 1, 1998.
Executive Compensation
The following table sets forth for the fiscal year ended December 31,
1996 certain information as to the cash compensation earned by (i) the chief
executive officer of the Bank and (ii) all other executive officers of the Bank
whose cash compensation exceeded $100,000 (there were none), for services in all
capacities.
<TABLE>
<CAPTION>
Other Annual
Name and Compensation All Other
Principal Position Salary Bonus ($)/1/ Compensation
------------------ ------ ----- ----- ------------
<S> <C> <C> <C> <C>
George W. Brawley, Jr. $128,650/2/ $9,60 --- $268,376/3/
President, Chief Executive Officer and
Director
- --------------------
</TABLE>
/1/ Under the "Other Annual Compensation" category, perquisites for the
fiscal year ended December 31, 1996 did not exceed the lesser of
$50,000, or 10% of salary and bonus as reported for Mr. Brawley.
/2/ Includes $8,650 in appraisal fees paid to Mr. Brawley in the fiscal year
ended December 31, 1996.
/3/ Includes (a) $131,138 accrued under various deferred compensation,
salary continuation, directors' retirement and supplemental income
agreements established for the benefit of Mr. Brawley; (b) $8,810
contributed to the Bank's 401(k) plan for the benefit of Mr. Brawley;
and (c) $128,428 contributed to the Bank's defined benefit plan for the
benefit of Mr. Brawley. The defined benefit plan was terminated
effective October 2, 1997.
The Board of Directors of the Bank does not have a compensation
committee. The Bank's full Board of Directors determines the compensation of the
executive officers. The salaries of each of the executive officers is determined
based upon the executive officer's contributions to the Bank's overall
profitability, maintenance of regulatory compliance standards, professional
leadership, and management effectiveness in meeting the needs of day to day
operations. The Board of Directors also compares the compensation of the Bank's
executive officers
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<PAGE>
with compensation paid to executives of comparable financial institutions in
North Carolina and executives of other businesses in the Bank's market area. Mr.
Brawley participates in the deliberations of the Board of Directors regarding
compensation of executive officers other than himself. He does not participate
in the discussion or decisions regarding his own compensation.
Bonus Compensation
Employees receive annual discretionary holiday bonuses, which during
fiscal year 1996 totalled $50,000 in the aggregate for all employees. The Bank
anticipates that discretionary bonuses will continue to be paid to its employees
in the future. However, as is the case with the Bank's compensation arrangements
in general, the Bank's bonus compensation is subject to regulatory oversight
and, therefore, could be changed in the future in response to regulatory
requirements or otherwise.
Deferred Compensation, Supplemental Income, and Salary Continuation Agreements
The Bank has entered into three separate but substantially similar
deferred compensation agreements with Dale W. Brawley, Executive Vice President
and Treasurer. The terms of these agreements are generally described in "--
Deferred Compensation with Directors," as are the terms of George W. Brawley,
Jr.'s six deferred compensation agreements. During the fiscal year ended
December 31, 1996, the Bank accrued $73,499 towards the cost of the benefits to
be provided to Mr. G. Brawley and Mr. D. Brawley under these agreements.
The Bank has also entered into separate salary continuation agreements
with Mr. G. Brawley, Mr. D. Brawley and eight other non-executive employees of
the Bank. These agreements provide that the employee will receive certain
specified monthly payments for five years upon reaching 65 years of age. In the
event of the employee's death before all payments have been made, benefits would
be payable to designated beneficiaries. In addition, if the employee should die
prior to reaching 65 years of age, certain monthly payments would be made for a
five-year period to designated beneficiaries. In the event the employee
terminates his employment, for reasons other than death, prior to reaching 65
years of age, the monthly benefit payment would be reduced. The Bank has
purchased life insurance on the lives of the participants to assist it in
meeting its obligations under the agreements. During the fiscal year ended
December 31, 1996, the Bank accrued $3,078 towards the cost of the benefits to
be provided to Mr. G. Brawley and Mr. D. Brawley under these agreements.
In 1993, the Bank entered supplemental income agreements with Mr. G.
Brawley, Mr. D. Brawley and Billy R. Williams, Secretary and Controller, and two
other employees. These agreements provide that the employee will receive an
annual retirement benefit at the earlier of age 60, if retired, or at age 65.
However, Mr. G. Brawley's agreement provides for benefit payments beginning on
the earlier of age 60, if retired, or November 1, 1998. A death benefit payable
to the beneficiary of the employee and a disability benefit are also provided
under the agreements. During the fiscal year ended December 31, 1996, the Bank
accrued $72,188 towards the cost of the benefits to be provided to Mr. G.
Brawley, Mr. D. Brawley and Mr. Williams under these agreements.
Other Benefits
The Bank provides its employees with group medical, dental, life and
disability insurance benefits, and its retirees with partial payment of medical
insurance dependent coverage. Employees are also provided with vacation, holiday
and sick leave. The Bank also had a defined benefit pension plan which was
terminated on October 20, 1997. Mr. G. Brawley and Mr. D. Brawley also receive
$50.00 per real estate loan appraisal performed for the Bank.
Employment Agreements
In connection with the Conversion, the Bank will enter into employment
agreements with George W.
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<PAGE>
Brawley, Jr., President and Chief Executive Officer, Dale W. Brawley, Executive
Vice President and Treasurer, and Billy R. Williams, Secretary and Controller,
in order to establish their duties and compensation and to provide for their
continued employment with the Bank. The agreements will provide for initial
annual base salaries of $139,200, $84,000 and $56,400, for Mr. G. Brawley, Mr.
D. Brawley and Mr. Williams, respectively. The agreements will provide for an
initial term of employment of three years. Commencing on the first anniversary
date and continuing on each anniversary date thereafter, following a performance
evaluation of the employee, each agreement may be extended for an additional
year so that the remaining term shall be three years, unless written notice of
non-renewal is given by the Board of Directors. The agreements also provide that
the base salary shall be reviewed by the Board of Directors not less often than
annually. In the event of a change in control (as defined below), each
employee's base salary shall be increased by at least 6% annually and the
agreements will automatically be extended so that it will have a three-year term
after the change in control. In addition, the employment agreements provide for
possible profitability and discretionary bonuses and participation in all other
pension, profit-sharing or retirement plans maintained by the Bank or the
Company for employees of the Bank, as well as fringe benefits normally
associated with the employee's office. It is contemplated that each employee
will receive holiday bonuses computed on the same basis as those paid to other
employees. The employment agreements provide that they may be terminated by the
Bank for cause, as defined in the agreements, and that they may otherwise be
terminated by the Bank (subject to vested rights) or by the employee.
The employment agreements provide that the nature of the employees'
compensation, duties or benefits cannot be diminished following a change in
control of the Bank or the Company. For purposes of the employment agreement, a
change in control generally will occur if (i) after the effective date of the
employment agreements, any "person" (as such term is defined in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act) directly or indirectly, acquires beneficial
ownership of voting stock, or acquires irrevocable proxies or any combination of
voting stock and irrevocable proxies, representing 25% or more of any class of
voting securities of either the Company or the Bank, or acquires in any manner
control of the election of a majority of the directors of either the Company or
the Bank, (ii) either the Company or the Bank consolidates or merges with or
into another corporation, association or entity, or is otherwise reorganized,
where neither the Company nor the Bank is the surviving corporation in such
transaction, or (iii) all or substantially all of the assets of either the
Company or the Bank are sold or otherwise transferred to, or are acquired by,
any other entity or group. The agreements also provide that, in the event of the
employee's death following a change in control, the remaining payments to be
made under the agreements will be made to the employee's beneficiary or the
beneficiary's estate.
The employment agreements could have the effect of making it less likely
that the Bank or the Company will be acquired by another entity. See
"ANTI-TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK -- The Company --
Anti-Takeover Effect of Employment Agreements and Benefit Plans."
Severance Plan
In connection with the Conversion, the Bank's Board of Directors plans
to adopt a Severance Plan for the benefit of its employees. The Severance Plan
provides that in the event there is a "change in control" (as defined in the
Severance Plan) of the Bank or the Company and (i) the Bank or any successor of
the Bank terminates the employment of any full time employee of the Bank in
connection with, or within 24 months after the change in control, other than for
"cause" (as defined in the Severance Plan), or (ii) an employee terminates his
or her employment with the Bank or any successor following a decrease in the
level of such employee's annual base salary rate or a transfer of such employee
to a location more than 40 miles distant from the employee's primary work
station within 24 months after a change in control, the employee shall be
entitled to a severance benefit equal to the greater of (a) an amount equal to
two weeks' salary at the employee's existing salary rate multiplied times the
employee's number of complete years of service as a the Bank employee or (b) the
amount of one month's salary at the employee's salary rate at the time of
termination, subject to a maximum payment equal to one half of the employee's
annual salary. Officers of the Bank who, at the time of a "change in control,"
are parties to employment agreements having a remaining term of more than two
years are not covered by the Severance Plan.
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<PAGE>
Employee Stock Ownership Plan
The Bank has established the ESOP for its eligible employees. The ESOP
will become effective upon the Conversion. Employees with one year of service
with the Bank who have attained age 21 are eligible to participate. As part of
the Conversion, the ESOP intends to borrow funds from the Company and use the
funds to purchase up to 8% of the shares of Common Stock to be issued in the
Conversion, estimated to be between 31,280 and 48,668 shares assuming the
issuance of between 391,000 and 608,350 shares. If, because of an
oversubscription for shares of Common Stock or for any other reason, the ESOP is
unable to purchase in the Conversion 8% of the total number of shares offered in
the Conversion, then the Board of Directors of the Company intends to approve
the purchase by the ESOP in the open market after the Conversion of such shares
as are necessary for the ESOP to acquire a number of shares equal to 8% of the
shares of Common Stock issued in the Conversion.
Collateral for the Company's loan to the ESOP will be the Common Stock
purchased by the ESOP. It is expected that the loan will be repaid principally
from the Bank's discretionary contributions to the ESOP within ten years.
Dividends, if any, paid on shares held by the ESOP may also be used to reduce
the loan. It is anticipated that the interest rate for the loan will be a
commercially reasonable rate at the time of the loan inception. The loan will
not be guaranteed by the Bank. Shares purchased by the ESOP and pledged as
security for the loan will be held in a suspense account for allocation among
participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account
in an amount proportional to the repayment of the ESOP loan will be allocated
among ESOP participants on the basis of relative compensation in the year of
allocation. Benefits will vest in full upon five years of service with credit
given for years of service prior to the Conversion. Benefits are payable upon
death or disability. The Bank's contributions to the ESOP are not fixed, so
benefits payable and corresponding expenses under the ESOP cannot be determined
although benefits payable and corresponding expenses have been estimated in
preparing the pro forma computations set forth in this Prospectus. See "PRO
FORMA DATA."
In connection with the establishment of the ESOP, the Company will
establish a committee of the Board of Directors to administer the ESOP. Trustees
for the ESOP will also be appointed prior to the Conversion. The ESOP committee
may instruct the trustees regarding investment of funds contributed to the ESOP.
Participating employees shall instruct the trustees as to the voting of all
shares allocated to their respective accounts and held in the ESOP. The
unallocated shares held in the suspense account, and all allocated shares for
which voting instructions are not received, will be voted by the trustees in
their discretion subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended.
The ESOP may be considered an "anti-takeover" device since the ESOP may
become the owner of a sufficient percentage of the total outstanding Common
Stock of the Company that the vote or decision whether to tender shares of the
ESOP may be used as a defense in a contested takeover. See "ANTI-TAKEOVER
PROVISIONS AFFECTING THE COMPANY AND THE BANK -- The Company -- Anti-Takeover
Effect of Employment Agreements and Benefit Plans."
Proposed Management Recognition Plan
The Boards of Directors of the Company and the Bank intend to adopt the
MRP, subject to approval of the stockholders of the Company at a meeting to be
held no sooner than six months following the Conversion. The MRP will serve as a
means of providing the directors and certain employees of the Bank with an
ownership interest in the Company in a manner designed to encourage such persons
to continue their service to the Bank. All directors and certain employees of
the Bank would receive benefits under the MRP.
The Company's directors are expected to act by majority as trustees of
the trust associated with the MRP (the "MRP Trust"). The trustees of the MRP
Trust (the "MRP Trustees") will have the responsibility to hold and invest
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<PAGE>
all funds contributed to the MRP Trust. Shares held in the MRP Trust will be
voted by the MRP Trustees in the same proportion as the trustee of the Company's
ESOP trust votes Common Stock held therein, and will be distributed as the
awards vest.
At any time following consummation of the Conversion, the Company and
the Bank expect to contribute sufficient funds to the MRP Trust so that the MRP
Trust can purchase a number of shares of Common Stock equal to 4% of the shares
issued in the Conversion. Such shares would be provided by the issuance of
authorized but unissued shares of Common Stock or shares purchased by the MRP
Trust in the open market. Whether such shares purchased will be purchased in the
open market or newly issued by the Company, and the timing of such purchases,
will depend on market and other conditions and the alternative uses of capital
available to the Company. Shares issued to recipients under the MRP will be
restricted and subject to forfeiture as described below.
Recipients would not be required to pay for shares issued to them under
the MRP. To the extent that the MRP acquires authorized but unissued shares of
Common Stock after the Conversion, the interests of existing shareholders will
be diluted. Assuming the issuance of 529,000 shares in the Conversion and
receipt of stockholder approval, 21,160 shares would be issued pursuant to the
MRP. Under applicable regulations, if the proposed MRP is submitted to and
approved by the stockholders of the Company within one year after consummation
of the Conversion, (i) no employee of the Bank (including Mr. G. Brawley, Mr. D.
Brawley and Mr. Williams) could receive more than 25% of the shares issued under
the MRP, or 5,290 shares, assuming the issuance of 529,000 shares in the
Conversion, (ii) the five non-employee directors of the Bank could receive
restricted stock grants for an aggregate of not more than 25% of the shares
issued under the MRP, or 6,348 shares, assuming the issuance of 529,000 shares
in the Conversion and (iii) none of the five non-employee directors of the Bank
could receive individually more than 5% of the shares issued under the MRP, or
1,058 shares, assuming the issuance of 529,000 shares in the Conversion. If the
MRP is submitted to and approved by the Company's stockholders more than one
year after consummation of the Conversion, the regulatory percentage limitations
set forth above would not apply.
After the grant of shares of Common Stock under the MRP, recipients will
be entitled to vote all vested and untested shares and receive all dividends and
other distributions with respect thereto. If the MRP is submitted for
stockholder approval within twelve months after consummation of the Conversion,
the MRP will provide that 20% of the shares granted will vest and become
nonforfeitable on the first anniversary of the date of the grant under the MRP,
and 20% will vest and become nonforfeitable on each subsequent anniversary date,
so that the shares would be completely vested at the end of five years after the
date of grant. Grants of Common Stock under the MRP will immediately vest upon
the disability or death of a recipient.
If the MRP is submitted to the Company's stockholders and approved by
them more than one year after the consummation of the Conversion, the MRP may
provide for a different or no vesting schedule and may provide that grants of
Common Stock under the MRP will become automatically vested upon retirement or
upon a change in control of the Company or the Bank. In such event, it is
expected that a "change in control" would have the same meaning as is set forth
in the employment agreements with Mr. G. Brawley, Mr. D. Brawley and Mr.
Williams. See "-- Employment Agreements."
Until shares become vested, the right to direct the voting of such
shares and the right to receive dividends thereon may not be sold, assigned,
transferred, exchanged, pledged or otherwise encumbered. If the recipient of
shares under the MRP terminates his service to the Bank prior to the time shares
become vested (and such shares are not automatically vested under the terms of
the MRP), untested shares would be forfeited to the MRP and would be subject to
future allocations to others. In addition, the recipient would be required to
repay all dividends received with respect to shares that did not become vested.
It is expected that the MRP will provide that it cannot be terminated upon a
change in control of the Company or the Bank unless the acquiror provides for an
equivalent benefit.
If the MRP is approved by the stockholders, the Bank expects to
recognize a compensation expense for the
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MRP awards in the amount of the fair market value of the Common Stock granted.
The expense would be recognized pro rata over the years during which shares
vest. The recipients of stock grants would be required to recognize ordinary
income equal to the fair market value of the stock.
Proposed Stock Option Plan
The Boards of Directors of the Company and the Bank intend to adopt the
Stock Option Plan, subject to approval of the stockholders of the Company at a
meeting to be held no sooner than six months following the Conversion.
At any time following consummation of the Conversion, a grantor trust
established in anticipation of the implementation of the Stock Option Plan could
acquire in the open market a number of shares of Common Stock equal to 10% of
shares issued in the Conversion. In lieu of purchasing shares in the open
market, the Company could issue authorized but unissued shares of Common Stock
to satisfy options. The Company will reserve for issuance the maximum number of
shares of Common Stock to be issued under the Plan (less any shares acquired by
the grantor trust in the open market). Assuming the issuance of between 391,000
and 529,000 shares in the Conversion, an aggregate of between 39,100 and 52,900
shares of Common Stock would be reserved for issuance and/or purchased in the
open market to be issued upon the exercise of options granted under the Stock
Option Plan.
Assuming the Stock Option Plan is approved by the stockholders of the
Company, the Stock Option Plan would be administered by a committee of the
Company's Board of Directors. Options granted under the Stock Option Plan will
have an option exercise price of not less than the fair market value of the
Common Stock on the date the options are granted. Options granted under the
Stock Option Plan will have a term of ten years, will not be transferable except
upon death and will continue to be exercisable upon retirement, death or
disability. If the Stock Option Plan is submitted for stockholder approval
within twelve months after consummation of the Conversion, options granted under
the Stock Option Plan will have a vesting schedule which will provide that 20%
of the options granted would vest and become nonforfeitable on the first
anniversary of the date of the option grant and 20% will vest and become
nonforfeitable on each subsequent anniversary date, so that the options would be
completely vested at the end of five years after the date of the option grant.
Options would become 100% vested upon death or disability.
If the Stock Option Plan is submitted to and approved by the Company's
stockholders more than one year after consummation of the Conversion, the Stock
Option Plan may provide for a different or no vesting schedule and may provide
that options will become automatically vested upon retirement or upon a change
in control of the Company or the Bank. In such event, it is expected that a
"change in control" would have the same meaning as is set forth in the
employment agreement with Mr. G. Brawley, Mr. D. Brawley and Mr. Williams. See
"-- Employment Agreements." The Stock Option Plan is expected to provide that
the Plan cannot be terminated upon a change in control of the Company or the
Bank unless the acquiror provides for an equivalent benefit to holders of
untested options.
Under applicable regulations, if the proposed Stock Option Plan is
submitted to and approved by the stockholders of the Company within one year
after consummation of the Conversion, (i) no employee of the Bank (including Mr.
G. Brawley, Mr. D. Brawley and Mr. Williams) could receive more than 25% of the
options issued under the Stock Option Plan, or options to purchase 13,225
shares, assuming the issuance of 529,000 shares in the Conversion, (ii) the five
non-employee directors of the Bank could receive not more than 25% of the
options issued under the Stock Option Plan, or options to purchase 15,870
shares, assuming the issuance of 529,000 shares in the Conversion, and (iii)
none of the five non-employee directors of the Bank could receive individually
more than 5% of the options issued under the Stock Option Plan, or options to
purchase 2,645 shares, assuming the issuance of 529,000 shares in the
Conversion. If the Stock Option Plan is submitted to and approved by the
Company's stockholders more than one year after consummation of the Conversion,
the regulatory percentage limitations set forth above would not apply.
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Options granted to employees under the Stock Option Plan may be
"incentive stock options" which are designed to result in beneficial tax
treatment to the employee but no tax deduction to the Company or the Bank. The
holder of an incentive stock option generally is not taxed for federal income
tax purposes on either the grant or the exercise of the option. However, the
optionee must include in his or her federal alternative minimum tax income any
excess (the "Bargain Element") of the acquired common stock's fair market value
at the time of exercise over the exercise price paid by the optionee.
Furthermore, if the optionee sells, exchanges, gives or otherwise disposes of
such common stock (other than in certain types of transactions) either within
two years after the option was granted or within one year after the option was
exercised (an "Early Disposition"), the optionee generally must recognize the
Bargain Element as compensation income for regular federal income tax purposes.
Any gain realized on the disposition in excess of the Bargain Element is subject
to recognition under the usual rules applying to dispositions of property. If a
taxable sale or exchange is made after such holding periods are satisfied, the
difference between the exercise price and the amount realized upon the
disposition of the common stock generally will constitute a capital gain or loss
for tax purposes. If an optionee exercises an incentive stock option and
delivers shares of common stock as payment for part or all of the exercise price
of the stock purchased ("Payment Stock"), no gain or loss generally will be
recognized with respect to the Payment Stock; provided, however, if the Payment
Stock was acquired pursuant to the exercise of an incentive stock option, the
optionee will be subject to recognizing as compensation income the Bargain
Element on the Payment Stock as an Early Disposition if the exchange for the new
shares occurs prior to the expiration of the holding periods for the Payment
Stock. The Company generally would not recognize gain or loss or be entitled to
a deduction upon either the grant of an incentive stock option or the optionee's
exercise of an incentive stock option. However, if there is an Early
Disposition, the Company generally would be entitled to deduct the Bargain
Element as compensation paid the optionee.
Options granted to directors under the Stock Option Plan would be
"non-qualified stock options." In general, the holder of a non-qualified stock
option will recognize compensation income equal to the amount by which the fair
market value of the common stock received on the date of exercise exceeds the
sum of the exercise price and any amount paid for the non-qualified stock
option. If the optionee elects to pay the exercise price in whole or in part
with common stock, the optionee generally will not recognize any gain or loss on
the common stock surrendered in payment of the exercise price. The Company would
not recognize any income or be entitled to claim any deduction upon the grant of
a non-qualified stock option. At the time the optionee is required to recognize
compensation income upon the exercise of the non-qualified stock option, the
Company would recognize a compensation expense and be entitled to claim a
deduction in the amount equal to such compensation income.
It is expected that the Stock Option Plan will provide that after an
option has been granted, the optionee will be entitled to direct the trustees of
the grantor trust (directors of the Bank) as to the voting of all shares of
Common Stock held by the grantor trust to satisfy vested and untested options
which have been granted to the optionee. In the event a tender offer is made for
shares held by the trustees to satisfy vested and untested options granted to an
optionee, the optionee will be able to instruct the trustees' response. Any
shares held by the trustees to satisfy options not yet granted shall be voted or
tendered by the trustees in their discretion.
It is expected that the Stock Option Plan will provide that any cash
dividends or other distributions paid or made with respect to shares of Common
Stock held by the trustees in the grantor trust, plus earnings on such amounts,
less amounts retained by the trustees to pay the expenses of such trust, will be
paid by the trustees to the Company.
If the Stock Option Plan is approved by the stockholders of the Company,
the options granted to employees and directors pursuant to the Stock Option Plan
would be issued in recognition of the recipients' past service to the Bank and
as an incentive for their continued performance. No cash consideration will be
paid for the options.
Certain Indebtedness and Transactions of Management
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The Bank makes loans to executive officers and directors of the Bank in
the ordinary course of its business. These loans are made on the same terms,
including interest rates and collateral, as those then prevailing for comparable
transactions with nonaffiliated persons, and do not involve more than the normal
risk of collectibility or present any other unfavorable features. The Bank does
not make loans to executive officers and directors of the Bank on terms more
favorable than could be obtained by persons not affiliated with the Bank. The
aggregate unpaid principal balance of loans to directors and officers and their
affiliates outstanding at June 30, 1997 totals approximately $780,000 and
represents 2.29% of pro forma consolidated stockholders' equity of the Company
at June 30, 1997, assuming the sale of 460,000 shares of Common Stock.
DESCRIPTION OF CAPITAL STOCK
The Company
The Company is authorized to issue 20,000,000 shares of Common Stock and
5,000,000 shares of preferred stock. Neither the authorized Common Stock nor the
authorized preferred stock has any par value.
Common Stock. General. The Company's Common Stock will represent
nonwithdrawable capital, will not be an account of an insurable type, and will
not be insured by the FDIC or any other governmental entity. Upon payment of the
purchase price for the Common Stock, all such stock will be duly authorized,
validly issued, fully paid, and nonassessable.
Dividends. The holders of the Company's Common Stock will be entitled to
receive and share ratably in such dividends on Common Stock as may be declared
by the Board of Directors of the Company out of funds legally available
therefor, subject to applicable statutory and regulatory restrictions. See
"SUPERVISION AND REGULATION -- Regulation of the Company -- Restrictions on
Dividends." The ability of the Company to pay dividends may be dependent on the
receipt of dividends from the Bank. See "DIVIDEND POLICY," "SUPERVISION AND
REGULATION -- Regulation of the Bank -- Restrictions on Dividends and Other
Capital Distributions," and "TAXATION."
Stock Repurchases. The shares of Common Stock do not have any redemption
provisions. Stock repurchases are subject to North Carolina corporate laws
regarding capital distributions.
Voting Rights. Upon Conversion, the holders of Common Stock, as the only
class of capital stock of the Company then outstanding, will possess exclusive
voting rights with respect to the Company. Such holders will have the right to
elect the Company's Board of Directors and to act on such other matters as are
required to be presented to stockholders under North Carolina law or as are
otherwise presented to them. Each holder of Common Stock will be entitled to one
vote per share. The holders of Common Stock will have no right to vote their
shares cumulatively in the election of directors. As a result, the holders of a
majority of the shares of Common Stock will have the ability to elect all of the
directors on the Company's Board of Directors.
Liquidation Rights. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock of the Company would be
entitled to ratably receive, after payment of or making of adequate provisions
for, all debts and liabilities of the Company and after the rights, if any, of
preferred stockholders of the Company, all remaining assets of the Company
available for distribution.
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
by the Company.
Shares Owned by Directors and Executive Officers. All shares of Common
Stock issued in the Conversion to directors and executive officers of the
Company and the Bank will contain a restriction providing that such shares may
not be sold without the written permission of the Administrator for a period of
one year following the date of purchase, except in the event of death of the
director or the executive officer.
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Preferred Stock. None of the 5,000,000 shares of the Company's
authorized preferred stock have been issued and none will be issued in the
Conversion. Such stock may be issued in one or more series with such rights,
preferences and designations as the Board of Directors of the Company may from
time to time determine subject to applicable law and regulations. If and when
such shares are issued, holders of such shares may have certain preferences,
powers and rights (including voting rights) senior to the rights of the holders
of the Common Stock. The Board of Directors can (without stockholder approval)
issue preferred stock with voting and conversion rights which could, among other
things, adversely affect the voting power of the holders of the Common Stock and
assist management in impeding an unfriendly takeover or attempted change in
control of the Company that some stockholders may consider to be in their best
interests but to which management is opposed. See "ANTI-TAKEOVER PROVISIONS
AFFECTING THE COMPANY AND THE BANK --The Company-- Restrictions in Articles of
Incorporation and Bylaws." The Company has no current plans to issue preferred
stock.
Restrictions on Acquisition. Acquisitions of the Company and
acquisitions of the capital stock of the Company are restricted by provisions in
the Articles of Incorporation and Bylaws of the Company and by various federal
and state laws and regulations. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE
COMPANY AND THE BANK -- The Company -- Restrictions in Articles of Incorporation
and Bylaws" and "-- Regulatory Restrictions."
The Bank
Common Stock. After consummation of the Conversion, the Bank will be
authorized to issue 100,000 shares of common stock, no par value ("the Bank
Common Stock"). The Bank Common Stock will represent nonwithdrawable capital,
will not be an account of an insurable type, and will not be insured by the FDIC
or any other governmental entity.
Dividends. The payment of dividends by the Bank is subject to
limitations which are imposed by North Carolina law and regulations. See
"DIVIDEND POLICY" and "SUPERVISION AND REGULATION -- Regulation of the Bank --
Restrictions on Dividends and Other Capital Distributions." In addition, federal
income tax law considerations may affect the ability of the Bank to pay
dividends and make other capital distributions. See "TAXATION." The holders of
the Bank Common Stock will be entitled to receive and share ratably in such
dividends on the Bank Common Stock as may be declared by the Board of Directors
of the Bank out of funds legally available therefor, subject to applicable
statutory and regulatory restrictions.
Voting Rights. As a mutual North Carolina-chartered savings bank, the
Bank currently has no stockholders, and voting rights in the Bank are currently
held by the Bank's members (depositors and borrowers). Members elect the Bank's
Board of Directors and vote on such other matters as are required to be
presented to them under North Carolina law.
Upon Conversion, the Company, as sole stockholder of the Bank, will
possess the exclusive voting rights with respect to the Bank Common Stock, will
elect the Bank's Board of Directors and will act on such other matters as are
required to be presented to stockholders under North Carolina law or as are
otherwise presented to stockholders by the Bank's Board of Directors. The
holders of the Bank Common Stock will have no right to vote their shares
cumulatively in the election of directors of the Bank.
Liquidation Rights. After the Conversion, in the event of any
liquidation, dissolution or winding up of the Bank, the Company, as holder of
all of the Bank's outstanding capital stock, would be entitled to receive all
remaining assets of the Bank available for distribution, after payment of or
making of adequate provisions for, all debts and liabilities of the Bank
(including all deposit accounts and accrued interest thereon) and after
distribution of the balance in the liquidation account established in connection
with the Conversion to Eligible Account Holders and Supplemental Eligible
Account Holders. See "THE CONVERSION -- Effects of Conversion -- Liquidation
Rights."
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Preemptive Rights. Holders of the Bank Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued by the Bank.
Restrictions on Acquisition. Acquisitions of the Bank and acquisitions
of its capital stock are restricted by various federal and state laws and
regulations. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK --
The Bank."
ANTI-TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK
The Company
Restrictions in Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws of the Company contain certain provisions that are
intended to encourage a potential acquiror to negotiate any proposed acquisition
of the Company directly with the Company's Board of Directors. An unsolicited
non-negotiated takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management. The Board of Directors believes 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 transaction at prices reflective of the true value of the
Company and that otherwise is in the best interests of all stockholders.
However, these provisions may have the effect of discouraging offers to purchase
the Company or its securities which are not approved by the Board of Directors
but which certain of the Company's stockholders may deem to be in their best
interests or pursuant to which stockholders would receive a substantial premium
for their shares over the current market prices. Therefore, the existence of
such anti-takeover provisions in fact may not always be in the best interests of
all shareholders. Stockholders who might desire to participate in such a
takeover not supported by management may not have an opportunity to do so. Such
provisions will also render the removal of the current Board of Directors and
management more difficult. Nevertheless, the Boards of Directors of the Bank and
the Company believe these provisions are in the best interests of the
stockholders because they will assist the Company's Board of Directors in
managing the affairs of the Company in the manner they believe to be in the best
interests of stockholders generally and because a company's board of directors
is often best able in terms of knowledge regarding the company's business and
prospects, as well as resources, to negotiate the best transaction for its
stockholders as a whole.
The following description of certain of the provisions of the Articles
of Incorporation and Bylaws of the Company is necessarily general and reference
should be made in each instance to such Articles of Incorporation and Bylaws.
See "ADDITIONAL INFORMATION" regarding how to obtain a copy of these documents.
Board of Directors. The Bylaws of the Company provide that the number of
directors shall not be less than five nor more than 15. The initial number of
directors is seven, but such number may be changed by resolution of the Board of
Directors. These provisions have the effect of enabling the Board of Directors
to elect directors friendly to management in the event of a non-negotiated
takeover attempt and may make it more difficult for a person seeking to acquire
control of the Company to gain majority representation on the Board of Directors
in a relatively short period of time. The Company believes these provisions to
be important to continuity in the composition and policies of the Board of
Directors.
The Articles of Incorporation provide that, if and when the number of
directors is at least nine, there will be staggered elections of directors so
that the directors will each be initially elected to one, two or three-year
terms, and thereafter (so long as the number of directors is nine or more) all
directors will be elected to terms of three years each. This provision also has
the effect of making it more difficult for a person seeking to acquire control
of the
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Company to gain majority representation on the Board of Directors.
The Articles of Incorporation and Bylaws of the Company provide that
directors may be removed prior to the end of their term only for cause.
Cumulative Voting. The Articles of Incorporation do not provide for
cumulative voting for any purpose. Cumulative voting in election of directors
entitles a stockholder to cast a total number of votes equal to the number of
directors to be elected multiplied by the number of his or her shares and to
distribute that number of votes among such number of nominees as the stockholder
chooses. The absence of cumulative voting for directors limits the ability of a
minority stockholder to elect directors. Because the holder of less than a
majority of the Company's shares cannot be assured representation on the Board
of Directors, the absence of cumulative voting may discourage accumulations of
the Company's shares or proxy contests that would result in changes in the
Company's management. The Board of Directors believes that (i) elimination of
cumulative voting will help to assure continuity and stability of management and
policies; (ii) directors should be elected by a majority of the stockholders to
represent the interests of the stockholders as a whole rather than be the
special representatives of particular minority interests; and (iii) efforts to
elect directors representing specific minority interests are potentially
divisive and could impair the operations of the Company.
Special Meetings. The Bylaws of the Company provide that special
meetings of stockholders of the Company may be called by the Chairman of the
Board, the Chief Executive Officer, the President, or by the Board of Directors.
If a special meeting is not called by such persons or entities, stockholder
proposals cannot be presented to the stockholders for action until the next
annual meeting.
Capital Stock. The Articles of Incorporation of the Company authorize
the issuance of 20,000,000 shares of common stock and 5,000,000 shares of
preferred stock. The shares of common stock and preferred stock authorized in
addition to the number of shares of Common Stock to be issued pursuant to the
Conversion were authorized to provide the Company's Board of Directors with
flexibility to issue additional shares, without further stockholder approval,
for proper corporate purposes, including financing, acquisitions, stock
dividends, stock splits, director and employee stock options, grants of
restricted stock to directors and certain employees and other appropriate
purposes. However, issuance of additional authorized shares may also have the
effect of impeding or deterring 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, dividend rights, and liquidation preferences, which could adversely
affect the voting power of the holders of the Common Stock and discourage an
attempt to acquire control of the Company. The Board of Directors does not
intend to issue any preferred stock, except on terms which it deems to be in the
best interests of the Company and its stockholders. However, the Board of
Directors has the power, to the extent consistent with its fiduciary duties, to
issue preferred stock to persons friendly to management or otherwise in order to
impede attempts by third parties to acquire voting control of the Company and to
impede other transactions not favored by management. The Board of Directors
currently has no plans for the issuance of additional shares of Common Stock
(except for such shares as may be necessary to fund a MRP and a Stock Option
Plan) or of shares of preferred stock.
Director Nominations. The Bylaws of the Company require a stockholder
who intends to nominate a candidate for election to the Board of Directors at a
stockholders' meeting to give written notice to the Secretary of the Company at
least 50 days (but not more than 90 days) in advance of the date of the meeting
at which such nominations will be made. The nomination notice is also required
to include specified information concerning the nominee and the proposing
stockholder. The Board of Directors of the Company believes that it is in the
best interests of the Company and its stockholders to provide sufficient time
for the Board of Directors to study all nominations and to determine whether to
recommend to the stockholders that such nominees be considered.
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Supermajority Voting Provisions. The Company's Articles of Incorporation
require the affirmative vote of 75% of the outstanding shares entitled to vote
to approve a merger, consolidation, or other business combination, unless the
transaction is approved, prior to consummation, by the vote of at least 75% of
the number of the Continuing Directors (as defined in the Articles of
Incorporation) on the Company's Board of Directors. "Continuing Directors"
generally includes all members of the Board of Directors who are not affiliated
with any individual, partnership, trust or other person or entity (or the
affiliates and associates of such person or entity) which is a beneficial owner
of 10% or more of the voting shares of the Company. This provision could tend to
make the acquisition of the Company more difficult to accomplish without the
cooperation or favorable recommendation of the Company's Board of Directors.
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Anti-Takeover Effect of Employment Agreements and Benefit Plans. The
existence of the ESOP may tend to discourage takeover attempts because employees
participating under the ESOP and the trustees of the ESOP will effectively
control the voting of the large block of shares held by the ESOP. See
"MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan." Also, if approved by
the stockholders of the Company at a meeting of stockholders following the
Conversion, the MRP and the Stock Option Plan will provide for the ownership of
additional shares of Common Stock by the employees and the directors of the Bank
and for voting control by directors and certain employees over shares held by
the MRP and Stock Option Plan which are attributable to grants made to them
under such plans even though the grants are not yet vested. See "MANAGEMENT OF
THE BANK -- Proposed Management Recognition Plan" and "-- Proposed Stock Option
Plan."
If (i) the Stock Option Plan is approved by the stockholders of the Company
within one year after the Conversion and all of the stock options which could be
granted to directors and executive officers under the Stock Option Plan are
granted and exercised or the shares for such options are acquired by the Stock
Option Plan and all option shares are acquired in the open market, (ii) the MRP
is approved by the stockholders of the Company within one year after the
Conversion, all of the MRP shares which could be granted to directors and
executive officers are granted and issued and all such shares are acquired in
the open market, (iii) the ESOP acquires 8% of the shares issued in the
Conversion and none of such shares are allocated, and (iv) the Company did not
issue any additional shares of its Common Stock, the shares held by directors
and executive officers and their associates as a group, including (a) shares
purchased outright in the Conversion, (b) shares purchased by the ESOP, (c)
shares purchased pursuant to the Stock Option Plan and (d) shares granted under
the MRP, would give such persons effective control over as much as 29.39% or
25.79%, at the minimum and maximum of the Valuation Range, respectively, of the
Common Stock issued and outstanding.
The existence of the employment agreements with employees could make a
business combination with the Bank more costly and could discourage such
transactions. See "MANAGEMENT OF THE BANK -- Employment Agreements."
Regulatory Restrictions. Applicable North Carolina regulations provide that
for a period of three years following the Conversion, the prior written approval
of the Administrator will be required before any person may, directly or
indirectly, acquire beneficial ownership of or make any offer to acquire any
stock or other equity security of the Company if, after the acquisition or
consummation of such offer, such person would be the beneficial owner of more
than 10% of such class of stock or other class of equity security of the
Company. If any person were to so acquire the beneficial ownership of more than
10% of any class of any equity security without prior written approval, the
securities beneficially owned in excess of 10% would not be counted as shares
entitled to vote and would not be voted or counted as voting shares in
connection with any matter submitted to stockholders for a vote. Approval is not
required for (i) any offer with a view toward public resale made exclusively to
the Company or its underwriters or the selling group acting on its behalf or
(ii) any offer to acquire or acquisition of beneficial ownership of more than
10% of the common stock of the Company by a corporation whose ownership is or
will be substantially the same as the ownership of the Company, provided that
the offer or acquisition is made more than one year following the consummation
of the Conversion. The regulation provides that within one year following the
Conversion, the Administrator would approve the acquisition of more than 10% of
beneficial ownership only to protect the safety and soundness of the
institution. During the second and third years after the Conversion, the
Administrator may approve such an acquisition upon a finding that (i) the
acquisition is necessary to protect the safety and soundness of the Company and
the Bank or the Board of Directors of the Company and the Bank support the
acquisition and (ii) the acquiror is of good character and integrity and
possesses satisfactory managerial skills, the acquiror will be a source of
financial strength to the Company and the Bank and the public interests will not
be adversely affected.
The Change in Bank Control Act, together with North Carolina regulations,
require that the consent of the Administrator and Federal Reserve be obtained
prior to any person or company acquiring "control" of a North Carolina-
chartered savings bank or a North Carolina-chartered savings bank Company. Upon
acquiring control,
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such acquiror will be deemed to be a bank Company. Control is conclusively
presumed to exist if, among other things, an individual or company acquires the
power, directly or indirectly, to direct the management or policies of the
Company or the Bank or to vote 25% or more of any class of voting stock. Control
is rebuttably presumed to exist under the Change in Bank Control Act if, among
other things, a person acquires more than 10% of any class of voting stock, and
the issuer's securities are registered under Section 12 of the Exchange Act or
the person would be the single largest stockholder. Restrictions applicable to
the operations of bank holding companies and conditions imposed by the Federal
Reserve in connection with its approval of such acquisitions may deter potential
acquirors from seeking to obtain control of the Company. See "SUPERVISION AND
REGULATION -- Regulation of the Company."
The Bank
Upon consummation of the Conversion, the Bank will become a wholly-owned
subsidiary of the Company, and, consequently, restrictions on the acquisition of
the Bank would have a more limited effect than if the Bank's common stock were
held directly by the stockholders purchasing in the Conversion. However,
restrictions on the acquisition of the Bank may discourage takeover attempts of
the Company in order to gain immediate control of the Bank.
Regulatory Restrictions. The Administrator and the Federal Reserve have
conditionally approved the Company's acquisition of all of the stock of the Bank
issued in the Conversion. For three years following completion of a conversion,
North Carolina conversion regulations require the prior written approval of the
Administrator before any person may directly or indirectly offer to acquire or
acquire the beneficial ownership of more than 10% of any class of an equity
security of a converting state savings bank such as the Bank. If any person were
to so acquire the beneficial ownership of more than 10% of any class of any
equity security without prior written approval, the securities beneficially
owned in excess of 10% would not be counted as shares entitled to vote and would
not be voted or counted as voting shares in connection with any matter submitted
to stockholders for a vote. Approval is not required for (i) any offer with view
toward public resale made exclusively to the Bank or its underwriters or the
selling group acting on its behalf or (ii) any offer to acquire or acquisition
of beneficial ownership of more than 10% of the common stock of the Bank by a
corporation whose ownership is or will be substantially the same as the
ownership of the Bank, provided that the offer or acquisition is made more than
one year following the consummation of the Conversion. Similarly, Federal
Reserve approval is required before any person or entity may acquire "control"
of the Bank. See "-- The Company-- Regulatory Restrictions."
Board of Directors. The amended Articles of Incorporation of the Bank upon
consummation of the Conversion will provide that the number of directors may be
no less than five. The initial number of directors will be five, but such number
may be changed by resolution of the Board of Directors. This provision has the
effect of enabling the Board of Directors to elect directors friendly to
management in the event of a non-negotiated takeover attempt. The Bank's Bylaws
also provide for staggered elections of directors if and when the total number
of directors is at least nine. These provisions are designed to make it more
difficult for a person seeking to acquire control of the Bank to gain majority
representation on the Board of Directors in a relatively short period of time.
The Bank believes these provisions to be important to continuity in the
composition and policies of its Board of Directors.
THE CONVERSION
THE BOARD OF DIRECTORS OF THE BANK HAS ADOPTED AND THE ADMINISTRATOR HAS
APPROVED COMPLETION OF THE TRANSACTIONS DESCRIBED IN THE PLAN SUBJECT TO
APPROVAL BY THE MEMBERS OF THE BANK AND TO THE SATISFACTION OF CERTAIN OTHER
CONDITIONS. APPROVAL BY THE ADMINISTRATOR DOES NOT CONSTITUTE A RECOMMENDATION
OR ENDORSEMENT OF THE PLAN BY THE ADMINISTRATOR.
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General
The Bank was organized and has operated as a traditional savings and loan
association. It recognizes that the banking and financial services industries
are in the process of fundamental changes, reflecting changes in the local,
national and international economies, technological changes and changes in state
and federal laws. As a result, for several years the Bank has been studying the
environment in which it operates and its strategic options.
As a result of its study of its strategic options, the Bank adopted the
Plan. The Bank believes that converting the bank from the mutual to stock form
and organizing the Company will provide increased flexibility for the Bank and
the Company to react to changes in their operating environment, regardless of
the strategies ultimately chosen.
The existing management of the Bank and the Company believes that it will
be in the best interests of the Bank, the Company and the stockholders of the
Company for the Company to remain an independent financial institution. Assuming
the consummation of the Conversion, the Company and the Bank intend to pursue
the business strategy described in this Prospectus with the goal of enhancing
shareholder value over the long term. Neither the Company nor the Bank has any
existing plan to consider any business combination, and neither company has any
agreement or understanding with respect to any possible business combination.
The Board of Director's adoption of the Plan is subject to approval by the
members of the Bank and receipt of required regulatory approvals. Pursuant to
the Plan, the Bank will be converted from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered stock savings bank and will become a
wholly-owned subsidiary of the Company. The Company will issue the Common Stock
to be sold in the Conversion and will use that portion of the net proceeds
thereof which it does not retain to purchase the capital stock of the Bank. By
letter dated __________, 1997, the Administrator approved the Plan, subject to
approval by the members of the Bank and satisfaction of certain other
conditions. The Special Meeting will be held on December ____, 1997 for the
purpose of considering approval of the Plan.
Consummation of the Conversion is contingent also upon receipt of the
approvals of the Federal Reserve and the Administrator for the Company to
acquire the Bank. Those approvals have been received. The Conversion cannot be
consummated until the expiration of the Bank Merger Act of 1956 waiting period
which began to run upon approval by the Federal Reserve of the Company's
application and expires ___________, 199___. Finally, consummation of the
Conversion is contingent upon receipt from the FDIC of a final non-objection
letter with respect to the transaction. The FDIC has issued a conditional
notification that it does not intend to object to the Conversion.
The following is a summary of all material provisions of the Plan. It is
qualified in its entirety by the provisions of the Plan, which contains a more
detailed description of the terms of the Conversion. The Plan is attached as
Attachment I to the Bank's Proxy Statement for the Special Meeting which has
been delivered to all members of the Bank. The Plan can also be obtained by
written request from the Bank. See "ADDITIONAL INFORMATION."
Purposes of Conversion
The Bank, as a mutual savings bank, now has no stockholders and no
authority to issue capital stock. By converting to the stock form of
organization, the Bank will be structured in the form used by most commercial
banks, other business entities and a substantial number of savings institutions.
Conversion to a North Carolina-chartered capital stock savings bank and the
formation of a Company offers a number of advantages which may be important to
the future and performance of the Bank, including (i) a larger capital base for
the Bank's operations, (ii) an enhanced future access to capital markets and
(iii) an opportunity for depositors of the Bank to become stockholders of the
Company.
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After completion of the Conversion, the unissued common and preferred stock
authorized by the Company's Articles of Incorporation will permit the Company,
subject to market conditions, to raise additional equity capital through further
sales of securities. Following the Conversion, the Company will also be able to
use stock-related incentive programs to attract, retain and provide incentives
for qualified directors and executive and other personnel of the Company and the
Bank. See "MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan" and "--
Stock Based Benefits."
Formation of the Company will provide greater flexibility than the Bank
would otherwise have to expand and diversify its business activities through
existing or newly formed subsidiaries, or through acquisitions of, or mergers
with, both mutual and stock institutions, as well as other companies. However,
there are no current plans, arrangements, understandings or agreements regarding
any such business combinations.
Effects of Conversion
General. Each person with a deposit account in the Bank has pro rata
rights, based upon the balance in his or her account, in the net worth of the
Bank upon liquidation. However, this right is tied to the depositor's account
and has no tangible market value separate from such deposit account. Further,
the Bank's depositors can realize value with respect to their interests only in
the unlikely event that the Bank is liquidated and has a positive net worth. In
such an event, the depositors of record at that time, as owners, would share pro
rata in any residual surplus after other claims, including those with respect to
the deposit accounts of depositors, are paid.
Upon the Bank's conversion to stock form, its Certificate of Incorporation
will be amended to authorize the issuance of permanent nonwithdrawable capital
stock to represent the ownership of the Bank, including its net worth. The
capital stock will be separate and apart from deposit accounts and will not be
insured by the FDIC or any other governmental entity. Certificates will be
issued to evidence ownership of the capital stock. All of the outstanding
capital stock of the Bank will be acquired by the Company, which in turn will
issue its Common Stock to purchasers in the Conversion. The stock certificates
issued by the Company will be transferable and, therefore, subject to applicable
law, the stock could be sold or traded if a purchaser is available with no
effect on any deposit account the seller may hold at the Bank.
Voting Rights. Under the Bank's current Certificate of Incorporation and
Bylaws, deposit account holders and borrowers have voting rights with respect to
certain matters relating to the Bank, including the election of directors. After
the Conversion, (i) neither deposit account holders nor borrowers will have
voting rights with respect to the Bank and will therefore not be able to elect
directors of the Bank or control its affairs; (ii) voting rights with respect to
the Bank will be vested in the Company as the sole stockholder of the Bank; and
(iii) voting rights with respect to the Company will be vested in the Company's
stockholders. Each purchaser of Common Stock will be entitled to vote on any
matters to be considered by the Company's stockholders. For a description of the
voting rights of the holders of Common Stock, see "DESCRIPTION OF CAPITAL
STOCK."
Deposit Accounts and Loans. The account balances, interest rates and other
terms of deposit accounts at the Bank and the existing deposit insurance
coverage of such accounts will not be affected by the Conversion (except to the
extent that a depositor directs the Bank to withdraw funds to pay for his or her
Common Stock). Furthermore, the Conversion will not affect any loan account, the
balances, interest rates, maturities or other terms of these accounts, or the
obligations of borrowers under their individual contractual arrangements with
the Bank.
Continuity. The Bank will continue without interruption, during and after
completion of the Conversion, to provide its services to depositors and
borrowers pursuant to existing policies and will maintain its office operated by
the existing management and employees of the Bank.
Liquidation Rights. In the unlikely event of a complete liquidation of the
Bank, either before or after Conversion, account holders would have claims for
the amount of their deposit accounts, including accrued interest,
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and would receive the protection of deposit insurance up to applicable limits.
In addition to deposit insurance coverage, depositor liquidation rights before
and after Conversion would be as follows:
Liquidation Rights Prior to the Conversion. Prior to the Conversion, in the
event of a complete liquidation of the Bank, each holder of a deposit account in
the Bank would receive such holder's pro rata share of any assets of the Bank
remaining after payment of claims of all creditors (including the claims of all
depositors to the withdrawal value of their accounts, including accrued
interest). Such holder's pro rata share of such remaining assets, if any, would
be in the same proportion of such assets as the value of such holder's deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation.
Liquidation Rights After the Conversion. As required by North Carolina
conversion regulations, the Plan provides that, upon completion of the
Conversion, a memorandum account called a "Liquidation Account" will be
established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. The amount of the Liquidation Account will be equal to
the net worth of the Bank as of the date of its latest statement of financial
condition contained in the final prospectus relating to the sale of shares of
Common Stock in the Conversion. Under applicable regulations, the Bank will not
be permitted to pay dividends on, or repurchase any of, its capital stock if its
net worth would thereby be reduced below the aggregate amount then required for
the Liquidation Account. See "DIVIDEND POLICY" and SUPERVISION AND REGULATION --
Regulation of the Bank -- Restrictions on Dividends and Other Capital
Distributions." After the Conversion, Eligible Account Holders and Supplemental
Eligible Account Holders will be entitled, in the event of a liquidation of the
Bank, to receive liquidating distributions of any assets remaining after payment
of all creditors' claims (including the claims of all depositors to the
withdrawal values of their deposit accounts, including accrued interest), before
any distributions are made on the Bank's capital stock, equal to their
proportionate interests at that time in the Liquidation Account.
Each Eligible Account Holder and Supplemental Eligible Account Holder will
have an initial interest ("subaccount balance") in the Liquidation Account for
each deposit account held as of December 31, 1995 (the Eligibility Record Date)
or as of ____________, 1997 (the Supplemental Eligibility Record Date),
respectively. Each initial subaccount balance will be the amount determined by
multiplying the total opening balance in the Liquidation Account by the
Qualifying Deposit (a deposit of at least $50 as of the Eligibility Record Date
or Supplemental Eligibility Record Date, as applicable) of such deposit account
divided by the total of all Qualifying Deposits on that date. If the amount in
the deposit account on any subsequent annual closing date of the Bank is less
than the balance in such deposit account on any other annual closing date or the
balance in such an account on the Eligibility Record Date or Supplemental
Eligibility Record Date, as the case may be, this interest in the Liquidation
Account will be reduced by an amount proportionate to any such reduction, and
will not thereafter be increased despite any subsequent increase in the related
deposit account. An Eligible Account Holder's or Supplemental Eligible Account
Holder's interest in the Liquidation Account will cease to exist if the deposit
account is closed. The Liquidation Account will never increase and will be
correspondingly reduced as the interests in the Liquidation Account are reduced
or cease to exist. In the event of a liquidation, 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 sole
stockholder of the Bank.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with another FDIC-insured depository institution, whether or not the
Bank is the surviving institution, would not be viewed as a complete liquidation
for purposes of distribution of the Liquidation Account. In any such
transaction, the Liquidation Account would be assumed by the surviving
institution to the full extent authorized by regulations of the Administrator as
then in effect.
Offering of Common Stock
As part of the Conversion, the Company is making the Subscription Offering
of Common Stock in the priorities and to the persons described below under "--
Subscription Offering." In addition, any shares which
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remain unsubscribed for in the Subscription Offering will be offered in the
Community Offering to members of the general public, with priority being given
to natural persons and trusts of natural persons residing or located in the
Local Community, including IRAs, Keogh accounts and similar retirement accounts
established for the benefit of natural persons who are residents of the Local
Community. See "-- Community Offering." If necessary, all shares of Common Stock
not purchased in the Subscription Offering and Community Offering, if any, may
be offered for sale to the general public through a syndicate of registered
broker-dealers as selected dealers to be managed by Trident Securities. See "--
Syndicated Community Offering." The Plan requires that the aggregate dollar
amount of the Common Stock sold equal not less than the minimum nor more than
the maximum of the Valuation Range which is established in connection with the
Conversion; provided, however, with the consent of the Administrator and the
FDIC the aggregate dollar amount of the Common Stock sold may be increased to as
much as 15% above the maximum of the Valuation Range, without a resolicitation
of subscribers or any right to cancel subscriptions, in order to reflect changes
in market and financial conditions following commencement of the Subscription
Offering. See "-- Purchase Price of Common Stock and Number of Shares Offered."
If the Syndicated Community Offering is not feasible or successful and Common
Stock having an aggregate value of at least the minimum of the Valuation Range
is not subscribed for in the Subscription and Community Offerings, the Company
will consult with the Administrator to determine an appropriate alternative
method of selling all shares of Common Stock offered in the Conversion and not
subscribed for in the Offerings. The same per share price ($50.00) will be paid
by purchasers in the Subscription, Community and Syndicated Community Offerings.
The Subscription Offering will expire at the Expiration Time, which is
12:00 noon, Eastern Time, on December ____, 1997, unless, with the approval of
the Administrator, the offering period is extended by the Company and the Bank.
The Community Offering, if any, may begin at any time after the Subscription
Offering begins and will terminate at the Expiration Time or at any time
thereafter, but not later than January ____, 1998, unless extended with the
approval of the Administrator. The Syndicated Community Offering, if any, or
other sale of all shares not subscribed for in the Subscription and Community
Offerings, will be made as soon as practicable following the Expiration Time.
The sale of the Common Stock must, under the North Carolina conversion
regulations, be completed within 45 days after the Expiration Time unless such
period is extended with the approval of the Administrator. In the event such an
extension is approved, subscribers would be given the opportunity to increase
(subject to maximum purchase limitations), decrease (subject to minimum purchase
limitations) or rescind their subscriptions. In such event, substantial
additional printing, legal and accounting expenses may be incurred in completing
the Conversion.
The commencement and completion of any required Community or Syndicated
Community Offering will be subject to market conditions and other factors beyond
the Company's control. Accordingly, no assurance can be given that any required
Community or Syndicated Community Offering or other sale of Common Stock will be
commenced at any particular time or as to the length of time that will be
required to complete the sale of all shares of Common Stock offered, and
significant changes may occur in the estimated pro forma market value of the
Common Stock, together with corresponding changes in the offering price, the
number of shares being offered, and the net proceeds realized from the sale of
the Common Stock. The Plan requires that the Conversion be completed within 24
months after the date of approval of the Plan by the Bank's members.
Subscription Offering
In accordance with North Carolina conversion regulations, non-transferable
Subscription Rights have been granted under the Plan to the following persons in
the following order of priority: (i) the Bank's Eligible Account Holders, who
are depositors as of December 31, 1995 who had aggregate deposits at the close
of business on such date of at least $50 ("Qualifying Deposits"); (ii) the ESOP;
(iii) the Bank's Supplemental Eligible Account Holders, who are depositors as of
____________, 1997 who had Qualifying Deposits on such date; (iv) the Bank's
Other Members, who are depositor and borrower members as of ____________, 1997,
the voting record date for the Special Meeting, who are not Eligible Account
Holders or Supplemental Eligible Account Holders; and (v) directors, officers
and employees of the Bank who are not Eligible Account Holders, Supplemental
Eligible Account
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Holders or Other Members, in the priorities and subject to the limitations
described herein. All subscriptions received will be subject to the availability
of Common Stock after satisfaction of subscriptions of all persons having prior
rights in the Subscription Offering, and to the maximum purchase limitations and
other terms and conditions set forth in the Plan and described below.
In order to ensure proper identification of Subscription Rights, it is the
responsibility of subscribers in the Subscription Offering to provide correct
account verification information on the Stock Order Forms.
Eligible Account Holders. Each Eligible Account Holder has been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "-- Minimum and
Maximum Purchase Limitations." If Eligible Account Holders subscribe for more
shares of Common Stock than are available for purchase, the shares offered will
first be allocated among the subscribing Eligible Account Holders so as to
enable each subscribing Eligible Account Holder to the extent possible, to
purchase the number of shares necessary to make his or her total allocation of
Common Stock equal to the lesser of 100 shares of Common Stock or the number of
shares subscribed for by such Eligible Account Holder. Any shares remaining
after such allocation will be allocated among the subscribing Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that each such
Eligible Account Holder's Qualifying Deposits bears to the total of the
Qualifying Deposits of all such Eligible Account Holders.
ESOP. The ESOP has been granted, without payment therefor, Subscription
Rights to purchase a number of shares of Common Stock up to 8% of the aggregate
number of shares issued in the Conversion. The ESOP is expected to purchase 8%
of the number of shares to be issued in the Conversion. If, because of an
oversubscription for shares of Common Stock or for any other reason, the ESOP is
unable to purchase in the Conversion 8% of the total number of shares offered in
the Conversion, then the Board of Directors of the Company intends to approve
the purchase by the ESOP in the open market after the Conversion, of such shares
as are necessary for the ESOP to acquire a number of shares equal to 8% of the
shares of Common Stock issued in the Conversion.
Supplemental Eligible Account Holders. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders and the ESOP, each Supplemental Eligible Account Holder has been
granted, without payment therefor, non-transferable Subscription Rights to
purchase Common Stock up to the maximum purchase limitation described in "--
Minimum and Maximum Purchase Limitations." If Supplemental Eligible Account
Holders subscribe for more shares of Common Stock than are available for
purchase, the shares offered will first be allocated among the subscribing
Supplemental Eligible Account Holders so as to enable each subscribing
Supplemental Eligible Account Holder to the extent possible, to purchase the
number of shares necessary to make his or her total allocation of Common Stock
equal to the lesser of 100 shares of Common Stock or the number of shares
subscribed for by such Supplemental Eligible Account Holder. Any shares
remaining after such allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that each such Supplemental Eligible Account Holder's Qualifying
Deposits bears to the total of the Qualifying Deposits of all such Supplemental
Eligible Account Holders.
Other Members. To the extent that shares remain available for purchase
after satisfaction of subscriptions of Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders, members of the Bank as of ____________,
1997 (the voting record date for the Special Meeting), other than Eligible
Account Holders and Supplemental Eligible Account Holders (Other Members) have
each been granted, without payment therefor, non-transferable Subscription
Rights to purchase Common Stock up to the maximum purchase limitation described
in "-- Minimum and Maximum Purchase Limitations." If Other Members subscribe for
more shares of Common Stock than remain available for purchase by Other Members,
shares will be allocated among the subscribing Other Members in the proportion
that the number of votes eligible to be cast by each Other Member bears to the
total number of votes eligible to be cast at the Special Meeting by all Other
Members whose subscriptions remain unsatisfied.
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Employees, Officers, and Directors. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders and Other Members, the
Bank's employees, officers and directors who are not Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members have each been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "-- Minimum and
Maximum Purchase Limitations." If more shares are subscribed for by such
employees, officers and directors than are available for purchase by them, the
available shares will be allocated among subscribing employees, officers and
directors pro rata on the basis of the amount of their respective subscriptions.
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Community Offering
Any shares of Common Stock which remain unsubscribed for in the
Subscription Offering may be offered by the Company to members of the general
public in the Community Offering, which may commence at any time after
commencement of the Subscription Offering, with priority given to natural
persons and trusts of natural persons residing or located in Iredell,
Mecklenburg, Lincoln, Catawba, Rowan and Cabarrus counties in North Carolina
(the Local Community), including IRA accounts, Keogh accounts and similar
retirement accounts established for the benefit of natural persons who are
residents of, the Local Community. The Community Offering may terminate at the
Expiration Time or at any time thereafter, but no later than ____________, 1998,
unless further extended with the consent of the Administrator. The opportunity
to subscribe for shares of Common Stock in the Community Offering is subject to
the right of the Bank and the Company, in their sole discretion, to accept or
reject any such orders, in whole or in part, either at the time of receipt of an
order or as soon as practicable following the termination of the Community
Offering. In the event the Bank and the Company reject any such orders after
receipt, subscribers will be promptly notified and all funds submitted with
subscriptions will be returned with interest at the Bank's passbook savings
rate.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then subscriptions of natural persons and
trusts of natural persons residing in the Local Community, including IRAs, Keogh
accounts and similar retirement accounts established for the benefit of natural
persons who are residents of the Local Community ("First Priority Community
Subscribers") will be filled in full up to applicable purchase limitations (to
the extent such subscriptions are not rejected by the Bank and the Company)
prior to any allocation to other subscribers in the Community Offering.
In the event of an oversubscription by First Priority Community Subscribers
whose orders would otherwise be accepted, shares of Common Stock will be
allocated first to each First Priority Community Subscriber whose order is
accepted in full or in part by the Bank and the Company in the entire amount of
such order up to a number of shares no greater than 5,000 shares, which number
shall be determined by the Board of Directors of the Bank prior to the time the
Conversion is consummated with the intent to provide for a wide distribution of
shares among such subscribers. Any shares remaining after such allocation will
be allocated to each First Priority Community Subscriber whose order is accepted
in full or in part on an equal number of shares basis until all orders are
filled. Such allocation shall also be applied to subscriptions by other
subscribers in the Community Offering, in the event shares are available for
such subscribers but there is an oversubscription by them.
In order to ensure proper allocation of shares in the event of an
oversubscription, it is the responsibility of subscribers in the Community
Offering to provide correct addresses of residence on the Stock Order Forms.
Syndicated Community Offering
The Plan provides that, if necessary, all shares of Common Stock not
purchased in the Subscription and Community Offerings, if any, may be offered
for sale to the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers as selected dealers ("Selected Dealers")
to be formed and managed by Trident Securities acting as agent of the Company in
the sale of the Common Stock. The Company and the Bank have the right to reject
orders, in whole or in part, in their sole discretion in the Syndicated
Community Offering. Neither Trident Securities nor any registered broker-dealer
shall have any obligation to take or purchase any shares of the Common Stock in
the Syndicated Community Offering; however, Trident Securities has agreed to use
its best efforts in the sale of shares in the Syndicated Community Offering.
Common Stock sold in the Syndicated Community Offering will be sold at the
purchase price of $50.00 per share which is the same price as all other shares
being offered in the Conversion.
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It is estimated that the Selected Dealers will receive a negotiated
commission based on the amount of Common Stock sold by the Selected Dealer,
payable by the Company. During the Syndicated Community Offering, Selected
Dealers may only solicit indications of interest from their customers to place
orders with the Company as of a certain date (the "Order Date") for the purchase
of shares of Common Stock. When and if Trident Securities and the Company
believe that enough indications and orders have been received in the Offerings
to consummate the Conversion, Trident Securities will request, as of the Order
Date, Selected Dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected Dealers will
send confirmations of the orders to such customers on the next business day
after the Order Date. Selected Dealers will debit the accounts of their
customers on a date which will be three business days from the Order Date
("Debit Date"). Customers who authorize Selected Dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the Debit Date. On the next business day following the Debit
Date, Selected Dealers will remit funds to the account that the Company
established for each Selected Dealer. After payment has been received by the
Company from Selected Dealers, funds will earn interest at the Bank's passbook
savings rate until the consummation of the Conversion. In the event the
Conversion is not consummated as described above, funds with interest will be
returned promptly to the Selected Dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
The Syndicated Community Offering may close at any time after the
Expiration Time at the discretion of the Bank and the Company, but in no case
later than _____________, 1998.
Fractional Shares
In making allocations in the event of oversubscriptions, all computations
will be rounded down to the nearest whole share; no fractional shares will be
issued. Excess and other amounts sent by subscribers which are not used to
satisfy subscriptions will be refunded with interest at the Bank's passbook
savings rate, and amounts designated for withdrawal from deposit accounts will
be released.
Purchase Price of Common Stock and Number of Shares Offered
The purchase price of shares of Common Stock sold in the Subscription
Offering, Community Offering and Syndicated Community Offering will be $50.00
per share. The purchase price was determined by the Boards of Directors of the
Company and the Bank in consultation with the Bank's financial advisor and sales
agent, Trident Securities, and was based upon a number of factors. The North
Carolina regulations governing conversions of North Carolina-chartered mutual
savings banks to stock form require that the aggregate purchase price of the
shares of Common Stock of the Company sold in connection with the Conversion be
equal to not less than the minimum, nor more than the maximum, of the Valuation
Range which is established by an independent appraisal in the Conversion and is
described below; provided, however, that with the consent of the Administrator
and the FDIC the aggregate purchase price of the Common Stock sold may be
increased to up to 15% above the maximum of the Valuation Range, without a
resolicitation of subscribers or any right to cancel, rescind or change
subscription orders, to reflect changes in market and financial conditions
following commencement of the Subscription Offering.
FDIC rules with respect to appraisals require that the independent
appraisal must include a complete and detailed description of the elements of
the appraisal report, justification for the methodology employed and sufficient
support for the conclusions reached. The appraisal report must include a full
discussion of each peer group member and documented analytical evidence
supporting variances from peer group statistics. The appraisal report must also
include a complete analysis of the converting institution's pro forma earnings,
which should include the institution's full potential once it fully deploys the
capital from the conversion pursuant to its business plan.
The Bank has retained JMP Financial, an independent appraisal firm
experienced in the valuation and appraisal of savings institutions and their
holding companies, to prepare an appraisal of the pro forma market value of the
Bank and the Company and to assist the Bank in preparing a business plan. For
its services in determining
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such valuation and assisting with the business plan, JMP Financial will receive
an aggregate fee of $27,500 and will be reimbursed for its out-of-pocket
expenses.
JMP Financial has informed the Bank that its appraisal has been made in
reliance upon the information contained in this Prospectus, including the
financial statements of the Bank. JMP Financial has further informed the Bank
that it also considered the following factors, among others, in making the
appraisal: (i) the present and projected operating results and financial
condition of the Company and the Bank; (ii) the economic and demographic
conditions in the Bank's existing market area; (iii) certain historical,
financial and other information relating to the Bank; (iv) the proposed dividend
policy of the Company; (v) a comparative evaluation of the operating and
financial statistics of the Bank with those of other savings institutions; (vi)
the aggregate size of the offering of the Common Stock; and (vii) the trading
market for the securities of institutions JMP Financial believes to be
comparable in relevant respects to the Company and the Bank and general
conditions in the markets for such securities. In addition, JMP Financial has
advised the Bank that it has considered the effect of the Conversion on the net
worth and earnings potential of the Company and the Bank.
On the basis of its consideration of the above factors, JMP Financial
has advised the Bank that, in its opinion, at August _____, 1997, the Valuation
Range of the Bank and the Company was from a minimum of $19,550,000 to a maximum
of $26,450,000, with a midpoint of $23,000,000. Based upon such valuation and a
purchase price for shares offered in the Conversion of $50.00 per share, the
number of shares to be offered ranges from a minimum of 391,000 shares to a
maximum of 529,000 shares, with a midpoint of 460,000 shares.
The Board of Directors of the Bank has reviewed the methodology and
assumptions used by JMP Financial in preparing the appraisal and has determined
that the Valuation Range, as well as the methodology and assumptions used, were
reasonable and appropriate.
Upon completion of the Offerings, JMP Financial will confirm or update
its valuation of the estimated aggregate pro forma market value of the Bank and
the Company. Based on the confirmed or updated appraisal, a determination will
be made of the total number of shares of Common Stock which shall be offered and
sold in the Conversion.
With the consent of the Administrator and the FDIC, the aggregate price
of the shares sold in the Conversion may be increased by up to 15% above the
maximum of the Valuation Range, or to $30,417,500 (608,350 shares), without a
resolicitation of subscribers and without any right to cancel, rescind or change
subscription orders, to reflect changes in market and financial conditions
following commencement of the Subscription Offering.
No sale of shares of Common Stock may be consummated unless, after the
expiration of the offering period, JMP Financial confirms to the Bank, the
Company, the Administrator and the FDIC, that, to the best of its knowledge,
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause JMP Financial to conclude that the aggregate
purchase price of the Common Stock sold in the Conversion is incompatible with
its estimate of the aggregate pro forma market value of the Bank and the Company
at the conclusion of the Offerings. If the aggregate pro forma market value of
the Bank and the Company as of such date is within the Valuation Range (or, with
the consent of the Administrator and FDIC, not more than 15% above the maximum
of the Valuation Range), then such pro forma market value will determine the
number of shares of Common Stock to be sold in the Conversion. If there has
occurred a change in the aggregate pro forma market value of the Bank and the
Company so that the aggregate pro forma market value is below the minimum of the
Valuation Range or more than 15% above the maximum of the Valuation Range, a
resolicitation of subscribers may be made based upon a new Valuation Range, the
Plan may be terminated or such other actions as the Administrator and the FDIC
may permit may be taken.
In the event of a resolicitation, subscribers would be given a specified
time period within which to respond to the resolicitation. If a subscriber fails
to respond to the resolicitation by the end of such period, the subscription of
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such subscriber will be cancelled, funds submitted with the subscription will be
refunded promptly with interest at the Bank's passbook savings rate, and holds
on accounts from which withdrawals were designated will be released. Any such
resolicitation will be by means of an amended prospectus filed with the SEC. A
resolicitation may delay completion of the Conversion. If the Plan is
terminated, all funds will be returned promptly with interest at the Bank's
passbook savings rate from the date payment was deemed received, and holds on
funds authorized for withdrawal from deposit accounts will be released. See "--
Exercise of Subscription Rights and Purchases in the Community Offering."
The valuation by JMP Financial is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
Common Stock. JMP Financial did not independently verify the financial
statements and other information provided by the Bank, nor did JMP Financial
value independently the assets or liabilities of the Bank. The valuation
considers the Bank as a going concern and should not be considered as an
indication of the liquidation value of the Bank or the Company. Moreover,
because such valuation is necessarily based upon estimates and projections of a
number of matters, all of which are subject to change from time to time, no
assurance can be given that persons purchasing such shares in the Conversion
will thereafter be able to sell shares at prices in the range of the foregoing
valuation of the pro forma market value thereof.
A copy of the complete appraisal by JMP Financial is on file and
available for inspection at the office of the Savings Institutions Division of
the North Carolina Department of Commerce, Tower Building, Suite 301, 1110
Navaho Drive, Raleigh, North Carolina 27609. A copy is also available for
inspection at the Stock Information Center. A copy of the appraisal has also
been filed as an exhibit to the Registration Statement filed with the SEC with
respect to the Common Stock offered hereby. See "ADDITIONAL INFORMATION."
Exercise of Subscription Rights and Purchases in Community Offering
In order for Subscription Rights to be effectively exercised in the
Subscription Offering and in order to purchase in the Subscription Offering, the
original signed Stock Order Forms (including an original signed form of
certification) and the required payment for the aggregate dollar amount of
Common Stock desired or appropriate instructions authorizing withdrawal from one
or more the Bank deposit accounts (other than negotiable order of withdrawal
accounts or other demand deposit accounts), must be received by the Bank by the
Expiration Time, which is 12:00 noon, Eastern Time, on December ____, 1997.
Subscription Rights (i) for which the Bank does not receive original signed
Stock Order Forms by the Expiration Time (unless such time is extended), or (ii)
for which Stock Order Forms are executed defectively or are not accompanied by
full payment (or appropriate withdrawal instructions) for subscribed shares,
will expire whether or not the Bank has been able to locate the persons entitled
to such rights. Copies of the Stock Order Forms, including copies sent by
facsimile, will not be accepted. In order to purchase in the Community Offering,
the Stock Order Forms, accompanied by the required payment for the aggregate
dollar amount of Common Stock desired or appropriate instructions authorizing
withdrawal from one or more the Bank deposit accounts (other than negotiable
order of withdrawal accounts or other demand deposit accounts), must be received
by the Bank prior to the time the Community Offering terminates, which could be
at any time at or subsequent to the Expiration Time. No orders will be accepted
from persons who do not have Subscription Rights in the Subscription Offering
unless a Community Offering is commenced.
Persons wishing to use funds in a the Bank IRA to purchase Common Stock
must visit the Stock Information Center on or before December ____, 1997 in
order to complete that purchase so that the necessary forms may be forwarded for
execution and returned prior to the Expiration Time.
Executed Stock Order Forms once received by the Bank, may not be
modified, amended or rescinded without the consent of the Bank. The Bank has the
right to extend the subscription period subject to applicable regulations,
unless otherwise ordered by the Administrator, or to waive or permit correction
of incomplete or improperly executed Stock Order Forms, but does not represent
that it will do so.
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The amount to be remitted with the Stock Order Forms shall be the
aggregate dollar amount that a subscriber or purchaser desires to invest in the
Subscription and Community Offerings. Complete payment must accompany all
completed Stock Order Forms submitted in the Subscription and Community
Offerings in order for subscriptions to be valid. See "-- Purchase Price of
Common Stock and Number of Shares Offered."
Payment for shares will be permitted to be made by any of the following
means: (i) in cash, if delivered in person to either office of the Bank; (ii) by
check, bank draft, negotiable order of withdrawal or money order, provided that
the foregoing will only be accepted subject to collection and payment; or (iii)
by appropriate authorization of withdrawal from any deposit account in the Bank
(other than a negotiable order of withdrawal account or other demand deposit
account). Stock Order Forms directing that payment for shares be made by
authorization of withdrawal will be accepted only if, at the time the Stock
Order Forms are received, there exists sufficient funds in the account from
which withdrawal is authorized to pay the full purchase price for the number of
shares ordered. Payment may not be made by wire transfer. In order to ensure
proper identification of Subscription Rights and proper allocations in the event
of an oversubscription, it is the responsibility of subscribers to provide
correct account verification information on the Stock Order Forms. Stock Order
Forms submitted by unauthorized purchasers or in amounts exceeding purchase
limitations will not be honored.
For purposes of determining the withdrawal balance of deposit accounts
from which withdrawals have been authorized, such withdrawals will be deemed to
have been made upon receipt of appropriate authorization therefor, but interest
will be paid by the Bank on the amount deemed to have been withdrawn at the
contractual rate of interest paid on such accounts until the date on which the
Conversion is completed or terminated.
Interest will be paid by the Bank on payments for Common Stock made in
cash or by check, bank draft, negotiable order of withdrawal or money order at
the Bank's passbook savings rate. Such interest shall be paid from the date the
order is accepted for processing and payment in good funds is received by the
Bank until consummation or termination of the Conversion. The Bank shall be
entitled to invest all amounts paid on subscriptions for Common Stock for its
own account until completion or termination of the Conversion. The Bank may not
knowingly lend funds or otherwise extend credit to any person to purchase Common
Stock. After amounts submitted for payment are applied to the purchase price for
shares sold, they will no longer earn interest, and they will not be insured by
the FDIC or any other government agency or other entity.
The Stock Order Forms contain appropriate means by which authorization
of withdrawals from deposit accounts may be made to pay for subscribed shares.
Once such a withdrawal has been authorized, none of the designated withdrawal
amount may be withdrawn (except by the Bank as payment for Common Stock) until
the Conversion is completed or terminated. Savings accounts will be permitted to
be established for the purpose of making payment for subscribed shares of Common
Stock. Funds authorized for withdrawal will continue to earn interest at the
applicable contract interest rate until completion or termination of the
Conversion or, in the case of an order submitted in the Community Offering,
until it is determined that such order cannot or will not be accepted.
Notwithstanding any regulatory provision regarding penalties for early
withdrawal from certificate accounts, payment for subscribed shares of Common
Stock will be permitted through authorization of withdrawals from such accounts
without the assessment of such penalties. However, if after such withdrawal the
applicable minimum balance requirement ceases to be satisfied, such certificate
account will be canceled and the remaining balance thereof will earn interest at
the Bank's passbook savings rate.
Upon completion or termination of the Conversion, the Bank will return
to subscribers all amounts paid with subscriptions which are not applied to the
purchase price for shares, plus interest at its passbook savings rate from the
date good funds are received until the consummation or termination of the
Conversion, and the Bank will release deposit account withdrawal orders given in
connection with the subscriptions to the extent funds are not withdrawn and
applied toward the purchase of shares.
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Delivery of Stock Certificates
Certificates representing Common Stock issued in the Conversion will be
mailed by the Company's transfer agent to persons entitled thereto at the
address of such persons appearing on the Stock Order Forms as soon as
practicable following consummation of the Conversion. 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 Common Stock are available and delivered to subscribers,
subscribers may not be able to sell the shares of Common Stock for which they
have subscribed, even though trading of the Common Stock may have commenced.
Allocations of Common Stock will be deemed final only upon stockholder receipt
of the certificate representing the Common Stock.
Persons in Non-Qualified or Foreign Jurisdictions
The Company will make reasonable efforts to comply with the securities
laws of all states of the United States in which Eligible Account Holders,
Supplemental Eligible Account Holders, or Other Members entitled to subscribe
for shares of Common Stock reside. However, no shares of Common Stock or
Subscription Rights under the Plan will be offered or sold in a foreign country,
or in a state in the United States (i) where a small number of persons otherwise
eligible to subscribe for shares under the Plan reside or (ii) if the Company
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including, but not limited to, a
requirement that the Company, the Bank or any employee or representative thereof
register as a broker, dealer, agent or salesperson or register or otherwise
qualify the Subscription Rights or Common Stock for sale in such state. No
payments will be made in lieu of the granting of Subscription Rights to persons
residing in such jurisdictions.
Marketing Arrangements
The Bank has retained Trident Securities to consult with and advise the
Bank and the Company and to assist the Company, on a best-efforts basis, in the
marketing of shares in the Offerings. Trident Securities is a broker-dealer
registered with the SEC and a member of the National Association of Securities
Dealers, Inc. ("NASD"). Trident Securities is headquartered in Raleigh, North
Carolina, and its telephone number is (919) 781-8900. Trident Securities will
assist the Bank and the Company in the Conversion as follows: (i) it will act as
marketing advisor with respect to the Subscription Offering and will assist the
Company on a best-efforts basis in the marketing of the Common Stock in the
Community Offering and Syndicated Community Offering; (ii) members of its staff
will conduct training sessions to educate directors, officers and employees of
the Bank regarding the Conversion process; and (iii) it will provide assistance
in the establishment and supervision of the Stock Information Center, including
training staff to record and tabulate orders for the purchase of Common Stock
and to respond to customer inquiries.
For rendering its services, the Bank has agreed to pay Trident
Securities (a) a management fee equal to .40% of the aggregate dollar amount of
Common Stock sold in the Offerings; and (b) a commission equal to 2.0% of the
aggregate dollar amount of Common Stock sold in the Subscription and Community
Offerings, excluding shares purchased by the ESOP, directors, executive officers
and their "associates" (as defined in the Plan). The Bank has also agreed to pay
to Selected Dealers, if any, negotiated commissions. The Bank has paid Trident
Securities $10,000 toward amounts due to such agent.
The Bank has agreed to reimburse Trident Securities for its reasonable
out-of-pocket expenses, including but not limited to travel, communications,
legal fees and postage, and to indemnify Trident Securities against certain
claims or liabilities, including certain liabilities under the Securities Act.
Trident has agreed that the Bank is not required to pay its legal fees to the
extent they exceed $27,500 or its other out of pocket expenses to the extent
they exceed $10,000. Total fees and commissions to Trident Securities are
expected to be between $382,280 and
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$617,018 at the minimum and 15% above the maximum, respectively, of the
Valuation Range. See "PRO FORMA DATA" for the assumptions used to determine
these estimates.
Sales of Common Stock will be made primarily through registered
representatives affiliated with Trident Securities or by the broker-dealers
managed by Trident Securities. In addition, subject to applicable law, executive
officers of the Company and the Bank may participate in the solicitation of
offers to purchase Common Stock. Other employees of the Bank may participate in
the Offerings in clerical capacities, providing administrative support in
effecting sales transactions and answering questions of a mechanical nature
relating to the proper execution of the Stock Order Forms. Other questions of
prospective purchasers, including questions as to the advisability or nature of
the investment, will be directed to registered representatives. Such other
employees have been instructed not to solicit offers to purchase Common Stock or
provide advice regarding the purchase of Common Stock. A Stock Information
Center will be established in the Bank's office, in an area separate from the
Bank's banking operations. Employees will inform prospective purchasers that
their questions should be directed to the Stock Information Center and will
provide such persons with the telephone number of the Stock Information Center.
Stock orders will be accepted at the Bank's office and will be promptly
forwarded to the Stock Information Center for processing. Sales of Common Stock
by registered representatives will be made from the Stock Information Center. In
addition, the Bank may hire one or more temporary clerical persons to assist in
typing, opening mail, answering the phone, and with other clerical duties. An
employee of the Bank will also be present at the Stock Information Center to
process funds and answer questions regarding payment for stock, including
verification of account numbers in the case of payment by withdrawal
authorization and similar matters. Subject to applicable state law, the Company
will rely on Rule 3a4-1 under the Exchange Act, and sales of Common Stock will
be conducted within the requirements of Rule 3a4-1, so as to permit officers and
current full and part-time the Bank employees to participate in the sale of
Common Stock. No officer, director or employee of the Company or the Bank will
be compensated in connection with his or her participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
The engagement of Trident Securities and the work performed by Trident
Securities pursuant to its engagement should not be construed by purchasers of
Common Stock as constituting an endorsement or recommendation relating to such
investment or a verification of the accuracy or completeness of information
contained in this Prospectus.
Minimum and Maximum Purchase Limitations
Each person subscribing for Common Stock in the Conversion must
subscribe for at least ten shares of the Common Stock to be offered in the
Conversion. In addition, the maximum number of shares of Common Stock which may
be purchased in the Conversion by (i) any person or entity, (ii) persons or
entities exercising Subscription Rights through a single account or (iii) group
of persons or entities otherwise acting in concert, is 6,000 shares; provided,
however, that the ESOP may purchase up to 8% of the number of shares offered in
the Conversion (48,668 shares, assuming the issuance of 608,350 shares). In
addition, no person or entity, or group of persons or entities acting in
concert, together with any associates (as defined in the Plan), may subscribe
for more than 12,000 shares of Common Stock sold in the Conversion. Any shares
held by the ESOP and attributed to a natural person shall not be aggregated with
other shares purchased directly by or otherwise attributable to that natural
person. The Board of Directors of the Bank may in its absolute discretion (i)
reduce the above-described 6,000 and 12,000 share maximum purchase limitations
to an amount not less than 1% of the number of shares offered and sold in the
Conversion or (ii) increase such 6,000 and 12,000 share maximum purchase
limitations to an amount of up to 5% of the shares of Common Stock offered and
sold. Any reduction or increase in the maximum purchase limitation by the Bank's
Board of Directors may occur at any time prior to consummation of the
Conversion, either before or after the Special Meeting on December ____, 1997.
In the event the 6,000 or 12,000 share maximum purchase limitation is increased,
any subscriber or group of subscribers in the Subscription, Community or
Syndicated Community Offering who has subscribed for the maximum amount which is
increased, and certain other large subscribers in the discretion of the Company,
shall be given the opportunity to increase their
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subscriptions up to the then applicable maximum purchase limitation.
The Plan further provides that for purposes of the foregoing limitations
the term "associate" is used to indicate any of the following relationships with
a person:
(i) 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 Bank, the Company or any subsidiary of the Bank
or of the Company;
(ii) any corporation or organization (other than the Bank, the Company
or a majority-owned subsidiary of the Bank or the Company) of
which the person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of
equity security; and
(iii) 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, except for any tax-qualified
employee stock benefit plan or any charitable trust which is
exempt from federal taxation pursuant to Section 501(c)(3) of the
Code.
For purposes of the foregoing limitations, (i) directors and officers of
the Bank or the Company shall not be deemed to be associates or a group of
persons acting in concert solely as a result of their serving in such
capacities, (ii) the ESOP will not be deemed to be acting in concert with any of
its trustees for purposes of determining the number of shares which any such
trustee, individually, may purchase and (iii) shares of Common Stock held by the
ESOP and attributed to an individual will not be aggregated with other shares
purchased directly by, or otherwise attributable to, that individual.
For purposes of the foregoing limitations, persons will be deemed to be
"acting in concert" if they are (i) knowingly participating in a joint activity
or interdependent conscious parallel action towards a common goal (whether or
not pursuant to an express agreement), with respect to the purchase, ownership,
voting or sale of Common Stock or (ii) engaged in a combination or pooling of
voting or other interests in the securities of the Company for a common purpose
pursuant to any contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise. The Company and the Bank may presume
that certain persons are acting in concert based upon, among other things, joint
account relationships and the fact that such persons have filed joint Schedules
13D with the SEC with respect to other companies.
Approval, Interpretation, Amendment and Termination
Under the Plan, the Administrator's approval thereof, and applicable
North Carolina conversion regulations, consummation of the Conversion is subject
to satisfaction of certain conditions, including the following: (i) approval of
the Plan by the affirmative vote of a majority of the votes eligible to be cast
by members of the Bank at the Special Meeting; (ii) sale of shares of Common
Stock for an aggregate purchase price equal to not less than the minimum or more
than the maximum of the Valuation Range unless the aggregate purchase price is
increased to as much as 15% above the maximum with the consent of the
Administrator and FDIC, and (iii) receipt by the Company and the Bank of
favorable opinions of counsel or other tax advisor as to the federal and state
tax consequences of the Conversion. See "-- Income Tax Consequences."
If all conditions for consummation of the Conversion are not satisfied,
no Common Stock will be issued, the Bank will continue to operate as a North
Carolina-chartered mutual savings bank, all subscription funds will be promptly
returned with interest at the Bank's passbook savings rate, and all deposit
withdrawal authorizations (and holds placed on such accounts) will be canceled.
In such an event, the Company would not acquire control of the Bank.
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All interpretations by the Bank and the Company of the Plan and of the
Stock Order Forms and related materials for the Subscription and Community
Offerings will be final, subject to the authority of the Administrator. The Bank
and the Company may reject Stock Order Forms that are not properly completed.
However, the Company and the Bank retain the right, but will not be required, to
waive irregularities in submitted Stock Order Forms or to require the submission
of corrected Stock Order Forms or the remittance of full payment for all shares
subscribed for by such dates as they may specify. In addition, the Plan may be
substantively amended by a two-thirds vote of the Bank's Board of Directors at
any time prior to the Special Meeting, and at any time thereafter by a
two-thirds vote of the Bank's Board of Directors with the concurrence of the
Administrator. If the Bank determines upon the advice of counsel and after
consultation with the Administrator that any such amendment is material,
subscribers would be given the opportunity to increase, decrease or cancel their
subscriptions. Also, as required by the regulations of the Administrator, the
Plan provides that the transactions contemplated thereby may be terminated by a
two-thirds vote of the Bank's Board of Directors at any time prior to the
Special Meeting and may be terminated by a two-thirds vote of the Bank's Board
of Directors at any time thereafter but prior to the completion of the
Conversion with the concurrence of the Administrator, notwithstanding approval
of the Plan by the Members at the Special Meeting.
Certain Restrictions on Transfer of Subscription Rights; False or Misleading
Order Forms
The Subscription Rights granted under the Plan are non-transferable.
Subscription Rights may be exercised only by the person to whom they are issued
and only for his or her own account. Persons exercising Subscription Rights are
required to certify that they are purchasing shares for their own accounts
within the purchase limitations set forth in the Plan and that they have no
agreement or understanding for the sale or transfer of such shares.
The Bank reserves the right to make an independent investigation of any
facts or circumstances brought to its attention that indicate or tend to
indicate that one or more persons acting independently or as a group acting in
concert may be attempting to violate or circumvent the regulatory prohibition on
transferability of Subscription Rights. The nature and extent of such
investigation will be at the Bank's sole discretion and the Bank may require a
holder of Subscription Rights to provide certified affidavits and other
documentation to satisfy the Bank that its Plan and North Carolina and federal
conversion regulations regarding nontransferability are not being subverted by
actions of holders of Subscription Rights. In extreme cases the Bank reserves
the right to seek legal advice from the General Counsel for the Administrator as
to compliance with all regulations governing the Conversion, including the
nontransferability of Subscription Rights.
The Plan provides that, if the Bank's Board of Directors determines that
a subscriber (i) has submitted a false or misleading information on his or her
Stock Order Forms or otherwise in connection with the attempted purchase of
shares, (ii) has attempted to purchase shares of Common Stock in violation of
provisions of the Plan or (iii) fails to cooperate with attempts by the Bank or
the Company or their employees or agents to verify information with respect to
purchase rights, the Board of Directors may reject the order of such subscriber.
Income Tax Consequences
The Bank has received an opinion from its special counsel, Brooks,
Pierce, McLendon, Humphrey & Leonard, L.L.P., of Greensboro, North Carolina, to
the effect that for federal income tax purposes: (i) the Conversion will
constitute a tax free reorganization with respect to the Bank and no gain or
loss will be recognized by the Bank either in its mutual or stock form; (ii) no
gain or loss will be recognized by the Bank upon the purchase of the Bank's
stock by the Company or upon the sale by the Company of its Common Stock; (iii)
no gain or loss will be recognized by the Bank's depositors with respect to
their deposit accounts at the Bank as a consequence of the Conversion; (iv) the
tax basis of depositors' deposit accounts at the Bank will not be changed as a
result of the Conversion; (v) assuming the Subscription Rights have no value, no
gain or loss will be recognized by Eligible Account Holders, Supplemental
Eligible Account Holders, Other Members, or directors, officers and employees of
the Bank upon either the issuance to them of the Subscription Rights or the
exercise or lapse thereof; (vi) no gain or
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loss will be recognized by Eligible Account Holders or Supplemental Eligible
Account Holders upon the distribution to them of interests in the Liquidation
Account; (vii) assuming the Subscription Rights have no value, the tax basis for
Common Stock purchased in the Conversion will be the amount paid therefor; and
(viii) the tax basis of interests in the Liquidation Account will be zero. The
Bank has been further advised by its special counsel, Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P., that the tax effects of the Conversion under North
Carolina tax laws will be consistent with the federal income tax consequences.
Several of the foregoing legal opinions are premised on the assumption
that the Subscription Rights will have no value. The Bank has been advised by
JMP Financial that, in its opinion, the Subscription Rights will not have any
ascertainable value, based on the fact that such rights are acquired by the
recipients without cost, are non-transferable, are of short duration and afford
the recipients the right only to purchase Common Stock at a price equal to its
estimated fair market value as of the date such rights are issued, which will be
the same price paid by all purchasers in the Conversion. The opinion of JMP
Financial is not binding on the IRS and if the Subscription Rights were
ultimately determined to have ascertainable value, recipients of Subscription
Rights would have to include in gross income an amount equal to the value of the
Subscription Rights received by them. The basis of the Common Stock purchased
pursuant to Subscription Rights would be increased by the amount of income
realized with respect to the receipt or exercise of the Subscription Rights.
Moreover, recipients of Subscription Rights could then have to report the
transaction to the IRS. Each Eligible Account Holder, Supplemental Eligible
Account Holder, Other Member or other recipient of Subscription Rights is
encouraged to consult with his, her or its own tax advisor as to the tax
consequences in the event the Subscription Rights are deemed to have
ascertainable value.
No legal opinion has been or will be received with respect to any tax
consequences of the Conversion not specifically described above, including the
tax consequences to Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members, other recipients of Subscription Rights or purchasers of
Common Stock under the laws of any other state, local or foreign taxing
jurisdiction to which they may be subject. Special counsel expresses no opinion
regarding the value of the Subscription Rights.
LEGAL OPINIONS
The validity of the issuance of the Common Stock in the Conversion has
been passed upon for the Company by its special counsel, Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P., Greensboro, North Carolina, which firm has
also rendered its opinion to the Bank concerning certain federal and North
Carolina income tax aspects of the Conversion as described herein under "THE
CONVERSION -- Income Tax Consequences." Certain legal matters will be passed
upon for Trident Securities by Housely Kantarian & Bronstein, P.C., Washington,
D.C.
EXPERTS
The Financial Statements of the Bank as of December 31, 1996 and 1995
and for each of the years in the two-year period ended December 31, 1996 and for
the nine-month period ended December 31, 1994 have been included herein in
reliance upon the report of McGladrey & Pullen LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
JMP Financial has consented to being named as an expert herein and to
the summary herein of its appraisal report as to the estimated pro forma market
value of the Bank and the Company and its opinion with respect to Subscription
Rights.
REGISTRATION REQUIREMENTS
The Company will register its Common Stock with the SEC pursuant to
Section 12 of the Exchange Act in
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connection with the Conversion and will not deregister the Common Stock for a
period of three years following the completion of the Conversion. Upon such
registration, the proxy and tender offer rules, insider trading reporting
requirements and restrictions, annual and periodic reporting and other
requirements of the Exchange Act will be applicable to the Company.
ADDITIONAL INFORMATION
The Company has filed a registration statement with the SEC on Form S-1
under the Securities Act, with respect to the Common Stock offered hereby. As
permitted by the rules and regulations of the SEC, this Prospectus does not
contain all of the information set forth in the registration statement. Such
information can be examined and copied at the public reference facilities of the
SEC located at Room 1024, 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 is (http://www.sec.gov.). The statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
The Bank has filed an Application to Convert a Mutual Savings Bank to a
Stock Owned Savings Bank with the Administrator. Pursuant to the North Carolina
conversion regulations, this Prospectus omits certain information contained in
such Application. The Application, which contains a copy of JMP Financial's
appraisal, may be inspected at the office of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce, Tower Building,
Suite 301, 1110 Navaho Drive, Raleigh, North Carolina 27609. Copies of the Plan,
which includes a copy of the Bank's proposed Amended Certificate of
Incorporation and Stock Bylaws, and copies of the Company's Articles of
Incorporation and Bylaws are available for inspection at each office of the Bank
and may be obtained by writing to the Bank at 347 North Main Street,
Mooresville, North Carolina 28115, Attention: George W. Brawley, Jr., President,
or by telephoning the Bank at (704) 664-4888. A copy of JMP Financial's
independent appraisal is also available for inspection at the Stock Information
Center.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
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INDEPENDENT AUDITOR'S REPORT F-1
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Statements of financial condition as of June 30, 1997 (unaudited),
December 31, 1996 and 1995 F-2
Statements of income for the six months ended June 30, 1997 and
1996 (unaudited) and the years ended December 31, 1996 and 1995,
and the nine months ended December 31, 1994 F-3 - F-4
Statements of equity for the six months ended June 30, 1997
(unaudited), and the years ended December 31, 1996 and 1995, and
the nine months ended December 31, 1994 F-5
Statements of cash flows for the six months ended June 30, 1997 and
1996 (unaudited) and the years ended December 31, 1996 and 1995,
and the nine months ended December 31, 1994 F-6 - F-9
Notes to financial statements F-10 - F33
- --------------------------------------------------------------------------------
</TABLE>
All schedules are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
financial statements of Mooresville Savings Bank, S.S.B, or related notes. No
financial statements are provided for the holding company since it was not in
operation for any of the periods presented.
<PAGE>
Independent Auditor's Report
To the Board of Directors
Mooresville Savings Bank, S.S.B.
Mooresville, North Carolina
We have audited the accompanying statements of financial condition of
Mooresville Savings Bank, S.S.B. as of December 31, 1996 and 1995, and the
related statements of income, equity, and cash flows for each of the years in
the two year period ended December 31, 1996 and the nine month period ended
December 31, 1994. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mooresville Savings Bank,
S.S.B. as of December 31, 1996 and 1995 and the results of its operations and
its cash flows for each of the years in the two year period ended December 31,
1996, and the nine month period ended December 31, 1994, in conformity with
generally accepted accounting principles.
/s/ McGLADREY & PULLEN, LLP
Charlotte, North Carolina
January 16, 1997
F-1
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
STATEMENTS OF FINANCIAL CONDITION
June 30, 1997, December 31, 1996 and 1995
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Cash
Interest-bearing deposits $ 2,348,000 $ 2,253,000 $ 2,657,000
Noninterest-bearing deposits 246,000 422,000 399,000
Certificates of deposit 100,000 100,000 200,000
Securities available for sale (Note 2) 3,446,000 3,959,000 3,512,000
Securities held to maturity
Fair value 1997, $3,205,000; 1996, $3,705,000;
1995, $6,733,000 (Notes 2 and 5) 3,208,000 3,708,000 6,710,000
Federal Home Loan Bank stock (Note 1) 930,000 869,000 824,000
Loans receivable, net (Note 3) 100,506,000 97,951,000 90,555,000
Office properties and equipment, net (Note 4) 908,000 922,000 960,000
Accrued interest receivable:
Investment securities 83,000 96,000 117,000
Loans receivable 639,000 618,000 581,000
Cash value of life insurance (Note 6) 810,000 838,000 732,000
Deferred income taxes (Note 8) 861,000 713,000 618,000
Income taxes receivable - 42,000 122,000
Prepaid expenses and other assets 77,000 61,000 46,000
----------------------------------------------------------
$114,162,000 $112,552,000 $108,033,000
==========================================================
LIABILITIES AND EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits (Note 5) $ 95,872,000 $ 93,785,000 $ 92,103,000
Advances from Federal Home Loan Bank (Note 11) 1,000,000 2,000,000 -
Advances from borrowers for taxes and insurance 215,000 105,000 123,000
Accounts payable and other liabilities (Note 6) 229,000 245,000 342,000
Deferred compensation (Note 6) 2,137,000 2,005,000 1,739,000
Income taxes payable 18,000 - -
----------------------------------------------------------
Total liabilities 99,471,000 98,140,000 94,307,000
Commitments (Notes 6 and 9)
Equity:
Retained earnings, substantially
restricted (Notes 7 and 8) 14,671,000 14,384,000 13,663,000
Unrealized gain on securities available
for sale, net of tax 20,000 28,000 63,000
----------------------------------------------------------
14,691,000 14,412,000 13,726,000
----------------------------------------------------------
$114,162,000 $112,552,000 $108,033,000
==========================================================
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
STATEMENTS OF INCOME
For the Six Months Ended June 30, 1997 and 1996 and
Years Ended December 31, 1996 and 1995,
and Nine Months ended December 31, 1994
<TABLE>
<CAPTION>
June 30,
1997 1996
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans $ 4,130,000 $ 3,889,000
Investment securities 251,000 319,000
Other 52,000 49,000
----------------------------
4,433,000 4,257,000
Interest expense:
Deposits (Note 5) 2,308,000 2,305,000
Federal Home Loan Bank advances 58,000 5,000
----------------------------
2,366,000 2,310,000
----------------------------
Net interest income 2,067,000 1,947,000
Provision for loan losses (Note 3) 230,000 --
----------------------------
Net interest income after provision
for loan losses 1,837,000 1,947,000
----------------------------
Noninterest income:
Service fee income 75,000 74,000
Other 12,000 30,000
----------------------------
87,000 104,000
----------------------------
Noninterest expenses:
Compensation and employee benefits (Note 6) 1,006,000 878,000
Net occupancy 91,000 89,000
Deposit insurance premiums 15,000 104,000
Special SAIF assessment (Note 12) -- --
Data processing 83,000 88,000
Real estate owned expenses 3,000 --
Other 230,000 206,000
----------------------------
1,428,000 1,365,000
----------------------------
Income before income taxes 496,000 686,000
Income taxes (Note 8) 209,000 257,000
----------------------------
Net income $ 287,000 $ 429,000
============================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996 AND 1995,
AND NINE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $ 7,963,000 $ 7,118,000 $ 4,961,000
Investment securities 628,000 670,000 476,000
Other 88,000 158,000 107,000
-----------------------------------
8,679,000 7,946,000 5,544,000
Interest expense:
Deposits (Note 5) 4,624,000 4,416,000 2,607,000
Federal Home Loan Bank advances (Note 11) 34,000 -- --
-----------------------------------
4,658,000 4,416,000 2,607,000
-----------------------------------
Net interest income 4,021,000 3,530,000 2,937,000
Provision for loan losses (Note 3) -- 12,000 18,000
-----------------------------------
Net interest income after
provision 4,021,000 3,518,000 2,919,000
-----------------------------------
Noninterest income:
Service fee income 155,000 156,000 117,000
Other 45,000 34,000 32,000
-----------------------------------
200,000 190,000 149,000
-----------------------------------
Noninterest expenses:
Compensation and employee benefits (Note 6) 1,676,000 1,531,000 1,216,000
Net occupancy 162,000 259,000 184,000
Deposit insurance premiums 210,000 195,000 147,000
Special SAIF assessment (Note 12) 520,000 -- --
Data processing 169,000 168,000 113,000
Real estate owned expenses -- 1,000 2,000
Other 409,000 470,000 370,000
-----------------------------------
3,146,000 2,624,000 2,032,000
-----------------------------------
Income before income taxes 1,075,000 1,084,000 1,036,000
Income taxes (Note 8) 354,000 304,000 361,000
-----------------------------------
Net income $ 721,000 $ 780,000 $ 675,000
===================================
</TABLE>
F-4
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
STATEMENTS OF EQUITY
For the Six Months Ended June 30, 1997 and
Years Ended December 31, 1996 and 1995,
and Nine Months ended December 31, 1994
<TABLE>
<CAPTION>
Retained Unrealized Gain
Earnings On Securities
Substantially Available For
Restricted Sale Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, March 31, 1994 $ 12,208,000 $ -- $ 12,208,000
Net income 675,000 675,000
--------------------------------------------------------------
Balance, December 31, 1994 12,883,000 -- 12,883,000
Net income 780,000 -- 780,000
Net change in unrealized gain on
securities available for sale, net of tax -- 63,000 63,000
--------------------------------------------------------------
Balance, December 31, 1995 13,663,000 63,000 13,726,000
Net income 721,000 -- 721,000
Net change in unrealized gain (loss)
on securities available for
sale, net of tax -- (35,000) (35,000)
--------------------------------------------------------------
Balance, December 31, 1996 14,384,000 28,000 14,412,000
Net income (Unaudited) 287,000 287,000
Net change in unrealized gain
(loss) on securities available for
sale, net of tax (Unaudited) -- (8,000) (8,000)
--------------------------------------------------------------
Balance, June 30, 1997 (Unaudited) $ 14,671,000 $ 20,000 $ 14,691,000
==============================================================
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1997 and 1996 and
Years Ended December 31, 1996 and 1995, and
Nine Months ended December 31, 1994
<TABLE>
<CAPTION>
June 30,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 287,000 $ 429,000
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses 230,000 -
Provision for depreciation 36,000 38,000
Provision for deferred income taxes (144,000) (63,000)
Amortization of deferred loan fees (79,000) (71,000)
Changes in assets and liabilities:
(Increase) decrease in:
Interest receivable (8,000) 11,000
Cash value of life insurance 28,000 24,000
Income taxes 60,000 154,000
Prepaid expenses and other assets (16,000) (86,000)
Increase (decrease) in:
Interest payable (8,000) 21,000
Accounts payable and other liabilities (16,000) (42,000)
Deferred compensation 132,000 134,000
--------------------------------
Net cash provided by operating activities 502,000 549,000
--------------------------------
Cash Flows From Investing Activities
Proceeds from maturities of certificates of deposit - 100,000
Purchases of certificates of deposit - -
Purchases of securities available for sale - (1,054,000)
Proceeds from maturities of securities available for sale 500,000 400,000
Purchases of securities held to maturity - (600,000)
Proceeds from maturities of securities held to maturity 500,000 2,400,000
Purchase of Federal Home Loan Bank stock (61,000) (45,000)
Originations and principal payments on loans receivable, net (2,705,000) (3,499,000)
Purchases of office properties and equipment (22,000) (10,000)
--------------------------------
Net cash used in investing activities (1,788,000) (2,308,000)
--------------------------------
</TABLE>
(Continued)
F-6
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996 AND 1995, AND
NINE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 721,000 $ 780,000 $ 675,000
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses - 12,000 18,000
Provision for depreciation 77,000 92,000 92,000
Provision for deferred income taxes (72,000) (113,000) (102,000)
Amortization of deferred loan fees (142,000) (139,000) (112,000)
Changes in assets and liabilities:
(Increase) decrease in:
Interest receivable (16,000) (84,000) (16,000)
Cash value of life insurance (106,000) (155,000) (2,000)
Income taxes 80,000 (51,000) -
Prepaid expenses and other assets (15,000) 4,000 46,000
Increase (decrease) in:
Interest payable 28,000 82,000 (3,000)
Accounts payable and other liabilities (97,000) (32,000) 83,000
Deferred compensation 266,000 297,000 178,000
------------------------------------------------------
Net cash provided by operating activities 724,000 693,000 857,000
------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from maturities of certificates of deposit 100,000 100,000 300,000
Purchases of certificates of deposit - (100,000) -
Purchases of securities available for sale (951,000) (500,000) -
Proceeds from maturities of securities available for sale 446,000 - -
Purchases of securities held to maturity (498,000) (2,425,000) (700,000)
Proceeds from maturities of securities held to maturity 3,500,000 3,894,000 536,000
Purchase of Federal Home Loan Bank stock (45,000) - -
Originations and principal payments on loans receivable, net (7,254,000) (7,975,000) (3,328,000)
Purchases of office properties and equipment (39,000) (52,000) (26,000)
------------------------------------------------------
Net cash used in investing activities (4,741,000) (7,058,000) (3,218,000)
------------------------------------------------------
</TABLE>
F-7
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended June 30, 1997 and 1996 and
Years Ended December 31, 1996 and 1995, and
Nine Months ended December 31, 1994
<TABLE>
<CAPTION>
June 30,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash Flows From Financing Activities
Net increase in deposits $ 2,095,000 $ 825,000
Proceeds from Federal Home Loan Bank advances 2,000,000 --
Payments on Federal Home Loan Bank advances (3,000,000) --
Increase (decrease) in advances from borrowers for taxes and insurance 110,000 112,000
----------------------------------
Net cash provided by financing activities 1,205,000 937,000
----------------------------------
Increase (decrease) in cash and cash equivalents (81,000) (822,000)
Cash and cash equivalents:
Beginning 2,675,000 3,056,000
----------------------------------
Ending $ 2,594,000 $ 2,234,000
==================================
Supplemental Schedule of Cash and Cash Equivalents
Cash:
Interest-bearing $ 2,348,000 $ 1,900,000
Noninterest-bearing 246,000 334,000
----------------------------------
$ 2,594,000 $ 2,234,000
==================================
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest $ 2,374,000 $ 2,289,000
Income taxes 304,000 181,000
Supplemental Disclosures of Noncash Transactions
Transfer of loans to real estate owned -- --
Loans originated to facilitate sale of real estate owned -- --
Transfers from securities held for investment to securities
held to maturity -- --
Transfers from securities held to maturity to securities
available for sale -- --
Change in unrealized gain (loss) on securities available for sale,
net of deferred income taxes (8,000) (117,000)
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended June 30, 1997 and 1996 and
Years Ended December 31, 1996 and 1995, and
Nine Months ended December 31, 1994
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Financing Activities
Net increase in deposits $ 1,654,000 $ 6,916,000 $ 245,000
Proceeds from Federal Home Loan Bank advances 3,000,000 -- --
Payments on Federal Home Loan Bank advances (1,000,000) -- --
Increase (decrease) in advances from borrowers for
taxes and insurance (18,000) (41,000) (81,000)
---------------------------------------------------------
Net cash provided by financing activities 3,636,000 6,875,000 164,000
---------------------------------------------------------
Increase (decrease) in cash and cash (381,000) 510,000 (2,197,000)
Cash and cash equivalents:
Beginning 3,056,000 2,546,000 4,743,000
---------------------------------------------------------
Ending $ 2,675,000 $ 3,056,000 $ 2,546,000
=========================================================
Supplemental Schedule of Cash and Cash
Equivalents
Cash:
Interest-bearing $ 2,253,000 $ 2,657,000 $ 2,111,000
Noninterest-bearing 422,000 399,000 435,000
---------------------------------------------------------
$ 2,675,000 $ 3,056,000 $ 2,546,000
=========================================================
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest $ 4,630,000 $ 4,334,000 $ 2,610,000
Income taxes 346,000 242,000 501,000
Supplemental Disclosures of Noncash Transactions
Transfer of loans to real estate owned -- -- 93,000
Loans originated to facilitate sale of real estate -- -- 75,000
Transfers from securities held for investment to
held to maturity -- -- 10,921,000
Transfers from securities held to maturity to
available for sale -- 3,408,000 --
Change in unrealized gain (loss) on securities
available for sale, net of deferred income taxes (35,000) 63,000 --
</TABLE>
F-9
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Summary of Significant Accounting Policies
Nature of business and year end change: Mooresville Savings Bank, S.S.B., (the
- --------------------------------------
"Bank") is primarily engaged in the business of obtaining savings deposits and
originating single-family residential loans within its primary lending area of
northern Mecklenburg and southern Iredell Counties. The Bank's underwriting
policies require such loans to be made at 80% loan to value based upon appraised
values unless private mortgage insurance is obtained. These loans are secured by
the underlying properties. The Bank changed its year end from March 31 to
December 31 effective December 31, 1994.
Unaudited financial statements: The unaudited financial statements furnished
- ------------------------------
reflect all adjustments, consisting of normal recurring accruals, which are in
the opinion of management, necessary for a fair presentation of the financial
position as of June 30, 1997 and the results of operations and cash flows for
the six months ended June 30, 1997 and 1996. The results for the six month
periods are not necessarily indicative of the operating results of the Bank for
the entire year.
The following is a description of the significant accounting policies used in
the preparation of the accompanying financial statements.
Basis of financial statement presentation: The accounting and reporting policies
- -----------------------------------------
of the Bank conform to generally accepted accounting principles and general
practices within the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the statement
of financial condition and revenues and expenses for the period. Actual results
could differ from those estimates.
Cash and cash equivalents: For purposes of reporting the statements of cash
- -------------------------
flows, the Bank includes in cash equivalents all interest-bearing and
noninterest-bearing cash accounts, which are not subject to withdrawal
restrictions or penalties. For purposes of the statement of cash flows, the Bank
considers all highly liquid debt instruments with original maturities when
purchased of three months or less to be cash equivalents. The Bank maintains
deposits with financial institutions which are in excess of the federally-
insured amounts.
Investment in debt securities: The Bank has investments in debt securities.
- -----------------------------
Debt securities consist of obligations of the U. S. Government and federal
agencies and municipal obligations.
Management classifies all securities as trading, available for sale, or held to
maturity as individual investment securities are acquired, and that the
appropriateness of such classification be reassessed at each statement of
financial condition date. In accordance with the Financial Accounting Standards
Board's Special Report, "A Guide to the Implementation of Statement 115" the
Bank reclassified certain debt securities to the available for sale designation
as of December 31, 1995.
Since the Bank does not buy investment securities in anticipation of short-term
fluctuations in market prices, none of the investment securities are classified
as trading in accordance with Statement No. 115. All investment securities have
been classified as either held to maturity or available for sale.
F-10
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Summary of Significant Accounting Policies
(Continued)
Securities available for sale: Securities classified as available
- -----------------------------
for sale are those securities that the Bank intends to hold for an indefinite
period of time but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Bank's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for sale are
carried at their fair (market) value. Unrealized gains or losses are reported as
increases or decreases in equity, net of the related deferred tax effect.
Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included in income.
Securities held to maturity: Securities classified as held to maturity are those
- ---------------------------
securities the Bank has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by a method that
approximates the interest method over their contractual lives. Based on the
Bank's financial position and liquidity, management believes the Bank has the
ability to hold these securities to maturity.
Investment in Federal Home Loan Bank stock: The Bank, as a member of the Federal
- ------------------------------------------
Home Loan Bank (FHLB) system, is required to maintain an investment in capital
stock of the Federal Home Loan Bank in an amount equal to the greater of 1% of
its outstanding home loans or 5% of advances from the FHLB. No ready market
exists for the Federal Home Loan Bank stock, and it has no quoted market value.
Loans receivable: Loans receivable are stated at unpaid principal balances, less
- ----------------
undisbursed loan funds, the allowance for loan losses, and net deferred
loan-origination fees and discounts. The Bank's loan portfolio consists
principally of long-term conventional loans collateralized by first deeds of
trust or single-family residences, other residential property, nonresidential
property and land.
Allowance for loan losses: The allowance for loan losses is increased by charges
- -------------------------
to income and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to pay, the estimated value of
any underlying collateral, and current economic conditions. While management
uses the best information to make evaluations, future adjustments may be
necessary, if economic or other conditions differ substantially from the
assumptions used.
F-11
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Summary of Significant Accounting Policies
(Continued)
Impaired loans: SFAS No. 114 Accounting by Creditors for Impairment
- -------------- --------------------------------------
of a Loan requires that the Bank establish specific loan loss allowances on
- ---------
impaired loans if it is doubtful that all principal and interest due, according
to the loan terms, will be collected. An allowance on an impaired loan is
required if the present value of the future cash flows discounted using the
loan's effective interest rate is less than the carrying value of the loan. An
impaired loan can also be valued based upon its fair value in the market place
or on the basis of its underlying collateral if the loan is collateral
dependent. If foreclosure is imminent, and the loan is collateral dependent, the
loan must be valued based upon the fair value of the underlying collateral.
Since the Bank had no loans outstanding during the years ended December 31, 1996
and 1995 which it considered to be impaired, there is no SFAS No. 114 allowance
for unpaid loans at December 31, 1996 and 1995.
Interest Income: SFAS No. 118 Accounting by Creditors for Impairment of a Loan-
- --------------- -------------------------------------------------
Income Recognition and Disclosures requires the disclosure of the Bank's method
- ----------------------------------
of accounting for interest income on impaired loans. The Bank continues to
accrue interest on loans, including loans delinquent 90 days or more. At the
time a loan becomes nonperforming, the loan is placed on nonaccrual status by
establishing an allowance for uncollected interest. If and when management
determines that the collectibility of principal and interest is no longer in
doubt, the loan is returned to performing status and the reserve for uncollected
interest is reversed. The Bank anticipates that it will account for interest on
impaired loans in a similar fashion in the future if and when it has impaired
loans.
Loan-origination fees and related costs: 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 actual prepayments.
Office properties and equipment: Office properties and equipment are stated at
- -------------------------------
cost less accumulated depreciation which is computed principally by the
straight-line method.
Pension plans: The Bank has a noncontributory defined benefit pension plan
- -------------
covering all employees who meet the eligibility requirements. To be eligible, an
employee must be 21 years of age and have completed one year of continuous
service. The plan provides benefits based on the career earnings of each
participant which are subject to certain reductions if the employee retires
before reaching age 62. The Bank's funding policy is to make the maximum annual
contribution that is deductible for income tax purposes. The Bank has a 401K
savings plan covering substantially all of its employees. The Bank matches 50%
of the qualified employee's contribution, limited to 6.0% of the employee's
salary. The Bank has deferred compensation and retirement agreements for the
benefit of the Board of Directors and several key employees. The plans are
unfunded and the liabilities are being accrued over the terms of active service
of the directors.
F-12
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Summary of Significant Accounting Policies
(Continued)
Income taxes: Deferred taxes are provided on a liability method whereby deferred
- ------------
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Fair value of financial instruments: The estimated fair values required under
- -----------------------------------
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, have been
-----------------------------------------------------
determined by the Bank using available market information and appropriate
valuation methodologies; however, considerable judgment is required to develop
the estimates of fair value. Accordingly, the estimates presented for the fair
value of the Bank's financial instruments are not necessarily indicative of the
amounts the Bank could realize in a current market exchange. The use of
different market assumptions or estimation methodologies may have a material
effect on the estimated fair market value amounts.
The fair value estimates presented are based on pertinent information available
to management as of June 30, 1997 and December 31, 1996 and 1995. Although
management is not aware of any factors that would significantly affect the
estimated fair value amount, such amounts have not been comprehensively revalued
for purposes of these financial statements since that date and therefore,
current estimates of fair value may differ significantly from the amounts
presented here.
Off-statement of financial condition risk: The Bank is a party to financial
- ----------------------------------------
instruments with off-statement of financial condition risk such as commitments
to extend credit and lines of credit. Management assesses the risk related to
these instruments for potential losses on an ongoing basis.
F-13
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Debt Securities
The amortized cost and fair values of securities are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1997
------------------------------------------------------------------------
(Unaudited)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Government and federal
agencies obligations $ 3,413,000 $ 40,000 $ (7,000) $ 3,446,000
========================================================================
Securities held to maturity:
U.S. Government and federal
agencies obligations $ 1,725,000 $ 6,000 $ (1,000) $ 1,730,000
Municipal obligations 1,473,000 3,000 (11,000) 1,465,000
Other 10,000 - - 10,000
------------------------------------------------------------------------
$ 3,208,000 $ 9,000 $ (12,000) $ 3,205,000
========================================================================
<CAPTION>
December 31, 1996
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Government and federal
agencies obligations $ 3,913,000 $ 56,000 $ (10,000) $ 3,959,000
========================================================================
Securities held to maturity:
U.S. Government and federal
agencies obligations $ 2,225,000 $ 10,000 $ - $ 2,235,000
Municipal obligations 1,473,000 9,000 (22,000) 1,460,000
Other 10,000 - - 10,000
------------------------------------------------------------------------
$ 3,708,000 $ 19,000 $ (22,000) $ 3,705,000
========================================================================
</TABLE>
F-14
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Debt Securities (Continued)
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Government and federal
agencies obligations $ 3,408,000 $ 109,000 $ (5,000) $ 3,512,000
=======================================================
Securities held to maturity:
U.S. Government and federal
agencies obligations $ 5,226,000 $ 25,000 $ - $ 5,251,000
Municipal obligations 1,474,000 - (2,000) 1,472,000
Other 10,000 - - 10,000
-------------------------------------------------------
$ 6,710,000 $ 25,000 $ (2,000) $ 6,733,000
=======================================================
</TABLE>
The amortized cost and fair value of debt securities by contractual maturity
are shown below.
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
---------------------------------------------------------------
(Unaudited)
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
Due in one year or less $ 800,000 $ 805,000 $ 900,000 $ 902,000
Due after one year through
five years 2,613,000 2,641,000 3,013,000 3,057,000
---------------------------------------------------------------
$ 3,413,000 $ 3,446,000 $ 3,913,000 $ 3,959,000
===============================================================
Securities held to maturity:
Due in one year or less $ 1,300,000 $ 1,306,000 $ 999,000 $ 1,004,000
Due after one year through
five years 880,000 880,000 1,528,000 1,535,000
Due after five years
through ten years 1,028,000 1,019,000 276,000 277,000
Due after ten years - - 905,000 889,000
---------------------------------------------------------------
$ 3,208,000 $ 3,205,000 $ 3,708,000 $ 3,705,000
===============================================================
</TABLE>
There were no sales of investment securities held to maturity and available for
sale during the six months ended June 30, 1997 and 1996 and the years ended
December 31, 1996 and 1995 and nine months ended December 31, 1994.
F-15
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Debt Securities (Continued)
Proceeds from maturities of investment securities are as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Nine Months Ended
June 30, December 31, December 31,
---------------------------------------------------------------------------------
1997 1996 1996 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit $ - $ 100,000 $ 100,000 $ 100,000 $ 300,000
Securities available
for sale 500,000 400,000 446,000 - -
Securities held to
maturity 500,000 2,400,000 3,500,000 3,894,000 536,000
---------------------------------------------------------------------------------
$ 1,000,000 $ 2,900,000 $ 4,046,000 $ 3,994,000 $ 836,000
=================================================================================
</TABLE>
The change in net unrealized gains and losses shown as a separate component of
equity for the six months ended June 30, 1997, the year ended December 31, 1996
and 1995 is as shown below:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
-------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Balance in equity component, beginning $ 28,000 $ 63,000 $ -
Change in unrealized gains (losses) (12,000) (58,000) 104,000
Change in deferred income taxes 4,000 23,000 (41,000)
-------------------------------------------------
Balance in equity component, ending $ 20,000 $ 28,000 $ 63,000
=================================================
</TABLE>
F-16
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Loans Receivable
Loans receivable consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
----------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Loans secured by first
mortgages on real estate:
Conventional $ 86,987,000 $ 86,102,000 $ 79,441,000
Non-residential 2,803,000 2,711,000 2,044,000
Construction 5,710,000 4,086,000 8,673,000
Home equity 6,031,000 4,947,000 2,891,000
Installment loans 2,447,000 2,397,000 2,403,000
Other loans 959,000 941,000 907,000
----------------------------------------------------
104,937,000 101,184,000 96,359,000
Less:
Undisbursed loan funds (3,261,000) (2,321,000) (4,930,000)
Deferred loan fees (553,000) (524,000) (478,000)
Allowance for loan losses (617,000) (388,000) (396,000)
----------------------------------------------------
$ 100,506,000 $ 97,951,000 $ 90,555,000
====================================================
</TABLE>
The following is an analysis of the allowance for loan losses for the
following periods:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Nine Months
June 30, December 31, Ended December 31,
----------------------------------------------------------------------------------
1997 1996 1996 1995 1994
----------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning $ 388,000 $ 396,000 $ 396,000 $ 396,000 $ 385,000
Provision charged to income 230,000 - - 12,000 18,000
Loans charged off (2,000) (8,000) (13,000) (13,000) (10,000)
Recoveries 1,000 5,000 5,000 1,000 3,000
----------------------------------------------------------------------------------
Balance, ending $ 617,000 $ 393,000 $ 388,000 $ 396,000 $ 396,000
==================================================================================
</TABLE>
Nonaccrual and renegotiated loans for which interest has been reduced totaled
approximately $793,000, $1,104,000 and $518,000 at June 30, 1997 and December
31, 1996 and 1995, respectively. Interest income that would have been recorded
under the original terms of such loans was $44,000 and $43,000 for the six
months ended June 30, 1997 and 1996 and $54,000 and $32,000 for the years ended
December 31, 1996 and 1995, and $52,000 for the nine months ended December 31,
1994.
The Bank adopted SFAS No. 114 Accounting by Creditors for Impairment of a Loan
------------------------------------------------
during 1995 which requires that the Bank establish a specific allowance on
impaired loans. The Bank had no loans outstanding at June 30, 1997 and December
31, 1996 and 1995 which it considers to be impaired loans. Therefore, there is
no specific SFAS No. 114 allowance for impaired loans at June 30, 1997 and
December 31, 1996 and 1995.
F-17
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Loans Receivable (Continued)
The Bank has made loans to its officers and directors in the normal course of
business totaling $780,000, $779,000 and $552,000 at June 30, 1997, December 31,
1996 and 1995, respectively. The following is an analysis of the loans to
officers and directors for the six months ended June 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning $ 779,000
Originations 25,000
Payments (24,000)
--------------
Balance, ending $ 780,000
==============
</TABLE>
Note 4. Office Properties and Equipment
Office properties and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
-----------------------------------------
(Unaudited)
<S> <C> <C> <C>
Land $ 364,000 $ 364,000 $ 364,000
Buildings 879,000 879,000 879,000
Building improvements 175,000 175,000 175,000
Furniture and fixtures 566,000 544,000 671,000
Automobiles 47,000 47,000 36,000
-----------------------------------------
2,031,000 2,009,000 2,125,000
-----------------------------------------
Less accumulated depreciation 1,123,000 1,087,000 1,165,000
-----------------------------------------
$ 908,000 $ 922,000 $ 960,000
=========================================
</TABLE>
F-18
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 5. Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
Weighted June 30, December 31,
Average -------------------------------------------------------
Rate at 1997 1996 1995
June 30, -----------------------------------------------------------------------------------
1997 Amount Percent Amount Percent Amount Percent
--------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing - % $ 1,782,000 1.9% $ 1,319,000 1.4% $ 943,000 1.0%
NOW accounts 1.10 5,842,000 6.1 5,644,000 6.0 7,359,000 8.0
Money market 2.82 4,485,000 4.7 4,180,000 4.5 4,826,000 5.3
Passbook savings 3.04 11,564,000 12.1 11,487,000 12.3 11,225,000 12.3
-----------------------------------------------------------------------------------
23,673,000 24.8 22,630,000 24.2 24,353,000 26.6
-----------------------------------------------------------------------------------
Certificates of deposit:
2.00% to 3.99% 270,000 0.3 477,000 0.5 470,000 0.5
4.00% to 5.99% 50,966,000 53.4 48,151,000 51.6 34,199,000 37.3
6.00% to 7.99% 19,606,000 20.5 21,971 23.5 32,534,000 35.4
8.00% to 9.99% 899,000 0.9 92,000 0.1 162,000 0.2
10.00% to 11.99% 53,000 0.1 51,000 0.1 - -
-----------------------------------------------------------------------------------
5.72% 71,794,000 75.2 70,742,000 75.8 67,365,000 73.4
-----------------------------------------------------------------------------------
95,467,000 100.0% 93,372,000 100.0% 91,718,000 100.0%
======= ======= =======
Accrued interest 405,000 413,000 385,000
------------- ------------ -------------
$ 95,872,000 $ 93,785,000 $ 92,103,000
============= ============ =============
</TABLE>
A summary of certificate accounts by maturity as of June 30, 1997 follows:
<TABLE>
<S> <C>
July 1, 1997 - June 30, 1998 $ 47,806,000
July 1, 1998 - June 30, 1999 9,069,000
July 1, 1999 - June 30, 2000 11,648,000
July 1, 2000 - June 30, 2001 2,360,000
July 1, 2001 - June 30, 2002 911,000
Thereafter -
-------------
Total certificate accounts $ 71,794,000
=============
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $13,083,000, $11,876,000 and $9,416,000 at June 30,
1997, December 31, 1996 and 1995, respectively.
F-19
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 5. Deposits (Continued)
The aggregate amount of certificates of deposit by maturity with a minimum
denomination of $100,000 at June 30, 1997 is as follows:
<TABLE>
<CAPTION>
June 30,
1997
--------------
(Unaudited)
<S> <C>
Maturity Period:
Within 3 months or less $ 2,202,000
Over 3 months through 6 months 2,442,000
Over 6 months through 12 months 3,891,000
Over 12 months 4,548,000
--------------
$ 13,083,000
==============
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
----------------------------------------------------------------------------
1997 1996 1996 1995 1994
----------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NOW and money market $ 104,000 $ 123,000 $ 220,000 $ 278,000 $ 225,000
Passbook savings 177,000 166,000 322,000 365,000 267,000
Certificates of deposit 2,027,000 2,016,000 4,082,000 3,773,000 2,115,000
----------------------------------------------------------------------------
$ 2,308,000 $ 2,305,000 $ 4,624,000 $ 4,416,000 $ 2,607,000
============================================================================
</TABLE>
Eligible savings accounts are insured up to $100,000 by the Savings Association
Insurance Fund (SAIF) which is administered by the Federal Deposit Insurance
Corporation (FDIC).
The Bank has $100,000 of U.S. Government and federal agency obligations pledged
as security for public deposits at June 30, 1997.
F-20
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 6. Employee Benefit Plans
The Bank has a defined benefit pension plan covering substantially all of its
employees. Pension expense was $94,000, $52,000, $109,000 and $120,000 and
$91,000 for the six months ended June 30, 1997 and 1996 and years ended December
31, 1996 and 1995, and nine months ended December 31, 1994, respectively.
The components of pension cost charged to expense consisted of the following:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Nine Months Ended
June 30, December 31, December 31,
1997 1996 1995 1994
-------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Service Cost $ 36,000 $ 66,000 $ 70,000 $ 60,000
Interest cost on projected
benefit obligation 72,000 131,000 129,000 87,000
Actual return on plan assets (56,000) (95,000) (89,000) (60,000)
Amortization of unrecognized
net asset from initial
application of SFAS No. 87 7,000 7,000 10,000 4,000
Other 35,000 - - -
-------------------------------------------------------------------
$ 94,000 $ 109,000 $ 120,000 $ 91,000
===================================================================
</TABLE>
F-21
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 6. Employee Benefit Plans (Continued)
The following table sets forth the funded status of the pension plan as of June
30, 1997 and December 31, 1996, respectively, and the amount recognized in the
accompanying statements of financial condition:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------------------------------
(Unaudited)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested portion $ (1,596,000) $ (1,554,000)
Nonvested portion (6,000) (6,000)
------------------------------------------
(1,602,000) (1,560,000)
Effect of projected future compensation levels (564,000) (461,000)
------------------------------------------
Projected benefits (2,166,000) (2,021,000)
Plan assets at fair value, primarily certificates
of deposit, on deposit at the Bank 1,671,000 1,464,000
------------------------------------------
Projected benefit obligations in excess of
plan assets (495,000) (557,000)
Unrecognized prior service cost 86,000 88,000
Unrecognized net loss 175,000 126,000
Unrecognized net transition obligation
(recognized over 28 years) 201,000 207,000
Other (28,000) -
------------------------------------------
Accrued pension cost on statement of
financial condition $ (61,000) $ (136,000)
==========================================
</TABLE>
A weighted-average discount rate of 7.0% and a rate of increase in future
compensation levels of 5.0% were used in determining the actuarial present value
of the benefit obligations at June 30, 1997 and December 31, 1996, 1995 and
1994, respectively. The expected long-term rate of return on assets was 7.0% at
June 30, 1997 and December 31, 1996, 1995 and 1994, respectively.
On August 19, 1997 the Board of Directors approved the termination of the
defined benefit pension plan effective October 20, 1997. Settlement of the plan
will result in approximately $350,000 of additional pension expense in the year
ending December 31, 1997.
The Bank has adopted a savings plan under Section 401(k) of the Internal Revenue
Code. This plan allows employees, who meet certain service and age requirements,
to defer a percentage of their income through contributions to the plan. In
accordance with provisions of the plan, the Bank matches 50% of the employee's
contribution, limited to 6.0% of the employee's salary. The expense for the plan
was $35,000, $35,000, $70,000 and $68,000 and $54,000 for the six month period
ended June 30, 1997 and 1996 and the years ended December 31, 1996 and 1995, and
the nine month period ended December 31, 1994, respectively.
F-22
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 6. Employee Benefit Plans (Continued)
The Bank has also entered into unfunded deferred compensation agreements and a
salary continuation agreement providing retirement and death benefits for the
directors and several key employees. Vested benefits under the agreements are
payable in installments upon death or retirement. The Bank has insured the
lives of the directors and employees for amounts sufficient to discharge its
obligation under such agreements in the event of death. The cash surrender
value of these policies is $810,000, $838,000 and $732,000 at June 30, 1997,
December 31, 1996 and 1995, respectively. The present value of the liability
for the benefits is being accrued over the expected term of active service of
the directors and employees. The amount accrued is $2,137,000, $2,005,000 and
$1,739,000 at June 30, 1997, December 31, 1996 and 1995, respectively. The
expense related to the agreements for the six month period ended June 30, 1997
and 1996 and for the years ended December 31, 1996 and 1995 and the nine months
ended December 31, 1994 amounted to $158,000, $177,000, $333,000, $339,000 and
$244,000, respectively. The discount rate of 7% was used in determining the
present value of the future obligation at June 30, 1997, December 31, 1996, 1995
and 1994, respectively.
Note 7. Capital Requirements
The Bank is subject to regulatory capital requirements administered by the
various banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional discretionary -- actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative regulatory accounting practices.
The Bank's capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
The FDIC requires Mooresville Savings Bank, S.S.B. to have a minimum leverage
ratio of Tier I Capital (principally consisting of retained earnings less any
intangible assets) to total assets of at least 3%, provided that it receives the
highest rating during the examination process. For institutions that receive
less than the highest rating, the Tier I capital requirement is 1% to 2% above
the stated minimum. The FDIC also requires the Bank to have a ratio of total
capital to risk-weighted assets of 8%, of which at least 4% must be in the form
of Tier I capital. The Administrator requires a net worth equal to at least 5%
of total assets.
F-23
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Capital Requirements (Continued)
At June 30, 1997 and December 31, 1996, Mooresville Savings Bank, S.S.B.
complied with all the capital requirements described above as shown below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
June 30, 1997
--------------------------------------------------------------------------
Leverage Tier I N.C.
Ratio of Risk-Adjusted Risk-Based Savings Bank
Tier I Capital Capital Capital Capital
------------------------------------------------------------------------
(Dollars in Thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Equity (GAAP) $ 14,691 $ 14,691 $ 14,691 $ 14,691
Unrealized gain on securities
available for sale (20) (20) (20) (20)
Supplemental capital items:
General valuation allowance - - 617 617
------------------------------------------------------------------------
Regulatory capital 14,671 14,671 15,288 15,288
Minimum capital requirement 4,567 2,440 4,880 5,708
------------------------------------------------------------------------
Excess regulatory capital $ 10,104 $ 12,231 $ 10,408 $ 9,580
========================================================================
Total assets at June 30, 1997 $ 114,162 $ 114,162
============= ===============
Risk-weighted assets at
June 30, 1997 $ 61,000 $ 61,000
==================================
Capital as a percentage of assets:
Actual 12.85 % 24.05 % 25.06 % 13.39 %
Required 4.00 4.00 8.00 5.00
------------------------------------------------------------------------
Excess 8.85 % 20.05 % 17.06 % 8.39 %
========================================================================
</TABLE>
A ratio of 4% of total assets was used for purposes of computing the
minimum required leverage ratio of Tier I Capital.
F-24
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Capital Requirements (Continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
December 31, 1996
------------------------------------------------------------------------
Leverage Tier I N.C.
Ratio of Risk-Adjusted Risk-Based Savings Bank
Tier I Capital Capital Capital Capital
-----------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Equity (GAAP) $ 14,412 $ 14,412 $ 14,412 $ 14,412
Unrealized gain on securities
available for sale (28) (28) (28) (28)
Supplemental capital items:
General valuation allowance - - 388 388
-----------------------------------------------------------------------
Regulatory capital 14,384 14,384 14,772 14,772
Minimum capital requirement 4,502 2,358 4,716 5,628
-----------------------------------------------------------------------
Excess regulatory capital $ 9,882 $ 12,026 $ 10,056 $ 9,144
=======================================================================
Total assets at December 31, 1996 $ 112,552 $ 112,552
=============== =============
Risk-weighted assets at
December 31, 1996 $ 58,956 $ 58,956
===================================
Capital as a percentage of assets:
Actual 12.78 % 24.40 % 25.06 % 13.12 %
Required 4.00 4.00 8.00 5.00
------------------------------------------------------------------------
Excess 8.78 % 20.40 % 17.06 % 8.12 %
========================================================================
</TABLE>
A ratio of 4% of total assets was used for purposes of computing the
minimum required leverage ratio of Tier I Capital.
F-25
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Capital Requirements (Continued)
Under the FDIC prompt corrective action regulations, a savings bank is
considered to be well capitalized if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier 1 capital to risk-weighted assets is
at least 6.0%, and its ratio of Tier 1 capital to total average assets is at
least 5.0%. The Bank meets all of the above requirements and is considered to be
well capitalized under the prompt corrective action regulations.
Note 8. Income Tax Matters
Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to tax bad debt reserves established for the
purposes of absorbing losses. For the years beginning before January 1, 1996,
the provisions of the Code permitted the Bank to deduct from taxable income an
allowance for bad debts based on 8% of taxable income before such deduction or
actual loss experience. Legislation passed in 1996 eliminates the percentage of
taxable income method as an option for computing bad debt deductions for 1996
and all future years. The Bank will still be permitted to take deductions for
bad debts, but will be required to compute such deductions using an experience
method.
The Bank will also have to recapture its tax bad debt reserves which have
accumulated since January 1, 1988 amounting to approximately $67,000, over a six
year period. The tax associated with the recaptured reserve is approximately
$26,000. The recapture was scheduled to begin with the Bank's 1996 year, but can
be delayed up to two years if the Bank originates a certain level of residential
mortgage loans during 1996 and 1997. The loan origination test was met during
1996 and 1997; therefore, there was no recapture of the reserve in 1996 and
1997. Deferred income taxes have been previously established for the taxes
associated with the recaptured reserves and the ultimate payment of the taxes
will not result in a charge to earnings.
Deferred taxes have been provided for certain increases in the Bank's tax bad
debt reserves subsequent to 1987 which are in excess of recorded book loan loss
allowances. At June 30, 1997 and December 31, 1996 and 1995, retained earnings
contain pre-1988 additions to bad debt reserves for income tax purposes of
approximately $3,816,000, for which no deferred taxes have been provided because
the Bank does not intend to use these reserves for purposes other than to absorb
losses. If amounts which qualified as bad debt deductions are used for purposes
other than to absorb losses or adjustments arising from the carryback of net
operating losses, income taxes may be imposed at the then existing rates. The
unrecorded deferred income tax liability on the above amount was approximately
$1,493,000 as of June 30, 1997, December 31, 1996 and 1995.
F-26
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8. Income Tax Matters (Continued)
The tax effects of temporary differences that gave rise to significant portions
of the net deferred tax assets in the statement of financial condition were as
follows at June 30, 1997 and December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------
1997 1996 1995
-------------------------------------------
(Unaudited) ---------------------------
<S> <C> <C> <C>
Deferred tax assets:
Interest income on non performing assets $ 21,000 $ 21,000 $ -
Deferred loan fees 9,000 - 10,000
Deferred compensation 832,000 784,000 680,000
Allowance for loan losses 240,000 152,000 167,000
Pension plan 47,000 53,000 65,000
Section 401 (k) contribution - - 1,000
-------------------------------------------
1,149,000 1,010,000 923,000
-------------------------------------------
Deferred tax liabilities:
Property and equipment 101,000 102,000 96,000
FHLB stock dividends 136,000 136,000 136,000
Section 401 (k) contribution - 1,000 -
Deferred loan fees 5,000 8,000 -
Tax bad debt reserves 26,000 26,000 26,000
Unrealized gains on securities 14,000 18,000 41,000
FHLB accrued dividend 6,000 6,000 6,000
-------------------------------------------
288,000 297,000 305,000
-------------------------------------------
Net deferred tax asset $ 861,000 $ 713,000 $ 618,000
===========================================
</TABLE>
At June 30, 1997, and December 31, 1996 and 1995, no valuation allowance was
recorded for deferred tax assets.
Income tax expense (credits) for the six month periods ended June 30, 1997 and
1996 and the years ended December 31, 1996 and 1995, and the nine month period
ended December 31, 1994 consists of the following:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
June 30, December 31, December 31,
-------------------------------------------------------------------------
1997 1996 1996 1995 1994
-------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current $ 353,000 $ 320,000 $ 426,000 $ 417,000 $ 463,000
Deferred (144,000) (63,000) (72,000) (113,000) (102,000)
-------------------------------------------------------------------------
$ 209,000 $ 257,000 $ 354,000 $ 304,000 $ 361,000
=========================================================================
</TABLE>
F-27
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8. Income Tax Matters (Continued)
A reconciliation of the federal income tax rate to the effective tax rate is as
follows:
<TABLE>
<CAPTION>
Nine Months
Six Months Ended Year Ended Ended
June 30, December 31, December 31,
---------------------------------------------------------------
1997 1996 1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory federal income 34.0 % 34.0 % 34.0 % 34.0 % 34.0 %
tax rate
Increases (decreases) in taxes
resulting from:
Permanent Differences 2.8 1.1 (2.5 ) (5.8) (3.8)
State income tax, net of 2.7 2.4 1.2 1.2 2.0
federal benefit
(Underaccrual) overaccrual 2.4 - - (0.4) 0.8
Other 0.2 - 0.2 (1.0) 1.8
---------------------------------------------------------------
Effective tax rate 42.1 % 37.5 % 32.9 % 28.0 % 34.8 %
===============================================================
</TABLE>
Note 9. Commitments and Related Party Transactions
In addition to undisbursed loan funds outstanding, the Bank has mortgage loan
commitments and unused home equity loans and lines of credit outstanding at June
30, 1997. Commitments, which are disbursed subject to certain limitations,
extend over varying periods of time with the majority subject to disbursement
over a 6-month period. A summary of these commitments, except for undisbursed
loan funds is as follows:
<TABLE>
<CAPTION>
Fixed Rate Variable Rate Total
--------------------------------------------------
<S> <C> <C> <C>
Commitments to extend credit, mortgage $ 1,258,000 $ - $ 1,258,000
loans
Unused home equity loans and lines of
credit - 3,393,000 3,393,000
</TABLE>
Officers and directors maintain deposits with the Bank in the normal course of
business. Such deposits amounted to approximately $1,727,000, $1,621,000, and
$1,561,000 at June 30, 1997, December 31, 1996, and 1995, respectively.
F-28
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 10. Fair Value of Financial Instruments
The following table reflects a comparison of carrying amounts and the fair
values of the financial instruments as of June 30, 1997, December 31, 1996, and
1995:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
-------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
-------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash
Interest-bearing deposits $ 2,348,000 $ 2,348,000 $ 2,253,000 $ 2,253,000 $ 2,657,000 $ 2,657,000
Noninterest-bearing deposits 246,000 246,000 422,000 422,000 399,000 399,000
Certificates of deposit 100,000 100,000 100,000 100,000 200,000 200,000
Investments 6,654,000 6,651,000 7,667,000 7,664,000 10,222,000 10,245,000
Loans receivable 100,506,000 103,635,000 97,951,000 99,451,000 90,555,000 94,111,000
Accrued interest receivable 722,000 722,000 714,000 714,000 698,000 698,000
FHLB stock 930,000 930,000 869,000 869,000 824,000 824,000
Financial liabilities:
Deposits 95,872,000 94,023,000 93,785,000 92,483,000 92,103,000 90,242,000
Advances from FHLB 1,000,000 1,000,000 2,000,000 2,000,000 - -
Advances from borrowers for
taxes and insurance 215,000 215,000 105,000 105,000 123,000 123,000
</TABLE>
The fair values utilized in the table were derived using the information
described below for the group of instruments listed. It should be noted that the
fair values disclosed in this table do not represent market values of all assets
and liabilities of the Bank and, thus, should not be interpreted to represent
the market or liquidation value of the Bank.
The following methods and assumptions were used by the Bank in estimating the
fair value of its financial instruments:
Cash and Certificates of Deposits: The carrying amounts reported in the
- ---------------------------------
statement of financial position for cash and short term instruments approximate
their fair values.
Investment securities: Fair values for 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 similar securities.
Loans receivable: The fair value of fixed rate loans is estimated by
- ----------------
discounting the future cash flows, adjusted for prepayments, using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. For variable rate loans that
reprice frequently and with no significant change in credit risk, fair values
are equal to carrying amounts. Management believes that the allowance for loan
losses is an appropriate indication of the applicable
F-29
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 10. Fair Value of Financial Instruments (Continued)
credit risk associated with determining the fair value of its loan portfolio and
has been deducted from the estimated fair value of loans.
Accrued interest receivable: The fair value of accrued interest receivable is
- ---------------------------
the amount receivable on demand at the balance sheet date.
Deposits: The fair value of demand deposits, savings accounts, and certain
- --------
money market deposits is the amount payable on demand at the balance sheet date.
The fair value of fixed maturity certificates of deposit are estimated based
upon the discounted value of contractual cash flows using rates currently
offered for deposits with similar remaining maturities.
Advances from Federal Home Loan Bank: The carrying value of the advances
- ------------------------------------
approximates their fair value due to their short-term nature and market rate of
interest.
Off-statement of financial condition instruments: Fair values for the Bank's
- ------------------------------------------------
off-statement of financial condition instruments (loan commitments) are based on
fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit standings.
The fair value for such commitments is nominal.
Note 11. Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank ("FHLB") at June 30, 1997, December 31,
1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
December 31,
June 30, -----------------------------------
1997 1996 1995
--------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Advances due FHLB, quarterly interest only
installments at 5.82% through September 1997,
with the principal balance due September 1997. $ 1,000,000 $ - $ -
Advances due FHLB, quarterly interest only
installments at 5.60% through February 1997,
with the principal balance due February 1997. - 1,000,000 -
Advances due FHLB, quarterly interest only,
installments at 5.72% through March 1997,
with the principal balance due March 1997. - 1,000,000 -
--------------------------------------------------------
$ 1,000,000 $ 2,000,000 $ -
========================================================
</TABLE>
F-30
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11. Advances From Federal Home Loan Bank (Continued)
Pursuant to collateral agreements with the FHLB, advances are covered by the
Bank's blanket status and no collateral is required. Advances at June 30, 1997
have a scheduled maturity date of September 22, 1997.
Interest expense on borrowed funds is summarized as follows:
<TABLE>
<CAPTION>
Nine Months
Six Months Ended Year Ended Ended
-----------------------------------------------------------------------
June 30, December 31, December 31,
-----------------------------------------------------------------------
1997 1996 1996 1996 1995 1994
-----------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest expense
from FHLB advances $ 58,000 $ 5,000 $ 34,000 $ - $ -
</TABLE>
Note 12. Special SAIF Assessment
On September 30, 1996, the "Deposit Insurance Funds Act of 1996" was signed into
law. The legislation included a special assessment to recapitalize the SAIF
insurance fund up to its statutory goal of 1.25% of insured deposits. The
assessment is equal to approximately 65 basis points of the SAIF assessable
deposit base as of March 31, 1995. The expense recorded for the special
assessment amounted to $520,000, for the year ended December 31, 1996.
Note 13. Subsequent Event - Plan of Conversion (Unaudited)
On July 14, 1997 the Board of Directors of the Bank adopted a Plan of Conversion
(the Plan) under which the Bank will convert from a North Carolina chartered
mutual savings bank to a North Carolina chartered stock savings bank and will
become a wholly-owned subsidiary of a holding company formed in connection with
the conversion. The holding company will issue common stock to be sold in the
conversion and will use that portion of the net proceeds thereof which it does
not retain to purchase the capital stock of the Bank. The Plan is subject to
approval by regulatory authorities and the members of the Bank at a special
meeting.
At the time of the conversion, the Bank will establish a liquidation account in
the amount equal to its net worth as reflected in its latest statement of
financial condition used in its final conversion-offering circular. The
liquidation account will be maintained for the benefit of eligible deposit
account holders who continue to maintain their deposit accounts in the Bank
after conversion. Only in the event of a complete liquidation each deposit
account holder will be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance for deposit accounts then held before any liquidation distribution may
be made with respect to common stock. Dividends paid by the Bank subsequent to
the conversion cannot be paid from this liquidation account.
F-31
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. Note 13. Subsequent Event - Plan of Conversion (Unaudited)
The Bank may not declare or pay a cash dividend on its common stock if its net
worth would thereby be reduced below either the aggregate amount then required
for the liquidation account or the minimum regulatory capital requirements
imposed by federal and state regulations. As a North Carolina-chartered stock
savings bank, the Bank may not declare or pay a cash dividend on its capital
stock if the effect of such transaction would be to reduce the net worth of the
Bank to an amount which is less than the minimum amount required by applicable
federal and state regulations. For a period of five years after its conversion
from mutual to stock form, the Bank must obtain written approval from the
Administrator of the North Carolina Savings Institutions Division before
declaring or paying a cash dividend on its capital stock in an amount in excess
of one-half of the greater of (i) the Banks net income for the most recent
fiscal year end, or (ii) the average of the Banks net income after dividends for
the most recent year end and not more than two of the immediately preceding
fiscal year ends.
If the conversion is ultimately successful, conversion costs will be accounted
for as a reduction of the stock proceeds. If the conversion is unsuccessful,
conversion costs will be charged to the Bank's operations. The Bank had not
incurred any conversion costs as of June 30, 1997.
Note 14. Reclassification
Certain amounts in the December 31, 1996, 1995, and 1994 financial statements
have been reclassified to conform with June 30, 1997 presentation with no effect
on net income or retained earnings.
Note 15. Future Reporting Requirements
The FASB has issued SFAS No. 123, Accounting for Stock-Based Compensation, which
the Bank has not been required to adopt as of June 30, 1997.
The Statement, which will be in effect for the Bank's fiscal year ending
December 31, 1997, requires that an entity account for stock based compensation
plans using a fair value based method which measures compensation cost at the
grant date based upon the value of the award, which is then recognized over the
service period, usually the vesting period. The accounting requirements of the
Statement apply to grants of awards entered into in fiscal years that begin
after December 15, 1995. The Statement allows entities to continue to use APB
Opinion No. 25 to measure compensation cost, but requires that the proforma
effects on net income and earnings per share be disclosed to reflect the
difference between the compensation cost, if any, from applying APB Opinion No.
25 and the related cost measured by the fair value method defined in the
Statement. The Statement is not expected to have a material effect on the Bank's
financial statements because management is expected to elect to continue to use
the accounting and reporting permitted by APB Opinion No. 25 and will disclose
the differences, if any, as proforma effects in notes to the financial
statements of not utilizing the fair value method prescribed in SFAS No. 123
should the Bank elect to adopt a restricted stock plan subsequent to conversion
to the stock form.
The FASB has issued SFAS No. 128, Earnings Per Share, which the Bank has not
been required to adopt as of June 30, 1997.
F-32
<PAGE>
MOORESVILLE SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 15. Future Reporting Requirements (Continued)
The Statement, which will be effective for the Bank's first interim period as a
public stock company ending after December 15, 1997, specifies the computation,
presentation and disclosure requirements for earnings per share.
The FASB has issued SFAS No. 130, Reporting Comprehensive Income, which the Bank
has not been required to adopt as of June 30, 1997.
The Statement, which is effective for fiscal years beginning after December 15,
1997, establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This Statement requires that all items
that are recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
F-33
<PAGE>
================================================================================
No dealer, salesperson or any other individual or entity has been authorized
to give any information or to make any representation not contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
any such other information or representation must not be relied upon as having
been authorized by Coddle Creek Financial Corp. or Mooresville Savings Bank,
SSB. This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any of the securities offered hereby, or any other securities,
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
authorized to do so, or to any person to whom it is unlawful to make such offer
or solicitation in such jurisdiction. 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 Coddle Creek Financial Corp. or
Mooresville Savings Bank, SSB 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............................................................... 4
Selected Financial and Other Data of The Bank......................... 15
Risk Factors.......................................................... 16
Coddle Creek Financial Corp........................................... 23
Mooresville Savings, SSB.............................................. 23
Use of Proceeds....................................................... 24
Dividend Policy....................................................... 25
Market for Common Stock............................................... 26
Capitalization ....................................................... 27
Pro Forma Data........................................................ 30
Historical and Pro Forma Capital Compliance .......................... 33
Stock Purchases by Directors and Executive Officers................... 36
Management's Discussion and Analysis
of Financial Condition and Operating Results........................ 37
Business of The Company............................................... 52
Business of The Bank.................................................. 53
Taxation.............................................................. 74
Supervision and Regulation............................................ 76
Management of the Company............................................. 86
Management of The Bank................................................ 87
Description of Capital Stock.......................................... 96
Anti-Takeover Provisions of the Company
and The Bank........................................................ 98
The Conversion........................................................ 101
Legal Opinions........................................................ 116
Experts............................................................... 116
Registration Requirements............................................. 116
Additional Information................................................ 116
Index to Financial Statements of Mooresville
Savings Bank, SSB................................................... 118
</TABLE>
Until November ___, 1997, 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.
================================================================================
================================================================================
Between
391,000 and 608,350
Shares
CODDLE CREEK
FINANCIAL CORP.
(Proposed Holding Company for
Mooresville Savings Bank, Inc., SSB)
Common Stock
---------------------
PROSPECTUS
---------------------
Trident Securities, Inc.
November ___, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution. Set forth below is an
-------------------------------------------
estimate of the amount of fees and expenses (other than the Underwriters
commissions) to be incurred in connection with the issuance and distribution of
the shares.
<TABLE>
<CAPTION>
<S> <C>
Registration and Filing Fees................................ $ 26,000
Postage and Printing........................................ $ 60,000
Accounting Fees and Expenses................................ $ 50,000
Appraisal Fees and Expenses................................. $ 32,500
Legal Fees and Expenses..................................... $135,000
Sales Agent Expenses........................................ $ 37,500
Data Processing Expenses.................................... $ 9,000
Transfer Agent.............................................. $ 12,000
Other....................................................... $ 25,000
--------
$387,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers. The Registrant's
-----------------------------------------
Articles of Incorporation provide that, to the fullest extent permitted by the
North Carolina Business Corporation Act (the "NCBCA"), no person who serves as a
director shall be personally liable to the Registrant or any of its stockholders
or otherwise for monetary damages for breach of any duty as director. The
Registrant's Bylaws state that any person who at any time serves or has served
as a director or officer of the Registrant, or who, while serving as a director
or officer of the Registrant, serves or has served at the request of the
Registrant as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
as a trustee or administrator under an employee benefit plan, shall have a right
to be indemnified by the Registrant to the fullest extent permitted by law
against (a) reasonable expenses, including attorneys' fees, incurred by him in
connection with any threatened, pending or completed civil, criminal,
administrative, investigative, or arbitrative action, suit, or proceeding (and
any appeal therein), whether or not brought by or on behalf of the Registrant,
seeking to hold him liable by reason of the fact that he is or was acting in
such capacity, and (b) reasonable payments made by him in satisfaction of any
judgment, money decree, fine (including an excise tax assessed with respect to
an employee benefit plan) or penalty for which he may have become liable in any
such action, suit or proceeding, or in connection with a settlement approved by
the Board of Directors of any such action, suit or proceeding.
Sections 55-8-50 through 55-8-58 of the NCBCA contain provisions
prescribing the extent to which directors and officers shall or may be
indemnified. Section 55-8-51 of the NCBCA permits a corporation, with certain
exceptions, to indemnify a present or former director
II-1
<PAGE>
against liability if (i) the director conducted himself in good faith, (ii) the
director reasonably believed (x) that the director's conduct in the director's
official capacity with the corporation was in its best interests and (y) in all
other cases the director's conduct was at least not opposed to the corporation's
best interests, and (iii) in the case of any criminal proceeding, the director
had no reasonable cause to believe the director's conduct was unlawful. A
corporation may not indemnify a director in connection with a proceeding by or
in the right of the corporation in which the director was adjudged liable to the
corporation or in connection with a proceeding charging improper personal
benefit to the director. The above standard of conduct is determined by the
board of directors, or a committee or special legal counsel or the shareholders
as prescribed in Section 55-8-55.
Sections 55-8-52 and 55-8-26 of the NCBCA require a corporation to
indemnify a director or officer in the defense of any proceeding to which the
director or officer was a party against reasonable expenses when the director or
officer is wholly successful in the director's or officer's defense, unless the
articles of incorporation provide otherwise. Upon application, the court may
order indemnification of the director or officer if the director or officer is
adjudged fairly and reasonably so entitled under Section 55-8-54.
In addition, Section 55-8-57 permits a corporation to provide for
indemnification of directors, officers, employees or agents, in its articles of
incorporation or bylaws or by contract or resolution, against liability in
various proceedings and to purchase and maintain insurance policies on behalf of
these individuals.
The foregoing is only a general summary of certain aspects of North
Carolina law dealing with indemnification of directors and officers and does not
purport to be complete. It is qualified in its entirety by reference to the
relevant statutes, which contain detailed specific provisions regarding the
circumstances under which and the person for whose benefit indemnifications
shall or may be made.
Item 15. Recent Sales of Unregistered Securities. On August 28, 1997,
---------------------------------------
Registrant sold one share of common stock, no par value per share, to George W.
Brawley, Jr. for an aggregate purchase price of $10.00. Such sale was exempt
from registration under Section 4(2) of Securities Act of 1933.
Item 16. Exhibits. The following exhibits and financial statement schedules
--------
are filed herewith or will, as noted, be filed by amendment.
II-2
<PAGE>
(a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No.
(Per Exhibit
Tables in
Item 601 of
Regulation S-K) Description
--------------- -----------
<S> <C>
(1)(a) Engagement letter dated July 15, 1997 between
Mooresville Savings Bank, SSB and Trident Securities,
Inc.
(1)(b) Form of Sales Agency Agreement among Coddle Creek
Financial Corp., Mooresville Savings Bank, SSB and
Trident Securities, Inc. (to be filed supplementally)
(2) Plan of Holding Company Conversion of Mooresville
Savings Bank, SSB
(3)(i) Articles of Incorporation of Coddle Creek Financial
Corp.
(3)(ii) Bylaws of Coddle Creek Financial Corp.
(4) Form of Stock Certificate for Coddle Creek Financial
Corp. and Mooresville Savings Bank, SSB (to be filed
subsequently)
(5) Opinion and consent of Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P. as to legality of securities
to be registered hereby
(8)(a) Opinion of Brooks, Pierce, McLendon, Humphrey &
Leonard, L.L.P. as to federal and state tax
consequences
(8)(b) Opinion of JMP Financial, Inc. as to the value of
subscription rights
(10)(a) Letter Agreement dated July 17, 1997 between
Mooresville Savings Bank, SSB and JMP Financial, Inc.
(10)(b) Form of Employment Agreements between Mooresville
Savings Bank, SSB and (i) George W. Brawley, Jr., (ii)
Dale W. Brawley, and (iii) Billy R. Williams
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
(Per Exhibit
Tables in
Item 601 of
Regulation S-K) Description
--------------- -----------
<S> <C>
(10)(c) Form of Employee Stock Ownership Plan and Trust of
Mooresville Savings Bank, Inc., SSB
(10)(d) Form of the Management Recognition Plan of Mooresville
Savings Bank, SSB if the Plan is adopted and approved
by the Stockholders of Coddle Creek Financial Corp.
within one year after the conversion of Mooresville
Savings Bank, Inc., SSB to stock form
(10)(e) Form of Stock Option Plan of Coddle Creek Financial
Corp. if the Plan is adopted and approved by the
Stockholders of Coddle Creek Financial Corp. within one
year after the conversion of Mooresville Savings Bank,
Inc., SSB to stock form
(10)(f) Form of Mooresville Savings Bank, Inc., SSB Severance
Plan
(10)(g) Form of Capital Maintenance Agreement between Coddle
Creek Financial Corp. and Mooresville Savings Bank,
Inc., SSB
(23)(a) Consent of McGladrey & Pullen, LLP
(23)(b) Consent of JMP Financial, Inc.
(23)(c) Consent of Brooks, Pierce, McLendon, Humphrey &
Leonard, L.L.P.
(27) Financial Data Schedule
(99)(a) Appraisal Report of JMP Financial, Inc. as of September
2, 1997
(99)(b) Form of Stock Order Form (to be filed subsequently)
(99)(c) Form of Summary Proxy Statement
</TABLE>
II-4
<PAGE>
(b) Financial Statement Schedules
-----------------------------
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
------------
(a) 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.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
II-5
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Mooresville, North
Carolina, on September 11, 1997.
Coddle Creek Financial Corp.
By: /s/ George W. Brawley, Jr.
-----------------------------------------------
George W. Brawley, Jr.
President
Pursuant to 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 indicated.
<TABLE>
<S> <C>
/s/ George W. Brawley, Jr. Date: September 11, 1997
- -----------------------------
George W. Brawley, Jr.
(President and Chief
Executive Officer)
/s/ Billy R. Williams Date: September 11, 1997
- -----------------------------
Billy R. Williams
(Secretary and Controller)
/s/ Willis L. Barnette Date: September 11, 1997
- -----------------------------
Willis L. Barnette
(Director)
/s/ Donald R. Beck Date: September 11, 1997
- -----------------------------
Donald R. Beck
(Director)
/s/ Dale W. Brawley Date: September 11, 1997
- -----------------------------
Dale W. Brawley
(Director, Executive Vice
President and Treasurer)
/s/ Jack G. Lawler Date: September 11, 1997
- -----------------------------
Jack G. Lawler
(Director)
/s/ Calvin E. Turner Date: September 11, 1997
- -----------------------------
Calvin E. Turner, D.V.M.
(Director)
/s/ Claude U. Voils, Jr. Date: September 11, 1997
- -----------------------------
Claude U. Voils, Jr.
(Director)
</TABLE>
II-7
<PAGE>
Exhibit 1(a)
July 15, 1997
Board of Directors
Mooresville Savings Bank
347 North Main Street
Mooresville, North Carolina 28115
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and Mooresville Savings Bank, Mooresville, North
Carolina (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 .40 percent (.40%) of the
aggregate dollar amount of capital stock sold in both the
subscription and community offering.
2. A commission equal to two percent (2.00%) of the aggregate dollar
amount of capital stock sold in the subscription and community
offerings, excluding any shares of conversion stock sold to the
Bank's directors, executive officers and the employee benefit
plan.
<PAGE>
Board of Directors
July 15, 1997
Page 2
Additionally, commissions will be excluded on those shares sold to
"associates" of the Bank's directors and executive officers. The
term "associates" as used herein shall have the same meaning as
that found in the Bank's Plan of Conversion.
3. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee to be agreed
upon jointly by Trident and the Bank to reflect market
requirements at the time of the stock allocation in a Syndicated
Community Offering.
4. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the
Bank and Trident.
5. Trident shall be reimbursed for allocable expenses incurred by
them, including legal fees, whether or not the Agreement is
consummated. Trident's out-of-pocket expenses will not exceed
$10,000 and its legal fees will not exceed $27,500. 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. If the foregoing indemnification is unavailable for any
reason, the Bank agrees to contribute to such Losses in the proportion that its
financial interest in the conversion bears to that of the indemnified parties.
If the Agreement is entered into with respect to the common stock to be issued
in the conversion, the Agreement will provide for indemnification, which will be
in addition to any rights that Trident or any other indemnified party may have
at common law or otherwise. The indemnification provision of this
<PAGE>
Board of Directors
July 15, 1997
Page 3
paragraph will be superseded by the indemnification provisions of the Agreement
entered into by the Bank and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (5) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While Trident
and the Bank agree in principle to the contents hereof and propose to proceed
promptly, and in good faith, to work out the arrangements with respect to the
proposed offering, any legal obligations between Trident and the Bank shall be
only as set forth in a duly executed Agreement. Such Agreement shall be in form
and content satisfactory to Trident and the Bank, as well as their counsel, and
Trident's obligations thereunder shall be subject to, among other things, there
being in Trident's opinion no material adverse change in the condition or
obligations of the Bank or no market conditions which might render the sale of
the shares by the Bank hereby contemplated inadvisable.
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: ___________________
R. Lee Burrows, Jr.
Managing Director
Agreed and accepted to this_____day
of______________, 1997
MOORESVILLE SAVINGS BANK, SSB
By: ________________________
George W. Brawley, Jr.
President
<PAGE>
Exhibit 2
PLAN OF HOLDING COMPANY CONVERSION
OF
MOORESVILLE SAVINGS BANK, SSB
Mooresville, North Carolina
From Mutual to Stock Organization
I. General
On July 14, 1997, the Board of Directors of Mooresville Savings Bank, SSB,
Mooresville, North Carolina (the "Savings Bank") adopted a Plan of Holding
Company Conversion pursuant to which the Savings Bank will convert from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered capital
stock savings bank and simultaneously become a wholly-owned subsidiary of Coddle
Creek Financial Corp., a savings bank holding company organized under North
Carolina law.
This Plan is subject to the prior approval of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce, and must be
adopted by the affirmative vote of the members of the Savings Bank holding not
less than a majority of the total outstanding votes eligible to be cast. In
addition, in order to consummate the conversion herein described, this Plan must
be filed with the Federal Deposit Insurance Corporation ("FDIC") and must not
have been objected to by the FDIC in accordance with applicable FDIC
regulations.
II. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
A. 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, with
respect to the purchase, ownership, voting or sale of Common Stock; or (ii) a
combination or pooling of voting or other interests in the securities of the
Holding Company for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. The
Holding Company and the Savings Bank may presume that certain persons are acting
in concert based upon, among other things, joint account relationships and the
fact that such persons have filed joint Schedules 13D with the SEC with respect
to other companies.
B. Actual Purchase Price: The actual price per share, determined as
provided in Article VI hereof, at which the shares of common stock of the
Holding Company will be issued and sold by the Holding Company to subscribers.
C. Administrator: Administrator, Savings Institutions Division, North
Carolina Department of Commerce.
D. Affiliate: The term "affiliate" of, or a person "affiliated with," a
specified person, means a person that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.
E. Aggregate Valuation Range: The range of value for the aggregate number
of shares of
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common stock of the Holding Company to be offered in the Conversion, which range
is established pursuant to Article VI hereof and which shall be from a low of 15
percent (15%) below the estimated aggregate pro forma market value of the
Savings Bank and the Holding Company to a high of 15 percent (15%) above the
estimated aggregate pro forma market value of the Savings Bank and the Holding
Company, as such range may be amended from time to time by an independent
appraiser.
F. Amended Charter: The Savings Bank's North Carolina stock savings bank
charter in the form permitted by the Administrator.
G. Applications: The Savings Bank's Application to Convert a Mutual
Savings Bank to a Stock Owned Savings Bank and the Holding Company's Acquisition
Application, including amendments thereto, as filed with the Administrator
pursuant to the Regulations.
H. Associate: The term "Associate," when used to indicate a relationship
with any Person, means (i) any corporation or organization (other than the
Savings Bank, the Holding Company or any of their majority-owned subsidiaries)
of which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent (10%) or more of any class of equity securities,
(ii) any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except for a tax-qualified employee stock benefit plan or a charitable
trust which is exempt from federal taxation pursuant to Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, 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 Savings Bank, the Holding Company,
or any of their parents or subsidiaries.
I. Charter: The North Carolina mutual savings bank charter of Mooresville
Savings Bank, SSB.
J. Community Offering: The offering for sale of shares of Conversion
Stock to the general public, subsequent to termination of the Subscription
Offering, with priority given to natural persons and trusts of natural persons
residing in the Local Community (including Retirement Accounts established for
the benefit of natural persons who are residents of such area).
K. Conversion: The conversion of the Savings Bank to a North Carolina-
chartered stock savings bank, the deposit accounts of which will be insured by
the SAIF of the FDIC, pursuant to, and in accordance with, the regulations of
the FDIC, the Regulations, the Plan and the Applications.
2
<PAGE>
L. Conversion Stock: The shares of common stock of the Holding Company to
be issued and sold in the Conversion.
M. Converted Savings Bank: Mooresville Savings Bank, Inc., SSB, the North
Carolina capital stock savings bank resulting from the Conversion.
N. Directors: The Board of Directors of the Savings Bank, the Converted
Savings Bank or the Holding Company (as applicable).
O. Eligibility Record Date: The close of business on December 31, 1995.
P. Eligible Account Holder: The holder of a Qualifying Deposit on the
Eligibility Record Date, with the beneficial owner of a Retirement Account being
deemed the holder thereof.
Q. ESOP: The Savings Bank's tax-qualified Employee Stock Ownership Plan
adopted by the Board of Directors of the Savings Bank to be effective upon
consummation of the Conversion.
R. Executive Officer: An officer of the Savings Bank, the Converted
Savings Bank or the Holding Company (as applicable) performing a policy-making
function for such entity.
S. FDIC: The Federal Deposit Insurance Corporation.
T. Federal Reserve Board: The Board of Governors of the Federal Reserve
System.
U. First Priority Community Subscribers: Natural persons and trusts of
natural persons residing in the Local Community, including Retirement Accounts
established for the benefit of natural persons residing in the Local Community.
V. Holding Company: The North Carolina corporation under the name of
Coddle Creek Financial Corp. which, upon completion of the Conversion, will
become a savings bank holding company owning all of the outstanding capital
stock of the Converted Savings Bank.
W. Liquidation Account: That account established by the Converted Savings
Bank pursuant to Article XI of this Plan.
X. Local Community: Iredell, Mecklenburg, Lincoln, Catawba, Rowan and
Cabarrus Counties in North Carolina.
Y. Market Maker: A dealer (i.e., any person who engages directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system; or (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at its quoted prices with other brokers or dealers.
Z. Members: All persons or entities who qualify as members of the Savings
Bank pursuant to its Charter and bylaws prior to the Conversion, including
beneficial owners of Retirement Accounts at the Savings Bank.
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AA. Notice: The Savings Bank's Notice of Intent to Convert to Stock Form,
including amendments thereto, as filed with the FDIC pursuant to 12 C.F.R. Part
303.
BB. Order Forms: The order forms to be used to subscribe for Conversion
Stock in the Subscription and Community Offerings pursuant to the Plan.
CC. Other Members: The following as of the Voting Record Date: (1)
holders of Savings Accounts at the Savings Bank (other than Eligible Account
Holders and Supplemental Eligible Account Holders), with the beneficial owners
of Retirement Accounts being deemed the holders of such accounts, and (2) those
Persons or entities (other than Eligible Account Holders and Supplemental
Eligible Account Holders) who are borrowers from the Savings Bank whose
borrowings are still in existence as of the Voting Record Date.
DD. Person: An individual, a corporation, a partnership, an association,
a joint stock company, a trust, an unincorporated organization, or a government
or political subdivision thereof.
EE. Plan: This Plan of Holding Company Conversion and any duly adopted
amendments thereto.
FF. Prospectus: The document containing information about and a
description of the Savings Bank, the Holding Company, this Plan and the process
of issuing the Conversion Stock, which will be distributed to the Members in the
Subscription Offering and which may be distributed to the general public in the
Community Offering and Syndicated Community Offering.
GG. Proxy Statement: The written information distributed by the Savings
Bank to the Members in its solicitation of their votes in connection with
consideration of the Plan at the Special Meeting, which written information may
be in summary form.
HH. Qualifying Deposit: A balance of $50 or more in any Savings Account
in the Savings Bank as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable. Each deposit account which is deemed to
be a separate account for purposes of FDIC insurance shall be deemed to be a
separate account for purposes of determining whether a Qualifying Deposit
exists.
II. Regulations: The Rules and Regulations of the Administrator set forth
in North Carolina Administrative Code Title 4, Chapter 16, Subchapter 16G.
JJ. Retirement Accounts: Individual retirement accounts, Keogh savings
accounts or similar retirement accounts.
KK. SAIF: The Savings Association Insurance Fund of the FDIC.
LL. Savings Accounts: Withdrawable deposits, certificates or other
savings and deposit accounts of the Savings Bank, including money market deposit
accounts and negotiable order of withdrawal accounts, held by Members. Each
such deposit, certificate or other deposit account which is deemed to be a
separate account for FDIC insurance shall be deemed to be a separate Savings
Account for purposes of the Plan.
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MM. Savings Bank: Mooresville Savings Bank, SSB, Mooresville, North
Carolina, a North Carolina-chartered mutual savings bank.
NN. SEC: The Securities and Exchange Commission.
OO. Special Meeting: The Special Meeting of Members called for the
purpose of considering approval of the Plan.
PP. Subscription Offering: The offering of shares of Conversion Stock to
Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders, Other
Members, and Directors, officers and employees of the Savings Bank pursuant to
the Plan.
QQ. Subscription Rights: Non-transferable, non-negotiable, personal
rights distributed, without payment, to Eligible Account Holders, the ESOP,
Supplemental Eligible Account Holders, Other Members, and Directors, officers
and employees of the Savings Bank to subscribe for shares of Conversion Stock in
the Subscription Offering pursuant to the Plan.
RR. Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding the approval of the Applications by the Administrator, if the
establishment of such date is required by the Regulations.
SS. Supplemental Eligible Account Holder: The holder of a Qualifying
Deposit (other than an Executive Officer or Director of the Savings Bank or any
Associate of such Person), on the Supplemental Eligibility Record Date, with the
beneficial owner of a Retirement Account being deemed the holder thereof.
TT. Syndicated Community Offering: The offering for sale of shares of
Conversion Stock to the general public through a syndicate of registered broker-
dealers to be formed and managed by the sales agent in the Subscription Offering
and Community Offering.
UU. Voting Record Date: The date fixed by the Board of Directors of the
Savings Bank for determining Members entitled to vote at the Special Meeting.
III. Steps Prior to Submission of Plan of Conversion to the Members for Approval
Prior to submission of the Plan to the Members of the Savings Bank for
approval, the Savings Bank must receive the Administrator's approval of the
Applications and the FDIC must have issued a notice of non-objection to the
proposed conversion or the time period for FDIC review and objection shall have
expired without objection by the FDIC. The following steps must be taken prior
to such regulatory approvals:
A. The Board of Directors of the Savings Bank shall adopt and approve the
Plan by the affirmative vote of not less than two-thirds of its members.
B. The Savings Bank shall notify its members of the adoption of the Plan
by publishing a statement in a newspaper having a general circulation in the
communities in which the Savings Bank maintains offices or by mailing a letter
to each of its Members.
C. Copies of the Plan shall be made available for inspection at each
office of the Savings Bank.
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<PAGE>
D. The Holding Company shall submit an application to the Federal Reserve
Board pursuant to Federal law for permission to become a savings bank holding
company in order to enable it to acquire 100% of the capital stock of the
Converted Savings Bank, and such application shall be approved and any required
waiting period shall have expired.
E. The Savings Bank shall submit the requisite number of copies of the
Applications to the Administrator and the requisite number of copies of the
Notice to the FDIC. Upon receipt of advice from the Administrator that the
Applications have been received, are properly executed and not materially
incomplete, the Savings Bank shall publish a "Notice of Filing of an Application
for Holding Company Conversion" in a newspaper of general circulation in each
community in which the Savings Bank maintains an office. The Savings Bank also
shall prominently display a copy of such notice in each of its offices.
F. The Savings Bank shall obtain an opinion of counsel or tax advisor or
a favorable ruling from the Internal Revenue Service to the effect that the
Conversion of the Savings Bank from a North Carolina-chartered mutual savings
bank to a North Carolina-chartered capital stock savings bank, the sale of the
Conversion Stock to subscribers in the Subscription, Community and Syndicated
Community Offerings and the issuance of the shares of common stock of the
Converted Savings Bank to the Holding Company, all in accordance with the terms
of the Plan, should not result in any gain or loss for federal or North Carolina
income tax purposes, to the Savings Bank, the Converted Savings Bank, the
Holding Company or the Members of the Savings Bank. Receipt of a favorable
opinion or ruling is a condition precedent to completion of the Conversion.
G. The Holding Company shall file a registration statement with the SEC
with respect to the Conversion Stock to be offered pursuant to the Plan and such
registration statement shall be declared effective.
IV. Meeting of Members
Upon receipt of Administrator approval of the Applications and (i) receipt
from the FDIC of a conditional intention to issue a notice of non-objection or
(ii) expiration of the time period for FDIC review and objection without receipt
of an objection by the FDIC, a Special Meeting of the Members of the Savings
Bank shall be scheduled in accordance with the Savings Bank's bylaws for the
purpose of voting on approval of the Plan. Promptly after receipt of
Administrator approval and at least 20 days, but not more than 45 days, prior to
the Special Meeting, the Savings Bank will distribute proxy solicitation
materials to all Members as of the Voting Record Date. The proxy materials will
include the Proxy Statement and the Prospectus and other documents authorized
for use by the regulatory authorities and may also include a copy of the Plan,
the Amended Charter and other materials as provided in Article VII hereof.
At the Special Meeting, an affirmative vote of not less than a majority of
the total votes entitled to be cast by the Savings Bank's Members will be
required for approval of the Plan. Voting may be in person or by proxy. The
Administrator shall be promptly notified of the results of the vote of the
Members at the Special Meeting.
V. Procedure
The Conversion Stock shall be offered for sale in the Subscription Offering
to Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders,
Other Members, and Directors, officers and employees of the Savings Bank. The
Subscription Offering may commence concurrently with or during the
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<PAGE>
solicitation of proxies for the Special Meeting. The Community Offering may
commence at any time following commencement of the Subscription Offering. The
Syndicated Community Offering, if any, may commence concurrently with or during
the Community Offering or as promptly thereafter as is practicable. The
Subscription Offering may be closed before the Special Meeting, provided that
the offer and sale of the Conversion Stock shall be conditioned upon approval of
the Plan by the Members at the Special Meeting.
The period for the Subscription Offering shall not be less than 20 days nor
more than 45 days, unless extended by the Savings Bank and the Holding Company.
Any unsubscribed shares of Conversion Stock are to be offered for sale to the
general public in the Community Offering with priority being given to natural
persons and trusts of natural persons residing in the Local Community, including
Retirement Accounts established for the benefit of natural persons who reside in
such area. The Community Offering may commence, subject to the availability of
shares, at any time following commencement of the Subscription Offering. Any
shares of Conversion Stock offered but not subscribed for in the Subscription
and Community Offerings may, in the discretion of the Savings Bank and the
Holding Company, be offered for sale in the Syndicated Community Offering.
Completion of the sale of all shares of Conversion Stock not sold in the
Subscription Offering shall occur within 45 days after termination of the
Subscription Offering, subject to extension of such 45-day period by the Savings
Bank and the Holding Company with the approval of the Administrator. The Boards
of Directors of the Savings Bank and the Holding Company may seek one or more
extensions of such 45-day period if necessary to complete the sale of all shares
of Conversion Stock. In connection with any such extension, subscribers shall be
permitted to increase, decrease or rescind their subscriptions to the extent
required by the Administrator in approving the extensions. As provided in
Article XIII hereof, completion of the sale of all shares of Conversion Stock
must occur in any event within 24 months after the date of the Special Meeting.
VI. Stock Offering
A. Purchase Price and Number of Shares of Conversion Stock
-------------------------------------------------------
The total number of shares and the subscription price per share of the
Conversion Stock being issued and sold by the Holding Company in the Conversion
will be determined by the Holding Company. The aggregate purchase price at which
all shares of the Conversion Stock will be sold in the Conversion will be based
upon the aggregate pro forma market value of the Converted Savings Bank and the
Holding Company after giving effect to the issuance of the Conversion Stock, as
determined by an independent appraisal. The aggregate purchase price will be
within the Aggregate Valuation Range as stated in the approval or amended
approval of the Plan by the Administrator; provided, however, that with the
consent of the Administrator and the FDIC, the aggregate purchase price of the
Conversion Stock sold may be increased to up to 15% above the maximum of the
Aggregate Valuation Range, without any resolicitation of subscribers or any
right to cancel, rescind or change subscription orders, to reflect changes in
market and financial conditions following commencement of the Subscription
Offering. The appraisal will be made by an investment banking or financial
consulting firm selected by the Savings Bank and which is experienced and expert
in the area of savings institution appraisals. Such appraisal will be updated
prior to the commencement of the Subscription Offering, if necessary, and will
be further updated upon completion of the later of the Subscription Offering,
the Community Offering or the Syndicated Community Offering.
The Actual Purchase Price per share at which the Conversion Stock will be
offered to subscribers in the Subscription, Community and Syndicated Community
Offerings will be determined by the Holding Company immediately prior to the
commencement of the Subscription Offering. All shares of Conversion Stock sold
in the Conversion will be sold at the same price per share.
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<PAGE>
B. Method of Offering Shares
-------------------------
On the date Order Forms are mailed, Subscription Rights to purchase shares
will be issued at no cost to Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders (if applicable), Other Members, and Directors, officers
and employees of the Savings Bank pursuant to priorities established by this
Plan and the Regulations. With respect to Eligible Account Holders,
Supplemental Eligible Account Holders and Voting Members who are beneficial
owners of Retirement Accounts, such persons have the right to exercise
Subscription Rights only to the extent Subscription Rights granted with respect
to such Retirement Accounts are not exercised directly by such Retirement
Accounts. Each subscriber shall purchase the number of whole shares indicated
on the Order Form of such subscriber, subject to the purchase limitations set
forth herein, and any excess amounts shall be refunded. To the extent that
shares are available, no subscriber will be allowed to purchase Conversion Stock
having an aggregate purchase price of less than $500.
The priorities established by applicable Regulations for the purchase of
shares are as follows:
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1. Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive, without payment, Subscription
Rights to purchase an amount of Conversion Stock equal to the maximum purchase
limitation set forth in Section D.1 of this Article. Subscription Rights of
Eligible Account Holders shall be superior to those of all other subscription
rights granted in the Conversion. In the event of an oversubscription for the
Conversion Stock among Eligible Account Holders, shares shall be allocated among
Eligible Account Holders as follows. The Conversion Stock shall be allocated
among subscribing Eligible Account Holders so as to permit each such Eligible
Account Holder, to the extent possible, to purchase the lesser of (a) the number
of shares for which such Eligible Account Holder subscribed, or (b) 100 shares.
Any shares remaining after that allocation shall be allocated among subscribing
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of Qualifying Deposits of each such Eligible Account
Holder bears to the total amount of Qualifying Deposits of all Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more Eligible Account Holders,
the excess shall be reallocated (one or more times as necessary) among those
Eligible Account Holders whose subscriptions are still not fully satisfied on
the same principle described above until all available shares have been
allocated or all subscriptions satisfied. All computations shall be rounded
down to the nearest whole share.
2. Category No. 2: ESOP
The ESOP shall receive, without payment, Subscription Rights to purchase a
number of shares of Conversion Stock equal to eight percent (8%) of the total
number of shares of Conversion Stock offered and sold in the Conversion.
Subscription Rights received pursuant to this Category shall be subordinated to
all Subscription Rights received pursuant to Category No. 1 above. In the event
there is an oversubscription of shares of Conversion Stock and, as a result, the
ESOP is unable to purchase in the Conversion eight percent (8%) of the total
number of shares offered and sold in the Conversion, then the Board of Directors
of the Holding Company intends to, and shall be authorized to, approve the
purchase by the ESOP in the open market after the Conversion, of such shares as
are necessary for the ESOP to purchase a number of shares equal to eight percent
(8%) of the total number of shares of Conversion Stock issued in the Conversion.
Any purchases made by the ESOP may be purchased with funds borrowed by the ESOP
from the Holding Company.
3. Category No. 3: Supplemental Eligible Account Holders
In the event that the Eligibility Record Date is more than 15 months prior
to the date of the latest amendment of the Applications filed prior to
Administrator approval, then, and only in that event, each Supplemental Eligible
Account Holder of the Savings Bank shall receive, without payment, Subscription
Rights to purchase an amount of Conversion Stock equal to the maximum purchase
limitation set forth in Section D.1 of this Article. Subscription Rights
received pursuant to this Category shall be subordinated to all Subscription
Rights received pursuant to Category Nos. 1 and 2. Any Subscription Rights
received by an Eligible Account Holder in accordance with Category No. 1 shall
reduce, to the extent thereof, the Subscription Rights to be distributed to such
account holder pursuant to this Category.
In the event of an oversubscription for the Conversion Stock, shares shall
be allocated among the Supplemental Eligible Account Holders as follows. The
Conversion Stock shall be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each such Supplemental Eligible Account Holder,
to the extent possible, to purchase the lesser of (including the number of
shares, if any allocated in
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<PAGE>
accordance with Category No. 1) (a) the number of shares for which such
Supplemental Eligible Account Holder subscribed, or (b) 100 shares. Any shares
remaining after that allocation shall be allocated among subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that the amount of the Qualifying Deposits of each such
Supplemental Eligible Account Holder bears to the total amount of Qualifying
Deposits of all Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by any
one or more Supplemental Eligible Account Holders, the excess shall be
reallocated (one or more times as necessary) among those Supplemental Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle described above until all available shares have been allocated or all
subscriptions satisfied. All computations shall be rounded down to the nearest
whole share.
4. Category No. 4: Other Members
Each Other Member shall receive, without payment, Subscription Rights to
purchase an amount of Conversion Stock equal to the maximum purchase limitation
set forth in Section D.1 of this Article. Subscription Rights received pursuant
to this Category shall be subordinated to all Subscription Rights received
pursuant to Category Nos. 1-3.
In the event of an oversubscription for shares of Conversion Stock under
this Category, the Conversion Stock available shall be allocated among the
subscribing Other Members whose subscriptions are not satisfied in the
proportion that the number of votes eligible to be cast by each such Other
Member at the Special Meeting bears to the total number of votes eligible to be
cast by all Other Members whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more Other Member,
the excess shall be reallocated (one or more times as necessary) among those
Other Members whose subscriptions are still not satisfied on the same principle
described above until all available shares have been allocated or all
subscriptions satisfied. All computations shall be rounded down to the nearest
whole share.
5. Category No. 5: Directors, Officers and Employees
Each Director and officer of the Savings Bank, and each employee of the
Savings Bank, as of the date of the commencement of the Subscription Offering
shall receive, without payment, Subscription Rights to purchase an amount of
Conversion Stock equal to the maximum purchase limitation set forth in Section
D.1 of this Article. Subscription Rights received pursuant to this Category
shall be subordinated to all Subscription Rights received pursuant to Category
Nos. 1-4. Any Subscription Rights received by a Director, officer or employee
in accordance with Category Nos. 1, 3, or 4 shall reduce, to the extent thereof,
the Subscription Rights to be distributed to such Director, officer or employee
pursuant to this Category.
In the event of an oversubscription for shares of Conversion Stock under
this Category, the shares available shall be allocated among the subscribing
Directors, officers and employees of the Savings Bank whose subscriptions are
not satisfied pro rata on the basis of the amounts of their respective
subscriptions. All computations shall be rounded down to the nearest whole
share.
6. Category No. 6: Community Offering
Any shares of Conversion Stock not purchased through the exercise of
Subscription Rights received pursuant to Category Nos. 1-5 above may be sold to
the general public in a Community Offering. The Community Offering may
commence, subject to the availability of shares, at any time following
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commencement of the Subscription Offering and may terminate at any time
thereafter. The Community Offering must be completed within 45 days after the
last day of the Subscription Offering, unless extended by the Savings Bank and
the Holding Company with the approval of the Administrator.
The Savings Bank and the Holding Company may accept or reject, in whole or
in part, orders received in the Community Offering in their sole discretion.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then
(i) subscriptions of First Priority Community Subscribers will be
filled in full up to applicable purchase limitations (to the
extent such subscriptions are not rejected by the Savings Bank
and the Holding Company),
(ii) then subscriptions of other subscribers in the Community Offering
will be filled up to applicable purchase limitations (to the
extent such subscriptions are not rejected by the Savings Bank
and the Holding Company).
In the event of an oversubscription by First Priority Community Subscribers
whose orders would otherwise be accepted, shares of Conversion Stock will be
allocated first to each First Priority Community Subscriber whose order is
accepted in full or in part by the Savings Bank and the Holding Company in the
entire amount of such order up to a number of shares no greater than the number
which would have an aggregate purchase price of $250,000, which number shall be
determined by the Board of Directors of the Savings Bank prior to the time the
Conversion is consummated with the intent to provide for a wide distribution of
shares among such subscribers. Any shares remaining after such allocation will
be allocated to each First Priority Community Subscriber whose order is accepted
in full or in part on an equal number of shares basis until all orders are
filled. Such allocation shall also be applied to subscriptions by other
subscribers in the Community Offering, in the event shares are available for
subscribers in such category but there is an oversubscription within such
category. All computations shall be rounded down to the nearest whole share.
The Conversion Stock to be offered in this Category No. 6 will be offered
and sold in a manner that will achieve the widest distribution of such stock.
7. Category No. 7: Syndicated Community Offering
If necessary, all shares of Conversion Stock not purchased in the
Subscription and Community Offerings, if any, may, at the option of the Savings
Bank and Holding Company, be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
as selected dealers to be formed and managed by the sales agent in the
Subscription and Community Offerings. The Holding Company and Savings Bank have
the right to reject orders, in whole or part, in their sole discretion in the
Syndicated Community Offering. During the Syndicated Community Offering, shares
of Conversion Stock will be sold subject to such conditions, terms and
procedures as may be determined by the Holding Company and the Savings Bank.
Shares of Conversion Stock sold in the Syndicated Community Offering will be
sold in a manner calculated to achieve the widest distribution of Conversion
Stock.
The Syndicated Community Offering may close as early as the Community
Offering, or thereafter at the discretion of the Savings Bank and the Holding
Company. The Syndicated Community Offering may run
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concurrently with the Community Offering or subsequent to such offering.
D. Additional Limitations Upon Purchases of Shares of Conversion Stock
The following additional limitations and exceptions shall apply to all
purchases of Conversion Stock in the Conversion:
1. The aggregate purchase price of shares of Conversion Stock purchased by
any Person (or Persons exercising Subscription Rights through a single account),
or a group of Persons acting in concert, shall not exceed $300,000 (which limit
may be decreased or increased by the Board of Directors of the Savings Bank in
accordance with Section D.5 of this Article) provided, however, that the ESOP
may purchase in the aggregate a number of shares not more than eight percent
(8%) of the total number of shares of Conversion Stock offered and sold in the
Conversion. Any shares held by the ESOP and attributed to a natural person
shall not be aggregated with other shares purchased directly by or otherwise
attributable to that natural person.
2. In addition to the purchase limitation provided for in Section D.1 of
this Article, no Person (or group of Persons acting in concert), together with
any Associate, shall purchase shares of Common Stock having an aggregate
purchase price of more than $600,000 (which limit may be increased or decreased
by the Board of Directors of the Savings Bank in accordance with Section D.5 of
this Article).
3. The Boards of Directors of the Savings Bank and Holding Company will
not be deemed to be Associates or a group acting in concert solely as a result
of membership on the Boards of Directors.
4. To the extent that Conversion Stock is available, no subscriber will be
allowed to purchase Conversion Stock having an aggregate purchase price of less
than $500.
5. Either before or subsequent to approval of the Plan by the Members and
prior to consummation of the sale of the Conversion Stock, the Board of
Directors of the Savings Bank may, in its sole discretion, (i) increase the
maximum purchase limitations set forth in Sections D.1 and D.2 of this Article
to an amount not greater than five percent (5%) of the aggregate purchase price
of shares of Conversion Stock offered and sold in the Conversion or (ii) reduce
such maximum purchase limitations to an amount not less than one percent (1%) of
the aggregate purchase price of shares of Conversion Stock offered and sold in
the Conversion, each without further approval of the Members.
6. Each person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation.
7. Subscription Rights to purchase the Conversion Stock received by
Executive Officers and Directors of the Savings Bank and their Associates, based
on their increased deposits in the Savings Bank in the one-year period preceding
the Eligibility Record Date shall be subordinated to all other subscriptions
involving the exercise of Subscription Rights to purchase the Conversion Stock
pursuant to Category No. 1.
E. Restrictions on and Other Characteristics of Stock Being Sold
1. Transferability. Conversion Stock purchased by Directors or Executive
---------------
Officers of the Converted Savings Bank shall not be sold or otherwise disposed
of for value for a period of not less than one year from the date of purchase
without written permission of the Administrator, except for any disposition of
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such shares following the death of the original purchaser.
The Conversion Stock issued by the Holding Company to Directors and
Executive Officers of the Converted Savings Bank shall bear a legend giving
appropriate notice of the one-year holding period restriction. This legend will
state as follows:
The shares of stock evidenced by this Certificate may not be sold, except
in the event of the death of the registered holder, for a period of one
year from the date of this certificate without the prior written consent of
the Administrator, Savings Institutions Division, North Carolina Department
of Commerce.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent with respect to the applicable restrictions relating to the
transfer of restricted stock. Any shares subsequently issued as a stock
dividend, stock split, or otherwise with respect to any such restricted stock,
shall be subject to the same holding period restrictions for Directors and
Executive Officers of the Converted Savings Bank as may be then applicable to
such restricted stock.
No Director, Executive Officer or Associate of a Director or Executive
Officer of the Converted Savings Bank shall purchase any outstanding shares of
common stock of the Holding Company for a period of three years following the
Conversion without the prior written approval of the Administrator, except (a)
through a broker or dealer registered with the SEC or the Secretary of State of
North Carolina or (b) in a "negotiated transaction" involving more than one
percent of the then outstanding shares of capital stock of the Holding Company
or (c) through the purchase of common stock made by and held by one or more tax-
qualified or non-tax-qualified employee stock benefit plans of the Converted
Savings Bank or the Holding Company which may be attributable to Executive
Officers or Directors. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any Person acting on his or her behalf and the purchaser or his or her
investment representative. The term "investment representative" shall mean a
professional investment advisor acting as agent for the purchaser and
independent of the seller and not acting on behalf of the seller in connection
with the transaction.
2. Repurchase and Dividend Rights. Subject to the Regulations and
regulations of the FDIC, the Converted Savings 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 Converted Savings Bank to be reduced
below (a) the amount required for the Liquidation Account or (b) the net worth
requirements of the Administrator or the minimum capital requirements of the
FDIC. As set forth in the Regulations and regulations of the FDIC, there exist
additional limitations on the ability of the Converted Savings Bank to pay
dividends and repurchase stock without the written approval of the Administrator
and the FDIC.
The above limitations shall not preclude payments of dividends or
repurchases of capital stock by the Converted Savings Bank or the Holding
Company in the event applicable federal or state regulatory limitations are
liberalized subsequent to the Conversion.
3. Voting Rights. After the Conversion, holders of Savings Accounts and
obligors on loans will not have voting rights in the Converted Savings Bank.
Exclusive voting rights shall be vested in the Holding Company as the owner of
all of the capital stock of the Converted Savings Bank. Each holder of common
stock of the Holding Company will be entitled to vote on any matter coming
before the stockholders of the Holding Company for consideration and will be
entitled to one vote for each share of common stock of
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the Holding Company owned by such stockholder.
4. Preemptive Rights. Holders of common stock of the Holding Company
shall not have preemptive rights to acquire additional or treasury shares of the
Holding Company. Holders of common stock of the Converted Savings Bank shall
not have preemptive rights to acquire additional or treasury shares of the
Savings Bank.
F. Mailing of Offering Materials and Collation of Subscriptions
After (i) approval of the Plan by the Administrator, (ii) receipt of a
notice of non-objection by the FDIC or expiration of the time period for FDIC
review and objection without receipt of an objection from the FDIC and (iii) the
SEC's declaration of the effectiveness of the registration statement containing
the Prospectus, the Holding Company shall distribute the Prospectus and Order
Forms for the purchase of shares to holders of Subscription Rights in accordance
with the terms of the Plan.
As set forth in the Prospectus, each such recipient of an Order Form will
be given a period of not less than 20 days nor more than 45 days from the date
of mailing, unless extended, to properly complete, execute and return the Order
Form to the Savings Bank on behalf of the Holding Company. Self-addressed,
postage-paid return envelopes will accompany these forms when mailed. The
Savings Bank will collate the returned executed forms upon completion of the
subscription period. Failure of any eligible subscriber in the Subscription or
Community Offerings to return a properly completed and executed Order Form with
full payment for all shares subscribed for within the prescribed time limits
shall be deemed a waiver and a release by such person of any rights to purchase
shares hereunder.
The Savings Bank may require a Person to provide evidence satisfactory to
the Savings Bank that such Person qualifies as an Eligible Account Holder,
Supplemental Eligible Account Holder, Other Member, or First Priority Community
Subscriber, as the case may be. All determinations as to whether a Person
qualifies to purchase in a particular category shall be made by the Savings Bank
in its sole discretion and shall be final and conclusive.
The Savings Bank reserves the right to make an independent investigation of
any facts or circumstances brought to its attention that indicate or tend to
indicate that one or more persons acting independently or as a group acting in
concert may be attempting to violate or circumvent the regulatory prohibition on
transferability of Subscription Rights. The nature and extent of such
investigation will be at the Savings Bank's sole discretion and the Savings Bank
may require a holder of Subscription Rights to provide certified affidavits and
other documentation to satisfy the Savings Bank that the Plan and North Carolina
and federal conversion regulations regarding nontransferability are not being
subverted by actions of holders of Subscription Rights. In extreme cases the
Savings Bank reserves the right to seek legal advice from the General Counsel
for the Administrator as to compliance with all regulations governing the
Conversion, including the nontransferability of Subscription Rights.
If the Board of Directors of the Savings Bank determines that a subscriber
(i) has submitted false or misleading information on an Order Form or otherwise,
(ii) has attempted to purchase shares of Conversion Stock in violation of
provisions of this Plan or applicable law or (iii) has failed to cooperate with
attempts by the Savings Bank, its employees or agents to verify information with
respect to purchase rights, such Board of Directors may reject the order of such
subscriber.
G. Method of Payment
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Payment for all shares of Conversion Stock subscribed for in the
Subscription and Community Offerings may be made in cash, if delivered in
person, by check or money order, or if the subscriber has a Savings Account
(other than a demand deposit or NOW account), by withdrawal authorization from
the Savings Account for the purchase amount. Unless payment is to be made by
withdrawal from a Savings Account, it shall accompany the Order Forms.
Notwithstanding the foregoing, the ESOP shall not be required to make payment
for shares subscribed for until the date set for consummation of the Conversion,
provided that, at the time the ESOP submits its Order Form, it has obtained a
commitment from the Holding Company or an independent third party lender to loan
it the funds necessary to satisfy its order.
If a subscriber authorizes the withdrawal from his or her Savings Account,
the funds may be withdrawn from the subscriber's Savings Account at any time
after receipt of the subscriber's stock order form and will continue to earn
interest at the applicable rate for such Savings Account until the Conversion is
completed or terminated. The withdrawal will be given effect only to the
extent necessary to satisfy the subscription at a price equal to the aggregate
Actual Purchase Price of the Conversion Stock sold to the subscriber. The
Savings Bank will allow subscribers to purchase shares of Conversion Stock by
withdrawing funds from certificate accounts without the assessment of early
withdrawal penalties. In the case of early withdrawal of only a portion of such
account, the certificate evidencing such account shall be canceled if the
remaining balance of the account is less than the applicable minimum balance
requirement. In that event, the remaining balance will earn interest at the
passbook savings rate. This waiver of the early withdrawal penalty is
applicable only to withdrawals made in connection with the purchase of
Conversion Stock under the Plan.
A subscriber who is the beneficial owner of a Retirement Account may pay
for shares of Conversion Stock subscribed for by authorizing and directing the
Savings Bank on the Order Form to roll over the subscriber's Retirement Account
to a self-directed Retirement Account at an independent trustee, who shall then
be directed to make a withdrawal from such Retirement Account in an amount equal
to the Actual Purchase Price of such shares. Such shares shall then become part
of the Retirement Account estate.
All amounts received for the purchase of Conversion Stock in the
Subscription Offering and the Community Offering (other than by charge against
the Subscriber's account or as provided above) shall be placed in a special
escrow account with the Savings Bank. The Savings Bank shall pay interest to
the subscriber at the passbook savings rate on such amounts paid to purchase
Conversion Stock from the date payment is received until the Conversion is
completed or terminated, as the case may be. The Savings Bank shall deliver
all amounts received for the purchase of Conversion Stock in the Subscription
Offering and the Community Offering to the Holding Company on the date the
Conversion is consummated.
H. Undelivered, Defective or Late Order Forms: Insufficient Payment
If an Order Form in the Subscription or Community Offering (a) is not
delivered and is returned by the United States Postal Service (or the Savings
Bank is unable to locate the addressee); (b) is not received by the Savings Bank
or is received by the Savings Bank after the date specified for receipt therein;
(c) is defectively completed or executed; (d) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for (including
cases in which the subscriber's Savings Account is insufficient to cover the
amount of such required payment pursuant to a withdrawal authorization) or (e)
is not accompanied by immediately available funds, the Subscription Rights and
other rights to purchase of the person to whom such rights have been granted
will be deemed waived and will not be honored. The Savings Bank may, but will
not be required to, waive any irregularity relating to any Order Form or require
the submission of a corrected Order Form or the remittance of full payment for
subscribed shares by such date as the Savings
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Bank may specify. Subscription orders, once tendered, cannot be revoked. The
Savings Bank's interpretation of the terms and conditions of this Plan and
acceptability of the Order Forms will be final.
I. Members in Non-Qualified States or in Foreign Countries
The Holding Company will make reasonable efforts to comply with the
securities laws of all states of the United States in which Eligible Account
Holders, Supplemental Eligible Account Holders, or Other Members entitled to
subscribe for shares of Conversion Stock reside. However, the Holding Company
shall not elect to offer or sell shares of Conversion Stock or Subscription
Rights under the Plan of Conversion in a foreign country, and may elect not to
offer or sell shares of Conversion Stock or Subscription Rights in a state in
the United States (i) where a small number of persons otherwise eligible to
subscribe for shares under this Plan reside or (ii) if the Holding Company
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including, but not limited to, a
requirement that the Holding Company, the Savings Bank or any employee or
representative thereof register as a broker, dealer, agent or salesperson or
register or otherwise qualify the Subscription Rights or Conversion Stock for
sale in such state. No payments will be made in lieu of the granting of
Subscription Rights to persons residing in such jurisdictions.
J. Acquisition of Capital Stock of the Converted Savings Bank
One half of the net proceeds from the sale of the Conversion Stock (after
such net proceeds are reduced by the amount of any loan made by the Holding
Company to the ESOP), will be used by the Holding Company to purchase all of the
outstanding capital stock of the Converted Savings Bank.
VII. Amended Charter and Bylaws
As part of the Conversion and this Plan, the Amended Charter and new bylaws
of the Converted Savings Bank will be adopted to authorize the Converted Savings
Bank to operate as a North Carolina capital stock savings bank under the name
Mooresville Savings Bank, Inc., SSB. The Amended Charter and new bylaws for the
Converted Savings Bank are attached hereto as Annex I and Annex II,
respectively. By approving the Plan, the Members will thereby approve the
Amended Charter and new bylaws. Accordingly, the Amended Charter and new bylaws
may be amended in the same manner as the Plan pursuant to Article XIII.
VIII. Consummation of Conversion
After approval of the Plan by the Members, completion of the issuance and
sale of the Conversion Stock, and provided the Amended Charter and new bylaws
have been filed with and approved by the Administrator, the Conversion will
become effective. The effective time of such Conversion will be the date of
completion of such issuance and sale unless a later date is specified by the
Savings Bank. The Conversion shall constitute a change of form of organization
of the Savings Bank and shall not impair or affect any contracts, rights,
liabilities, obligations, interest and relations of whatever kind of the Savings
Bank.
The Conversion of the Savings Bank from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered capital stock savings bank shall be
deemed to be an extension of the corporate existence of the Savings Bank, and
all property of the Savings Bank including all its rights, title and interest in
and to all property of whatever kind, whether real, personal or mixed, and
things in action, and every right, privilege, interest and asset of any
conceivable value or benefit then existing, belonging or pertaining to it, or
16
<PAGE>
which would inure to it, shall immediately by act of law and without any
conveyance or transfer, and without any further act or deed, be vested in and
become the property of the Converted Savings Bank, which shall have, hold and
enjoy the same in its own right as fully and to the same extent as the same was
possessed, held and enjoyed by the Savings Bank, and the Converted Savings Bank
shall succeed to all the rights, obligations and relations of the Savings Bank.
IX. Registration and Market Making
Upon completion of the Conversion, the Conversion Stock will be registered
with the SEC pursuant to the Securities Exchange Act of 1934, as amended. In
connection with the registration, the Holding Company hereby undertakes not to
deregister such stock for a period of three years thereafter.
The Holding Company will use its best efforts to encourage and assist a
Market Maker to establish and maintain a market for the shares of the Conversion
Stock. The Holding Company will also use its best efforts to list the
Conversion Stock on a national or regional securities exchange or on the
National Association of Securities Dealers Inc. Automated Quotation System.
X. Status of Savings Accounts and Loans Subsequent to Conversion
All Savings Accounts will retain the same status after Conversion as these
accounts had prior to Conversion. Each Savings Account holder shall retain,
without payment, a Savings Account or Accounts in the Converted Savings Bank,
equal in amount to the withdrawable value of such account holder's Savings
Account or Accounts in the Savings Bank prior to Conversion. All Savings
Accounts will continue to be insured by the SAIF of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after Conversion as such loans had prior to Conversion.
XI. Liquidation Account
After the Conversion, holders of Savings Accounts and borrowers will not
have voting rights in the Converted Savings Bank and will not be entitled to
share in the residual assets after liquidation of the Converted Savings Bank.
However, pursuant to the Regulations, the Savings Bank shall, at the time of
Conversion, establish a Liquidation Account on the records of the Converted
Savings Bank in an amount equal to its total regulatory capital as of the date
of the latest statement of financial condition contained in the final Prospectus
used in connection with the Conversion or such other amount as shall be required
by the Regulations. The function of the Liquidation Account is to establish a
priority on liquidation and, except as provided in Article VI.E.2 above, the
existence of the Liquidation Account shall not operate to restrict the use or
applications of any of the net worth, regulatory capital or other accounts of
the Converted Savings Bank.
The Liquidation Account shall be maintained by the Converted Saving Bank
subsequent to Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders (as applicable) who maintain Savings
Accounts in the Converted Savings Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, with respect to each Savings Account
held, have a related inchoate interest in a portion of the Liquidation Account
balance (the "subaccount balance").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the total opening balance in the Liquidation Account by a fraction,
of which the numerator is the amount of the Qualifying Deposits in the related
Savings Account on the Eligibility Record Date or the Supplemental Eligibility
Record Date (as
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<PAGE>
applicable) and of which the denominator is the total amount of all Qualifying
Deposits of all Eligible Account Holders or Supplemental Eligible Account
Holders (as applicable) on such dates. Each such initial subaccount balance in
the Liquidation Account shall never be increased, but shall be subject to
downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date or Supplemental
Eligibility Record Date (as applicable) is less than the lesser of (a) the
deposit balance in such Savings Account at the close of business on any previous
annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, or (b) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, then the subaccount balance
for such Savings Account shall be adjusted by reducing such subaccount balance
in an amount proportionate to the reduction in such deposit balance. In the
event of a downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. The subaccount balance of a Savings Account holder shall be
maintained for as long as the Savings Account holder maintains an account with
the same social security number with the Converted Savings Bank.
In the event of a complete liquidation of the Converted Savings Bank (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder, as applicable, shall be entitled to receive a liquidation
distribution from the Liquidation Account in the amount of the then current
adjusted subaccount balances for Savings Accounts then held, after the payment
of creditors of the Converted Savings Bank, including deposit account holders,
but before any liquidation distribution may be made to the Converted Savings
Bank's stockholders. No merger, consolidation, purchase of bulk assets with
assumption of deposit accounts and other liabilities, or similar combination or
transaction with or by another FDIC-insured institution shall be considered to
be a complete liquidation for this purpose. In such transactions, the
Liquidation Account shall be assumed by the surviving institution.
XII. Management
The Savings Bank or the Holding Company have entered or will enter into
contracts of employment with selected executives; the Savings Bank intends to
adopt and approve the ESOP; and, subject to approval of the stockholders of the
Holding Company, the Holding Company intends to approve and adopt stock option
plans for employees and directors of the Holding Company and/or the Savings Bank
and a management recognition plan providing for the issuance of restricted stock
of the Holding Company to certain employees and directors of the Holding Company
and/or the Savings Bank.
XIII. Amendment or Termination of Plan
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the Board of Directors of the Savings Bank. After submission of the Plan and
proxy materials to the Members, the Plan may be amended by a two-thirds vote of
the Board of Directors of the Savings Bank, but only with the concurrence of the
Administrator.
In the event that mandatory new regulations pertaining to conversions are
adopted by the Administrator or FDIC prior to the completion of the Conversion,
the Plan will be amended as provided above to conform to the new mandatory
regulations without a re-solicitation of proxies or another Special Meeting. In
the event that new conversion regulations adopted by the Administrator or FDIC
prior to
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completion of the Conversion contain optional provisions, the Plan may be
amended as provided above to utilize such optional provisions without a re-
solicitation of proxies or another Special Meeting.
The Plan may be terminated by a two-thirds vote of the Board of Directors
of the Savings Bank at any time prior to the Special Meeting, and at any time
following such Special Meeting with the concurrence of the Administrator. The
Plan shall terminate automatically if the sale of all shares of Conversion Stock
required to be sold is not completed within 12 months of the date of the Special
Meeting, unless the Administrator agrees in writing to an extension of up to an
additional 12 months.
By adoption of the Plan, the Members authorize the Board of Directors of
the Savings Bank to amend or terminate the Plan under the circumstances set
forth above.
XIV. Expenses of the Conversion
The Savings Bank will use its best efforts to assure that expenses incurred
in connection with the Conversion shall be reasonable.
XV. Prohibition on Extensions of Credit
The Savings Bank, the Holding Company or any subsidiary of either of them
may not knowingly loan funds or otherwise extend unsecured credit or credit
secured by the Holding Company's Conversion Stock to any person to purchase
shares of Conversion Stock.
XVI. Contributions to Tax-Qualified Employee Stock Benefit Plans
The Savings Bank may make scheduled discretionary contributions to the ESOP
or any other tax-qualified employee stock benefit plan, provided such
contributions do not cause the Savings Bank to fail to meet its net worth
requirements.
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ANNEX I
Second Amended and Restated Certificate of Incorporation
of
Mooresville Savings Bank, Inc., SSB
ARTICLE I
The name of the corporation is Mooresville Savings Bank, Inc., SSB (the
"Savings Bank").
ARTICLE II
The principal office of the Savings Bank shall be located at 347 North Main
Street, Mooresville, Iredell County, North Carolina. The street address of the
registered office of the Savings Bank is 347 North Main Street, Mooresville,
North Carolina, the mailing address of the registered office of the Savings Bank
is P.O. Box 1117, Mooresville, North Carolina 28115-1117, and the name of the
registered agent at the address is George W. Brawley, Jr.
ARTICLE III
The period of duration of the Savings Bank is perpetual.
ARTICLE IV
The purposes for which the Savings Bank is organized are to pursue any and
all of the lawful objectives of a stock savings bank chartered under the
provisions of the General Statutes of North Carolina and to exercise all of the
express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the constitutions and
laws of the State of North Carolina and the United States as they are now in
effect, or as they may hereafter be amended, and subject to all lawful and
applicable rules, regulations and orders of appropriate regulatory authorities.
ARTICLE V
The Savings Bank shall have authority to issue 100,000 shares of stock.
These shares shall be all of one class, designated as common stock with no par
value.
ARTICLE VI
The minimum amount of consideration to be received for its shares of stock
before the Savings Bank shall commence business as a stock savings bank is $100.
<PAGE>
ARTICLE VII
The shareholders of the Savings Bank do not have preemptive rights to
---
acquire additional or treasury shares of the Savings Bank.
ARTICLE VIII
Pursuant to the requirements of the rules and regulations of the
Administrator of the Savings Institutions Division, North Carolina Department of
Commerce, the Savings Bank shall establish and maintain a liquidation account
for the benefit of its "Eligible Account Holders" and "Supplemental Eligible
Account Holders," if applicable, as defined in the Plan of Holding Company
Conversion adopted by the Savings Bank in connection with its conversion to the
stock form of ownership. In the event of a complete liquidation of the Savings
Bank, it shall comply with such rules and regulations with respect to the amount
and the priorities on liquidation of each Eligible Account Holder's or
Supplemental Eligible Account Holder's inchoate interest in the liquidation
account, to the extent it is still in existence; provided, however, that an
Eligible Account Holder's or Supplemental Eligible Account Holder's inchoate
interest in the liquidation account shall not entitle such person or entity to
any voting rights at meetings of the Savings Bank's shareholders.
ARTICLE IX
The business and affairs of the Savings Bank shall be managed by a Board of
Directors. The number of directors shall be fixed by the Savings Bank's Bylaws
but shall not be less than five (5). Terms of directors may be classified as
stated in the Savings Bank's Bylaws.
ARTICLE X
To the fullest extent that the law of North Carolina as it exists on the
effective date of this Article, or as it may thereafter be amended, permits the
elimination of liability of directors, no director of the Savings Bank shall be
personally liable to the Savings Bank or any of its shareholders for monetary
damages for any breach of duty as a director. No amendment to or repeal of this
Article shall apply to or have any effect on the liability or alleged liability
of any director of the Savings Bank for or with respect to any act or failure to
act on the part of such director occurring prior to such amendment or repeal.
The provisions of this Article shall not be deemed to limit or preclude
indemnification of a director by the Savings Bank for any liability of a
director which has not been eliminated by the provisions of this Article.
2
<PAGE>
ARTICLE XI
Any addition, alteration or amendment to this Charter shall be made in
accordance with the provisions of Chapter 54C of the General Statutes of North
Carolina and any amendments thereto.
MOORESVILLE SAVINGS BANK, INC., SSB
ATTEST:
By:
------------------------------------------
By: George W. Brawley, Jr., President
------------------------------
Secretary
--------------
STATE OF NORTH CAROLINA
COUNTY OF _________________
This is to certify that on this ________ day of __________________, 1997,
before me, a Notary Public, personally appeared George W. Brawley, Jr. and
____________________, each of whom, being by me first duly sworn, declared that
he signed the foregoing instrument in the capacity indicated, that he was
authorized so to sign, and that the statements contained therein are true.
Witness my hand and official seal, this _____ day of ____________________,
1997.
----------------------------------------------
Notary Public
(OFFICIAL SEAL)
My Commission Expires:
-----------------------
3
<PAGE>
ANNEX II
BYLAWS
OF
MOORESVILLE SAVINGS BANK, INC., SSB
ARTICLE I.
OFFICES
-------
Section 1. Principal Office. The principal office of the Savings Bank
--------- ----------------
shall be located at 347 North Main Street, Mooresville, North Carolina 28115-
2453.
Section 2. Registered Office. The registered office of the Savings Bank
--------- -----------------
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
ARTICLE II.
MEETING OF SHAREHOLDERS
-----------------------
Section 1. Place of Meetings. All meetings of shareholders shall be held
--------- -----------------
at the principal office of the Savings Bank, or at such other place, either
within or without the State of North Carolina, as shall be designated in the
notice of the meeting or agreed upon by a majority of the shareholders entitled
to vote thereat.
Section 2. Annual Meetings. The annual meeting of shareholders shall be
--------- ---------------
held during the first five calendar months following the end of the Savings
Bank's fiscal year, or any day (except Saturday, Sunday or a legal holiday)
during that period as shall be determined by the Board of Directors, for the
purpose of electing directors of the Savings Bank, receiving annual reports of
officers, and transacting such other business as may be properly brought before
the meeting.
Section 3. Substitute Annual Meeting. If the annual meeting shall not be
--------- -------------------------
held on the date designated by these Bylaws, a substitute annual meeting may be
called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
Section 4. Special Meetings. Special meetings of the shareholders may be
--------- ----------------
called at any time by the President, or a majority of the Board of Directors by
giving notice as hereinafter provided, and, unless the Savings Bank shall at
such time have a class of shares registered under Section 12 of the Securities
Exchange Act of 1934, as amended, shall be called by any of the foregoing
pursuant to the written request of
<PAGE>
the holders of not less than one-tenth of all votes entitled to be cast on any
issue proposed to be considered at the meeting.
Section 5. Notice of Meetings. Written or printed notice stating the
--------- ------------------
time, place and date of the meeting shall be delivered not less than ten (10)
nor more than sixty (60) days before the date thereof, either in person or by
mail, by or at the direction of the Board of Directors, the President or the
Secretary to each shareholder of record entitled to vote at such meeting unless
applicable law or the Saving Bank's articles of incorporation require that such
notice shall be given to all shareholders with respect to such meeting. If
mailed, such notice shall be deemed to be effective when deposited in the United
States mail, correctly addressed to the shareholder at the shareholder's address
as it appears on the current record of shareholders of the Savings Bank, with
postage thereon prepaid.
In the case of an annual or substitute annual meeting, the notice of
meeting need not specifically state the business to be transacted thereat unless
such a statement expressly is required by the provisions of the North Carolina
Business Corporation Act. In the case of a special meeting, the notice of
meeting specifically shall state the purpose or purposes for which the meeting
is called.
If any meeting of shareholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment and if a new record
date is not fixed for the adjourned meeting. If a new record date for the
adjourned meeting is or must be fixed pursuant to North Carolina law, notice of
the adjourned meeting must be given as provided in this Section to persons who
are shareholders as of the new record date.
Section 6. Waiver of Notice. Any shareholder may waive notice of any
--------- ----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the Savings Bank for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (a) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or the shareholder's proxy at the
beginning of the meeting objects to holding the meeting or transacting business
thereat, and (b) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.
Section 7. Voting List. Before each meeting of shareholders, an
--------- -----------
alphabetical list of the shareholders entitled to notice of such meeting shall
be prepared by the Secretary of the Savings Bank. The list shall be arranged by
voting group and within each voting group by class or series of shares and show
the address of and number of shares held by each shareholder. The list shall be
kept on file at the principal office of the Savings Bank for the period
beginning two (2) business days after notice of the meeting is given and
continuing through the meeting, and shall be available for inspection by any
shareholder or the agent or attorney of any shareholder at any time prior to the
meeting during regular business hours and at any time during the meeting or any
adjournment thereof.
Section 8. Voting Group. All shares of one or more classes or series that
--------- ------------
under the Savings Bank's articles of incorporation or the North Carolina
Business Corporation Act are entitled to vote and be counted together
collectively on a matter at a meeting of shareholders constitute a voting group.
All shares entitled by the Savings Bank's articles of incorporation or the North
Carolina Business Corporation Act to vote generally on a matter are for that
purpose a single voting group. Classes or series of shares shall not be
entitled to vote separately by voting group unless expressly authorized by the
Savings Bank's articles of incorporation or specifically required by law.
2
<PAGE>
Section 9. Quorum. Shares entitled to vote generally as a single voting
--------- ------
group or as a separate voting group may take action on a matter at the meeting
of shareholders only if a quorum of those shares is present at the meeting. A
majority of the votes entitled to be cast on the matter by the voting group
shall constitute a quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders,
such meeting may be adjourned from time to time by a vote of a majority of the
votes cast on the motion to adjourn; and at any adjourned meeting any business
may be transacted which might have been transacted at the original meeting if a
quorum exists with respect to the matter proposed.
Section 10. Proxies. Shares may be voted either in person or by one or
---------- -------
more agents authorized by a written proxy executed by the shareholder or by the
shareholder's duly authorized attorney-in-fact. A proxy shall not designate as
a holder any corporation or partnership including any person acting on behalf of
any corporation or partnership, or any person other than a living natural
person. However, a proxy may designate the holder of a specified title or
office, if a natural person, or a committee composed solely of natural persons,
including a committee composed of the Board of Directors of the Savings Bank.
Section 11. Voting of Shares. Subject to the provisions of the Savings
---------- ----------------
Bank's articles of incorporation, each outstanding share shall be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders.
Except in the election of directors as provided in Section 3 of Article
III, if a quorum exists, action on a matter by a voting group at a meeting of
shareholders is approved if the votes cast within the voting group favoring the
action exceed the votes cast opposing the action, unless a greater vote is
required by law or the Savings Bank's articles of incorporation or these Bylaws.
Section 12. Informal Action by Shareholders. Any action which may be
---------- -------------------------------
taken at a meeting of shareholders may be taken without a meeting if one or more
written consents, setting forth the action so taken, shall be signed by all of
the persons who would be entitled to vote upon such action at a meeting, and
delivered to the Secretary of the Savings Bank for inclusion in the minutes or
filing with the corporate records.
If the Savings Bank is required by law to give notice to nonvoting
shareholders of action to be taken by unanimous written consent of the voting
shareholders, then the Savings Bank shall give the nonvoting shareholders, if
any, written notice of the proposed action at least ten (10) days before the
action is taken.
ARTICLE III.
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the Savings Bank
--------- --------------
shall be managed by the Board of Directors or by such Executive Committee as the
Board may establish.
3
<PAGE>
Section 2. Number, Term and Qualifications. The number of Directors of
--------- -------------------------------
the Savings Bank shall be no less than five (5) and no more than nine (9), with
the exact number to be fixed from time to time by the Board of Directors. Each
Director shall hold office until his death, resignation, retirement, removal,
disqualification, or his successor shall have been elected and qualified.
Section 3. Election of Directors. Except as provided in Section 5 of this
--------- ---------------------
Article III, the directors shall be elected at the annual meeting of
shareholders, and those persons who receive the highest number of votes at a
meeting at which a quorum is present shall be deemed to have been elected. If
any shareholder so demands, election of directors shall be by ballot. At all
times when the number of directors shall be nine (9) or more, the Board of
Directors shall be divided into three (3) classes, as nearly equal in number as
possible, and each class shall be elected for staggered terms of three (3) years
or until successors are duly elected and qualified.
Section 4. Removal. Any director may be removed at any time with or
--------- -------
without cause by a vote of shareholders holding a majority of the votes entitled
to be cast at an election of the directors. If any directors are so removed,
new directors may be elected at the same meeting.
Section 5. Vacancies. Any vacancy occurring in the Board of Directors,
--------- ---------
including without limitation a vacancy resulting from an increase in the number
of directors or from the failure by the shareholders to elect the full
authorized number of directors, may be filled by the shareholders, a majority of
the remaining directors, though less than a quorum, or by the sole remaining
director. A director elected to fill a vacancy shall be elected to serve the
remaining term of the director replaced, or if a director is not elected to
replace a previously elected director, the new director shall be elected to
serve until the next shareholders' meeting at which directors are elected. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors.
Section 6. Compensation. The Board of Directors may provide for the
--------- ------------
compensation of directors for their services as such and for the payment or
reimbursement of any or all expenses incurred by them in connection with such
services.
4
<PAGE>
ARTICLE IV.
MEETINGS OF DIRECTORS
---------------------
Section 1. Regular Meetings. A regular meeting of the Board of Directors
--------- ----------------
shall be held immediately after, and at the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by or at the request of the President, Vice President acting in
his absence or incapacity, or any three Directors, upon notice either in person
or by mail. Such meetings shall be held either within or without the State of
North Carolina as fixed by the person or persons calling any such meeting.
Section 3. Notice of Meetings. The applicable provisions of North
--------- ------------------
Carolina law shall govern meetings of the Board of Directors, notice of
meetings, waiver of notice, quorums and actions of the Board of Directors.
Section 4. Quorum. A majority of the number of directors shall constitute
--------- ------
a quorum for the transaction of business at any meeting of the Board of
Directors.
Section 5. Manner of Acting. Except as otherwise provided in these
--------- ----------------
Bylaws, 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.
Section 6. Presumption of Assent. A director of the Savings Bank who is
--------- ---------------------
present at a meeting of the Board of Directors at which action on any matter is
taken shall be presumed to have assented to the action unless his contrary vote
is recorded or his dissent is otherwise entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the Savings Bank immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
Section 7. Informal Action by Directors. Action taken by the directors
--------- ----------------------------
without a meeting is nevertheless Board action if written consent to the action
is signed by all the directors and filed with the minutes of the proceedings of
the Board or other corporate records, whether done before or after the actions
are taken.
ARTICLE V.
OFFICERS
--------
Section 1. Officers of the Savings Bank. The officers of the Savings Bank
--------- ----------------------------
shall consist of a President, a Secretary, a Treasurer, and such Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
the Board of Directors may from time to time elect. Any two or more offices may
be held by the same person, except the offices of President and Secretary, but
no officer may act in any more than one capacity where action of two or more
officers is required.
5
<PAGE>
Section 2. Election and Term. The officers of the Savings Bank shall be
--------- -----------------
elected by the Board of Directors. Such election may be held at any regular or
special meeting of the Board. Each officer shall hold office until his death,
resignation, retirement, removal, disqualification or his successor is elected
and qualified.
Section 3. Removal. Any officer or agent elected or appointed by the
--------- -------
Board of Directors may be removed by the Board whenever in its judgment the best
interests of the Savings Bank will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. President. The President shall be the principal executive
--------- ---------
officer and managing officer of the Savings Bank and, subject to the control of
the Board of Directors, shall supervise and control all of the business and
affairs of the Savings Bank. He or she shall sign, with the Secretary, an
Assistant Secretary, or with any other proper officer authorized by the Board of
Directors and whose signature is required, certificates for shares of the
Savings Bank and any deeds, mortgages, bonds, contracts, or other instruments
which may be lawfully executed on behalf of the Savings Bank, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be delegated by the Board of
Directors or these Bylaws to some other officer or agent of the Savings Bank;
and, in general, he or she shall perform all duties incident to the office of
the President and such other duties as may be prescribed by the Board of
Directors from time to time.
Section 5. Vice Presidents. In the absence of the President or in the
--------- ---------------
event of his death, inability or refusal to act, the Vice Presidents, unless
otherwise determined by the Board of Directors, shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President, with any other proper
officer whose signature is required, may sign certificates for shares of the
Savings Bank and shall perform such other duties as from time to time may be
assigned to him or her by the President or Board of Directors.
Section 6. Secretary. The Secretary shall: (a) keep the minutes of the
--------- ---------
meetings of shareholders and of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the Savings Bank and see that the seal
of the Savings Bank is affixed to all documents the execution of which on behalf
of the Savings Bank under its seal is duly authorized; (d) have general charge
of the stock transfer books of the Savings Bank and shall keep, at the
registered or principal office of the Savings Bank a record of shareholders
showing the name and address of each shareholder and the number and class of the
shares held by each; (e) be authorized, with any other proper officer, to sign
certificates for shares of the Savings Bank and shall sign such other
instruments as may require the Secretary's signature; and (f) in general perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him or her by the President or by the Board of
Directors.
Section 7. Assistant Secretaries. In the absence of the Secretary or in
--------- ---------------------
the event of his or her death, inability or refusal to act, the Assistant
Secretaries, unless otherwise determined by the Board of Directors, shall
perform the duties of the Secretary, and when so acting shall have all the
powers of and be subject to all the restrictions upon the Secretary. Any
Assistant Secretary, with any other proper officer, may sign certificates for
shares of the Savings Bank. They shall perform such other duties as may be
assigned to them by the Secretary, by the President, or by the Board of
Directors.
Section 8. Treasurer. The Treasurer shall: (a) have charge and custody
--------- ---------
of and be responsible
6
<PAGE>
for all funds and securities of the Savings Bank; receive and give receipts for
money due and payable to the Savings Bank from any source whatsoever, and
deposit all such moneys in the name of the Savings Bank in such depositories as
shall be selected by the Board of Directors of the Savings Bank; (b) have
authority, with any other proper officer, to sign certificates for shares of the
Savings Bank; and (c) in general perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the President or by the Board of Directors, or by these Bylaws.
Section 9. Assistant Treasurers. In the absence of the Treasurer or in
--------- --------------------
the event of his or her death, inability or refusal to act, the Assistant
Treasurers, unless otherwise determined by the Board of Directors, shall perform
the duties of the Treasurer, and when so acting shall have all the powers of and
be subject to all the restrictions upon the Treasurer. Any Assistant Treasurer,
with any other proper officer, may sign certificates for shares of the Savings
Bank. They shall perform such other duties as may be assigned to them by the
Treasurer, by the President, or by the Board of Directors.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
Section 1. Contracts. The Board of Directors may authorize any officer or
--------- ---------
officers, agent or agents, to enter into any contract or execute and deliver any
instruments in the name of and on behalf of the Savings Bank, and such authority
may be general or confined to specific instances.
Section 2. Loans. No loan shall be contracted on behalf of the Savings
--------- -----
Bank and no evidences of indebtedness shall be issued in its name unless
authorized by Article VI of these Bylaws or authorized by a resolution of the
Board of Directors. Such authority may be general or confined to specific
instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for the
--------- -----------------
payment of money issued in the name of the Savings Bank shall be signed by such
President or such other officer or officers, agent or agents of the Savings Bank
and in such manner as shall from time to time be determined by resolution of the
Board of Directors.
Section 4. Deposits. All funds of the Savings Bank not otherwise employed
--------- --------
shall be deposited from time to time to the credit of the Savings Bank in such
depositories as the Board of Directors shall direct.
ARTICLE VII.
DEPOSIT ACCOUNTS
----------------
Section 1. Classes of Deposit Accounts. The Savings Bank may issue as
--------- ---------------------------
many classes of deposit accounts as the Board of Directors shall establish,
subject to such regulations and limitations as the Administrator of the Savings
Institutions Division of the North Carolina Department of Commerce and the
Federal Deposit Insurance Corporation may prescribe. Such classes of deposit
accounts may include passbook accounts, certificate accounts, NOW accounts,
trust accounts, demand accounts and such other accounts as are permitted by law.
The minutes of the meetings of the Board of Directors of the Savings Bank shall
define each class of deposit account being offered to the public and shall show
all changes made in the class or classes of deposit accounts available to the
customers of the Savings Bank.
7
<PAGE>
Section 2. Withdrawals. The Savings Bank shall have the right to pay the
--------- -----------
withdrawal value of its deposit accounts at any time upon written application
therefor and to pay the holders thereof the withdrawal value thereof. Upon
receipt of a written application from any holder of a deposit account of all or
any part of the withdrawal value thereof, the Savings Bank shall within thirty
(30) days pay the amount requested. If the Savings Bank is unable to pay all
withdrawals requested at the end of thirty (30) days from the date of such
requests, it shall then pay all withdrawals requested in accordance with the
applicable provisions of the General Statutes of North Carolina, as amended, and
the regulations of the Federal Deposit Insurance Corporation. Holders of
deposit accounts for which application for withdrawal has been made shall remain
holders of deposit accounts until paid and shall not become creditors.
When a certificate or agreement between the Savings Bank and the account
holder specifies a particular period of time for notice of withdrawals,
withdrawals shall be made in accordance with such certificate or agreement.
Section 3. Forced Retirement. If so provided in the deposit account
--------- -----------------
contract, the Savings Bank may redeem all or any part of its deposit accounts
which have not been pledged as security for loans. The Savings Bank shall give
at least thirty (30) days notice of such redemption by certified mail addressed
to the holder of each deposit account at his or her last address as recorded on
the books of the Savings Bank. The Savings Bank may not redeem any of its
deposit accounts when it has any request for withdrawal which has been on file
and unpaid for more than thirty (30) days. Also, the Savings Bank may not
redeem any fixed-term deposit accounts which have not matured. The redemption
price of each deposit account redeemed shall be the full value thereof, as
determined by the Board of Directors, but in no event shall the redemption price
be less than the withdrawal amount of such deposit accounts. If notice of
redemption is duly given and sufficient funds are available for such redemption,
interest shall cease to accrue on the deposit account as of the redemption date.
After the redemption date all rights with respect to the deposit account shall
terminate, except for the right of the deposit account holder to receive the
redemption price thereof without interest.
Section 4. New Account Books. The Savings Bank may issue a new account
--------- -----------------
book or certificate, or other evidence of ownership of a deposit account, in the
name of the holder of record at any time when requested by such holder or his or
her legal representative upon proof satisfactory to the Savings Bank that the
original account book or certificate has been lost or destroyed. Such proof of
loss shall ordinarily include a written verification by the holder or his or her
legal representative that the account book or certificate has been lost or
destroyed and the account has not been pledged or assigned. Such new account
book or certificate shall expressly state that it is issued in lieu of the one
lost or destroyed and that the Savings Bank shall in no way be liable thereafter
on account of the original book or certificate. When issuing such a new account
book or certificate, the Savings Bank may, at its option, require the holder of
record to give to the Savings Bank a bond in such sum as it may direct, or such
other indemnification as it may dictate, in order to indemnify the Savings Bank
against any loss that might result from the issuance of the new account book,
certificate, or other evidence of ownership of a deposit account.
ARTICLE VIII.
LOANS AND INVESTMENTS
---------------------
Section 1. General Lending Authority. Funds of the Savings Bank shall be
--------- -------------------------
loaned in compliance with the General Statutes of North Carolina, the
regulations promulgated by the Administrator of
8
<PAGE>
the Savings Institutions Division of the North Carolina Department of Commerce
and applicable federal statutes and regulations, and in such sums and at such
times as the Board of Directors may determine.
Section 2. Manner of Making Loans. The Board of Directors shall establish
--------- ----------------------
and maintain procedures by which loans are to be considered, approved, and made
by the Savings Bank. Such loan procedures may be amended by resolution of the
Board of Directors.
The Board of Directors may establish a Loan Committee to implement the
Board's loan procedures and to consider and approve loans.
The Board of Directors may designate one or more of the Savings Bank's
officers to serve as Loan Officers. Such Loan Officers shall have authority to
approve loans as determined by the Board.
All actions taken on loan applications to the Savings Bank shall be
reported to the Board of Directors at its meeting next following such actions.
Section 3. Appraisals. The Board of Directors shall cause all loans
--------- ----------
secured by real estate to be appraised and approved as provided by law.
ARTICLE IX.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
Section 1. Certificate For Shares. If the shares of the Savings Bank are
--------- ----------------------
represented by certificates, the certificates shall be in such form as required
by law and as determined by the Board of Directors and shall be signed by the
President or any Vice President and either the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer. All certificates for
shares shall be numbered consecutively or otherwise identified and shall
indicate thereon a reference to any and all restrictive conditions of said
shares. Certificates representing shares of the Savings Bank may be issued to
every shareholder for the fully paid shares owned thereby; the name and address
of the persons to whom they are issued, the number of shares, and the date of
issue shall be entered on the stock transfer books of the Savings Bank. If the
shares are not represented by certificates, then within a reasonable time after
issuance or transfer of such shares, the Savings Bank shall deliver to the
shareholder to whom such shares have been issued or transferred a written
statement of the information required by law to be on certificates.
Section 2. Transfer of Shares. If the shares are represented by
--------- ------------------
certificates, transfer of shares shall be made on the stock transfer books of
the Savings Bank only upon surrender of the certificates for the shares sought
to be transferred by the record holder thereof or by such shareholder's duly
authorized agent, transferee or legal representative. All certificates
surrendered for transfer shall be cancelled before new certificates for the
transferred shares shall be issued. If the shares are not represented by
certificates, transfer of shares shall be made on the stock transfer books of
the Savings Bank only upon the furnishing of proper evidence of authority to
transfer by the holder of record thereof or such shareholder's duly authorized
agent, transferee or legal representative. Transfer of shares may be restricted
by an agreement of the shareholder(s).
Section 3. Fixing Record Date. The Board of Directors of the Savings Bank
--------- ------------------
may fix a date selected by it as the record date for one or more voting groups
in order to determine (a) the shareholders entitled to notice of a meeting of
shareholders, (b) the shareholders entitled to demand a special meeting, if
9
<PAGE>
any, (c) the shareholders entitled to vote, or (d) the shareholders entitled to
take any other action. A record date fixed under this Section may not be more
than seventy (70) days before the meeting or action requiring a determination of
shareholders.
A determination of shareholders entitled to notice of or to vote at a
meeting of shareholders is effective for any adjournment of the meeting unless
the Board of Directors fixes a new record date for the adjourned meeting, which
it must do if the meeting is adjourned to a date more than one hundred twenty
(120) days after the date fixed for the original meeting.
If no record date is fixed by the Board of Directors for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
the close of business on the day before the first notice of the meeting is
delivered to shareholders shall be the record date for such determination of
shareholders.
Section 4. Lost Certificates. The Board of Directors may authorize the
--------- -----------------
issuance of a new share certificate in place of a certificate theretofore issued
by the Savings Bank claimed to have been lost or destroyed, upon receipt of an
affidavit of such fact from the person claiming the loss or destruction. When
authorizing such issuance of a new certificate, the Board shall require the
claimant to give the Savings Bank a bond in such sum as the Board may direct to
indemnify the Savings Bank against loss from any claim with respect to the
certificate claimed to have been lost or destroyed; provided, however, that the
Board, by resolution reciting the circumstances justifying such action, may
authorize the issuance of the new certificate without requiring such a bond.
Section 5. Holder of Record. Except as otherwise required by law, the
--------- ----------------
Savings Bank may treat as the absolute owner of shares and as the person
exclusively entitled to receive notification and distributions, to vote and
otherwise to exercise the rights, powers, and privileges of ownership of such
shares, the person in whose name the shares stand of record on its books.
Section 6. Reacquired Shares. Shares of the Savings Bank that have been
--------- -----------------
issued and thereafter reacquired by the Savings Bank shall constitute authorized
but unissued shares.
ARTICLE X.
GENERAL PROVISIONS
------------------
Section 1. Distributions. The Board of Directors from time to time may
--------- -------------
authorize, and the Savings Bank may pay, distributions and share dividends on
the Savings Bank's outstanding shares in the manner and upon the terms and
conditions provided by law and by the Savings Bank's articles of incorporation.
Section 2. Seal. The corporate seal of the Savings Bank shall consist of
--------- ----
two concentric circles between which is the name of the Savings Bank and in the
center of which is inscribed SEAL; and such seal, as impressed on the margin
hereof, is hereby adopted as the corporate seal of the Savings Bank.
Section 3. Indemnity. In addition to any indemnification required or
--------- ---------
permitted by law, and except as otherwise provided in these Bylaws, any person
who at any time serves or has served as a director, officer, employee, partner,
trustee or agent of the Savings Bank and any such person who serves or has
served at the request of the Savings Bank as a director, officer, employee or
agent of another corporation,
10
<PAGE>
partnership, joint venture, trust or other enterprise, or as a trustee or
administrator under an employee benefit plan, shall have a right to be
indemnified by the Savings Bank to the full extent allowed by applicable law
against liability and litigation expense arising out of such status or
activities in such capacity. "Liability and litigation expense" shall include
costs and expenses of litigation (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement which are actually and
reasonably incurred in connection with or as a consequence of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including appeals.
Promptly after the final disposition or termination of any matter which
involves liability or litigation expense as described above or at such earlier
time as it sees fit, the Savings Bank shall determine whether any person
described in this Section 3 is entitled to indemnification thereunder. Such
determination shall be limited to the following issues: (i) whether the
persons to be indemnified are persons described in this Section 3, (ii) whether
the liability or litigation expense incurred arose out of the status or
activities of such persons as described in this Section 3, (iii) whether
liability was actually incurred and litigation expense was actually and
reasonably incurred, and (iv) whether the indemnification requested is not
permitted by applicable law. Such determination shall be made by a majority
vote of directors who were not parties to the action, suit or proceeding (or, in
connection with "threatened" actions, suits or proceedings, who were not
"threatened parties"). If at least two such disinterested directors are not
obtainable, or, even if obtainable, if at least half of the number of
disinterested directors so direct, such determination shall be made by
independent legal counsel in written opinion.
Litigation expense incurred by a person described in this Section 3 in
connection with a matter described in this Section 3 shall be paid by the
Savings Bank in advance of the final disposition or termination of such matter,
if the Savings Bank receives an undertaking, dated, in writing and signed by the
person to be indemnified, to repay all such sums unless such person is
ultimately determined to be entitled to be indemnified by the Savings Bank as
provided in this Section 3. Requests for payments in advance of final
disposition or termination shall be submitted in writing unless this requirement
is waived by the Savings Bank.
Notwithstanding the foregoing, no advance payment shall be made as to any
payment or portion of a payment for which the determination is made that the
person requesting payment will not be entitled to indemnification. Such
determination may be made only by a majority vote of disinterested directors or
by independent legal counsel as next provided. If there are not at least two
disinterested directors, the notice of all requests for advance payment shall be
delivered for review to independent legal counsel for the Savings Bank. Such
counsel shall have the authority to disapprove any advance payment or portion of
a payment for which it plainly appears that the person requesting payment will
not be entitled to indemnification.
The Savings Bank shall not be obligated to indemnify persons described in
this Section 3 for any amounts paid in settlement unless the Savings Bank
consents in writing to the settlement. The Savings Bank shall not unreasonably
withhold its consent to proposed settlements. The Savings Bank's consent to a
proposed settlement shall not constitute an agreement by the Savings Bank that
any person is entitled to indemnification hereunder. The Savings Bank shall
waive the requirement of this section for its written consent as fairness and
equity may require.
A person described in this Section 3 may apply to the Savings Bank in
writing for indemnification or advance expenses. Such applications shall be
addressed to the Secretary or, in the absence of the Secretary, to any officer
of the Savings Bank. The Savings Bank shall respond in writing to such
applications as follows: to a request for indemnity under this Section 3, within
ninety days after receipt of the application; to
11
<PAGE>
a request for advance expenses under this Section 3, within fifteen days after
receipt of the application.
If any action is necessary or appropriate to authorize the Savings Bank to
pay the indemnification required by these Bylaws, the Board of Directors shall
take such action, including (i) making a good faith evaluation of the
indemnification request, (ii) giving notice to, and obtaining approval by, the
shareholders of the Savings Bank, and (iii) taking any other action.
The right to indemnification or advance expenses provided herein shall be
enforceable in any court of competent jurisdiction. A legal action may be
commenced if a claim for indemnity or advance expenses is denied in whole or in
part, or upon the expiration of the time periods provided above. In any such
action, if the claimant establishes the right to indemnification, he or she
shall also have the right to be indemnified against the litigation expense
(including, without limitation, reasonable attorneys' fees) of such action.
As provided by N.C. Gen. Stat. (S)55-8-57, the Savings Bank shall have the
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Savings Bank, or who is or was
serving at the request of the Savings Bank as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Savings Bank
has the power to indemnify him against such liability.
The right to indemnification provided herein shall not be deemed exclusive
of any other rights to which any persons seeking indemnity may be entitled apart
from the provisions of this bylaw, except there shall be no right to
indemnification as to any liability or litigation expense for which such person
is entitled to receive payment under any insurance policy other than a
directors' and officers' liability insurance policy maintained by the Savings
Bank. Such right inures to the benefit of the heirs and legal representatives
of any persons entitled to such right. Any person who at any time after the
adoption of this bylaw serves or has served in any status or capacity described
in this Section 3, shall be deemed to be doing or to have done so in reliance
upon, and as consideration for, the right of indemnification provided herein.
Any repeal or modification hereof shall not affect any rights or obligations
then existing. The right provided herein shall not apply as to persons serving
institutions which are hereafter merged into or combined with the Savings Bank,
except after the effective date of such merger or combination and only as to
status and activities after such date.
If this Article or any portion hereof shall be invalidated on any ground by
any court or agency of competent jurisdiction, then the Savings Bank shall
nevertheless indemnify each person described in this Section 3 to the full
extent permitted by the portion of this Article that is not invalidated and also
to the full extent (not exceeding the benefits described herein) permitted or
required by other applicable law.
Section 4. Fiscal Year. The fiscal year of the Savings Bank shall be the
--------- -----------
twelve-month period which ends on March 31st.
Section 5. Amendments. Except as otherwise provided herein, or required
--------- ----------
by law, these Bylaws may be amended or repealed and new Bylaws may be adopted by
the affirmative vote of a majority of the Directors then holding office at any
regular or special meeting of the Board of Directors. No bylaw adopted, amended
or repealed by the shareholders shall be readopted, amended or repealed by the
Board of Directors unless the Savings Bank's articles of incorporation or a
bylaw adopted by the shareholders authorizes the Board of Directors to adopt,
amend or repeal that particular bylaw or the Bylaws generally.
12
<PAGE>
The shareholders may amend or repeal these Bylaws even though these Bylaws
also may be amended or repealed by the Board of Directors.
Adopted this _____ day of _____________, 1997.
____________________________________________
Secretary
13
<PAGE>
EXHIBIT 3(i)
ARTICLES OF INCORPORATION
OF
CODDLE CREEK FINANCIAL CORP.
ARTICLE I
The name of the corporation is Coddle Creek Financial Corp.(the "Corporation").
ARTICLE II
Section 2.1. Total Authorized Shares of Capital Stock. The Corporation
----------- ----------------------------------------
shall have authority to issue a total of 25,000,000 shares of capital stock,
none of which shall have any par value, divided into classes as follows:
Class Number of Shares
----- ----------------
Common Stock 20,000,000
Preferred Stock 5,000,000
Section 2.2. Common Stock. The shares of Common Stock shall be of one
----------- ------------
and the same class. Subject to the rights of holders of the Preferred Stock as
determined by the Board of Directors pursuant to Section 2.3 hereof and by the
North Carolina Business Corporation Act ("NCBCA") as now constituted or
hereafter amended, the holders of shares of Common Stock shall have one vote per
share on all matters on which holders of shares of Common Stock are entitled to
vote and shall be entitled to participate pro rata after preferential rights of
holders of Preferred Stock in the distribution of the net assets of the
Corporation upon dissolution.
Section 2.3. Preferred Stock. The shares of Preferred Stock may be
----------- ---------------
issued from time to time by the Corporation, and the Board of Directors may
create and divide such shares
<PAGE>
into series within that class, and such shares and the shares of each such
series shall have such voting powers, full or limited, or no voting powers, and
such designations, preferences, limitations and relative rights (or
qualifications, conditions or restrictions thereon) as the Board of Directors
may and hereby is authorized to determine.
ARTICLE III
The street address and county of the initial registered office of the
Corporation is 347 North Main Street, Mooresville, Iredell County, North
Carolina 28115. The mailing address of the initial registered office of the
Corporation is 347 North Main Street, Mooresville, North Carolina 28115.
The name of the initial registered agent is George W. Brawley, Jr.
ARTICLE IV
The name and address of the incorporator is as follows:
George W. Brawley, Jr.
347 North Main Street
Mooresville, North Carolina 28115
ARTICLE V
To the fullest extent permitted by the NCBCA as it exists or may
hereafter be amended, no person who is serving or has served as a director of
the Corporation shall be personally liable to the Corporation or any of its
shareholders or otherwise for monetary damages for breach of any duty as a
director. No amendment or repeal of this Article, nor the adoption of any
provision to these Articles of Incorporation inconsistent with this Article,
shall eliminate or reduce the protection granted herein with respect to any
matter that occurred prior to such amendment, repeal, or adoption.
2
<PAGE>
ARTICLE VI
The provisions of Article 9 and Article 9A of the NCBCA entitled "The
North Carolina Shareholder Protection Act" and "The North Carolina Control Share
Acquisition Act," respectively, shall not be applicable to the Corporation.
ARTICLE VII
Section 7.1. Definitions and Terms With Respect to Article VII. For
----------- -------------------------------------------------
purposes of this Article VII, the following definitions shall apply:
(a) The terms "Business Combination" shall mean any transaction
in connection with (i) a combination or merger of the Corporation, (ii) the
acquisition of more than ten percent (10%) of the Corporation's outstanding
Voting Shares, or (iii) a purchase or sale of a substantial portion of the
assets of the Corporation or a Subsidiary thereof (a purchase or sale of 20% or
more of the total assets of the Corporation or a Subsidiary as of the end of the
most recent quarterly period being deemed as "substantial") in each case, as
applicable, which requires the approval of, or notice to and absence of
objection by (i) any federal or state regulatory authority of banks, savings
banks, savings and loan associations or their holding companies, (ii) the
Federal Trade Commission or the Anti-Trust Division of the United States
Department of Justice, or (iii) the shareholders of the Corporation, but
excluding any reorganization, acquisition, merger, purchase or sale of assets,
or combination initiated by the Corporation upon the vote of at least fifty-one
percent (51%) of the Continuing Directors.
(b) The term "Continuing Director" shall mean any member of the
Board of Directors of the Corporation who is unaffiliated with the Related
Person and was a member of the Board of Directors prior to the time that the
Related Person became a Related Person, and
3
<PAGE>
any successor of a Continuing Director who is unaffiliated with the Related
Person and is recommended to succeed a Continuing Director by a majority of the
Continuing Directors.
(c) The term "Person" shall mean an individual, a corporation, a
limited liability company, a partnership, an association, a joint stock company,
a trust, or an unincorporated organization or similar company, and also includes
a syndicate or any group of any of the foregoing formed or acting together in
concert for the purpose of acquiring, holding or disposing of the equity
securities or assets of the Corporation or any Subsidiary.
(d) The term "Related Person" shall mean any individual,
partnership, corporation, trust or other person or entity (together with its
"affiliates" and "associates," as defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "1934
Act")) which as of the date of its offer with respect to a Business Combination
is a "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act) in the
aggregate of ten percent (10%) or more of the outstanding Voting Shares of the
Corporation. A Related Person shall be deemed to have acquired a share of the
Voting Stock of the Corporation at the time when such Related Person became the
beneficial owner thereof.
(e) The term "Subsidiary" shall mean any corporation or other
entity of which the Person in question owns not less than fifty percent (50%) of
any class of equity securities, directly or indirectly.
(f) The term "Voting Shares" shall mean any shares of the
authorized stock of the Corporation entitled to vote generally in the election
of directors.
(g) The term "Whole Board of Directors" shall mean the total
number of directors which the Corporation would have if there were no vacancies
on the Board.
4
<PAGE>
Section 7.2. Rights of Shareholders. The affirmative vote of the
----------- ----------------------
holders of seventy-five percent (75%) or more of the outstanding Voting Shares,
voting separately as a class, shall be required for the approval or
authorization of any Business Combination, provided, however, that the
seventy-five percent (75%) voting requirement shall not be applicable and such
Business Combination may be approved by the shareholder vote required by law and
any other provision of these Articles of Incorporation if the Business
Combination is approved by the Board of Directors of the Corporation by the
affirmative vote of (a) at least seventy-five percent (75%) of the Whole Board
of Directors, and (b) if such Business Combination is proposed by a Related
Person, at least seventy-five percent (75%) of the Continuing Directors, in
either case at a duly called or convened regular or special meeting of the Board
of Directors.
Section 7.3. Fiduciary Obligations. Nothing contained in this Article
----------- ---------------------
VII shall be construed to relieve any Related Person from any fiduciary
obligation imposed by law or equity.
Section 7.4. Standards of Board of Directors' Evaluation of an Offer.
----------- -------------------------------------------------------
The Board of Directors of the Corporation, when evaluating any offer of another
Person to effect a Business Combination shall, in connection with the exercise
of its judgment in determining what is in the best interests of the Corporation
and its shareholders, give due consideration to all relevant factors, including,
without limitation: (i) the social and economic effects of acceptance of such
offer on its depositors, borrowers, other customers, employees, and creditors of
the Corporation and its Subsidiaries, and on the communities in which the
Corporation and its Subsidiaries operate or are located; (ii) the ability of the
Corporation and
5
<PAGE>
its Subsidiaries to fulfill the objectives of a bank and/or savings bank and/or
savings and loan association holding company, as applicable, and of commercial
banking and/or savings bank and/or savings and loan entities, as applicable,
under applicable federal and state statutes and regulations; (iii) the business
and financial condition and prospects and earnings prospects of the Person or
Persons proposing the Business Combination, including, but not limited to, debt
service and other existing financial obligations, financial obligations to be
incurred in connection with the Business Combination, and other likely financial
obligations of such Person or Persons, and the possible effect of such
conditions and prospects upon the Corporation and its Subsidiaries and the
communities in which the Corporation and its Subsidiaries are located; (iv) the
competence, experience, and integrity of the Person or Persons proposing the
Business Combination and its or their management; and (v) the prospects for
successful conclusion of the proposed Business Combination. The provisions of
this Article VII shall be deemed solely to grant discretionary authority to the
Board of Directors and shall not be deemed to provide any constituency the right
to be considered or to compel the consideration of its interests.
Section 7.5. Amendment and Repeal of Article VII. Notwithstanding any
----------- -----------------------------------
other provision of these Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law) any amendment, change or repeal of this Article VII, or any
other amendment of these Articles of Incorporation which will have the effect of
modifying or permitting circumvention of this Article VII, shall require the
affirmative vote of the holders of at least seventy-five percent (75%) of the
then outstanding Voting Shares of the Corporation, voting separately as a class;
provided, however,
6
<PAGE>
that this restriction shall not apply to, and such seventy-five percent (75%)
vote shall not be required for, any such amendment, change or repeal recommended
to shareholders of the Corporation by the affirmative vote of at least (a)
seventy-five percent (75%) of the Whole Board of Directors, and (b) if at such
time there shall be a Related Person, at least seventy-five percent (75%) of the
Continuing Board of Directors, and in either such event such amendment, change
or repeal so recommended shall require only the vote, if any, required under the
applicable provisions of the NCBCA.
ARTICLE VIII
Section 8.1. Board of Directors. The number of directors of the
----------- ------------------
Corporation shall not be less than five (5) nor more than fifteen (15), with the
exact number to be fixed from time to time as provided in the Corporation's
Bylaws.
In the first election of directors, and in all elections thereafter,
that the total number of directors as fixed pursuant to the Corporation's Bylaws
is nine (9) or more, the directors shall be divided into three (3) classes, as
nearly equal as possible in number as may be, to serve in the first instance for
terms of one, two and three years, respectively, from the date such class of
directors takes office or until their earlier death, resignation, retirement,
removal or disqualification or until their successors shall be elected and shall
qualify, and thereafter the successors in each class of directors shall be
elected for terms of three (3) years or until their earlier death, resignation,
retirement, removal, or disqualification or until their successors shall be
elected and shall qualify. In the event of any increase or decrease in the
number of directors at a time that the directors are so classified, the
additional or eliminated directorships shall be classified or chosen so that all
classes of directors shall remain or become as nearly equal as
7
<PAGE>
possible in number. At all times that the number of directors, as fixed pursuant
to the Corporation's Bylaws, is less than nine (9), each director shall be
elected to a term ending as of the next succeeding annual meeting of
shareholders or until his or her earlier death, resignation, retirement, removal
or disqualification or until his or her successor shall be elected and shall
qualify.
Section 8.2. Initial Board of Directors. The number of directors
----------- --------------------------
constituting the initial Board of Directors of the Corporation shall be seven
(7) and the names of the persons who are to serve as directors of the
Corporation until the first meeting of shareholders or until their successors
are elected and qualify are:
Willis L. Barnette
Donald R. Belk
Dale W. Brawley
George W. Brawley, Jr.
Jack G. Lawler
Calvin E. Tyner
Claude U. Voils, Jr.
This the _____ day of August, 1997.
By:
--------------------------------
George W. Brawley, Jr.
Incorporator
8
<PAGE>
Exhibit 3(ii)
BYLAWS
OF
CODDLE CREEK FINANCIAL CORP.
ARTICLE I
OFFICES
-------
Section 1. Principal Office. The principal office of the corporation
----------------
shall be located at such place as the Board of Directors may fix from time to
time.
Section 2. Registered Office. The registered office of the corporation
-----------------
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
Section 3. Other Offices. The corporation may have offices at such
-------------
other places, either within or without the State of North Carolina, as the Board
of Directors may designate or as the affairs of the corporation may require from
time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. Place of Meetings. All meetings of shareholders shall be
-----------------
held at the principal office of the corporation, or at such other place, either
within or without the State of North Carolina, as shall in each case be (i)
fixed by the Chief Executive Officer, the President, the Chairman of the Board,
or the Board of Directors and designated in the notice of the meeting or (ii)
agreed upon by a majority of the shareholders entitled to vote at the meeting.
Section 2. Annual Meetings. The annual meeting of shareholders shall be
---------------
held during the first five (5) calendar months following the end of the
corporation's fiscal year, on any day (except Saturday, Sunday, or a legal
holiday) during that period as shall be determined by the Board of Directors,
for the purpose of electing directors of the corporation and for the transaction
of such other business as may be properly brought before the meeting.
Section 3. Substitute Annual Meeting. If the annual meeting shall not
-------------------------
be held within the time designated by these Bylaws, a substitute annual meeting
may be called in accordance with the provisions of Section 4 of this Article II.
A meeting so called shall be designated and treated for all purposes as the
annual meeting.
Section 4. Special Meetings. Special meetings of the shareholders may
----------------
be called at any
<PAGE>
time by the Chief Executive Officer, the President, the Chairman of the Board of
Directors or the Board of Directors.
Section 5. Notice of Meetings. Written notice stating the date, time,
------------------
and place of the meeting shall be given not less than ten (10) nor more than
sixty (60) days before the date of any shareholders' meeting, either by personal
delivery, or by mail by or at the direction of the Chief Executive Officer, the
President, the Chairman of the Board of Directors or the Board of Directors, to
each shareholder entitled to vote at such meeting, provided that such notice
must be given to all shareholders with respect to any meeting at which a merger
or share exchange is to be considered and in such other instances as required by
law. If mailed, such notice shall be deemed to be effective when deposited in
the United States mail, correctly addressed to the shareholder at the
shareholder's address as it appears on the current record of shareholders of the
corporation, with postage thereon prepaid.
In the case of a special meeting, the notice of meeting shall include a
description of the purpose or purposes for which the meeting is called; but, in
the case of an annual or substitute annual meeting, the notice of meeting need
not include a description of the purpose or purposes for which the meeting is
called unless such a description is required by the provisions of the North
Carolina Business Corporation Act.
When a 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 and if a new record date is not
fixed for the adjourned meeting. If a new record date is fixed for the adjourned
meeting (which must be done if the new date is more than 120 days after the date
of the original meeting), notice of the adjourned meeting must be given as
provided in this Section 5 to persons who are shareholders as of the new record
date.
Section 6. Waiver of Notice. Any shareholder may waive notice of any
----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the corporation for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (i) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or his proxy at the beginning of
the meeting objects to holding the meeting or transacting business at the
meeting, and (ii) waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.
Section 7. Shareholders' List. Before each meeting of shareholders, the
------------------
Secretary of the corporation shall prepare an alphabetical list of the
shareholders entitled to notice of such meeting. The list shall be arranged by
voting group (and within each voting group by class or series of shares) and
show the address of and number of shares held by each shareholder. The list
shall be kept on file at the principal office of the corporation, or at a place
identified in the meeting notice in the city where the meeting will be held, for
the period beginning two (2) business days after notice of the meeting is given
and continuing through the meeting, and shall be
2
<PAGE>
available for inspection by any shareholder, his agent or attorney, at any time
during regular business hours. The list shall also be available at the meeting
and shall be subject to inspection by any shareholder, his agent or attorney, at
any time during the meeting or any adjournment thereof.
Section 8. Fixing Record Date. The Board of Directors may fix a future
------------------
date as the record date for one (1) or more voting groups in order to determine
the shareholders entitled to notice of a shareholders' meeting, to demand a
special meeting, to vote, or to take any other action. Such record date may not
be more than seventy (70) days before the meeting or action requiring a
determination of shareholders. A determination of shareholders entitled to
notice of or to vote at a shareholders' meeting is effective for any adjournment
of the meeting unless the Board of Directors fixes a new record date for the
adjourned meeting, which it must do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
If no record date is fixed by the Board of Directors for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, the close of business on the day before the first notice of the
meeting is delivered to shareholders shall be the record date for such
determination of shareholders.
Section 9. Voting Groups. All shares of one (1) or more classes or
-------------
series that, under the Articles of Incorporation or the North Carolina Business
Corporation Act, are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders constitute a voting group. All shares
entitled by the Articles of Incorporation or the North Carolina Business
Corporation Act to vote generally on a matter are for that purpose a single
voting group. Classes or series of shares shall not be entitled to vote
separately by voting group unless expressly authorized by the Articles of
Incorporation or specifically required by law.
Section 10. Quorum. Shares entitled to vote as a separate voting group
------
may take action on a matter at the meeting only if a quorum of those shares
exists. A majority of the votes entitled to be cast on the matter by the voting
group constitutes a quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by the vote of a
majority of the votes cast on the motion to adjourn; and, subject to the
provisions of Section 5 of this Article II, at any adjourned meeting any
business may be transacted that might have been transacted at the original
meeting if a quorum exists with respect to the matter proposed.
Section 11. Proxies. Shares may be voted either in person or by one (1)
-------
or more proxies authorized by a written appointment of proxy signed by the
shareholder or by his duly authorized attorney in fact. An appointment of proxy
is valid for eleven (11) months from the date of its
3
<PAGE>
execution, unless a different period is expressly provided in the appointment
form.
Section 12. Voting of Shares. Subject to the provisions of the Articles
----------------
of Incorporation, each outstanding share shall be entitled to one (1) vote on
each matter voted on at a meeting of shareholders.
Except in the election of directors as governed by the provisions of
Section 4 of Article III, if a quorum exists, action on a matter 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 a greater vote is required by
law or the Articles of Incorporation or these Bylaws.
Absent special circumstances, shares of the corporation are not
entitled to vote if they are owned, directly or indirectly, by a second
corporation in which the corporation owns, directly or indirectly, a majority of
the shares entitled to vote for directors of the second corporation; provided
that this provision does not limit the power of the corporation or such second
corporation to vote shares held by it in a fiduciary capacity.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. General Powers. All corporate powers shall be exercised by
--------------
or under the authority of, and the business and affairs of the corporation shall
be managed under the direction of, the Board of Directors.
Section 2. Number and Qualification. The number of directors of the
------------------------
Corporation shall not be less than five (5) nor more than fifteen (15), with the
exact number to be fixed from time to time by the Board of Directors.
Section 3. Nominations. At any meeting of shareholders at which
-----------
directors are to be elected, nominations for election to the Board of Directors
may be made by the Board of Directors or, subject to the conditions described
below, by any holder of shares entitled to be voted at that meeting in the
election of directors. To be eligible for consideration at the meeting of
shareholders, all nominations, other than those made by the Board of Directors,
shall be in writing and must be delivered to Secretary of the corporation not
less than thirty (30) days nor more than fifty (50) days prior to the meeting at
which such nominations will be made; provided, however, that if less than
twenty-one (21) days' notice of the meeting is given to shareholders, such
nominations must be delivered to the Secretary of the corporation not later than
the close of business on the seventh day following the day on which the notice
of meeting was mailed.
Section 4. Election. Except as provided in Section 7 of this Article
--------
III, the directors shall be elected at the annual meeting of shareholders. Those
persons who receive the highest number of votes at a meeting at which a quorum
is present shall be deemed to have been elected.
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Section 5. Terms of Directors. Each initial director shall hold office
------------------
until the earliest of the first shareholders' meeting at which directors are
elected, or until such director's death, resignation, or removal.
At all times that the number of directors is less than nine (9), each
director shall be elected to a term ending as of the next succeeding annual
meeting of shareholders or until his or her earlier death, resignation,
retirement, removal or disqualification or until his or her successor shall be
elected and shall qualify.
In the first election of directors that the total number of directors
is nine (9) or more, the directors shall be divided into three (3) classes, as
nearly equal as possible in number as may be, to serve in the first instance for
terms of one (1), two (2) and three (3) years, respectively, from the date such
class of directors takes office or until their earlier death, resignation,
retirement, removal or disqualification or until their successors shall be
elected and shall qualify, and thereafter the successors in each class of
directors shall be elected for terms of three (3) years or until their earlier
death, resignation, retirement, removal, or disqualification or until their
successors shall be elected and shall qualify. In the event of any increase or
decrease in the number of directors at a time that the directors are so
classified, the additional or eliminated directorships shall be classified or
chosen so that all classes of directors shall remain or become as nearly equal
as possible in number.
Notwithstanding the provisions of this Section 5, a decrease in the
number of directors does not shorten an incumbent director's term. Despite the
expiration of a director's term, such director shall continue to serve until a
successor shall be elected and qualified or until there is a decrease in the
number of directors.
Section 6. Removal. Any director may be removed from office at any
-------
time, with or without cause, by a vote of the shareholders if the number of
votes cast to remove such director exceeds the number of votes cast not to
remove him. If a director is elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove him. A
director may not be removed by the shareholders at a meeting unless the notice
of that meeting states that the purpose, or one (1) of the purposes, of the
meeting is removal of the director. If any directors are so removed, new
directors may be elected at the same meeting.
Section 7. Vacancies. Any vacancy occurring in the Board of Directors,
---------
including without limitation a vacancy resulting from an increase in the number
of directors or from the failure by the shareholders to elect the full
authorized number of directors, may be filled by the shareholders or by the
Board of Directors, whichever group shall act first. If the directors remaining
in office do not constitute a quorum, the directors may fill the vacancy by the
affirmative vote of a majority of the remaining directors or by the sole
remaining director. If the vacant office was held by a director elected by
voting group, only the remaining director or directors elected by that voting
group or the holders of shares of that voting group are entitled to fill the
vacancy.
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Section 8. Chairman of the Board of Directors. There may be a Chairman
----------------------------------
of the Board of Directors elected by the directors from their number at any
meeting of the Board of Directors. The Chairman shall serve in such position at
the pleasure of the Board of Directors and shall preside at all meetings of the
Board of Directors and shareholders, serve as a member of the Executive
Committee, and perform such other duties as may be directed by the Board of
Directors.
In the absence of the Chairman, the President shall preside at meetings
of directors or shareholders.
Section 9. Compensation. The Board of Directors may provide for the
------------
compensation of directors for their services as such and for the payment or
reimbursement of any or all expenses incurred by them in connection with such
services.
ARTICLE IV
MEETINGS AND COMMITTEES OF DIRECTORS
------------------------------------
Section 1. Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held immediately after, and at the same place as, the annual
meeting of shareholders. In addition, the Board of Directors may provide, by
resolution, the time and place, either within or without the State of North
Carolina, for the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by or at the request of the Chairman of the Board or the President
if such officer is also a director, or by any three (3) or more directors. Such
a meeting may be held either within or without the State of North Carolina, as
fixed by the person or persons calling the meeting.
Section 3. Notice of Meetings. Regular meetings of the Board of
------------------
Directors may be held without notice. The person or persons calling a special
meeting of the Board of Directors shall, at least two (2) days before the
meeting, give or cause to be given notice thereof by any usual means of
communication. Such notice need not specify the purpose for which the meeting is
called. Any duly convened regular or special meeting may be adjourned by the
directors to a later time without further notice.
Section 4. Waiver of Notice. Any director may waive notice of any
----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the director entitled to the notice, and be delivered to the corporation for
inclusion in the minutes or for filing with the corporate records. A director's
attendance at or participation in a meeting waives any required notice of such
meeting unless the director at the beginning of the meeting, or promptly upon
arrival, objects to holding the meeting or to transacting business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting.
Section 5. Quorum. Unless the Articles of Incorporation or these Bylaws
------
provide
6
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otherwise, a majority of the number of directors fixed by or pursuant to
these Bylaws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, or if no number is so fixed, a majority of
the number of directors in office immediately before the meeting begins shall
constitute a quorum.
Section 6. Manner of Acting. Except as otherwise provided in the
----------------
Articles of Incorporation or these Bylaws, including Section 9 of this Article
IV, the affirmative vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 7. Presumption of Assent. A director who is present at a
---------------------
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken unless
(i) he objects at the beginning of the meeting, or promptly upon his arrival, to
holding it or to transacting business at the meeting, or (ii) his dissent or
abstention from the action taken is entered in the minutes of the meeting, or
(iii) he files written notice of his dissent or abstention with the presiding
officer of the meeting before its adjournment or with the corporation
immediately after the adjournment of the meeting. Such right of dissent or
abstention is not available to a director who votes in favor of the action
taken.
Section 8. Action Without Meeting. Action required or permitted to be
----------------------
taken at a meeting of the Board of Directors may be taken without a meeting if
the action is taken by all members of the Board of Directors. The action must be
evidenced by one (1) or more written consents signed by each director before or
after such action, describing the action taken, and included in the minutes or
filed with the corporate records.
Section 9. Committees of the Board of Directors. The Board of Directors
------------------------------------
may create such committees of the Board of Directors as it shall consider
appropriate, including without limitation those committees specifically provided
for in these Bylaws. The creation of a committee of the Board of Directors and
appointment of members to it must by approved by the greater of (i) a majority
of the number of directors in office when the action is taken or (ii) the number
of directors required to take action pursuant to Section 6 of this Article IV.
Each committee of the Board of Directors must have two (2) or more members and,
to the extent authorized by law, shall have such duties and authority as may be
described in these Bylaws or otherwise specified by the Board of Directors. Each
committee member shall serve at the pleasure of the Board of Directors. The
provisions in these Bylaws governing meetings, actions without meeting and other
requirements of the Board of Directors shall also apply to any committees of the
Board of Directors established pursuant to these Bylaws.
Section 10. Executive Committee. There may be a standing committee of
-------------------
the Board of Directors to be known as the Executive Committee and consisting of
not fewer than three (3) directors, one (1) of whom shall be the Chairman of the
Board of Directors and one (1) of whom shall be the President of the
corporation, if such officer is also a director. Except as limited by Section 9
of this Article IV or otherwise limited by law, the Executive Committee is
empowered to act for and on behalf of the Board of Directors in any and all
matters in the interim between
7
<PAGE>
meetings of the Board of Directors. Within the powers conferred upon it, action
by the Executive Committee shall be as binding upon the corporation as if
performed by the full Board of Directors. Such actions shall be reported to the
Board of Directors for review at its next meeting following such action. The
committee shall meet as often as it considers necessary or advisable.
Section 11. Audit Committee. There may be a standing committee of the
---------------
Board of Directors to be known as the Audit Committee and consisting of not
fewer than three (3) directors. The Audit Committee shall supervise examination
of the assets and the liabilities and the internal audit program of the
corporation and its subsidiaries, cause outside audits to be performed on the
financial statements of the corporation, and shall make periodic reports to the
Board of Directors.
ARTICLE V
OFFICERS
--------
Section 1. Officers of the Corporation. The officers of the corporation
---------------------------
shall consist of a President, a Secretary, a Treasurer, and such Vice Presidents
or other officers (including assistant officers) as may from time to time be
appointed by or under the authority of the Board of Directors. Any two (2) or
more offices may be held by the same person, but no officer may act in more than
one (1) capacity where action of two (2) or more officers is required.
Section 2. Appointment and Term. The officers of the corporation shall
--------------------
be appointed by the Board of Directors or by a duly appointed officer authorized
by the Board of Directors to appoint one (1) or more officers. Each officer
shall hold office until his death, resignation, retirement, removal,
disqualification, or his successor shall have been appointed.
Section 3. Compensation of Officers. The compensation of all officers
------------------------
of the corporation shall be fixed by or under the authority of the Board of
Directors, and no officer shall serve the corporation in any other capacity and
receive compensation therefor unless such additional compensation shall be duly
authorized. The appointment of an officer does not itself create contract
rights.
Section 4. Removal. Any officer may be removed by the Board of
-------
Directors at any time with or without cause; but such removal shall not itself
affect the officer's contract rights, if any, with the corporation except to the
extent, if any, specified in any such contract.
Section 5. Resignation. An officer may resign at any time by
-----------
communicating his resignation to the corporation, orally or in writing. A
resignation is effective when communicated unless it specifies in writing a
later effective date. If a resignation is made effective at a later date that is
accepted by the corporation, the Board of Directors may fill the pending vacancy
before the effective date if the Board of Directors provides that the successor
does not take office until the effective date. An officer's resignation does not
affect the corporation's contract rights, if any, with the officer except to the
extent, if any, specified in any such contract.
8
<PAGE>
Section 6. Bonds. The Board of Directors may by resolution require any
-----
officer, agent, or employee of the corporation to give bond to the corporation,
with sufficient sureties, conditioned on the faithful performance of the duties
of his respective office or position, and to comply with such other conditions
as may from time to time be required by the Board of Directors.
Section 7. President. The President shall be the principal executive
---------
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall sign, with the Secretary, an Assistant
Secretary, or any other proper officer of the corporation thereunto authorized
by the Board of Directors, certificates for shares of the corporation, any
deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed, and in general he shall
perform all duties incident to the office of the President and such other duties
as may be prescribed by the Board of Directors from time to time. The President
shall be entitled to attend all regular and special meetings and meetings of
committees of the Board of Directors. If the President of the corporation is
also a director of the corporation, he shall serve as a member of the Executive
Committee.
Section 8. Vice Presidents. In the absence of the President or in the
---------------
event of his death, inability or refusal to act, the Vice Presidents, unless
otherwise determined by the Board of Directors, shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President (or Assistant Vice
President) may sign, with the Secretary, an Assistant Secretary, or any other
proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation and any other instruments
which may be signed by the President, and shall perform such other duties as
from time to time may be prescribed by the President or Board of Directors.
Section 9. Secretary. The Secretary shall: (i) keep the minutes of the
---------
meetings of shareholders, of the Board of Directors, and of all committees of
the Board of Directors, in one or more books provided for that purpose; (ii) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (iii) maintain and authenticate the records of the
corporation and be custodian of the seal of the corporation and see that the
seal of the corporation is affixed to all documents the execution of which on
behalf of the corporation under its seal is duly authorized; (iv) sign with the
President or a Vice President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (v) maintain or cause to be maintained, and have general charge of,
the stock transfer books of the corporation; (vi) prepare or cause to be
prepared shareholder lists prior to each meeting of shareholders as required by
law; (vii) attest the signature or certify the incumbency or signature of any
officer of the corporation; and (viii) in general perform all duties incident to
the office of secretary and such other duties as from time to time may be
prescribed by the President
9
<PAGE>
or by the Board of Directors.
Section 10. Treasurer. The Treasurer shall be, and may be designated as
---------
such as, the corporation's Chief Financial Officer, and shall: (i) have charge
and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such depositories as shall be selected in accordance with
the provisions of Section 4 of Article VI of these Bylaws; (ii) maintain, or
cause to be maintained, appropriate accounting records as required by law; (iii)
prepare, or cause to be prepared, annual financial statements of the corporation
that include a balance sheet as of the end of the fiscal year and income and
cash flow statement for that year, which statements, or a written notice of
their availability, shall be mailed to each shareholder within 120 days after
the end of such fiscal year; and (iv) in general perform all of the duties
incident to the office of treasurer and such other duties as from time to time
may be prescribed by the President or by the Board of Directors.
Section 11. Assistant Officers. In the absence of a duly appointed
------------------
officer of the corporation, or in the event of his death, inability or refusal
to act, any person appointed by the Board of Directors and designated by title
as an assistant to that officer, unless otherwise determined by the Board of
Directors, may perform the duties of, and when so acting shall have all the
powers of and be subject to all the restrictions upon, that officer. Such
assistant officers shall perform such other duties as from time to time may be
prescribed by the President or by the Board of Directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
--------------------------------------
Section 1. Contracts. The Board of Directors may authorize any officer
---------
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. Also, the Board
of Directors may limit, condition, restrict or deny such authority to any
officer or officers, or any agent or agents.
Section 2. Loans. No loans shall be contracted on behalf of the
-----
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
Section 3. Checks and Drafts. All checks, drafts, or other orders for
-----------------
the payment of money, issued in the name of the corporation, shall be signed by
such officer or officers, agent or agents of the corporation and 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 such depositories as may be selected by or under the authority of the Board
of Directors.
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<PAGE>
ARTICLE VII
SHARES AND THEIR TRANSFER
-------------------------
Section 1. Certificate For Shares. The Board of Directors may authorize
----------------------
the issuance of some or all of the shares of the corporation's classes or series
without issuing certificates to represent such shares. If shares are represented
by certificates, the certificates shall be in such form as required by law and
as determined by the Board of Directors. Certificates shall be signed, either
manually or in facsimile, by the President or a Vice President, and by the
Secretary or Treasurer or an Assistant Secretary or an Assistant Treasurer. All
certificates for shares shall be consecutively numbered or otherwise identified
and entered into the stock transfer books of the corporation. When shares are
represented by certificates, the corporation shall issue and deliver, to each
shareholder to whom such shares have been issued or transferred, certificates
representing the shares owned by him. When shares are not represented by
certificates, then within a reasonable time after the issuance or transfer of
such shares, the corporation shall send the shareholder to whom such shares have
been issued or transferred a written statement of the information required by
law to be on certificates.
Section 2. Stock Transfer Books. The corporation shall keep or cause to
--------------------
be kept a book or set of books, to be known as the stock transfer books of the
corporation, containing the name of each shareholder of record, together with
such shareholder's address and the number and class or series of shares held by
him. Transfers of shares of the corporation shall be made only on the stock
transfer books of the corporation (i) by the holder of record thereof or by his
legal representative, who shall provide proper evidence of authority to
transfer; (ii) by his attorney authorized to effect such transfer by power of
attorney duly executed and filed with the Secretary; and (iii) on surrender for
cancellation of the certificate for such shares (if the shares are represented
by certificates).
Section 3. Lost Certificates. The Board of Directors may direct a new
-----------------
certificate to be issued in place of any certificate theretofore issued by the
corporation claimed to have been lost or destroyed, upon receipt of an affidavit
of such fact from the person claiming the certificate to have been lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors shall require that the owner of such lost or destroyed certificate, or
his legal representative, give the corporation a bond in such sum and with such
surety or other security as the Board of Directors may direct as indemnity
against any claims that may be made against the corporation with respect to the
certificate claimed to have been lost or destroyed, except where the Board of
Directors by resolution finds that in the judgment of the Board of Directors the
circumstances justify omission of a bond.
Section 4. Distribution or Share Dividend Record Date. The Board of
------------------------------------------
Directors may fix a date as the record date for determining shareholders
entitled to a distribution or share dividend. If no record date is fixed by the
Board of Directors for such determination, it is the date the Board of Directors
authorizes the distribution or share dividend.
11
<PAGE>
Section 5. Holder of Record. Except as otherwise required by law, the
----------------
corporation may treat the person in whose name the shares stand of record on its
books as the absolute owner of the shares and the person exclusively entitled to
receive notification and distributions, to vote, and to otherwise exercise the
rights, powers, and privileges of ownership of such shares.
Section 6. Shares Held by Nominees. The corporation shall recognize the
-----------------------
beneficial owner of shares registered in the name of the nominee as the owner
and shareholder of such shares for certain purposes if the nominee in whose name
such shares are registered files with the Secretary a written certificate in a
form prescribed by the corporation, signed by the nominee, indicating the
following: (i) the name, address, and taxpayer identification number of the
nominee; (ii) the name, address, and taxpayer identification number of the
beneficial owner; (iii) the number and class or series of shares registered in
the name of the nominee as to which the beneficial owner shall be recognized as
the shareholder; and (iv) the purposes for which the beneficial owner shall be
recognized as the shareholder.
The purposes for which the corporation shall recognize the beneficial
owner as the shareholder may include the following: (i) receiving notice of,
voting at, and otherwise participating in shareholders' meetings; (ii) executing
consents with respect to the shares; (iii) exercising dissenters' rights under
the North Carolina Business Corporation Act; (iv) receiving distributions and
share dividends with respect to the shares; (v) exercising inspection rights;
(vi) receiving reports, financial statements, proxy statements, and other
communications from the corporation; (vii) making any demand upon the
corporation required or permitted by law; and (viii) exercising any other rights
or receiving any other benefits of a shareholder with respect to the shares.
The certificate shall be effective ten (10) business days after its
receipt by the corporation and until it is changed by the nominee, unless the
certificate specifies a later effective time or an earlier termination date.
If the certificate affects less than all of the shares registered in
the name of the nominee, the corporation may require the shares affected by the
certificate to be registered separately on the books of the corporation and be
represented by a share certificate that bears a conspicuous legend stating that
there is a nominee certificate in effect with respect to the shares represented
by that share certificate.
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ARTICLE VIII
GENERAL PROVISIONS
------------------
Section 1. Distributions. The Board of Directors may from time to time
-------------
authorize, and the corporation may grant, distributions and share dividends to
its shareholders pursuant to law and subject to the provisions of its Articles
of Incorporation.
Section 2. Seal. The corporate seal of the corporation shall consist of
----
two concentric circles between which is the name of the corporation and in the
center of which is inscribed SEAL; and such seal, as impressed or affixed on the
margin hereof, is hereby adopted as the corporate seal of the corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
-----------
fixed by the Board of Directors.
Section 4. Amendments. Except as otherwise provided in the Articles of
----------
Incorporation or by law, these Bylaws may be amended or repealed and new Bylaws
may be adopted by the Board of Directors.
No Bylaw adopted, amended, or repealed by the shareholders shall be
readopted, amended, or repealed by the Board of Directors, unless the Articles
of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of
Directors to adopt, amend, or repeal that particular Bylaw or the Bylaws
generally.
Section 5. Definitions. Unless the context otherwise requires, terms
-----------
used in these Bylaws shall have the meanings assigned to them in the North
Carolina Business Corporation Act to the extent defined therein.
ARTICLE IX
INDEMNIFICATION
---------------
In addition to any indemnification required or permitted by law, and
except as otherwise provided in these Bylaws, any person who at any time serves
or has served as a director, officer, employee or agent of the Corporation and
any such person who serves or has served at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or as a trustee or administrator under an
employee benefit plan, shall have a right to be indemnified by the Corporation
to the full extent allowed by applicable law against liability and litigation
expense arising out of such status or activities in such capacity. "Liability
and litigation expense" shall include costs and expenses of litigation
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement which are actually and reasonably incurred in connection with or as a
consequence of any threatened, pending or completed action, suit or proceeding,
whether civil, criminal,
13
<PAGE>
administrative or investigative, including appeals.
Promptly after the final disposition or termination of any matter which
involves liability or litigation expense as described above or at such earlier
time as it sees fit, the Corporation shall determine whether any person
described in this Article IX is entitled to indemnification thereunder. Such
determination shall be limited to the following issues: (i) whether the persons
to be indemnified are persons described in this Article IX, (ii) whether the
liability or litigation expense incurred arose out of the status or activities
of such persons as described in this Article IX, (iii) whether liability was
actually incurred and/or litigation expense was actually and reasonably
incurred, and (iv) whether the indemnification requested is permitted by
applicable law. Such determination shall be made by a majority vote of directors
who were not parties to the action, suit or proceeding (or, in connection with
"threatened" actions, suits or proceedings, who were not "threatened parties").
If at least two such disinterested directors are not obtainable, or, even if
obtainable, if at least half of the number of disinterested directors so direct,
such determination shall be made by independent legal counsel in written
opinion.
Litigation expense incurred by a person described in this Article IX in
connection with a matter described in this Article IX may be paid by the
Corporation in advance of the final disposition or termination of such matter,
if the Corporation receives an undertaking, dated, in writing and signed by the
person to be indemnified, to repay all such sums unless such person is
ultimately determined to be entitled to be indemnified by the Corporation as
provided in this Article IX. Requests for payments in advance of final
disposition or termination shall be submitted in writing unless this requirement
is waived by the Corporation.
Notwithstanding the foregoing, no advance payment shall be made as to
any payment or portion of a payment for which the determination is made that the
person requesting payment will not be entitled to indemnification. Such
determination may be made only by a majority vote of disinterested directors or
by independent legal counsel as next provided. If there are not at least two
disinterested directors, the notice of all requests for advance payment shall be
delivered for review to independent legal counsel for the Corporation. Such
counsel shall have the authority to disapprove any advance payment or portion of
a payment for which it appears that the person requesting payment will not be
entitled to indemnification.
The Corporation shall not be obligated to indemnify persons described
in this Article IX for any amounts paid in settlement unless the Corporation
consents in writing to the settlement. The Corporation shall not unreasonably
withhold its consent to proposed settlements. The Corporation's consent to a
proposed settlement shall not constitute an agreement by the Corporation that
any person is entitled to indemnification hereunder. The Corporation may waive
the requirement of this section for its written consent as fairness and equity
may require.
A person described in this Article IX may apply to the Corporation in
writing for indemnification or advance expenses. Such applications shall be
addressed to the Secretary or, in the absence of the Secretary, to any officer
of the Corporation. The Corporation shall respond in writing to such
applications as follows: to a request for indemnity under this Article IX,
within
14
<PAGE>
ninety days after receipt of the application; to a request for advance expenses
under this Article IX, within fifteen days after receipt of the application.
If any action is necessary or appropriate to authorize the Corporation
to pay the indemnification required by these Bylaws, the Board of Directors
shall take such action, including (i) making a good faith evaluation of the
indemnification request, (ii) giving notice to, and obtaining approval by, the
shareholders of the Corporation, and (iii) taking any other action.
The right to indemnification or advance expenses provided herein shall
be enforceable in any court of competent jurisdiction. A legal action may be
commenced if a claim for indemnity or advance expenses is denied in whole or in
part, or upon the expiration of the time periods provided above. In any such
action, if the claimant establishes the right to indemnification, he or she
shall also have the right to be indemnified against the litigation expense
(including, without limitation, reasonable attorneys' fees) of such action.
As provided by N.C. Gen. Stat. (S)55-8-57, the Corporation shall have
the power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
has the power to indemnify him against such liability.
The right to indemnification provided herein shall not be deemed
exclusive of any other rights to which any persons seeking indemnity may be
entitled apart from the provisions of this bylaw, except there shall be no right
to indemnification as to any liability or litigation expense for which such
person is entitled to receive payment under any insurance policy other than a
directors' and officers' liability insurance policy maintained by the
Corporation. Such right inures to the benefit of the heirs and legal
representatives of any persons entitled to such right. Any person who at any
time after the adoption of this bylaw serves or has served in any status or
capacity described in this Article IX, shall be deemed to be doing or to have
done so in reliance upon, and as consideration for, the right of indemnification
provided herein. Any repeal or modification hereof shall not affect any rights
or obligations then existing. The right provided herein shall not apply as to
persons serving institutions which are hereafter merged into or combined with
the Corporation, except after the effective date of such merger or combination
and only as to status and activities after such date.
If this Article or any portion hereof shall be invalidated on any
ground by any court or agency of competent jurisdiction, then the Corporation
shall nevertheless indemnify each person described in this Article IX to the
full extent permitted by the portion of this Article that is not invalidated and
also to the full extent (not exceeding the benefits described herein) permitted
or required by other applicable law.
15
<PAGE>
Adopted this the _____ day of ______________, 1997.
- ---------------------------------------
Secretary
16
<PAGE>
Exhibit 5
[LETTERHEAD OF
BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P. APPEARS HERE]
September 12, 1997
Board of Directors
Coddle Creek Financial Corp.
347 North Main Street
Mooresville, North Carolina 28115
Re: Registration Statement on Form S-1 under the Securities Act of
1933, as amended
Gentlemen:
As special counsel to Coddle Creek Financial Corp. (the "Holding
Company"), the proposed parent holding company of Mooresville Savings Bank, SSB
("Mooresville Savings"), Mooresville, North Carolina, we are rendering this
opinion to you in connection with the acquisition by the Holding Company of
Mooresville Savings, upon the conversion of Mooresville Savings from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered capital
stock savings bank (the "Conversion"). As part of the Conversion, the Holding
Company will file with the Securities and Exchange Commission a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act of
1933, as amended, for the offering and sale by the Holding Company of its no par
common stock, having an estimated aggregate dollar value represented to us as
being between $19,550,000 and $30,417,500 (the "Shares").
In our capacity as special counsel, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of the Articles
of Incorporation, Bylaws and corporate resolutions of the Holding Company, the
Plan of Holding Company Conversion, the Registration Statement and all exhibits
thereto and the relevant provisions of Chapters 54C and 55 of the North Carolina
General Statutes and the Securities Act of 1933, as amended, and the regulations
promulgated under all the aforesaid statutes, as we have considered necessary as
a basis for the opinions given herein. In addition, we have made reasonable
inquiries of the officers of Mooresville Savings and the Holding Company as to
all relevant items. In all examinations of documents, we have assumed the
genuineness of all original documents and all signatures and the conformity to
original documents of all copies submitted to us as certified, conformed or
photostatic copies. On the basis of such examination, we are of the opinion
that, when the Holding Company has received full payment for the Shares as
described in the Registration Statement, all requisite corporate action will
have been taken with respect to the issuance and sale of the Shares and the
Shares will be validly authorized and issued, fully-paid and nonassessable
shares of common stock of the Holding Company.
<PAGE>
Board of Directors
Coddle Creek Financial Corp.
September 12, 1997
Page 2
This opinion is furnished by us solely for your benefit and for the
benefit of the purchasers of the Shares of the Holding Company in connection
with the Conversion, and may not be quoted or relied upon by, nor copies be
delivered to, any person or entity, or used for any other purpose, without our
prior express written consent.
We hereby consent to the use of this opinion in connection with the
registration of the offering and sale of the Shares with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and to the
reference to us in the Registration Statement and the Prospectus included
therein.
Very truly yours,
BROOKS, PIERCE, MCLENDON,
HUMPHREY & LEONARD, L.L.P.
By: /s/ Edward C. Winslow III
--------------------------------
Edward C. Winslow III
ECWIII/cln
<PAGE>
Exhibit 8(a)
[LETTERHEAD OF BROOKS, PIERCE, McLENDON, HUMPHREY
& LEONARD, L.L.P. APPEARS HERE]
September 12, 1997
Board of Directors
Mooresville Savings Bank, SSB
347 North Main Street
Mooresville, North Carolina 28115
Re: Conversion of Mooresville Savings Bank, SSB from a North
Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank and its simultaneous
acquisition by Coddle Creek Financial Corp., a North Carolina
savings bank holding company
Members of the Board:
You have requested our opinions regarding certain income tax
consequences in connection with the proposed conversion of Mooresville Savings
Bank, SSB ("Mooresville Mutual") from a North Carolina-chartered mutual savings
bank with federally insured deposit accounts to Mooresville Savings Bank, Inc.,
SSB, a North Carolina-chartered stock savings bank with federally insured
deposit accounts ("Mooresville"), and the simultaneous acquisition of
Mooresville as a wholly-owned subsidiary by Coddle Creek Financial Corp., a
savings bank holding company organized under North Carolina law ("Holding
Company"). This reorganization and conversion of Mooresville Mutual and
acquisition of Mooresville by the Holding Company shall be referred to as the
"Conversion". Terms not otherwise defined in this letter shall have the meanings
assigned to them in the Plan of Conversion adopted by the Board of Directors of
Mooresville Mutual on July 14, 1997 (the "Plan").
In connection with our opinions, we have reviewed copies of
applications filed by Mooresville Mutual and the Holding Company with the
Administrator, North Carolina Savings Institutions Division, to effect the
Conversion (the "Applications"), Chapters 54C and 105 of the North Carolina
General Statutes, and applicable federal laws, rules and regulations, including
the Internal Revenue Code of 1986, as amended ("Code"). We have examined the
Plan, Mooresville Mutual's existing Certificate of Incorporation and Bylaws, the
Second Amended Certificate of Incorporation for Mooresville, the Bylaws for
Mooresville, the corporate minutes approving the Conversion and related records
of Mooresville Mutual. We have also examined the Holding Company's Articles of
Incorporation, Bylaws, corporate minutes approving the Conversion and related
records. In addition, we have examined certificates of officials of Mooresville
Mutual, Mooresville and the Holding Company, the Registration Statement of the
Holding Company on Form S-1, which the Holding Company intends to file with the
Securities and Exchange Commission on or about September 12, 1997 (the
"Registration Statement") containing a proposed Prospectus (hereinafter referred
to
<PAGE>
Board of Directors
Mooresville Savings Bank, SSB
September 12, 1997
Page 2
as the "Prospectus") and such other documents as we have deemed necessary or
appropriate for purposes of giving the opinions set forth in this letter. We
have assumed the authenticity of all documents presented to us as originals, the
conformity to the originals of all documents presented to us as copies, and the
genuineness of all signatures of individuals, and we know of no reason such
assumptions are unwarranted for purposes of the opinions expressed herein. We
have assumed that all statements made in the above-described documents are
accurate and complete, and will be accurate and complete at all times from now
through the consummation of the Conversion. We have not independently verified
any factual matter relating to the Conversion in connection with the preparation
of our opinions herein and, accordingly, such opinions do not take into account
any matters not set forth herein which might have been disclosed by independent
verification. We have further assumed that the Conversion will be consummated
pursuant to the terms of the Plan.
In issuing the opinions set forth below, we have also assumed the
accuracy of the following representations of Mooresville Mutual:
1. The fair market value of the deposit accounts and the interest
in the Liquidation Account received by each Eligible Account
Holder and Supplemental Eligible Account Holder in Mooresville
pursuant to the Conversion will, in each instance, be equal to
the fair market value of the deposit accounts and the
proprietary interest of each such Eligible Account Holder and
Supplemental Eligible Account Holder in Mooresville Mutual
surrendered in the Conversion. The aggregate fair market value
of the deposit accounts and interests in the Liquidation
Account held by Eligible Account Holders as of the close of
business on the Eligibility Record Date will equal or exceed
99% of the aggregate fair market value of all deposit accounts
in Mooresville Mutual (including accounts of less than $50) as
of the close of business on that date. The aggregate fair
market value of the deposit accounts and interests in the
Liquidation Account held by Supplemental Eligible Account
Holders, officers and directors of Mooresville Mutual and
their associates as of the close of business on the
Supplemental Eligibility Record Date will equal or exceed 99%
of the aggregate fair market value of all deposit accounts in
Mooresville Mutual (including accounts of less than $50) as of
the close of business on that date.
2. The Subscription Rights to purchase Conversion Stock received
in the Conversion by each recipient have no fair market value.
This assumption is based upon your representation and the
opinion of JMP Financial, Inc. that such Subscription Rights
have no fair market value because they will be acquired by
recipients without cost, are nontransferable and afford the
recipients the right only to purchase Conversion Stock at a
price equal to its estimated fair market value as of the date
such rights are issued, which will be the same price paid by
all purchasers in the Conversion.
3. Immediately following the Conversion, the Eligible Account
Holders and Supplemental Eligible Account Holders will own all
of the outstanding interests in the Liquidation Account and
will own such interests solely by reason of their ownership of
deposits and proprietary interests in Mooresville Mutual on
the Eligibility Record Date and Supplemental Eligibility
Record Date, respectively. Pursuant to the Plan, no additional
interests in the Liquidation
<PAGE>
Board of Directors
Mooresville Savings Bank, SSB
September 12, 1997
Page 3
Account shall be issued following the Conversion.
4. Immediately following the consummation of the Conversion,
Mooresville will possess the same assets and liabilities as
Mooresville Mutual held immediately before the Conversion,
plus proceeds from the sale of Conversion Stock less proceeds
retained by the Holding Company, less assets used to pay
expenses incurred in the Conversion. Assets of Mooresville
Mutual used to pay expenses of the Conversion and all
distributions (except for regular, normal interest payments
made by Mooresville Mutual immediately before the Conversion)
in the aggregate will constitute less than 1% of the net
assets of Mooresville Mutual.
5. Except for Mooresville Mutual's agreement to sell all of
Mooresville's issued and outstanding common stock to the
Holding Company in the Conversion, at the time of the
Conversion, Mooresville Mutual will not have outstanding any
warrants, options, convertible securities, or any other type
of right pursuant to which any person could acquire stock in
Mooresville Mutual.
6. Mooresville has no plan or intention to reacquire any of its
common stock issued to the Holding Company in the Conversion.
Mooresville has no plan or intention to issue additional
shares of its common stock following the Conversion. The
common stock of Mooresville issued to the Holding Company in
the Conversion will not be callable or subject to a put
option.
7. Mooresville has no plan or intention to sell or otherwise
dispose of any of the assets of Mooresville Mutual acquired in
the Conversion, except for dispositions made in the ordinary
course of business.
8. The liabilities of Mooresville Mutual assumed by Mooresville
and the liabilities, if any, to which the transferred assets
are subject were incurred by Mooresville Mutual in the
ordinary course of its business and are associated with the
assets transferred.
9. Following the Conversion, Mooresville will continue the
historic business of Mooresville Mutual, will use a
significant portion of Mooresville Mutual's historic business
assets in Mooresville's business, and will continue to engage
in the same business in substantially the same manner as
engaged in by Mooresville Mutual before the Conversion.
10. Mooresville Mutual and Mooresville (treated as one entity for
purposes of this representation) and the Holding Company will
each pay their own expenses attributable to the Conversion.
11. Mooresville Mutual is not under the jurisdiction of a court as
a debtor under (i) Title 11 of the United States Code, or (ii)
a receivership, foreclosure, or similar proceeding in a
federal or state court.
<PAGE>
Board of Directors
Mooresville Savings Bank, SSB
September 12, 1997
Page 4
12. None of the compensation received by an employee of
Mooresville Mutual or Mooresville who is also an Eligible
Account Holder, Supplemental Eligible Account Holder or Other
Member will be separate consideration for, or allocable to,
his or her status as an Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member. None of the interests
in the Liquidation Account of Mooresville received by an
employee of Mooresville Mutual or Mooresville who is an
Eligible Account Holder or Supplemental Eligible Account
Holder will be separate consideration for, or allocable to,
any employment agreement or arrangement. All compensation paid
to Eligible Account Holders and Supplemental Eligible Account
Holders who are also employees of Mooresville Mutual or
Mooresville will be for services actually rendered and
commensurate with amounts paid to third parties bargaining at
arm's-length for similar services. Officers, directors and
other employees may in the future be issued restricted common
stock of the Holding Company for future services pursuant to
the proposed Management Recognition Plan of the Holding
Company described in the Prospectus ("MRP").
13. No Eligible Account Holder or Supplemental Eligible Account
Holder will be excluded from participating in the Liquidation
Account.
14. The Holding Company has no plan or intention to redeem or
otherwise acquire any of the Conversion Stock to be issued
pursuant to the Conversion, except as disclosed in the
Prospectus regarding possible purchases to fund the ESOP, MRP
and stock option plans. The Holding Company has no plan or
intention to sell or otherwise dispose of the common stock of
Mooresville received by it in the Conversion. The Conversion
Stock issued in the Conversion will not be callable or subject
to a put option.
15. At the time of Conversion, the fair market value of the assets
of Mooresville Mutual on a going-concern basis will equal or
exceed the amount of its liabilities plus the amount of
liabilities to which its assets are subject. Immediately
before the Conversion, Mooresville Mutual will have a positive
net worth.
16. No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders or any other grantee of
Subscription Rights in lieu of (i) Subscription Rights for
Conversion Stock, or (ii) an interest in the Liquidation
Account of Mooresville.
17. There is no plan or intention for Mooresville to be liquidated
or merged with another corporation following the Conversion.
18. The Conversion described herein is motivated by valid business
purposes and not by tax avoidance purposes.
19. After the Conversion, Mooresville will continue the corporate
existence and business of Mooresville Mutual with only the
following changes:
<PAGE>
Board of Directors
Mooresville Savings Bank, SSB
September 12, 1997
Page 5
(i) An amended and restated Certificate of Incorporation
to allow for the issuance of capital stock of
Mooresville, and
(ii) New corporate Bylaws.
20. There exists no intercorporate indebtedness between
Mooresville Mutual and Mooresville (treated as one entity for
purposes of this representation) and the Holding Company, that
was issued, acquired, or will be settled at a discount.
21. In the Conversion, the Holding Company will acquire 100% of
the issued and outstanding common stock of Mooresville.
22. Neither Mooresville Mutual and Mooresville (treated as one
entity for purposes of this representation) nor the Holding
Company is an "investment company," as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
Based upon the foregoing assumptions, our opinions with respect to the
federal and North Carolina income tax consequences of the Conversion are as
follows (for purposes of the opinions set forth below, Eligible Account Holders
shall include, if applicable pursuant to the Plan, Supplemental Eligible Account
Holders):
1. The Conversion of Mooresville Mutual from a North
Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank will qualify as a
reorganization within the meaning of Section 368(a) of the
Code, and neither Mooresville Mutual nor Mooresville will
recognize any gain or loss as a result of such reorganization.
Revenue Ruling 80-105, 1980-1 C.B. 78. Mooresville Mutual in
its form as a North Carolina-chartered mutual savings bank and
Mooresville in its form as a North Carolina-chartered stock
savings bank will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code.
2. Mooresville's basis in each of Mooresville Mutual's assets
will be the same as Mooresville Mutual's basis immediately
prior to the Conversion. Section 362(b) of the Code.
3. No gain or loss will be recognized by the Holding Company upon
receipt of money in exchange for the shares of the Conversion
Stock issued pursuant to the exercise of the Subscription
Rights issued therefor. Section 1032(a) of the Code.
4. No gain or loss will be recognized by Mooresville upon receipt
of money from the Holding Company in exchange for the shares
of its common stock to be issued to the Holding Company in the
Conversion. Section 1032(a) of the Code.
5. The holding period of the Mooresville assets after the
Conversion will include the period
<PAGE>
Board of Directors
Mooresville Savings Bank, SSB
September 12, 1997
Page 6
during which the assets were held by Mooresville Mutual prior
to the Conversion. Section 1223(2) of the Code.
6. Gain or loss, if any, will be realized by an Eligible Account
Holder on the exchange of such person's deposit account and
proprietary interest in Mooresville Mutual for (i) a
withdrawable deposit account in Mooresville in the same dollar
amount as such person's deposit account in Mooresville Mutual
immediately prior to the Conversion, (ii) such person's
interest in the Liquidation Account of Mooresville, and (iii)
Subscription Rights to purchase the Conversion Stock. Such
gain, if any, will be recognized by an Eligible Account Holder
only to the extent of the fair market value of such person's
interest in the Subscription Rights received. Section 1001 of
the Code. You have represented to us that the Subscription
Rights to purchase Conversion Stock have no fair market value.
Accordingly, gain recognized by an Eligible Account Holder as
a result of the Conversion is limited to an amount not in
excess of the fair market value of such person's interest in
the Subscription Rights received in the Conversion. Paulsen v.
----------
Commissioner, 469 U.S. 131, 139 (1985), quoting Society for
------------ -----------
Savings v. Bowers, 349 U.S. 143, 150 (1955).
-----------------
7. The basis of the deposit account in Mooresville received by an
Eligible Account Holder will be the cost of such deposit
account. The cost basis of such deposit account in Mooresville
(i) will be equal to the fair market value of such deposit
account in Mooresville and (ii) will be equal to such person's
basis in his or her deposit account in Mooresville Mutual
exchanged therefor. Section 1012 of the Code.
8. The basis of the interest in the Liquidation Account received
by an Eligible Account Holder will be equal to the cost of
such interest. The cost of the Liquidation Account will be the
fair market value of the proprietary interest in Mooresville
Mutual given for the Liquidation Account. Section 1012 of the
Code. An interest in the Liquidation Account will be deemed to
have no value, or nominal, if any, fair market value. Paulsen
-------
v. Commissioner, 469 U.S. 131, 139 (1985) (quoting Society for
--------------- -----------
Savings v. Bowers, 349 U.S. 143, 150 (1955)).
-----------------
9. The basis of Subscription Rights received by an Eligible
Account Holder will be zero, increased by the gain, if any,
recognized on their receipt. Section 1012 of the Code. Gain is
recognized only to the extent of the fair market value of the
Subscription Rights. You have represented to us that the
Subscription Rights to purchase Conversion Stock have no fair
market value. Accordingly, the basis of the Subscription
Rights received by an Eligible Account Holder will be zero.
10. The basis of the Conversion Stock purchased pursuant to the
exercise of Subscription Rights will be the purchase price
thereof. Section 1012 of the Code.
11. The holding period of the Conversion Stock acquired through
the exercise of Subscription Rights will commence upon the
date of such exercise. Section 1223(6) of the Code.
<PAGE>
Board of Directors
Mooresville Savings Bank, SSB
September 12, 1997
Page 7
12. For purposes of Section 381 of the Code, Mooresville will be
treated just as Mooresville Mutual would have been treated had
there been no reorganization of Mooresville Mutual from a
North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank. Accordingly, and with
regard only to the reorganization of Mooresville Mutual into
Mooresville, the tax attributes of Mooresville Mutual
enumerated in Section 381(c) of the Code shall be taken into
account by Mooresville as if there had been no reorganization.
Treasury Regulation (S)1.381(b)(1)(a)(2).
13. For North Carolina income tax purposes, the Conversion will be
treated in a manner identical to the way the Conversion is
treated pursuant to the Code. Sections 105-130.3, 105-130.5,
105-134.5, and 105-134.6 of the North Carolina General
Statutes.
No opinion is expressed with regard to the following:
1. The tax treatment of any aspect of the Conversion that is not
specifically set forth and addressed in the foregoing
opinions.
2. The status, including without limitation, the tax treatment,
of Mooresville Mutual's and Mooresville's bad-debt reserves
before or after the Conversion.
3. For purposes of Section 381 of the Code, the effect upon
Mooresville Mutual and Mooresville of the acquisition of all
of the common stock of Mooresville by the Holding Company in
the Conversion.
The opinions herein expressed represent only our best judgments with
respect to the interpretation of published material and are not binding upon the
Internal Revenue Service or the courts. Our opinions are limited to matters of
North Carolina and federal law.
The opinions contained herein are rendered solely for your benefit and
for the benefit of purchasers of Conversion Stock and may not be used for any
other purpose whatsoever or relied upon by, published or communicated to any
other party without our prior written consent in each instance. We hereby
consent to the inclusion of this letter as an exhibit to the Applications being
filed by Mooresville Mutual with the Administrator and as an exhibit to the
Registration Statement.
Sincerely,
BROOKS, PIERCE, McLENDON
HUMPHREY & LEONARD, L.L.P.
By: /s/ Howard L. Williams
----------------------------
Howard L. Williams
<PAGE>
Exhibit 8(b)
[COMPANY LETTERHEAD APPEARS HERE]
September 2, 1997
Board of Directors
Mooresville Savings Bank, SSB
347 Main Street
Mooresville, NC 28115
Dear Sirs:
Terms used in this letter not otherwise defined herein have the same
meanings for such terms in the Plan of Holding Company Conversion (the "Plan of
Conversion") adopted by the Board of Directors of Mooresville Savings Bank, SSB,
Mooresville, North Carolina ("Mooresville Savings" or the "Bank"), under which
the Bank will convert from a mutual savings bank to a stock savings bank and
issue all of the Bank's stock to Coddle Creek Financial Corp. (the "Holding
Company"). Simultaneously, the Holding Company will issue shares of common stock
(the "Common Stock").
We understand that in accordance with the Plan of Conversion,
subscription rights to purchase shares of Common Stock in the Holding Company
are to be issued to (1) Eligible Account Holders, (2) the bank's tax qualified
employee stock ownership plan, (3) Supplemental Eligible Account Holders, (4)
Other Members, and (5) employees, officers and directors of Mooresville Savings.
Based solely upon our observation that the subscription rights will be available
to such parties without cost, will be legally non-transferable and of short
duration, and will afford such parties the right only to purchase shares of
Common Stock at the same price to be paid by members of the general public in
the Community Offering, but without undertaking any independent investigation of
estate or federal laws or the position of the Internal Revenue service with
respect to such issue, we are of the belief that:
(1) the subscription rights have no ascertainable market value; and
(2) the price at which the subscription rights are exercisable will
not be more or less than the pro forma market value of the shares upon issuance.
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates and other external
forces (e.g., natural disasters or significant global events) occur from time to
time and may materially affect the value of thrift stocks as a whole or the
Holding Company's value. Accordingly, no assurance can be given that persons who
subscribe to shares of Common Stock of the Conversion will thereafter be able to
sell such shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ John M. Palffy
John M. Palffy
Principal
<PAGE>
Exhibit 10(a)
[LETTERHEAD OF JMP FINANCIAL,
INC. APPEARS HERE]
July 17, 1997
Mr. George W. Brawley
Chief Executive Officer
Mooresville Savings Bank SSB
347 North Main Street
Mooresville, North Carolina 28115
Dear Mr. Brawley:
JMP Financial, Inc. ("JMP") is pleased to present this Agreement to
Mooresville Savings (the "Bank" or "Mooresville Savings") to act as appraiser in
its mutual-to-stock conversion and to prepare a business plan for the Bank in
accordance with state and federal regulations. JMP is pleased to have the
opportunity to associate itself with Mooresville Savings and believes that it is
uniquely suited to serve the needs of Morresville Savings.
Services Provided
- -----------------
JMP Financial will provide an initial appraisal of the fair market value of
Mooresville Savings and will update this appraisal as required by Moorseville
Savings or its regulators according to the terms of this agreement.
JMP Financial will also prepare a business plan for Mooresville Savings in
compliance with federal regulations for filing with its application for
conversion.
Fees
- ----
JMP's fees for appraisal services will be $16,000 and its fee for the
business plan will be $11,500. Mooresville Savings shall also reimburse JMP for
its reasonable out-of-pocket expenses of JMP as they are accrued.
Fees shall be payable according to the following schedule:
<TABLE>
<S> <C>
. Upon execution of this Agreement -- $10,000
. Upon filing of the Appraisal -- $ 7,000
. Upon filing of the Business Plan -- $ 7,000
. Upon the earlier of closing of conversion to stock form or one year after
execution of this Agreement -- All remaining fees and expenses
</TABLE>
Indemnification
- ---------------
The Bank agrees to indemnify and hold harmless JMP and each of its
officers, directors, employees and agents, and each person who controls JMP
within the meaning of Section 15 of the Securities Act of 1933, against any and
all loss, claim, damage, liability
<PAGE>
Page Two
Mr. Brawley
July 17, 1997
and expense (including reasonable attorney's fees) arising in connection with
the performance of JMP's responsibilities thereunder, including any litigation
arising from this Agreement or involving the subject matter hereof. Provided,
however, that the Bank shall have no liability to JMP to the extent that any
loss, claim, damage liability, or expense is found by a court of proper
jurisdiction to have resulted from the willful misconduct, bad faith or gross
negligence of JMP or any of its agents. Further, JMP shall notify the Bank
promptly of the assertion of any claim against it in connection with the
performance of JMP's responsibilities in connection with the conversion of the
Bank from mutual-to-stock form or arising under this Agreement or involving the
subject matter hereof. The Bank agrees that the indemnification and
reimbursement commitment set forth in this agreement shall apply upon written
notice to the Bank and regardless of whether JMP is a formal party to any such
lawsuits or other proceedings; that JMP is entitled to separate counsel of its
choice in connection with any of the matters to which such commitment relate;
and that such commitments shall extend upon the same terms set forth in this
agreement, to any controlling person, director, officer, employee or agent of
JMP and shall survive any termination of this Agreement.
Confidentiality
- ---------------
As part of this Agreement JMP agrees to hold all information provided by
the Bank and to conduct all discussions with others in the strictest confidence
possible in keeping with the performance of its services contemplated hereby.
Reliance Upon Information Provided by Mooresville Savings
- ---------------------------------------------------------
Mooresville Savings understands that all analysis, opinions, conclusions
and recommendations which are to be proffered by JMP will rely on the accuracy
of information from and representations made by the bank and its employees and
officers.
Notices
- -------
All notices required or permitted hereunder shall be in writing and shall
be deemed delivered when personally served, or, three days, after being
deposited in the United States mail, registered or certified, return receipt
requested, as addressed as follows
If to JMP Financials, Inc.
--------------------------
JMP Financials, Inc.
753 Grand Marais
Grosse Pointe Park, Mi. 48230
Attn: Mr. John M. Palffy
<PAGE>
Page Three
Mr. Brawley
July 17, 1997
If to Mooresville Savings Bank, SSB
-----------------------------------
Mooresville Savings Bank SSB
347 North Main Street
Mooresville, North Carolina 28115
Mr. George Brawley
Complete Agreement
- ------------------
This Agreement sets forth the entire understanding among the parties as to
the subject matter hereof and supersedes any other understanding or
arrangement, written or oral, express or implied, between the parties.
Effectiveness of Agreement - Separability
- -----------------------------------------
If any provision of this Agreement is held to be void, unenforceable,
unlawful or invalid, all of the other provisions hereof nevertheless continue
in full force and effect as if such void, unenforceable, unlawful or invalid
provisions were omitted. If any provision hereof shall be held to be void,
unenforceable, or invalid by reason of the scope thereof, then such provision
shall be construed and enforced to the extent of the fullest valid and
enforceable scope thereof.
Amendments
- ----------
This Agreement may not be amended except by written instrument signed by
an officer of all parties at the time of the amendment, any other attempted
amendments or supplements shall have no force or effect.
We look forward to working with you and are prepared to proceed as soon as
you deem it appropriate. If this Agreement meets with your approval please
indicate so by executing below.
Very truly yours,
/S/[SIGNATURE APPEARS HERE]
John Michael Palffy
JMP Financial, Inc.
President
ACKNOWLEDGEMENT AND ACCEPTANCE
- ------------------------------
Mooresville Savings Bank SSB
By: /s/ [SIGNATURE APPEARS HERE]
-----------------------------
Its: President
---------------------------
<PAGE>
Exhibit 10(b)
MOORESVILLE SAVINGS BANK, INC., SSB
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of ____________, 1997, by and between
Mooresville Savings Bank, Inc., SSB (hereinafter referred to as the "Savings
Bank") and George W. Brawley, Jr. (hereinafter referred to as the "Officer") and
is joined in by Coddle Creek Financial Corp., the parent holding company of the
Savings Bank (hereinafter referred to as the "Holding Company").
WHEREAS, the Officer has heretofore been employed by the Savings Bank
as its President and Chief Executive Officer; and
WHEREAS, the Savings Bank is a state-chartered stock savings bank and
the wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Savings Bank desires to retain the services of the Officer
as the President and Chief Executive Officer of the Savings Bank upon the terms
and conditions set forth herein; and
WHEREAS, the services of the Officer, his experience and knowledge of
the affairs of the Savings Bank, and his reputation and contacts in the industry
and the local community are extremely valuable to the Savings Bank; and
WHEREAS, the Savings Bank wishes to attract and retain such
well-qualified executives and it is in the best interest of the Savings Bank and
of the Officer to secure the continued services of the Officer notwithstanding
any change in control of the Savings Bank or the Holding Company; and
WHEREAS, the Savings Bank considers the establishment and maintenance
of a sound and vital management to be part of its overall corporate strategy and
to be essential to protecting and enhancing the best interests of the Savings
Bank and its stockholders; and
1
<PAGE>
WHEREAS, the parties desire to enter into this Agreement in order to
set forth the terms and conditions of the Officer's employment relationship with
the Savings Bank.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
1. Employment. The Savings Bank hereby agrees to employ the Officer and
----------
the Officer hereby agrees to accept employment, upon the terms and conditions
stated herein, as the President and Chief Executive Officer of the Savings Bank.
The Officer shall render such administrative and management services to the
Savings Bank as are customarily performed by persons situated in a similar
executive capacity. The Officer shall promote the business of the Savings Bank
and perform such other duties as shall, from time to time, be reasonably
prescribed by the Board of Directors of the Savings Bank (the "Board").
2. Compensation. The Savings Bank shall pay the Officer during the term
------------
of this Agreement, as compensation for all service rendered by him to the
Savings Bank, a base salary at the rate of $139,200 per annum, payable in cash
not less frequently than monthly; provided that the rate of such salary shall be
reviewed by the Board not less often than annually. Such rate of salary, or
increased rate of salary, as the case may be, may be further increased from time
to time in such amounts as the Board, in its discretion, may decide. In
determining salary increases, the Board shall compensate the Officer for
increases in the cost of living and may also provide for performance or merit
increases. Participation in incentive compensation, deferred compensation,
discretionary bonus, profit-sharing, retirement, stock option and other employee
benefit plans that the Savings Bank or the Holding Company have adopted or may
from time to time adopt, and participation in any fringe benefits, shall not
reduce the salary payable to the Officer under this Section. The Officer will be
entitled to such customary fringe benefits, vacation and sick leave as
2
<PAGE>
are consistent with the normal practices and established policies of the Savings
Bank. In the event of a Change of Control (as defined in Paragraph 10), the
Officer's rate of salary shall be increased not less than six percent (6%)
annually during the term of this Agreement.
3. Discretionary Bonuses. During the term of this Agreement, the
---------------------
Officer shall be entitled in an equitable manner with all other key management
personnel of the Savings Bank, to such discretionary bonuses as may be
authorized, declared and paid by the Directors to the Savings Bank's key
management employees. No other compensation provided for in this Agreement shall
be deemed a substitute for the Officer's right to such discretionary bonuses
when and as declared by the Directors.
4. Participation in Retirement and Employee Benefit Plans; Fringe
--------------------------------------------------------------
Benefits. The Officer shall be entitled to participate in any plan relating to
- --------
deferred compensation, stock awards, stock options, stock purchases, pension,
thrift, profit sharing, group life insurance, medical coverage, disability
coverage, education, or other retirement or employee benefits that the Savings
Bank or the Holding Company have adopted, or may, from time to time adopt, for
benefit of their executive employees and for employees generally, subject to the
eligibility rules of such plans.
The Officer shall also be entitled to participate in any other fringe
benefits which are now or may be or become applicable to the Officer or the
Savings Bank's other executive employees, including the payment of reasonable
expenses for attending annual and periodic meetings of trade associations, and
any other benefits which are commensurate with the duties and responsibilities
to be performed by the Officer under this Agreement. Additionally, the Officer
shall be entitled to such vacation and sick leave as shall be established under
uniform employee policies promulgated by the Directors. The Savings Bank shall
reimburse the Officer for all out-of-pocket reasonable and necessary business
expenses which the Officer may incur in connection with his services on behalf
of the Savings Bank.
3
<PAGE>
The Savings Bank also agrees to provide the Officer with one automobile
of an appropriate class and quality owned or leased by the Savings Bank for use
in connection with the Officer's duties hereunder.
5. Term. The initial term of employment under this Agreement shall be
----
for the period commencing upon the effective date of this Agreement and ending
three (3) calendar years from the effective date of this Agreement. On each
anniversary of the effective date of this Agreement of the Savings Bank, the
term of this Agreement shall automatically be extended for an additional one
year period beyond the then effective expiration date unless written notice from
the Savings Bank or the Officer is received 90 days prior to an anniversary date
advising the other party that this Agreement shall not be further extended;
provided that the Directors shall review the Officer's performance annually and
make a specific determination pursuant to such review to renew this Agreement
prior to the 90 day notice period.
6. Loyalty. The Officer shall devote his full efforts and entire
-------
business time to the performance of his duties and responsibilities under this
Agreement.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective businesses
of the Holding Company, the Savings Bank or of their subsidiaries, if any,
received by him during the term of this Agreement and will not disclose or make
use of such information without the prior written consent of the Holding Company
or the Savings Bank.
7. Standards. The Officer shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations and as may be
established from time to time by the Board. The Savings Bank will provide the
Officer with the working facilities and staff customary for similar executives
and necessary for him to perform his duties.
4
<PAGE>
8. Termination and Termination Pay.
-------------------------------
(a) The Officer's employment under this Agreement shall be terminated
upon the death of the Officer during the term of this Agreement, in which event,
the Officer's estate shall be entitled to receive the compensation due the
Officer through the last day of the calendar month in which his death shall have
occurred and for a period of one month thereafter. Notwithstanding the
foregoing, in the event of the Officer's death following a change in control (as
defined in Paragraph 10), the Officer's designated beneficiary or the designated
beneficiary's estate shall be entitled to receive the compensation due the
Officer through the last day of the remaining term of this Agreement.
(b) The Officer's employment under this Agreement may be terminated at
any time by the Officer upon sixty (60) days' written notice to the Board of
Directors. Upon such termination, the Officer shall be entitled to receive
compensation through the effective date of such termination.
(c) The Board may terminate the Officer's employment at any time, but
any termination by the Board, other than termination for cause, shall not
prejudice the Officer's right to compensation or other benefits under this
Agreement. The Officer shall have no right to receive compensation or other
benefits for any period after termination for "cause." Termination for "cause"
shall include termination because of the Officer'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, regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provisions of this
Agreement.
5
<PAGE>
9. Additional Regulatory Requirements.
----------------------------------
(a) If the Officer is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Savings
Bank may, in its discretion, (i) pay the Officer 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.
(b) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) of Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(c) If the Savings Bank is in default as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act (12 U.S.C. ss. 1818(x)(1)), all obligations
under this Agreement shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank, (i) by the Federal Deposit Insurance
Corporation (the "Corporation"), at the time the Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act (12
U.S.C. ss. 1818(c)); or (ii) by the Administrator of the Savings Institution
Division of the North
6
<PAGE>
Carolina Department of Commerce (the "Administrator"), at the time the
Administrator approves a supervisory merger to resolve problems related to
operation of the Savings Bank or when the Savings Bank is determined by the
Administrator to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
10. Change in Control.
-----------------
(a) In the event of a "Change in Control" (as defined in Subparagraph
(b) below), the acquiror shall be prohibited, during the remainder of the term
of this Agreement, from:
(i) Assigning Officer any duties and/or responsibilities that are
inconsistent with his position, duties, responsibilities or status
at the time of the Change in Control or with his reporting
responsibilities or equivalent titles with the Savings Bank in
effect at such time; or
(ii) Adjusting Officer's annual base salary rate other than in
accordance with the provisions of Paragraph 2 of this Agreement; or
(iii) Reducing in level, scope or coverage or eliminating Officer's
life insurance, medical or hospitalization insurance, disability
insurance, profit sharing plans, stock option plans, stock purchase
plans, deferred compensation plans, management retention plans,
retirement plans or similar plans or benefits being provided by the
Savings Bank or the Holding Company to the Officer as of the
effective date of the Change in Control; or
(iv) Transferring Officer to a location which is an unreasonable
distance from his current principal work location, without the
Officer's express written consent.
(b) For the purposes of this Agreement, the term "Change in Control"
shall mean any of the following events:
(i) a change in control of a nature that would be required to be
reported in response to Item 1 of the Current Report on Form 8-K,
as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Exchange Act; or
(ii) such time as any "person" (as such 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 under the Exchange Act), directly
or indirectly, of securities of the Holding Company or Savings Bank
7
<PAGE>
representing 25 percent or more of the combined voting power of the
outstanding Common Stock of the Holding Company or Common Stock of
the Savings Bank, as applicable; or
(iii) individuals who constitute the Board or board of directors of
the Holding Company on the date hereof (the "Incumbent Board" and
"Incumbent Holding Company Board," respectively) 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 Incumbent Holding
Company Board, as applicable, or whose nomination for election by
the Savings Bank's or Holding Company's shareholders was approved
by the Savings Bank's or Holding Company's Board of Directors or
Nominating Committee, as applicable, shall be considered as though
he or she were a member of the Incumbent Board or Incumbent Holding
Company Board, as applicable; or
(iv) either the Holding Company or the Savings Bank consolidates or
merges with or into another corporation, association or entity or
is otherwise reorganized, where neither the Holding Company nor the
Savings Bank, respectively, is the surviving corporation in such
transaction; or
(v) all or substantially all of the assets of either the Holding
Company or the Savings Bank are sold or otherwise transferred to or
are acquired by any other entity or group.
Notwithstanding the other provisions of this Paragraph 10, a
transaction or event shall not be considered a Change in Control if, prior to
the consummation or occurrence of such transaction or event, Officer and Savings
Bank agree in writing that the same shall not be treated as a Change in Control
for purposes of this Agreement.
(c) In the event any dispute shall arise between the Officer and the
Savings Bank as to the terms or interpretation of this Agreement, including this
Section 10, whether instituted by formal legal proceedings or otherwise,
including any action taken by the Officer to enforce the terms of this Section
10 or in defending against any action taken by the Savings Bank, the Savings
Bank shall reimburse the Officer for all costs and expenses incurred in such
proceedings or actions, including attorney's fees, in the event the Officer
prevails in any such action.
8
<PAGE>
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Savings Bank which shall acquire,
directly or indirectly, by conversion, merger, consolidation, purchase or
otherwise, all or substantially all of the assets of the Holding Company or the
Savings Bank.
(b) Since the Savings Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Savings Bank.
12. Modification; Waiver; Amendments. No provision of this Agreement
--------------------------------
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing, signed by the Officer and on behalf of the
Savings Bank by such officer as may be specifically designated by the Directors.
No waiver by either party hereto, at any time, of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No amendments or additions to this Agreement shall be binding unless in
writing and signed by both parties, except as herein otherwise provided.
13. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
14. 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
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first hereinabove written.
MOORESVILLE SAVINGS BANK, INC., SSB
By:
-------------------------------------
Chairman of the Board
-------------------------------------
(SEAL) George W. Brawley, Jr.
The foregoing Agreement is consented and agreed to by Coddle Creek
Financial Corp., the parent holding company of Mooresville Savings Bank, Inc.,
SSB.
CODDLE CREEK FINANCIAL CORP.
By:
-------------------------------------
Chairman of the Board
10
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of _______________, 1997, by and between
Mooresville Savings Bank, Inc., SSB (hereinafter referred to as the "Savings
Bank") and Dale W. Brawley (hereinafter referred to as the "Officer") and
is joined in by Coddle Creek Financial Corp., the parent holding company of the
Savings Bank (hereinafter referred to as the "Holding Company").
WHEREAS, the Officer has heretofore been employed by the Savings Bank
as its Executive Vice President and Treasurer; and
WHEREAS, the Savings Bank is a state-chartered stock savings bank and
the wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Savings Bank desires to retain the services of the Officer
as the Executive Vice President and Treasurer of the Savings Bank upon the terms
and conditions set forth herein; and
WHEREAS, the services of the Officer, his experience and knowledge of
the affairs of the Savings Bank, and his reputation and contacts in the industry
and the local community are extremely valuable to the Savings Bank; and
WHEREAS, the Savings Bank wishes to attract and retain such
well-qualified executives and it is in the best interest of the Savings Bank and
of the Officer to secure the continued services of the Officer notwithstanding
any change in control of the Savings Bank or the Holding Company; and
WHEREAS, the Savings Bank considers the establishment and maintenance
of a sound and vital management to be part of its overall corporate strategy and
to be essential to protecting and enhancing the best interests of the Savings
Bank and its stockholders; and
1
<PAGE>
WHEREAS, the parties desire to enter into this Agreement in order to
set forth the terms and conditions of the Officer's employment relationship with
the Savings Bank.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
1. Employment. The Savings Bank hereby agrees to employ the Officer and
----------
the Officer hereby agrees to accept employment, upon the terms and conditions
stated herein, as the President and Chief Executive Officer of the Savings Bank.
The Officer shall render such administrative and management services to the
Savings Bank as are customarily performed by persons situated in a similar
executive capacity. The Officer shall promote the business of the Savings Bank
and perform such other duties as shall, from time to time, be reasonably
prescribed by the Board of Directors of the Savings Bank (the "Board").
2. Compensation. The Savings Bank shall pay the Officer during the term
------------
of this Agreement, as compensation for all service rendered by him to the
Savings Bank, a base salary at the rate of $139,200 per annum, payable in cash
not less frequently than monthly; provided that the rate of such salary shall be
reviewed by the Board not less often than annually. Such rate of salary, or
increased rate of salary, as the case may be, may be further increased from time
to time in such amounts as the Board, in its discretion, may decide. In
determining salary increases, the Board shall compensate the Officer for
increases in the cost of living and may also provide for performance or merit
increases. Participation in incentive compensation, deferred compensation,
discretionary bonus, profit-sharing, retirement, stock option and other employee
benefit plans that the Savings Bank or the Holding Company have adopted or may
from time to time adopt, and participation in any fringe benefits, shall not
reduce the salary payable to the Officer under this Section. The Officer will be
entitled to such customary fringe benefits, vacation and sick leave as
2
<PAGE>
are consistent with the normal practices and established policies of the Savings
Bank. In the event of a Change of Control (as defined in Paragraph 10), the
Officer's rate of salary shall be increased not less than six percent (6%)
annually during the term of this Agreement.
3. Discretionary Bonuses. During the term of this Agreement, the
---------------------
Officer shall be entitled in an equitable manner with all other key management
personnel of the Savings Bank, to such discretionary bonuses as may be
authorized, declared and paid by the Directors to the Savings Bank's key
management employees. No other compensation provided for in this Agreement shall
be deemed a substitute for the Officer's right to such discretionary bonuses
when and as declared by the Directors.
4. Participation in Retirement and Employee Benefit Plans; Fringe
--------------------------------------------------------------
Benefits. The Officer shall be entitled to participate in any plan relating to
- --------
deferred compensation, stock awards, stock options, stock purchases, pension,
thrift, profit sharing, group life insurance, medical coverage, disability
coverage, education, or other retirement or employee benefits that the Savings
Bank or the Holding Company have adopted, or may, from time to time adopt, for
benefit of their executive employees and for employees generally, subject to the
eligibility rules of such plans.
The Officer shall also be entitled to participate in any other fringe
benefits which are now or may be or become applicable to the Officer or the
Savings Bank's other executive employees, including the payment of reasonable
expenses for attending annual and periodic meetings of trade associations, and
any other benefits which are commensurate with the duties and responsibilities
to be performed by the Officer under this Agreement. Additionally, the Officer
shall be entitled to such vacation and sick leave as shall be established under
uniform employee policies promulgated by the Directors. The Savings Bank shall
reimburse the Officer for all out-of-pocket reasonable and necessary business
expenses which the Officer may incur in connection with his services on behalf
of the Savings Bank.
3
<PAGE>
The Savings Bank also agrees to provide the Officer with one automobile
of an appropriate class and quality owned or leased by the Savings Bank for use
in connection with the Officer's duties hereunder.
5. Term. The initial term of employment under this Agreement shall be
----
for the period commencing upon the effective date of this Agreement and ending
three (3) calendar years from the effective date of this Agreement. On each
anniversary of the effective date of this Agreement of the Savings Bank, the
term of this Agreement shall automatically be extended for an additional one
year period beyond the then effective expiration date unless written notice from
the Savings Bank or the Officer is received 90 days prior to an anniversary date
advising the other party that this Agreement shall not be further extended;
provided that the Directors shall review the Officer's performance annually and
make a specific determination pursuant to such review to renew this Agreement
prior to the 90 day notice period.
6. Loyalty. The Officer shall devote his full efforts and entire
-------
business time to the performance of his duties and responsibilities under this
Agreement.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective businesses
of the Holding Company, the Savings Bank or of their subsidiaries, if any,
received by him during the term of this Agreement and will not disclose or make
use of such information without the prior written consent of the Holding Company
or the Savings Bank.
7. Standards. The Officer shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations and as may be
established from time to time by the Board. The Savings Bank will provide the
Officer with the working facilities and staff customary for similar executives
and necessary for him to perform his duties.
4
<PAGE>
8. Termination and Termination Pay.
-------------------------------
(a) The Officer's employment under this Agreement shall be terminated
upon the death of the Officer during the term of this Agreement, in which event,
the Officer's estate shall be entitled to receive the compensation due the
Officer through the last day of the calendar month in which his death shall have
occurred and for a period of one month thereafter. Notwithstanding the
foregoing, in the event of the Officer's death following a change in control (as
defined in Paragraph 10), the Officer's designated beneficiary or the designated
beneficiary's estate shall be entitled to receive the compensation due the
Officer through the last day of the remaining term of this Agreement.
(b) The Officer's employment under this Agreement may be terminated at
any time by the Officer upon sixty (60) days' written notice to the Board of
Directors. Upon such termination, the Officer shall be entitled to receive
compensation through the effective date of such termination.
(c) The Board may terminate the Officer's employment at any time, but
any termination by the Board, other than termination for cause, shall not
prejudice the Officer's right to compensation or other benefits under this
Agreement. The Officer shall have no right to receive compensation or other
benefits for any period after termination for "cause." Termination for "cause"
shall include termination because of the Officer'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, regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provisions of this
Agreement.
5
<PAGE>
9. Additional Regulatory Requirements.
----------------------------------
(a) If the Officer is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Savings
Bank may, in its discretion, (i) pay the Officer 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.
(b) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) of Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(c) If the Savings Bank is in default as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act (12 U.S.C. (S) 1818(x)(1)), all obligations
under this Agreement shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank, (i) by the Federal Deposit Insurance
Corporation (the "Corporation"), at the time the Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act (12
U.S.C. (S) 1818(c)); or (ii) by the Administrator of the Savings Institution
Division of the North
6
<PAGE>
Carolina Department of Commerce (the "Administrator"), at the time the
Administrator approves a supervisory merger to resolve problems related to
operation of the Savings Bank or when the Savings Bank is determined by the
Administrator to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
10. Change in Control.
-----------------
(a) In the event of a "Change in Control" (as defined in Subparagraph
(b) below), the acquiror shall be prohibited, during the remainder of the term
of this Agreement, from:
(i) Assigning Officer any duties and/or responsibilities that are
inconsistent with his position, duties, responsibilities or status
at the time of the Change in Control or with his reporting
responsibilities or equivalent titles with the Savings Bank in
effect at such time; or
(ii) Adjusting Officer's annual base salary rate other than in
accordance with the provisions of Paragraph 2 of this Agreement; or
(iii) Reducing in level, scope or coverage or eliminating Officer's
life insurance, medical or hospitalization insurance, disability
insurance, profit sharing plans, stock option plans, stock purchase
plans, deferred compensation plans, management retention plans,
retirement plans or similar plans or benefits being provided by the
Savings Bank or the Holding Company to the Officer as of the
effective date of the Change in Control; or
(iv) Transferring Officer to a location which is an unreasonable
distance from his current principal work location, without the
Officer's express written consent.
(b) For the purposes of this Agreement, the term "Change in Control"
shall mean any of the following events:
(i) a change in control of a nature that would be required to be
reported in response to Item 1 of the Current Report on Form 8-K,
as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Exchange Act; or
(ii) such time as any "person" (as such 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 under the Exchange Act), directly
or indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of
7
<PAGE>
the outstanding Common Stock of the Holding Company or Common Stock
of the Savings Bank, as applicable; or
(iii) individuals who constitute the Board or board of directors of
the Holding Company on the date hereof (the "Incumbent Board" and
"Incumbent Holding Company Board," respectively) 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 Incumbent Holding
Company Board, as applicable, or whose nomination for election by
the Savings Bank's or Holding Company's shareholders was approved
by the Savings Bank's or Holding Company's Board of Directors or
Nominating Committee, as applicable, shall be considered as though
he or she were a member of the Incumbent Board or Incumbent Holding
Company Board, as applicable; or
(iv) either the Holding Company or the Savings Bank consolidates
or merges with or into another corporation, association or entity
or is otherwise reorganized, where neither the Holding Company nor
the Savings Bank, respectively, is the surviving corporation in
such transaction; or
(v) all or substantially all of the assets of either the Holding
Company or the Savings Bank are sold or otherwise transferred to or
are acquired by any other entity or group.
Notwithstanding the other provisions of this Paragraph 10, a
transaction or event shall not be considered a Change in Control if, prior to
the consummation or occurrence of such transaction or event, Officer and Savings
Bank agree in writing that the same shall not be treated as a Change in Control
for purposes of this Agreement.
(c) In the event any dispute shall arise between the Officer and the
Savings Bank as to the terms or interpretation of this Agreement, including this
Section 10, whether instituted by formal legal proceedings or otherwise,
including any action taken by the Officer to enforce the terms of this Section
10 or in defending against any action taken by the Savings Bank, the Savings
Bank shall reimburse the Officer for all costs and expenses incurred in such
proceedings or actions, including attorney's fees, in the event the Officer
prevails in any such action.
8
<PAGE>
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Savings Bank which shall acquire,
directly or indirectly, by conversion, merger, consolidation, purchase or
otherwise, all or substantially all of the assets of the Holding Company or the
Savings Bank.
(b) Since the Savings Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Savings Bank.
12. Modification; Waiver; Amendments. No provision of this Agreement
--------------------------------
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing, signed by the Officer and on behalf of the
Savings Bank by such officer as may be specifically designated by the Directors.
No waiver by either party hereto, at any time, of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No amendments or additions to this Agreement shall be binding unless in
writing and signed by both parties, except as herein otherwise provided.
13. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
14. 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
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first hereinabove written.
MOORESVILLE SAVINGS BANK, INC., SSB
By:
------------------------------------
Chairman of the Board
(SEAL)
------------------------------------
Dale W. Brawley
The foregoing Agreement is consented and agreed to by Coddle Creek
Financial Corp., the parent holding company of Mooresville Savings Bank, Inc.,
SSB.
CODDLE CREEK FINANCIAL CORP.
By:
-------------------------------------
Chairman of the Board
10
<PAGE>
MOORESVILLE SAVINGS BANK, INC., SSB
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of _______________, 1997, by and between
Mooresville Savings Bank, Inc., SSB (hereinafter referred to as the "Savings
Bank") and Billy R. Williams (hereinafter referred to as the "Officer") and is
joined in by Coddle Creek Financial Corp., the parent holding company of the
Savings Bank (hereinafter referred to as the "Holding Company").
WHEREAS, the Officer has heretofore been employed by the Savings Bank as
its Secretary and Controller; and
WHEREAS, the Savings Bank is a state-chartered stock savings bank and the
wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Savings Bank desires to retain the services of the Officer as
the Secretary and Controller of the Savings Bank upon the terms and conditions
set forth herein; and
WHEREAS, the services of the Officer, his experience and knowledge of the
affairs of the Savings Bank, and his reputation and contacts in the industry and
the local community are extremely valuable to the Savings Bank; and
WHEREAS, the Savings Bank wishes to attract and retain such well-qualified
executives and it is in the best interest of the Savings Bank and of the Officer
to secure the continued services of the Officer notwithstanding any change in
control of the Savings Bank or the Holding Company; and
WHEREAS, the Savings Bank considers the establishment and maintenance of a
sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Savings Bank
and its stockholders; and
WHEREAS, the parties desire to enter into this Agreement in order to set
forth the terms
<PAGE>
and conditions of the Officer's employment relationship with the Savings Bank.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
1. Employment. The Savings Bank hereby agrees to employ the Officer and
----------
the Officer hereby agrees to accept employment, upon the terms and conditions
stated herein, as the Secretary and Controller of the Savings Bank. The Officer
shall render such administrative and management services to the Savings Bank as
are customarily performed by persons situated in a similar executive capacity.
The Officer shall promote the business of the Savings Bank and perform such
other duties as shall, from time to time, be reasonably prescribed by the Board
of Directors of the Savings Bank (the "Board").
2. Compensation. The Savings Bank shall pay the Officer during the term
------------
of this Agreement, as compensation for all service rendered by him to the
Savings Bank, a base salary at the rate of $56,400 per annum, payable in cash
not less frequently than monthly; provided that the rate of such salary shall be
reviewed by the Board not less often than annually. Such rate of salary, or
increased rate of salary, as the case may be, may be further increased from time
to time in such amounts as the Board, in its discretion, may decide. In
determining salary increases, the Board shall compensate the Officer for
increases in the cost of living and may also provide for performance or merit
increases. Participation in incentive compensation, deferred compensation,
discretionary bonus, profit-sharing, retirement, stock option and other employee
benefit plans that the Savings Bank or the Holding Company have adopted or may
from time to time adopt, and participation in any fringe benefits, shall not
reduce the salary payable to the Officer under this Section. The Officer will
be entitled to such customary fringe benefits, vacation and sick leave as are
consistent with the normal practices and established policies of the Savings
Bank and to
2
<PAGE>
reimbursement for continuing professional education expenses and civil and
professional dues. In the event of a Change of Control (as defined in Paragraph
10), the Officer's rate of salary shall be increased not less than six percent
(6%) annually during the term of this Agreement.
3. Discretionary Bonuses. During the term of this Agreement, the Officer
---------------------
shall be entitled in an equitable manner with all other key management personnel
of the Savings Bank, to such discretionary bonuses as may be authorized,
declared and paid by the Directors to the Savings Bank's key management
employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Officer's right to such discretionary bonuses when and as
declared by the Directors.
4. Participation in Retirement and Employee Benefit Plans; Fringe
--------------------------------------------------------------
Benefits. The Officer shall be entitled to participate in any plan relating to
- --------
deferred compensation, stock awards, stock options, stock purchases, pension,
thrift, profit sharing, group life insurance, medical coverage, disability
coverage, education, or other retirement or employee benefits that the Savings
Bank or the Holding Company have adopted, or may, from time to time adopt, for
benefit of their executive employees and for employees generally, subject to the
eligibility rules of such plans.
The Officer shall also be entitled to participate in any other fringe
benefits which are now or may be or become applicable to the Officer or the
Savings Bank's other executive employees, including the payment of reasonable
expenses for attending annual and periodic meetings of trade associations, and
any other benefits which are commensurate with the duties and responsibilities
to be performed by the Officer under this Agreement. Additionally, the Officer
shall be entitled to such vacation and sick leave as shall be established under
uniform employee policies promulgated by the Directors. The Savings Bank shall
reimburse the Officer for all out-of-pocket reasonable and necessary business
expenses which the Officer may incur in connection with his services on behalf
of the Savings Bank.
3
<PAGE>
5. Term. The initial term of employment under this Agreement shall be for
----
the period commencing upon the effective date of this Agreement and ending three
(3) calendar years from the effective date of this Agreement. On each
anniversary of the effective date of this Agreement of the Savings Bank, the
term of this Agreement shall automatically be extended for an additional one
year period beyond the then effective expiration date unless written notice from
the Savings Bank or the Officer is received 90 days prior to an anniversary date
advising the other party that this Agreement shall not be further extended;
provided that the Directors shall review the Officer's performance annually and
make a specific determination pursuant to such review to renew this Agreement
prior to the 90 day notice period.
6. Loyalty. The Officer shall devote his full efforts and entire business
-------
time to the performance of his duties and responsibilities under this Agreement.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective businesses
of the Holding Company, the Savings Bank or of their subsidiaries, if any,
received by him during the term of this Agreement and will not disclose or make
use of such information without the prior written consent of the Holding Company
or the Savings Bank.
7. Standards. The Officer shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations and as may be
established from time to time by the Board. The Savings Bank will provide the
Officer with the working facilities and staff customary for similar executives
and necessary for him to perform his duties.
8. Termination and Termination Pay.
-------------------------------
(a) The Officer's employment under this Agreement shall be terminated upon
the death of the Officer during the term of this Agreement, in which event, the
Officer's estate shall be
4
<PAGE>
entitled to receive the compensation due the Officer through the last day of the
calendar month in which his death shall have occurred and for a period of one
month thereafter. Notwithstanding the foregoing, in the event of the Officer's
death following a change in control (as defined in Paragraph 10), the Officer's
designated beneficiary or the designated beneficiary's estate shall be entitled
to receive the compensation due the Officer through the last day of the lesser
of (i) the remaining term of this Agreement or (ii) a period of twelve months.
(b) The Officer's employment under this Agreement may be terminated at any
time by the Officer upon sixty (60) days' written notice to the Board of
Directors. Upon such termination, the Officer shall be entitled to receive
compensation through the effective date of such termination.
(c) The Board may terminate the Officer's employment at any time, but any
termination by the Board, other than termination for cause, shall not prejudice
the Officer's right to compensation or other benefits under this Agreement. The
Officer shall have no right to receive compensation or other benefits for any
period after termination for "cause." Termination for "cause" shall include
termination because of the Officer'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, regulation
(other than traffic violations or similar offenses) or final cease-and-desist
order, or material breach of any provisions of this Agreement.
9. Additional Regulatory Requirements.
----------------------------------
(a) If the Officer is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
5
<PAGE>
appropriate proceedings. If the charges in the notice are dismissed, the
Savings Bank may, in its discretion, (i) pay the Officer 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.
(b) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) of Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(c) If the Savings Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act (12 U.S.C. (S) 1818(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank, (i) by the Federal Deposit Insurance
Corporation (the "Corporation"), at the time the Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act (12
U.S.C. (S) 1818(c)); or (ii) by the Administrator of the Savings Institution
Division of the North Carolina Department of Commerce (the "Administrator"), at
the time the Administrator approves a supervisory merger to resolve problems
related to operation of the Savings Bank or when the Savings Bank is determined
by the Administrator to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
10. Change in Control.
-----------------
6
<PAGE>
(a) In the event of a "Change in Control" (as defined in Subparagraph (b)
below), the acquiror shall be prohibited, during the remainder of the term of
this Agreement, from:
(i) Assigning Officer any duties and/or responsibilities that are
inconsistent with his position, duties, responsibilities or status at
the time of the Change in Control or with his reporting
responsibilities or equivalent titles with the Savings Bank in effect
at such time; or
(ii) Adjusting Officer's annual base salary rate other than in
accordance with the provisions of Paragraph 2 of this Agreement; or
(iii) Reducing in level, scope or coverage or eliminating Officer's
life insurance, medical or hospitalization insurance, disability
insurance, profit sharing plans, stock option plans, stock purchase
plans, deferred compensation plans, management retention plans,
retirement plans or similar plans or benefits being provided by the
Savings Bank or the Holding Company to the Officer as of the effective
date of the Change in Control; or
(iv) Transferring Officer to a location which is an unreasonable
distance from his current principal work location, without the
Officer's express written consent.
(b) For the purposes of this Agreement, the term "Change in Control" shall
mean any of the following events:
(i) a change in control of a nature that would be required to be
reported in response to Item 1 of the Current Report on Form 8-K, as
in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Exchange Act; or
(ii) such time as any "person" (as such 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 under the Exchange Act), directly or
indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of the
outstanding Common Stock of the Holding Company or Common Stock of the
Savings Bank, as applicable; or
(iii) individuals who constitute the Board or board of directors of
the Holding Company on the date hereof (the "Incumbent Board" and
"Incumbent Holding Company Board," respectively) 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 Incumbent
7
<PAGE>
Holding Company Board, as applicable, or whose nomination for election
by the Savings Bank's or Holding Company's shareholders was approved
by the Savings Bank's or Holding Company's Board of Directors or
Nominating Committee, as applicable, shall be considered as though he
or she were a member of the Incumbent Board or Incumbent Holding
Company Board, as applicable; or
(iv) either the Holding Company or the Savings Bank consolidates or
merges with or into another corporation, association or entity or is
otherwise reorganized, where neither the Holding Company nor the
Savings Bank, respectively, is the surviving corporation in such
transaction; or
(v) all or substantially all of the assets of either the Holding
Company or the Savings Bank are sold or otherwise transferred to or
are acquired by any other entity or group.
Notwithstanding the other provisions of this Paragraph 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Officer and Savings Bank agree in
writing that the same shall not be treated as a Change in Control for purposes
of this Agreement.
(c) In the event any dispute shall arise between the Officer and the
Savings Bank as to the terms or interpretation of this Agreement, including this
Section 10, whether instituted by formal legal proceedings or otherwise,
including any action taken by the Officer to enforce the terms of this Section
10 or in defending against any action taken by the Savings Bank, the Savings
Bank shall reimburse the Officer for all costs and expenses incurred in such
proceedings or actions, including attorney's fees, in the event the Officer
prevails in any such action.
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Savings Bank which shall acquire, directly
or indirectly, by conversion, merger, consolidation, purchase or otherwise, all
or substantially all of the assets of the Holding Company or the Savings Bank.
8
<PAGE>
(b) Since the Savings Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Savings Bank.
12. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing, signed by the Officer and on behalf of the Savings Bank
by such officer as may be specifically designated by the Directors. No waiver
by either party hereto, at any time, of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties, except as herein otherwise provided.
13. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
14. 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
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
MOORESVILLE SAVINGS BANK, INC., SSB
By:
---------------------------------------
President
---------------------------------------
(SEAL)
Billy R. Williams
The foregoing Agreement is consented and agreed to by Coddle Creek
Financial Corp., the parent holding company of Mooresville Savings Bank, Inc.,
SSB.
CODDLE CREEK FINANCIAL CORP.
By:
---------------------------------------
President
10
<PAGE>
Exhibit 10(c)
EMPLOYEE STOCK OWNERSHIP PLAN
OF
MOORESVILLE SAVINGS BANK, SSB
Prepared By:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Greensboro and Raleigh, North Carolina
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
DEFINITIONS AND CONSTRUCTION..............................................2
EMPLOYEE PARTICIPANTS....................................................12
EMPLOYER CONTRIBUTIONS...................................................14
ALLOCATIONS..............................................................20
TERMINATION OF SERVICE-PARTICIPANT VESTING...............................26
TIME AND METHOD OF PAYMENT OF BENEFITS...................................32
EMPLOYER SECURITIES......................................................37
EMPLOYER ADMINISTRATIVE PROVISIONS.......................................43
ADMINISTRATION COMMITTEE.................................................44
PARTICIPANT ADMINISTRATIVE PROVISIONS....................................48
FIDUCIARIES' DUTIES......................................................52
DISCONTINUANCE, AMENDMENT AND TERMINATION................................56
THE TRUST................................................................59
TOP HEAVY RULES..........................................................60
MISCELLANEOUS............................................................64
</TABLE>
<PAGE>
NATURE OF PLAN
MOORESVILLE SAVINGS BANK, SSB (the "Company"), in order to provide its
eligible employees with an opportunity to share in the growth and prosperity of
the Company and to accumulate capital for their retirement through the
acquisition of a proprietary interest in Coddle Creek Financial Corp., of which
the Company is a wholly-owned subsidiary, establishes the Employee Stock
Ownership Plan of Mooresville Savings Bank, SSB
<PAGE>
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.01 DEFINITIONS. For the purpose of this Plan, the following
-----------
definitions shall apply unless the context requires otherwise:
(a) "Accounts or Account" shall mean the separate accounts
-------------------
maintained by the Administration Committee or Trustee to record the
interest of a Participant under the Plan.
(b) "Accrued Benefit" shall mean the amount standing in a
---------------
Participant's Account(s) as of any date derived from both Employer
contributions and Employee contributions, if any.
(c) "Act" shall mean the Employee Retirement Income Security
---
Act of 1974, as amended from time to time.
(d) "Active Participant" shall mean for each Plan Year any
------------------
Employee who satisfies the eligibility requirements of Article II and
who completes at least one thousand (1,000) Hours of Service during
such Plan Year.
(e) "Administration Committee" shall mean the Plan
------------------------
Administration Committee as from time to time constituted.
(f) "Anniversary Date" shall mean the last day of the Plan
----------------
Year.
(g) "Beneficiary" shall mean any person or fiduciary
-----------
designated by a Participant who is or may become entitled to a benefit
under the Plan following the death of the Participant. A Beneficiary
who becomes entitled to a benefit under the Plan remains a Beneficiary
under the Plan until the Trustee has fully distributed his benefit to
him. A Beneficiary's right to (and the Plan Administrator's,
Administration Committee's or Trustee's duty to provide to the
Beneficiary) information or data concerning the Plan does not arise
until he first becomes entitled to receive a benefit under the Plan.
(h) "Board of Directors" shall mean the Board of Directors of
------------------
Mooresville Savings Bank, SSB unless otherwise indicated or the context
otherwise requires.
(i) "Break in Service" shall occur in any Plan Year during
----------------
which a Participant does not complete more than five hundred (500)
Hours of Service, determined as of the end of the Plan Year.
(j) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended from
2
<PAGE>
time to time.
(k) "Company" shall mean Mooresville Savings Bank, SSB or any
-------
successor thereto which shall adopt this Plan.
(l) "Compensation" shall mean, except as specifically provided
------------
elsewhere in this Plan, the Participant's earned income, wages,
salaries, fees for professional service and other amounts received for
personal services actually rendered in the course of employment with
the Employer maintaining the plan (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips, fringe
benefits and reimbursements or other expense allowances under a
nonaccountable plan, and elective contributions), but excluding
Christmas bonuses. "Elective contributions" are amounts excludible from
the Employee's gross income under Code (S) 402(a)(8) (relating to a
Code (S) 401(k) arrangement), Code (S) 402(h) (relating to a simplified
employee pension), Code (S) 125 (relating to a cafeteria plan) or Code
(S) 403(b) (relating to a tax-sheltered annuity) and contributed at the
Employee's election. The term "Compensation" does not include:
(i) Employer contributions (other than "elective
contributions") to a plan of deferred compensation to the
extent the contributions are not included in the gross income
of the Employee for the taxable year in which contributed, on
behalf of an Employee to a simplified employee pension plan to
the extent such contributions are excludible from the
Employee's gross income, and any distributions from a plan of
deferred compensation, regardless of whether such amounts are
includible in the gross income of the Employee when
distributed.
(ii) Amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or
property) held by an Employee either becomes freely
transferable or is no longer subject to a substantial risk of
forfeiture.
(iii) Amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified stock
option.
(iv) Other amounts which receive special tax
benefits, such as premiums for group term life insurance (but
only to the extent that the premiums are not includible in the
gross income of the Employee), or contributions made by an
Employer (whether or not under a salary reduction agreement)
towards the purchase of an annuity contract described in Code
(S) 403(b) (whether or not the contributions are excludible
from the gross income of the Employee), other than "elective
contributions".
Any reference in this Plan to Compensation is a reference to
the definition in this Section 1.01(l), unless the Plan reference
specifies a modification to this definition. The Administration
Committee will take into account only Compensation actually paid for
the
3
<PAGE>
relevant period.
The Administration Committee must take into account only the
first $150,000 for Plan Years beginning after December 31, 1993 (or
such larger amount as the Commissioner of Internal Revenue may
prescribe) of any Participant's Compensation. The $150,000 Compensation
limitation applies to the combined Compensation of the Employee and of
any family member aggregated with the Employee for purposes of
determining who is an "Highly Compensated Employee" and who is either
(i) the Employee's spouse; or (ii) the Employee's lineal descendant
under the age of nineteen (19) years. If the $150,000 Compensation
limitation applies to the combined Compensation of the Employee and one
or more family members, the Administration Committee will apply the
contribution and allocation provisions of Article III by prorating the
$150,000 limitation among the affected individuals in proportion to
each such individual's Compensation determined prior to application of
this limitation.
For purposes of determining whether the Plan discriminates in
favor of Highly Compensated Employees, Compensation means Compensation
as defined in this Section 1.01(l), without regard to any exceptions.
For purposes of this nondiscrimination definition, the Employer may
elect to include all elective contributions made by the Employer on
behalf of the Employees. The Employer's election to include elective
contributions must be consistent and uniform with respect to Employees
and all plans of the Employer of any particular Plan Year. The Employer
may make this election to include elective contributions for
nondiscrimination testing purposes, irrespective of whether the
Employer includes elective contributions in the general Compensation
definition applicable to the Plan.
(m) "Disqualified Person" shall have the same meaning as
-------------------
ascribed to the term under Code ss. 4975(e)(2).
(n) "Effective Date" of this Plan shall be the 1st day of
--------------
January, 1997, except as otherwise noted.
(o) "Employee" shall mean any person on the payroll of the
--------
Employer whose wages from the Employer are subject to withholding for
purposes of Federal income taxes and for purposes of the Federal
Insurance Contributions Act. Notwithstanding the foregoing, Employee
shall not include any person on the payroll of the Employer who is
included in a unit of employees covered by an agreement which the
Secretary of Labor finds to be a collective bargaining agreement
between employee representatives and the Employer, if there is evidence
that retirement benefits were the subject of good faith bargaining
between such employee representatives and the Employer. The term
"employee representatives" does not include any organization more than
half the members of which are owners, officers or executives of the
Employer.
(p) "Employer" shall mean the Company and any corporation or
--------
other
4
<PAGE>
organization that is affiliated (as defined in Section 407(d)(7)
of the Act) with the Company which duly adopts the Plan with the
approval of the Company.
(q) "Employer Securities" shall mean the common stock issued
-------------------
by Coddle Creek Financial Corp. which shares constitute "employer
securities" under Code ss. 409(l).
(r) "Employer Securities Account" shall mean a separate
---------------------------
account maintained for each Participant and consisting of his allocable
share of Employer Securities allocated to each Participant under the
Plan.
(s) "Employment Commencement Date" shall mean the date on
----------------------------
which an Employee first performs an Hour of Service for the Employer.
(t) "Exempt Loan" shall mean a loan made to this Plan by a
-----------
Disqualified Person, or a loan to this Plan which a Disqualified Person
guarantees, provided the loan satisfies the requirements of Treas. Reg.
ss. 54.4975-7(b).
(u) "Fiscal Year" shall mean the Employer's taxable year for
-----------
federal income tax purposes.
(v) "Former Participant" shall mean any individual who has
------------------
been a Participant hereunder and who has not yet received the entire
benefit to which he is entitled under the Plan.
(w) "General Investment Account" shall mean a separate account
--------------------------
maintained for each Participant and consisting of his allocable share
of Employer contributions, forfeitures, earnings of the Trust allocable
to such account, and realized and unrealized gains and losses allocable
to such account, less any amounts distributed to the Participant or his
Beneficiary from such account and which have not been invested in
Employer Securities.
(x) "Highly Compensated Employee" shall mean an Employee who,
---------------------------
during the Plan Year or during the preceding twelve (12)-month period:
(i) is a more than five percent (5%) owner of the
Employer (applying the constructive ownership rules of
Code ss.318);
(ii) has Compensation in excess of $75,000 (as adjusted
by the Commissioner of Internal Revenue for the relevant
year);
(iii) has Compensation in excess of $50,000 (as
adjusted by the Commissioner of Internal Revenue for the
relevant year) and is part of the top-paid twenty percent
(20%) group of Employees (based on Compensation for the
relevant year); or
5
<PAGE>
(iv) has Compensation in excess of fifty percent (50%)
of the dollar amount prescribed in Code (S) 415(b)(1)(A)
(relating to defined benefit plans) and is an officer of the
Employer.
If the Employee satisfies the definition in clause (ii), (iii)
or (iv) in the Plan Year but not during the preceding twelve (12)
-month period and does not satisfy clause (i) in either period, the
Employee is a Highly Compensated Employee only if he is one of the 100
most highly compensated Employees for the Plan Year. The number of
officers taken into account under clause (iv) will not exceed the
greater of three (3) or ten percent (10%) of the total number (after
application of the exclusions under Code (S) 414(q)) of Employees, but
no more than fifty (50) officers. If no Employee satisfies the
Compensation requirement in clause (iv) for the relevant year, the
Administration Committee will treat the highest paid officer as
satisfying clause (iv) for that year.
For purposes of this definition, "Compensation" means
Compensation as defined in Section 1.01(l) but must include: (i)
elective deferrals under a Code (S) 401(k) arrangement or under a
simplified employee pension plan maintained by the Employer; and (ii)
amounts paid by the Employer which are not currently includible in the
Employee's gross income because of Code (S) 125 (cafeteria plans) or
(S) 403(b)(tax-sheltered annuities). The Administration Committee must
make the determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of the top paid
twenty percent (20%) group, the top 100 paid Employees, the number of
officers includible in clause (iv) and the relevant Compensation,
consistent with Code (S) 414(q) and regulations issued under that Code
section. The Employer may make a calendar year election to determine
the Highly Compensated Employees for the Plan Year, as prescribed by
Treasury regulations. A calendar year election must apply to all plans
and arrangements of the Employer. For purposes of applying any
nondiscrimination test required under the Plan or under the Code, in a
manner consistent with applicable Treasury regulations, the
Administration Committee will not treat as a separate Employee a family
member (a spouse, a lineal ascendant or descendant, or a spouse of a
lineal ascendant or descendant) of a Highly Compensated Employee
described in clause (i) of this Section 1.01(x), or a family member of
one of the ten (10) Highly Compensated Employees with the greatest
Compensation for the Plan Year, but will treat the Highly Compensated
Employee and all family members as a single Highly Compensated
Employee. This aggregation rule applies to a family member even if that
family member is a Highly Compensated Employee without family
aggregation.
The term "Highly Compensated Employee" also includes any
former Employee who separated from Service (or has a deemed separation
from Service, as determined under Treasury regulations) prior to the
Plan Year, performs no Service for the Employer during the Plan Year,
and was a Highly Compensated Employee either for the separation year or
any Plan Year ending on or after his fifty-fifth (55th) birthday. If
the former
6
<PAGE>
Employee's separation from Service occurred prior to January 1, 1987,
he is a Highly Compensated Employee only if he satisfied clause (i) of
this Section 1.01(x) or received Compensation in excess of $50,000
during: (i) the year of his separation from Service (or the prior
year); or (ii) any year ending after his fifty-fourth (54th) birthday.
(y) "Hour of Service" shall mean:
(i) Each Hour of Service for which the Employer,
either directly or indirectly, pays an Employee, or for which
the Employee is entitled to payment, for the performance of
duties during the Plan Year. The Administration Committee
shall credit Hours of Service under this paragraph (i) to the
Employee for the Plan Year in which the Employee performs the
duties, irrespective of when paid;
(ii) Each Hour of Service for back pay, irrespective
of mitigation of damages, to which the Employer has agreed or
for which the Employee has received an award. The
Administration Committee shall credit Hours of Service under
this paragraph (ii) to the Employee for the Plan Year(s) to
which the award or the agreement pertains rather than for the
Plan Year in which the award, agreement or payment is made;
and
(iii) Each Hour of Service for which the Employer,
either directly or indirectly, pays an Employee, or for which
the Employee is entitled to payment (irrespective of whether
the employment relationship is terminated), for reasons other
than for the performance of duties during a Plan Year, such as
leave of absence, vacation, holiday, sick leave, illness,
incapacity (including disability), layoff, jury duty or
military duty. The Administration Committee shall not credit
more than five hundred one (501) Hours of Service under this
paragraph (iii) to an Employee on account of any single
continuous period during which the Employee does not perform
any duties (whether or not such period occurs during a single
Plan Year). The Administration Committee shall credit Hours of
Service under this paragraph (iii) in accordance with the
rules of paragraphs (b) and (c) of Labor Reg. ss. 2530.200b-2,
which the Plan, by this reference, specifically incorporates
in full within this paragraph (iii).
The Administration Committee shall not credit an Hour of
Service under more than one (1) of the above paragraphs. Furthermore,
if the Administration Committee is to credit Hours of Service to an
Employee for the twelve (12) month period beginning with the Employee's
Employment Commencement Date or with an anniversary of such date, then
the twelve (12) month period shall be substituted for the term "Plan
Year" wherever the latter term appears in this Section 1.01(y). The
Administration Committee shall resolve any ambiguity with respect to
the crediting of an Hour of Service in favor of the Employee.
7
<PAGE>
The Administration Committee shall credit every Employee with
Hours of Service on the basis of the "actual" method. For purposes of
the Plan, "actual" method means the determination of Hours of Service
from records of hours worked and hours for which the Employer makes
payment or for which payment is due from the Employer. An Employee or
Participant for whom hourly records are not maintained shall be
credited with forty-five (45) Hours of Service, if compensated weekly,
ninety-five (95) Hours of Service, if compensated semimonthly, or one
hundred ninety (190) Hours of Service, if compensated monthly, for each
period described above if the Employee were hourly rated and would have
been credited with one Hour of Service under paragraphs (i), (ii) and
(iii) above.
Solely for purposes of determining whether the Employee incurs
a Break in Service under any provision of this Plan, the Administration
Committee shall credit Hours of Service during an Employee's unpaid
absence period due to maternity or paternity leave. The Administration
Committee shall consider an employee on maternity or paternity leave if
the Employee's absence is due to the Employee's pregnancy, the birth of
the Employee's child, the placement with the Employee of an adopted
child, or the care of the Employee's child immediately following the
child's birth or placement. The Administration Committee shall credit
Hours of Service under this paragraph on the basis of the number of
Hours of Service the Employee would receive if he were paid during the
absence period or, if the Administration Committee cannot determine the
number of Hours of Service the Employee would receive, on the basis of
eight (8) hours per day during the absence period. The Administration
Committee only shall credit the number of Hours of Service (up to 501
Hours of Service) necessary to prevent an Employee's Break in Service.
The Administration Committee shall credit all Hours of Service
described in this paragraph to the computation period in which the
absence period begins or, if the Employee does not need these Hours of
Service to prevent a Break in Service in the computation period in
which his absence period begins, the Administration Committee shall
credit these Hours of Service to the immediately following computation
period.
(z) "Leave of Absence" shall mean any period of absence from
the active employment of the Employer due to jury duty and compulsory
service in the Armed Forces of the United States if the Employee
returns to active Service with the Employer within ninety (90) days
after he first becomes eligible for release from such active duty. A
Leave of Absence may be granted by the Employer for sickness, accident,
vacation, disability, or other similar reasons under rules established
by it and uniformly applied by it to all individuals similarly
situated. If the Employee does not return to active Service with the
Employer within thirty (30) days of the termination of his Leave of
Absence, his Service will be deemed to have ceased on the date his
absence first commenced.
(aa) "Loan Suspense Account" shall mean an account established
for the crediting and holding of Employer Securities purchased with the
proceeds of an Exempt Loan during the pledge period and repayment of
the Exempt Loan.
8
<PAGE>
(bb) "Nonforfeitable" shall mean a Participant's or
--------------
Beneficiary's unconditional claim, legally enforceable against the
Plan, for the Participant's Accrued Benefit.
(cc) "Participant" shall mean an Employee or former Employee
-----------
who has an account balance under the Plan, or an Employee who has met
the eligibility requirements of the Plan.
(dd) "Plan" shall mean the Employee Stock Ownership Plan of
----
Mooresville Savings Bank, SSB as established herein and amended from
time to time.
(ee) "Plan Administrator" shall mean the Company unless the
------------------
Employer designates another person to hold the position of Plan
Administrator. In addition to his other duties, the Plan Administrator
shall have full responsibility for compliance with the reporting and
disclosure rules under the Act as respects this Agreement.
(ff) "Plan Entry Date" shall mean the first day of the Plan
---------------
Year and the first day of the seventh month of the Plan Year.
(gg) "Plan Year" shall mean the fiscal year of the Plan which
---------
shall be the twelve month period ending on the 31st day of December of
each year.
(hh) "Related Group" shall mean the Employers as defined in
-------------
Section 1.02.
(ii) "Segregated Account" shall mean the Participant Account
------------------
which is divided or segregated for investment or accounting purposes as
required by the Plan for which a special treatment is required.
(jj) "Service" shall mean any period of time the Employee is
-------
in the employ of the Employer, including any period the Employee is on
Leave of Absence authorized by the Employer under a uniform
non-discriminatory policy applicable to all Employees.
(kk) "Suspense Account" shall mean the Employer contributions
----------------
and forfeitures which can not be allocated pursuant to Article III.
(ll) "Trust" shall mean the separate Trust established to
-----
hold, administer, and invest the contributions made under the Plan.
(mm) "Trust Agreement" shall mean the agreement between the
---------------
Employer and the Trustee or any successor Trustee establishing the
Trust and specifying the duties of the Trustee.
(nn) "Trust Fund" shall mean all property of every kind held
----------
or acquired by the Trustee under the Trust Agreement, other than
incidental benefit insurance contracts.
9
<PAGE>
(oo) "Trustee" shall mean the persons or entities from time to
-------
time appointed as Trustee under the Trust Agreement.
(pp) "Valuation Date" shall mean the Anniversary Date of each
--------------
Plan Year or such other dates as the Administration Committee shall
from time to time require. Unless otherwise specified in the Plan, the
Administration Committee will make all Plan allocations for a
particular Plan Year as of the Valuation Date for that Plan Year.
1.02 CONTROLLED BUSINESSES/LEASED EMPLOYEES. If the Employer is a
--------------------------------------
member of a Related Group, the Plan shall treat all employees of the members of
such Related Group as if employed by a single employer for purposes of
determining Years of Service for participation and vesting. An employee shall
receive no credit for Years of Service for purposes of benefit accrual unless
employed by a member of the "Related Group" which adopts the Plan. A Related
Group is a controlled group of corporations (as defined in Code (S) 414(b)),
trades or businesses (whether or not incorporated) which are under common
control (as defined in Code (S) 414(c)) or an affiliated service group (as
defined in Code (S) 414(m) or in Code (S) 414(o)).
The Plan also shall treat an Employee who is a Leased Employee as an
employee of the Employer. However, the Employer shall treat contributions or
benefits provided the Leased Employee by the leasing organization as
contributions or benefits provided by the Employer to the extent attributable to
services the Leased Employee performed for the Employer. A "Leased Employee" is
an individual (who otherwise is not an employee of the Employer) who, pursuant
to a leasing agreement between the Employer and any other person, has performed
services for the Employer (or for the Employer and any persons related to the
Employer within the meaning of Code (S) 144(a)(3)) on a substantially full-time
basis for at least one year and who performs services historically performed by
employees in the Employer's business field.
Notwithstanding the preceding provisions of this paragraph, the Plan
shall not treat an employee as a Leased Employee if, prior to the application of
this exception, twenty percent (20%) or less of the Employer's Employees (other
than Highly Compensated Employees) are leased employees, and the leasing
organization covers the employee in a money purchase pension plan providing
immediate participation for all employees of the leasing organization (other
than employees who perform substantially all of their services for the leasing
organization or whose compensation from the leasing organization in each Plan
Year during the four-year period ending with the Plan Year is less than $1,000),
full immediate vesting, and a nonintegrated contribution formula equal to at
least ten percent (10%) of the employee's compensation without regard to
employment by the leasing organization on a specified date.
1.03 CHANGE IN NON-PARTICIPATING STATUS. If an Employee does not
----------------------------------
participate in the Plan by reason of employment within an excluded
classification, service with the Employer will be counted for purposes of
determining participation and vesting should the Employee's status change to a
non-excluded classification.
10
<PAGE>
1.04 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the
--------------------------------
plan of a predecessor employer, the Plan shall treat service of the Employee
with the predecessor employer as service with the Employer. If the Plan the
Employer maintains is not the plan of a predecessor employer, no credit shall be
given unless specifically provided for in this Plan.
1.05 WORD USAGE. Words used in the masculine shall apply to the
----------
feminine where applicable, and wherever the context of the Plan dictates, the
plural shall be read as the singular and the singular as the plural.
1.06 CONSTRUCTION. It is the intention of the Employer that the Plan be
------------
qualified under the provisions of the Code and the Act and all provisions hereof
shall be construed to that result.
11
<PAGE>
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee shall become a Participant in the Plan
-----------
on the Plan Entry Date (if he is employed on that date) coincident with or
immediately following the date on which he completes one (1) year of Service
with the Employer and attains the age of twenty-one (21) years. Employees
otherwise eligible on the Effective Date shall begin participation immediately.
2.02 YEAR OF SERVICE - PARTICIPATION. For purposes of participation
-------------------------------
under Section 2.01, the Plan shall take into account all of an Employee's Years
of Service with the Employer. Year of Service shall mean a twelve (12)
consecutive month period during which the Employee completes not less than one
thousand (1,000) Hours of Service. The initial eligibility computation period is
the first twelve (12) consecutive month period measured from the Employment
Commencement Date. After the initial eligibility computation period, the Plan
measures the eligibility computation period as the twelve (12) consecutive month
period beginning with each anniversary of an Employee's Employment Commencement
Date.
2.03 BREAK IN SERVICE - PARTICIPATION. For purposes of participation in
--------------------------------
the Plan, the Plan shall not apply any Break in Service rules.
2.04 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose employment
--------------------------------
terminates shall re-enter the Plan as a Participant on the date of his
re-employment. An Employee who terminates his employment after satisfying the
eligibility requirements of the Plan but before becoming a Participant shall
enter the Plan as a Participant on the later of the Plan Entry Date on which he
would have entered the Plan had he not terminated employment, or the date of his
re-employment. Any other Employee whose employment terminates and who is
subsequently re-employed shall become a Participant in accordance with the
provisions of Sections 2.01 and 2.02.
2.05 OMISSION OF ELIGIBLE EMPLOYEE. If, in any fiscal year, any
-----------------------------
Employee who should be included as a Participant in the Plan is erroneously
omitted and discovery of such omission is not made until after a contribution by
the Employer for the year has been made and allocated, the Employer shall make a
subsequent contribution with respect to the omitted Employee in the amount which
the Employer would have contributed with respect to him had he not been omitted.
Such contribution shall be made regardless of whether or not it is deductible in
whole or in part in any taxable year under applicable provisions of the Internal
Revenue Code by the Employer.
2.06 INCLUSION OF INELIGIBLE EMPLOYEE. If, in any fiscal year, any
--------------------------------
person who should not have been included as a Participant in the Plan is
erroneously included and discovery of such incorrect inclusion is not made until
after a contribution for the year has been made and
12
<PAGE>
allocated, the Employer shall not be entitled to recover the contribution made
with respect to the ineligible person regardless of whether or not a deduction
is allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a forfeiture
for the Plan Year in which the discovery is made.
13
<PAGE>
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS. For each Plan Year that ends with or
----------------------
within the Employer's taxable year, the Employer shall contribute to the Trust
such amount as the Board of Directors may from time to time deem advisable. The
Employer shall make all contributions without regard to current or accumulated
earnings and profits for the taxable year or years ending with or within such
Plan Year. The Employer's contribution shall not exceed the Maximum Permissible
Amount as hereinafter defined.
3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records,
-----------------------------
shall determine the amount of any contributions to be made by it to the Trust
under the terms of the Plan; provided however, the contribution of the Employer
shall be paid in cash to the extent needed to provide the Trust with cash
sufficient to pay any currently maturing obligations under any Exempt Loan,
notwithstanding the direction of the Board of Directors.
3.03 TIME AND METHOD OF PAYMENT OF CONTRIBUTION. The Employer may pay
------------------------------------------
its contribution for each Plan Year in one (1) or more installments, without
interest. The Employer's contribution for any Plan Year shall be due on the last
day of its taxable year with or within which such Plan Year ends, and, unless
paid before, shall be payable then or as soon thereafter as practicable, but not
later than the time prescribed by law for filing the Employer's federal income
tax return (including extensions thereof) for such taxable year, without
interest. Contributions made after the end of the Plan Year but prior to the
filing of the Employer's federal income tax return shall be deemed a
contribution for the Employer's taxable year to which such tax return relates,
unless the contribution shall be accompanied by the Employer's signed statement
to the Trustee that payment is on account of another taxable year. Contributions
shall be paid in cash or in Employer Securities. All contributions for each Plan
Year shall be deemed to be paid as of the last day of such Plan Year.
3.04 RETURN OF EMPLOYER CONTRIBUTIONS. Notwithstanding any provision
--------------------------------
herein to the contrary (other than Section 2.06), upon the Employer's request, a
contribution which was made upon a mistake of fact, conditioned upon initial
qualification of the Plan, or disallowed as a deduction under Code (S) 404 shall
be returned to the Employer within one year after payment of the contribution or
denial of the qualification or deduction, as the case may be. The Trustee will
not increase the amount of the Employer contribution returnable under this
Section 3.04 for any earnings attributable to the contribution, but the Trustee
will decrease the Employer contribution returnable for any losses attributable
to it. The Trustee may require the Employer to furnish it whatever evidence the
Trustee deems necessary to enable the Trustee to confirm the amount the Employer
has requested be returned is properly returnable under ERISA.
3.05 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The amount
----------------------------------------------------
of Annual Additions which the Administration Committee may allocate under this
Plan on
14
<PAGE>
a Participant's behalf for a Limitation Year may not exceed the Maximum
Permissible Amount. If the amount the Employer otherwise would contribute to the
Participant's Account would cause the Annual Additions for the Limitation Year
to exceed the Maximum Permissible Amount, the Employer will reduce the amount of
its contribution so the Annual Additions for the Limitation Year will equal the
Maximum Permissible Amount. If an allocation of Employer contributions, pursuant
to Section 3.04, would result in an Excess Amount (other than an Excess Amount
resulting from the circumstances described in Section 3.05(b)) to the
Participant's Account, the Administration Committee will reallocate the Excess
Amount to the remaining Participants who are eligible for an allocation of
Employer contributions for the Plan Year in which the Limitation Year ends. The
Administration Committee will make this reallocation on the basis of the
allocation method under the Plan as if the Participant whose Account otherwise
would receive the Excess Amount is not eligible for an allocation of Employer
Contributions.
(a) Estimation of Compensation. Prior to the determination of
--------------------------
the Participant's actual Compensation for a Limitation Year, the
Administration Committee may determine the Maximum Permissible Amount
on the basis of the Participant's estimated annual Compensation for
such Limitation Year. The Administration Committee must make this
determination on a reasonable and uniform basis for all Participants
similarly situated. The Administration Committee must reduce any
Employer contributions (including any allocation of forfeitures) based
on estimated annual Compensation by any Excess Amounts carried over
from prior years. As soon as is administratively feasible after the end
of the Limitation Year, the Administration Committee will determine the
Maximum Permissible Amount for such Limitation Year on the basis of the
Participant's actual Compensation for such Limitation Year.
(b) Disposition of Excess Amount. If, pursuant to Section
----------------------------
3.05(a), or because of the allocation of forfeitures, there is an
Excess Amount with respect to a Participant for a Limitation Year, the
Administration Committee will dispose of such Excess Amount as follows:
(1) The Administration Committee will return any
nondeductible voluntary Employee contributions to the
Participant to the extent that the return would reduce the
Excess Amount.
(2) If, after the application of paragraph (1), an
Excess Amount still exists, and the Plan covers the
Participant at the end of the Limitation Year, then the
Administration Committee will use the Excess Amount(s) to
reduce future Employer contributions (including any allocation
of forfeitures) under the Plan for the next Limitation Year
and for each succeeding Limitation Year, as is necessary, for
the Participant.
(3) If, after the application of paragraph (1), an
Excess Amount still exists, and the Plan does not cover the
Participant at the end of the Limitation
15
<PAGE>
Year, then the Administration Committee will hold the Excess
Amount unallocated in a suspense account. The Administration
Committee will apply the suspense account to reduce Employer
contributions (including allocation of forfeitures) for all
remaining Participants in the next Limitation Year, and in
each succeeding Limitation Year if necessary.
(4) The Administration Committee will not distribute
any Excess Amount(s) to Participants or to former
Participants.
(c) More Than One Plan. The Employer may contribute under
------------------
another defined contribution plan in addition to its contributions
under this Plan. If the Administration Committee allocated an Excess
Amount to a Participant's Account on an allocation date of this Plan
which coincides with an allocation date of the other defined
contribution plan, the Administration Committee will attribute the
total Excess Amount allocated as of such date to the other defined
contribution plan.
(d) Defined Benefit Plan Limitation. If the Participant
-------------------------------
presently participates, or has ever participated under a defined
benefit plan maintained by the Employer, then the sum of the defined
benefit plan fraction and the defined contribution plan fraction for
the Participant for that Limitation Year must not exceed 1.0. To the
extent necessary to satisfy this limitation, the Employer will reduce
its contribution or allocation on behalf of the Participant to the
defined contribution plan under which the Participant participates and
then, if necessary, the Participant's projected annual benefit under
the defined benefit plan under which the Participant participates.
3.06 DEFINITIONS - ARTICLE III. For purposes of this Article
-------------------------
III, the following terms have the following meanings:
(a) "100% Limitation" - If the 100% Limitation applies, the
Administration Committee must determine the denominator of the defined
benefit plan fraction and the denominator of the defined contribution
plan fraction by substituting 100% for 125%. The 100% limitation
applies only if: (i) the Plan's top heavy ratio exceeds 90%; or (ii)
the Plan's top heavy ratio is greater than 60%, and the Employer does
not provide extra minimum benefits which satisfy Code (S) 416(h)(2).
(b) "Annual Addition" - The sum of the following amounts
allocated on behalf of a Participant for a Limitation Year: (i) all
Employer contributions; (ii) all forfeitures; and (iii) all Employee
contributions. Except to the extent provided in Treasury regulations,
Annual Additions include excess contributions described in Code (S)
401(k) and excess aggregate contributions described in Code (S) 401(m),
irrespective of whether the Plan distributes or forfeits such excess
amounts. Excess deferrals under Code (S) 402(g) are not Annual
Additions unless distributed after the correction period described in
Code (S) 402(g). Annual Additions also include Excess Amounts reapplied
to reduce
16
<PAGE>
Employer contributions under Section 3.05. Amounts allocated after
March 31, 1984, to an individual medical account (as defined in Code
(S) 415(l)(2)) included as part of a defined benefit plan maintained by
the Employer are Annual Additions. Furthermore, Annual Additions
include contributions paid or accrued after December 31, 1985, for
taxable years ending after December 31, 1985, attributable to
post-retirement medical benefits allocated to the separate account of a
key employee (as defined in Code (S) 419A(d)(3)) under a welfare
benefit fund (as defined in Code (S) 419(e)) maintained by the
Employer, but only for purposes of the dollar limitation applicable to
the Maximum Permissible Amount.
(c) "Compensation" - Compensation as determined under the
general definition of Compensation in Section 1.01 except it does not
include elective contributions.
(d) "Defined benefit plan" - A retirement plan which does not
provide for individual accounts for Employer contributions. The
Administration Committee must treat all defined benefit plans (whether
or not terminated) maintained by the Employer as a single plan.
(e) "Defined Benefit Plan Fraction" -
Projected annual benefit of the Participant
under the defined benefit plan(s)
-------------------------------------------------------------
The lesser of (i) 125% (subject to the "100% Limitation"
in paragraph (a)) of the dollar limitation
in effect under Code (S) 415(b)(1)(A) for
the Limitation Year, or (ii) 140% of the
Participant's average Compensation for his
high three (3) consecutive Years of Service
To determine the denominator of this fraction, the
Administration Committee will make any adjustment required under Code
(S) 415(b) and will determine a Year of Service as a Plan Year in which
the Employee completed at least 1,000 Hours of Service. The "projected
annual benefit" is the annual retirement benefit (adjusted to an
actuarially equivalent straight life annuity if the plan expresses such
benefit in a form other than a straight life annuity or qualified joint
and survivor annuity) of the Participant under the terms of the defined
benefit plan on the assumptions he continues employment until his
normal retirement age (or current age, if later) as stated in the
defined benefit plan, his compensation continues at the same rate as in
effect in the Limitation Year under consideration until the date of his
normal retirement age and all other relevant factors used to determine
benefits under the defined benefit plan remain constant as of the
current Limitation Year for all future Limitation Years.
Current Accrued Benefit. If the Participant accrued benefits
in one or more
17
<PAGE>
defined benefit plans maintained by the Employer which were in
existence on May 5, 1986, the dollar limitation used in the denominator
of this fraction will not be less than the Participant's Current
Accrued Benefit. A Participant's Current Accrued Benefit is the sum of
the annual benefits under such defined benefit plans which the
Participant had accrued as of the end of the 1986 Limitation Year (the
last Limitation Year beginning before January 1, 1987), determined
without regard to any change in the terms or conditions of the Plan
made after May 5, 1986, and without regard to any cost of living
adjustment occurring after May 5, 1986. This Current Accrued Benefit
rule applies only if the defined benefit plans individually and in the
aggregate satisfied the requirements of Code (S) 415 as in effect at
the end of the 1986 Limitation Year.
(f) "Defined contribution plan" - A retirement plan which
provides for an individual account for each participant and for
benefits based solely on the amount contributed to the participant's
account, and any income, expenses, gains and losses, and any
forfeitures of accounts of other participants which the plan may
allocate to such participant's account. The Administration Committee
must treat all defined contribution plans (whether or not terminated)
maintained by the Employer as a single plan. Solely for the purposes of
the limitations of this Article III, the Administration Committee will
treat employee contributions made to a defined benefit plan maintained
by the Employer as a separate defined contribution plan. The
Administration Committee also will treat as a defined contribution plan
an individual medical account (as defined in Code (S) 415(l)(2))
included as part of a defined benefit plan maintained by the Employer
and, for taxable years ending after December 31, 1985, a welfare
benefit fund under Code (S) 419(e) maintained by the Employer to the
extent there are post-retirement medical benefits allocated to the
separate account of a key employee (as defined in Code (S) 419(d)(3)).
(g) "Defined Contribution Plan Fraction" -
The sum, as of the close of the Limitation Year,
of the Annual Additions to the Participant's
Account under the defined contribution plan(s)
-------------------------------------------------------------
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of Service
with the Employer: (i) 125% (subject to the "100% Limitation"
in paragraph (a)) of the dollar limitation in effect under
Code (S) 415(c)(1)(A) for the Limitation Year (determined
without regard to the special dollar limitations for employee
stock ownership plans), or (ii) 35% of the Participant's
Compensation for the Limitation Year
For purposes of determining the defined contribution plan
fraction, the Administration Committee will not recompute Annual
Additions in Limitation Years beginning prior to January 1, 1987, to
treat all Employee contributions as Annual Additions. If the Plan
18
<PAGE>
satisfied Code (S)415 for Limitation Years beginning prior to January
1, 1987, the Administration Committee will redetermine the defined
contribution plan fraction and the defined benefit plan fraction as of
the end of the 1986 Limitation Year, in accordance with this Section
3.06. If the sum of the redetermined fractions exceeds 1.0, the
Administration Committee will subtract permanently from the numerator
of the defined contribution plan fraction an amount equal to the
product of (1) the excess of the sum of the fractions over 1.0, times
(2) the denominator of the defined contribution plan fraction. In
making the adjustment, the Administration Committee must disregard any
accrued benefit under the defined benefit plan which is in excess of
the Current Accrued Benefit. This Plan continues any transitional rules
applicable to the determination of the defined contribution plan
fraction under the Employer's Plan as of the end of the 1986 Limitation
Year.
(h) "Employer" - The Employer that adopts this Plan and any
related employers described in Section 1.02. Solely for purposes of
applying the limitations of this Article III, the Administration
Committee will determine related employers described in Section 1.02 by
modifying Code (S)414(b) and (c) in accordance with Code (S)415(h).
(i) "Excess Amount" - The excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
(j) "Limitation Year" - The Plan Year. If the Employer amends
the Limitation Year to a different 12 consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year for
which the Employer makes the amendment, creating a short Limitation
Year.
(k) "Maximum Permissible Amount" - The lesser of (i) $30,000
(or, if greater, one-fourth of the defined benefit dollar limitation
under Code(S) 415(b)(1)(A)), or (ii) 25% of the Participant's
Compensation for the Limitation Year. If there is a short Limitation
Year because of a change in Limitation Year, the Administration
Committee will multiply the $30,000 (or adjusted) limitation by the
following fraction:
Number of months in the short Limitation Year
-------------------------------------------------
12
19
<PAGE>
ARTICLE IV
ALLOCATIONS
4.01 PARTICIPANT ACCOUNTS. For each Participant, the Administration
--------------------
Committee shall establish an Employer Securities Account to reflect a
Participant's interest in Employer Securities held by the Trust and shall
establish an account designated as the General Investments Account to reflect
the Participant's interest in the Trust Fund attributable to assets other than
Employer Securities.
If a Participant re-enters the Plan subsequent to his having a
Forfeiture Break in Service, a separate Account for the Participant's
pre-Forfeiture Break in Service Accrued Benefit and a separate Account for his
post-Forfeiture Break in Service Accrued Benefit, unless the Participant's
entire Accrued Benefit under the Plan is one hundred percent (100%)
Nonforfeitable, shall be maintained.
4.02 VALUATION OF ACCOUNTS. The value of each Participant's Accrued
---------------------
Benefit shall consist of that proportion of the net worth (at fair market value)
of the Trust Fund which the net credit balance in his Account bears to the total
net credit balance in the Accounts of all Participants. For purposes of a
distribution under the Plan, the value of a Participant's Accrued Benefit
attributable to his General Investment Account shall be its value as of the
Valuation Date, or other valuation date, immediately preceding the date of the
distribution.
As of the Anniversary Date of each Plan Year, the Administration
Committee first shall reduce the General Investments Accounts (excluding
segregated Accounts) for any forfeitures arising under Section 5.05 and then
shall allocate the net income (or net loss) from the Trust and the increase or
decrease in the fair market value of the assets of the Trust for the Plan Year
pro rata to the General Investments Accounts of the Participants under the Plan
as the General Investments Accounts stood at the beginning of the current Plan
Year, but excluding the amount of any General Investments Account which the
Trustee has fully distributed since the immediately preceding Valuation Date or
utilized for the purchase of Employer Securities. In making its allocations, the
Administration Committee shall exclude Employer Securities allocated to Employer
Securities Accounts, stock dividends on allocated Employer Securities, and
payments by the Trust on an Exempt Loan. The Administration Committee shall
include as income any cash dividends on Employer Securities except cash
dividends which the Administration Committee has directed the Trustee to
distribute in accordance with Section 7.03.
A segregated investment account receives all income it earns and bears
all expense or loss it incurs. As of the Valuation Date, the Administration
Committee must reduce a segregated investment account for any forfeiture arising
under Section 5.05 after the Administration Committee has made all other
allocations, changes or adjustments to such Account for the Plan Year.
20
<PAGE>
In making a forfeiture reduction, the Administration Committee shall
forfeit pro rata from a Participant's General Investments Account and from any
segregated investment account before making a forfeiture from his Employer
Securities Account.
4.03 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. Subject to the limitations
-------------------------------------
of Article III, Code (S)415, and Section 4.08 of the Plan:
(a) Employer Securities Account. As of the Anniversary Date of
---------------------------
each Plan Year, the Administration Committee first shall reduce the
Employer Securities Accounts for any forfeitures arising under Section
5.05 and then shall credit the Employer Securities Account maintained
for each Participant with the Participant's allocable share of Employer
Securities (including fractional shares) purchased and paid for by the
Trust or contributed in kind to the Trust, with any forfeitures of
Employer Securities and with any stock dividends on Employer Securities
allocated to his Employer Securities Account. Employer Securities
purchased or contributed in kind shall be allocated as of the
Anniversary Date among the Participants in accordance with the ratio of
the Participant's Compensation to the total Compensation of all
Participants. The Administration Committee shall allocate Employer
Securities acquired with an Exempt Loan in accordance with Section
4.04. Except as otherwise specifically provided in Section 4.04, the
Administration Committee shall base allocations to the Participants'
Accounts on dollar values expressed as shares of Employer Securities or
on the basis of actual shares where there is a single class of Employer
Securities. Employer Securities purchased with the proceeds of the
General Investment Account will be allocated directly to the same
Participant's Employer Securities Account.
(b) General Investments Account. Employer contributions and
---------------------------
forfeitures not allocated under Section 4.03 (a) above shall be
allocated as of the Anniversary Date among the Participants in
accordance with the ratio of the Participant's Compensation to the
total Compensation of all Participants.
(c) Dividends on Employer Securities. The Administration
--------------------------------
Committee will allocate any cash dividends the Employer pays with
respect to Employer Securities to the General Investments Accounts of
Participants in the same ratio, determined on the dividend declaration
date, that Employer Securities allocated to a Participant's Employer
Securities Account bear to the Employer Securities allocated to all
Employer Securities Accounts. The Administration Committee will not
allocate to the General Investments Accounts any cash dividends the
Employer directs the Trustee to apply to the payment of an Exempt Loan
nor any cash dividends the Administration Committee directs the Trustee
to distribute in accordance with Section 7.03. If the Employer directs
the Trustee to apply cash dividends on Employer Securities to the
payment of an Exempt Loan, the Administration Committee first will
allocate the released Employer Securities to the Participants' Employer
Securities
21
<PAGE>
Accounts in the same ratio, determined on the dividend declaration
date, that Employer Securities allocated to a Participant's Employer
Securities Account bear to the Employer Securities allocated to all
Employer Securities Accounts. If the dividends are to qualify under
Section 404(k) of the Code: (i) First, allocation of released Employer
Securities must equal the greater of the shares of released Employer
Securities equal to the fair market value of the cash dividends
attributable to the allocated Employer Securities, or equal to the
number of shares of all released Employer Securities attributable to
the cash dividends on allocated Employer Securities and (ii) if any
released Employer Securities remain unallocated after the first
allocation, the Administration Committee will allocate these remaining
released Employer Securities under this Section 4.03 as if the Employer
has made an Employer contribution equal to the amount of the cash
dividend attributable to the unallocated Employer Securities.
4.04 EXEMPT LOAN PROCEEDS ALLOCATION LIMITATION. In withdrawing assets
------------------------------------------
from the Loan Suspense Account, the Trustee shall apply the provisions of Treas.
Reg. (S)(S)54.4975-7(b)(8) and (15) as if all securities in the Loan Suspense
Account were encumbered. Upon the payment of any portion of the loan, the
Trustee shall effect the release of assets in the Loan Suspense Account from
encumbrances. For each Plan Year during the duration of the loan, the number of
Employer Securities released must equal the number of encumbered Employer
Securities held immediately before release for the current Plan Year multiplied
by a fraction. The numerator of the fraction is the amount of principal and
interest paid for the Plan Year. The denominator of the fraction is the sum of
the numerator plus the principal and interest to be paid for all future Plan
Years. The number of future Plan Years under the loan must be definitely
ascertainable and must be determined without taking into account any possible
extension or renewal periods. If the interest rate under the loan is variable,
the interest to be paid in future Plan Years must be computed by using the
interest rate applicable as of the end of the Plan Year. If collateral includes
more than one (1) class of Employer Securities, the number of Employer
Securities of each class to be released for a Plan Year must be determined by
applying the same fraction to each such class. The Administration Committee
shall allocate assets withdrawn from the Loan Suspense Account to the Accounts
of Participants who otherwise share in the allocation of the Employer's
contribution for the Plan Year for which the Trustee has paid the portion of the
loan resulting in the release of the assets. The Administration Committee
consistently shall make this allocation as of each Anniversary Date on the basis
of non-monetary units, taking into account the relative Compensation of all such
Participants for such Plan Year.
The Administration Committee may also elect at the initiation of the
Exempt Loan to have the Employer Securities released from the Loan Suspense
Account solely with reference to principal payments. However, if release is
determined with reference to principal payments only, the following additional
rules apply: (1) the Exempt Loan must provide for annual payments of principal
and interest at a cumulative rate that is not less rapid at any time than level
annual payments of such amounts for 10 years; (2) interest included in any
payment is disregarded only to the extent that it would be determined to be
interest under standard loan amortization tables; and (3) the entire duration of
the Exempt Loan repayment period does not exceed 10 years, even in the event of
a renewal, extension or refinancing of the Exempt Loan.
22
<PAGE>
4.05 EXCESS ALLOCATIONS. The excess amount of any allocations shall be
------------------
distributed or reallocated as provided in Article III.
4.06 EMPLOYER CONTRIBUTIONS CONSIDERED MADE ON LAST DAY OF PLAN YEAR.
---------------------------------------------------------------
For purposes of this Article IV, the Employer's contribution under the Plan
which remains unallocated on the last day of any Plan Year will be considered to
have been made on the last day of that year, regardless of when paid to the
Trustee.
4.07 ACCRUAL OF BENEFITS. The Administration Committee shall determine
-------------------
a Participant's Accrued Benefit on the basis of the Limitation Year. In
allocating Employer contributions and forfeitures to a Participant's Accounts,
the Administration Committee shall only take into account the Compensation
earned during that part of the Limitation Year the Employee is actually a
Participant in the Plan.
4.08 PARTICIPANTS TO WHOM EMPLOYER CONTRIBUTIONS AND FORFEITURES WILL
----------------------------------------------------------------
BE ALLOCATED. The Employer contributions for any Limitation Year, plus any
- ------------
forfeitures which arose under the Plan during that year, will be allocated among
and credited to the Accounts of:
(a) Participants who complete 1,000 Hours of Service during
the Limitation Year and who are in the employ of the Employer on the
Anniversary Date; provided, however, that an Employee who enters or
re-enters the Plan as a Participant on any date other than the first
day of the Limitation Year shall be considered to have completed 1,000
Hours of Service for purposes of allocation of Employer contributions
and Forfeitures for the Limitation Year in which he enters or re-enters
the Plan as a Participant;
(b) Participants on Leave of Absence on the Anniversary Date
who received Compensation from the Employer during the Limitation Year;
and
(c) Participants who died, retired, or became permanently
disabled during the Limitation Year who received Compensation from the
Employer during that year.
(d) Highly Compensated Participants, otherwise qualifying for
an allocation, shall be limited to no more than one-third (1/3) of the
contributions which are deductible under Code (S) 404(a)(9)(B) and
forfeitures of Employer Securities purchased with proceeds of an Exempt
Loan, which limitations shall be applied pro rata to the limited Highly
Compensated Participants.
Notwithstanding the foregoing, in the case of a sale to the Plan in which a
seller elects nonrecognition of gain under Code (S) 1042 of Employer
Securities, no portion of such Employer Securities acquired may be allocated or
accrue (directly or indirectly under any plan of the Employer meeting the
requirements of (S) 401(a) of the Code) during the "nonallocation period" to
23
<PAGE>
(i) any Participant who makes an election under (S) 1042 of the Code,
(ii) any individual who is related to the Participant within the meaning of
(S) 267(b) of the Code (this provision shall not apply to lineal
descendants of the electing Participant if the aggregate amount
allocated to the benefit of all such lienal descendants during the
"nonallocation period" does not exceed more than five percent (5%) of
the Employer Securities (or amounts allocated in lieu thereof) held by
the Plan which are attributable to the sale to the Plan by the
Participant related to such descendants (within the meaning of (S)
267(c) of the Code) or
(iii) any other person who owns (after application of Code (S) 318(a) and
without regard to the employee trust exception of Code (S)
318(a)(2)(B(i)) more than twenty-five percent (25%) of any class of
outstanding stock of the Employer which issued such Employer Securities
or of any corporation which is a member of the same controlled group of
corporations or of the total value of such class of outstanding stock
of any such corporation as defined in (S) 409 of the Code.
The "nonallocation period" shall mean the period beginning on the date of the
sale of the Employer Securities and ending on the later of the date which is 10
years after the date of sale or the date of the plan allocation attributable to
the final payment of the Exempt Loan.
4.09 EQUITABLE ALLOCATIONS. If the Administration Committee determines
---------------------
in making any valuation, allocation, correction or addition of interest to any
Account under the provisions of the Plan that the strict application of the
provisions of the Plan will not produce an equitable and nondiscriminatory
allocation among the Accounts of the Participants, it may modify any procedure
specified in the Plan for the purpose of achieving an equitable and
nondiscriminatory allocation in accordance with the general concepts of the
Plan; provided, however, that any such modification shall not reduce any
Participant's Accrued Benefit and shall be consistent with the provisions of
(S) 401(a)(4) of the Code. Should the Administration Committee in good faith
determine that certain expenses of administration paid by the Trustee during the
Plan Year under consideration are not general, ordinary, and usual and should
not equitably be borne by all Participants, but should be borne only by one or
more Participants, for whom or because of whom such expenses were incurred, the
Administration Committee shall make suitable adjustments by debiting the
particular Account or Accounts of such one or more Participants, Former
Participants, or Beneficiaries; provided, however, that any such adjustment must
be nondiscriminatory and consistent with the provisions of (S) 401(a) of the
Code.
4.10 VALUATION OF THE TRUST FUND. The Administration Committee shall
---------------------------
direct the Trustee, as of each Valuation Date, and at such other date or dates
deemed necessary by the Administration Committee, to determine the net worth of
the assets comprising the Trust Fund. In determining such net worth, the Trustee
shall value the assets comprising the Trust Fund at their fair market value as
of the Valuation Date. With respect to activities carried on by the Plan, an
independent appraiser meeting requirements similar to those prescribed by
regulations under
24
<PAGE>
Code (S) 170(a)(1) must perform all valuations of Employer Securities which are
not readily tradeable on an established securities market. The valuation
requirement of the immediately preceding sentence applies to all Employer
Securities acquired by the Plan. Fair market value of Employer Securities means
the value (i) determined as of the date of the exercise of an option if the
exercise is by a Disqualified Person, or (ii) in all other cases, determined as
of the most recent Valuation Date.
4.11 ALLOCATION DOES NOT CREATE RIGHTS. No Participant shall acquire
---------------------------------
any right to or interest in any specific asset of the Trust as a result of the
allocations provided for in the Plan.
25
<PAGE>
ARTICLE V
TERMINATION OF SERVICE-PARTICIPANT VESTING
5.01 NORMAL RETIREMENT. A Participant's Normal Retirement Age
-----------------
(hereinafter so-called) is age sixty-five (65). A Participant who remains in the
employ of the Employer after attaining Normal Retirement Age shall continue to
participate in Employer contributions until the date of his actual retirement.
Upon termination of a Participant's employment for any reason after attaining
Normal Retirement Age, the Administration Committee shall direct the Trustee to
make payment of the full value of the Participant's Accrued Benefit to him at
such times and in such manner as provided in Article VI hereof. The value of the
Participant's Accrued Benefit shall be determined as of the Anniversary Date
which is on or, if not on, immediately follows the date of the Participant's
employment termination. Provided however, the Trustee may, at the direction of
the Administration Committee, value the Participant's Accrued Benefit as of the
Anniversary Date immediately preceding the date of the Participant's employment
termination, for purposes of making an immediate distribution to the Participant
of his Accrued Benefit, and shall make a subsequent lump sum distribution to the
Participant of any additional benefit accruing subsequent to the date of his
termination through and including the Valuation Date immediately following the
date of the Participant's termination of employment. Immediate distributions may
be reduced by the Trustee to take into account declines in market value.
5.02 EARLY RETIREMENT. A Participant who is at least sixty-two (62)
----------------
years of age and who has completed ten (10) Years of Service may elect to take
early retirement. In the event that a Participant makes such an election, the
Administration Committee shall direct the Trustee to make payment of the full
value of the Participant's Accrued Benefit to him at such times and in such
manner as provided in Article VI hereof. The value of the Participant's Accrued
Benefit shall be determined as of the Anniversary Date which is on or, if not
on, immediately follows the date of the Participant's employment termination.
Provided however, the Trustee may, at the direction of the Administration
Committee, value the Participant's Accrued Benefit as of the Anniversary Date
immediately preceding the date of the Participant's employment termination, for
purposes of making an immediate distribution to the Participant of his Accrued
Benefit, and shall make a subsequent lump sum distribution to the Participant of
any additional benefit accruing subsequent to the date of his termination
through and including the Valuation Date immediately following the date of the
Participant's termination of employment. Immediate distributions may be reduced
by the Trustee to take into account declines in market value.
5.03 DISABILITY. A Participant who becomes permanently disabled shall
----------
have the full value of his Accrued Benefit paid to him at such times and in such
manner as provided in Article VI hereof. The value of a disabled Participant's
Accrued Benefit shall be determined as of the Valuation Date which is on, or if
not on, which immediately follows the date of the Participant's termination of
employment due to disability. Provided however, the Trustee may, at the
direction of the Administration Committee, value the Participant's Accrued
Benefit as of the Valuation Date immediately preceding the date of the
Participant's employment termination, for purposes of
26
<PAGE>
making an immediate distribution to the Participant of his Accrued Benefit, and
shall make a subsequent lump sum distribution to the Participant of any
additional benefit accruing subsequent to the date of his termination through
and including the Valuation Date immediately following the date of the
Participant's termination of employment. A Participant shall be considered
"disabled" if he is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months. The disability of a
Participant shall be determined by a licensed physician chosen by the
Administration Committee. However, if the condition constitutes total disability
under the Federal Social Security Acts, the Administration Committee may rely
upon such determination that the Participant is totally disabled for purposes of
this Plan. The Administration Committee shall apply the provisions of this
Section 5.03 in a non-discriminatory, consistent and uniform manner.
5.04 DEATH. Upon the death of a Participant, his Beneficiary shall be
-----
entitled to receive the full value of the deceased Participant's Accrued Benefit
determined as of the Valuation Date which is on or, if not on, which immediately
follows the date of such Participant's death, at such times and in such manner
as provided in Article VI hereof. Provided however, the Trustee may, at the
direction of the Administration Committee, value the Participant's Accrued
Benefit as of the Valuation Date immediately preceding the date of the
Participant's death, for purposes of making an immediate distribution to the
Participant's Beneficiary of his Accrued Benefit, and shall make a subsequent
lump sum distribution to said Beneficiary of any additional benefit accruing
subsequent to the date of the Participant's death through and including the
Valuation Date immediately following the date of the Participant's death.
5.05 TERMINATION OF SERVICE PRIOR TO NORMAL RETIREMENT AGE. If a
-----------------------------------------------------
Participant's employment terminates prior to Normal Retirement Age for any
reason other than death or permanent disability, then for each Year of Service
he shall receive a percentage of his Accrued Benefit derived from Employer
contributions and forfeitures allocated to Participant Accounts (the balance
being a forfeiture) equal to the following percentage:
---------------------------------------------------------
Years of Service Percentage of Accrued
With the Employer Benefit Payable
---------------------------------------------------------
Less than 5 years 0%
5 years or more 100%
---------------------------------------------------------
27
<PAGE>
Forfeitures shall be reallocated among the remaining Participants who
are entitled to share in Employer contributions and forfeitures for the Plan
Year in which such forfeiture occurs in accordance with the provisions of
Section 4.08. A Participant shall be 100% vested in his Accounts upon the
attainment of Normal Retirement Age, death or permanent disability.
5.06 YEAR OF SERVICE - VESTING. For purposes of vesting under Section
-------------------------
5.05, Year of Service means any Plan Year during which an Employee completes not
less than 1,000 Hours of Service.
5.07 BREAK IN SERVICE - VESTING. For purposes of this Article V, a
--------------------------
Participant incurs a "Break in Service" if during any Plan Year he does not
complete more than 500 Hours of Service.
5.08 INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining
-----------------------------------
"Years of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with the Employer except any Year of Service
before a Break in Service if the number of consecutive Breaks in Service equals
or exceeds the greater of five (5) or the aggregate number of Years of Service
prior to the Break. This exception applies only if the Participant is 0% vested
in his Accrued Benefit derived from Employer contributions at the time he has a
Break in Service. Furthermore, the aggregate number of Years of Service before a
Break in Service does not include Years of Service not required to be taken into
account under this exception by reason of any prior Break in Service.
For the sole purpose of determining a Participant's nonforfeitable
percentage of his Accrued Benefit derived from Employer contributions which
accrued for his benefit prior to a Forfeiture Break in Service, the Plan
disregards any Year of Service after the Participant first incurs a Forfeiture
Break in Service. The Participant incurs a Forfeiture Break in Service when he
incurs five (5) consecutive Breaks in Service.
The Plan does not apply the Break in Service rule under Code (S)
411(a)(6)(B). Therefore, an Employee need not complete a Year of Service after a
Break in Service before the Plan takes into account the Employee's otherwise
includible Years of Service under this Section 5.08.
5.09 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his
-----------------
Accrued Benefit derived from Employer contributions occurs under the Plan on the
earlier of:
(a) The last day of the Plan Year in which the Participant
first incurs a Forfeiture Break in Service; or
(b) The date the Participant receives a cash-out distribution.
The Administration Committee determines the percentage of a
Participant's Accrued Benefit forfeiture, if any, under this Section
5.09 solely by reference to
28
<PAGE>
the vesting schedule of Section 5.05. A Participant does not forfeit
any portion of his Accrued Benefit for any other reason or cause except
as expressly provided by this Section 5.09 or as provided under the
Plan's unclaimed account procedure. Any forfeiture of a Participant's
Accrued Benefit shall be made first from the Participant's General
Investment Account, and after it is exhausted, from the Participant's
Employer Securities Account, in accordance with applicable Treasury
regulations.
5.10 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/
--------------------------------------------------------
RESTORATION OF FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a
- ----------------------------------------
partially-vested Participant receives a cash-out distribution before he incurs a
Forfeiture Break in Service (as defined in Section 5.08), the cash-out
distribution will result in an immediate forfeiture of the nonvested portion of
the Participant's Accrued Benefit derived from Employer contributions, as
provided in Section 5.09. A partially-vested Participant is a Participant whose
Nonforfeitable percentage determined under Section 5.05 is less than 100%. A
cash-out distribution is a distribution of the entire present value of the
Participant's Nonforfeitable Accrued Benefit.
(a) Restoration and Conditions upon Restoration. A
-------------------------------------------
partially-vested Participant who is re-employed by the Employer after
receiving a cash-out distribution of the Nonforfeitable percentage of
his Accrued Benefit may repay the Trustee the amount of the cash-out
distribution attributable to Employer contributions, unless the
Participant no longer has a right to restoration under the requirements
of this Section 5.10. If a partially-vested Participant makes the
cash-out distribution repayment, the Administration Committee, subject
to the conditions of this Section 5.10(a), must restore his Accrued
Benefit attributable to Employer contributions to the same dollar
amount as the dollar amount of his Accrued Benefit on the Valuation
Date, or other valuation date, immediately preceding the date of the
cash-out distribution, unadjusted for any gains or losses occurring
subsequent to that Valuation Date, or other valuation date. Restoration
of the Participant's Accrued Benefit includes restoration of all Code
(S). 411(d)(6) protected benefits with respect to that restored Accrued
Benefit, in accordance with applicable Treasury regulations.
The Administration Committee will not restore a re-employed
Participant's Accrued Benefit under this Section 5.10(a) if:
(1) five (5) years or more have elapsed since the
Participant's first re-employment date with the Employer
following the cash-out distribution; or
(2) the Participant incurred a Forfeiture Break in
Service (as defined in Section 5.08). This condition also
applies if the Participant makes repayment within the Plan
Year in which he incurs the Forfeiture Break in Service and
that Forfeiture Break in Service would result in a complete
forfeiture of the amount the Administration Committee
otherwise would restore.
29
<PAGE>
(b) Time and Method of Restoration. If neither of the two
------------------------------
conditions preventing restoration of the Participant's Accrued Benefit
applies, the Administration Committee will restore the Participant's
Accrued Benefit as of the Plan Year Valuation Date coincident with or
immediately following the repayment. To restore the Participant's
Accrued Benefit, the Administration Committee, to the extent necessary,
will allocate to the Participant's Account:
(1) first, from the amount, if any, of Participant
forfeitures the Administration Committee would otherwise
allocate under Section 5.05;
(2) second, from the amount, if any, of the Trust Fund
net income or gain for the Plan Year; and
(3) third, from the Employer contribution for the Plan
Year to the extent made under a discretionary formula.
To the extent the amounts described in clauses (1), (2) and (3) are
insufficient to enable the Administration Committee to make the
required restoration, the Employer must contribute, without regard to
any requirement or condition of Section 3.01, the additional amount
necessary to enable the Administration Committee to make the required
restoration. If, for a particular Plan Year, the Administration
Committee must restore the Accrued Benefit of more than one re-employed
Participant, then the Administration Committee will make the
restoration allocations to each such Participant's Account in the same
proportion that a Participant's restored amount for the Plan Year bears
to the restored amount for the Plan Year of all re-employed
Participants. The Administration Committee will not take into account
any allocation under this Section 5.10 in applying the limitation on
allocations under Article III.
(c) 0% Vested Participant. The deemed cash-out rule applies to
---------------------
a 0% vested Participant. A 0% vested Participant is a Participant whose
Accrued Benefit derived from Employer contributions is entirely
forfeitable at the time of his separation from Service. Under the
deemed cash-out rule, the Administration Committee will treat the 0%
vested Participant as having received a cash-out distribution on the
date of the Participant's separation from Service or, if the
Participant's Account is entitled to an allocation of Employer
contributions for the Plan Year in which he separates from Service, on
the last day of that Plan Year. For purposes of applying the
restoration provisions of this Section 5.10, the Administration
Committee will treat the 0% vested Participant as repaying his cash-out
"distribution" on the first date of his re-employment with the
Employer.
5.11 SEGREGATED INVESTMENT ACCOUNT FOR REPAID AMOUNT. Until the
-----------------------------------------------
Administration Committee restores the Participant's Accrued Benefit, as
described in Section 5.10, the Trustee will invest the cash-out amount the
Participant has repaid in a segregated
30
<PAGE>
investment account maintained solely for that Participant. The Trustee must
invest the amount in the Participant's segregated investment account in
Federally insured interest bearing savings account(s) or time deposit(s) (or a
combination of both), or in other fixed income investments. Until commingled
with the balance of the Trust Fund on the date the Administration Committee
restores the Participant's Accrued Benefit, the Participant's segregated
investment account remains a part of the Trust, but it alone shares in any
income it earns and it alone bears any expense or loss it incurs. The
Administration Committee will direct the Trustee to repay to the Participant as
soon as is administratively practicable the full amount of the Participant's
segregated investment account if the Administration Committee determines either
of the conditions of Section 5.10(a) prevents restoration as of the applicable
Valuation Date, notwithstanding the Participant's repayment.
31
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ARTICLE VI
TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 DISTRIBUTION AND PAYMENT REQUIREMENTS. Unless the Participant
-------------------------------------
elects in writing to have the Trustee apply other distribution provisions of the
Plan, the Trustee must distribute the Nonforfeitable portion of the
Participant's Accrued Benefit no later than the time prescribed by this Section
6.01, irrespective of any other provision of the Plan. The distribution
provisions of this Section 6.01 are subject to the consent and form of
distribution requirements of the Plan.
(a) Retirement, Disability and Death. If the Participant
--------------------------------
separates from Service by reason of the attainment of Normal Retirement
Age, death, or disability, the Administration Committee will direct the
Trustee to commence distribution of the Accrued Benefit not later than
the 60th day after the close of the Plan Year in which the applicable
event occurs or separation from Service, if later.
(b) Other Separation from Service. If the Participant
-----------------------------
separates from Service for any reason other than by reason of the
attainment of Normal Retirement Age, death or disability, the
Administration Committee will direct the Trustee to commence
distribution of the Participant's Nonforfeitable Accrued Benefit not
later than one year after the close of the fifth Plan Year following
the Plan Year in which the Participant separated from Service. If the
Participant resumes employment with the Employer on or before the last
day of the fifth Plan Year following the Plan Year of his separation
from Service, the mandatory distribution provisions of this paragraph
(b) do not apply. For purposes of this Section 6.01(b), the Accrued
Benefit does not include any Employer Securities acquired with the
proceeds of an Exempt Loan until the close of the Plan Year in which
the borrower repays the Exempt Loan in full.
(c) Required Beginning Date. If any distribution commencement
-----------------------
date described under Paragraph (a) of this Section 6.01, either by Plan
provision or by Participant election (or nonelection), is later than
the Participant's Required Beginning Date, the Administration Committee
instead must direct the Trustee to make distribution under this Section
6.01 on the Participant's Required Beginning Date. A Participant's
Required Beginning Date is the April 1 following the close of the
calendar year in which the Participant attains age 70 1/2. A mandatory
distribution at the Participant's Required Beginning Date will be in
lump sum unless an alternate method is provided for in the Plan.
(d) Distribution in Excess of $3500. No distribution shall be
-------------------------------
made to a Participant without the Participant's consent if the
Nonforfeitable Accrued Benefit shall exceed $3500, unless the
Participant shall have attained Normal Retirement Age. For Plan Years
beginning after December 31, 1997, the $3,500 amount shall be increased
to $5,000.
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(e) Death of the Participant. The Administration Committee
------------------------
will direct the Trustee, in accordance with this Section, to distribute
to the Participant's Beneficiary the Participant's Nonforfeitable
Accrued Benefit remaining in the Trust at the time of the Participant's
death subject to the requirements of Code ss. 401(a)(9) and any
regulations issued thereunder.
(1) Deceased Participant's Nonforfeitable Accrued
---------------------------------------------
Benefit Does Not Exceed $3,500. The Administration Committee
------------------------------
must direct the Trustee to distribute the deceased
Participant's Nonforfeitable Accrued Benefit in lump sum, as
soon as administratively practicable following the
Participant's death or, if later, the date on which the
Administration Committee receives notification of or otherwise
confirms the Participant's death. For Plan Years beginning
after December 31, 1997, the $3,500 amount shall be increased
to $5,000.
(2) Deceased Participant's Nonforfeitable Accrued
---------------------------------------------
Benefit Exceeds $3,500. The Administration Committee will
----------------------
direct the Trustee to distribute the deceased Participant's
Nonforfeitable Accrued Benefit at the time and in the method
elected by the Participant or, if applicable, by the
Beneficiary, as permitted under this Article VI. In the
absence of an election the Administration Committee will
direct the Trustee to distribute the Participant's
undistributed Nonforfeitable Accrued Benefit in lump sum on
the first distribution date following the close of the Plan
Year in which the Participant's death occurs or, if later, the
first distribution date following the date the Administration
Committee receives notification of or otherwise confirms the
Participant's death. For Plan Years beginning after December
31, 1997, the $3,500 amount shall be increased to $5,000.
If the death benefit is payable in full to the Participant's
surviving spouse, the surviving spouse, in addition to the distribution
options provided in this Section, may elect, if available, distribution
at any time or in any form this Article VI would permit for a
Participant.
(f) Distribution Date. A distribution date, unless otherwise
-----------------
specified within the Plan, is the first day of each month of each Plan
Year or as soon as administratively practicable thereafter.
6.02 ELECTION AND MANNER OF PAYMENT. Not earlier than ninety (90) days,
------------------------------
but not later than thirty (30) days, before the Participant's distribution date,
the Administration Committee shall provide a benefit notice to the Participant.
The notice shall explain the options and material features available to the
Participant regarding the benefit distribution and the Participant's right to
defer distribution until attainment of Normal Retirement Age.
33
<PAGE>
The Administration Committee will direct the Trustee to make
distribution of the Accrued Benefit in a lump sum. In the event any part of the
Accrued Benefit is subject to the "put option" of Section 7.01 and the
distribution for all Participants exceeds $50,000, the Administrative Committee
may defer payment of the distribution over a period of years, not exceeding five
(5) years from the date a Participant is entitled to receive his Accrued
Benefit. The Administrative Committee shall make its decision to defer payment
of the distribution over the deferred period based upon the availability of
liquid assets of the Trust and the Company which will be required in the
distributions. If a Participant's Accrued Benefit attributable to Employer
Securities exceeds $500,000, the maximum payment period, subject to a contrary
election by the Participant, is five (5) years plus one additional year (but no
more than five (5) additional years) for each $100,000 (or fraction of $100,000)
by which the Employer Securities Account exceeds $500,000. The Administration
Committee will apply this Section 6.02 by adjusting the $500,000 and $100,000
limitations by the adjustment factor prescribed by the Secretary of the Treasury
under Code ss. 415(d).
6.03 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The
-----------------------------------------------------------
joint and survivor annuity requirements do not apply to this Plan. The Plan does
not provide any annuity distribution to Participants nor to surviving spouses.
6.04 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained
---------------------------------------------
in this Plan prevents the Trustee, in accordance with the direction of the
Administration Committee, from complying with the provisions of a qualified
domestic relations order (as defined in Code ss. 414(p)). This Plan specifically
permits distribution to an alternate payee under a qualified domestic relations
order at any time, irrespective of whether the Participant has attained his
earliest retirement age (as defined under Code ss. 414(p)) under the Plan. A
distribution to an alternate payee prior to the Participant's attainment of
earliest retirement age is available only if: (1) the order specifies
distribution at that time or permits an agreement between the Plan and the
alternate payee to authorize an earlier distribution; and (2) if the present
value of the alternate payee's benefits under the Plan exceeds $3,500 ($5,000
for Plan Years beginning after December 31, 1997), and the order requires, the
alternate payee consents to any distribution occurring prior to the
Participant's attainment of earliest retirement age. Nothing in this Section
6.05 permits a Participant to receive distribution at a time otherwise not
permitted under the Plan nor does it permit the alternate payee to receive a
form of payment not permitted under the Plan.
The Administration Committee must establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Administration Committee promptly will notify the
Participant and any alternate payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Administration Committee must determine the
qualified status of the order and must notify the Participant and each alternate
payee, in writing, of its determination. The Administration Committee must
provide notice under this paragraph by mailing to the individual's address
specified in the domestic relations order, or in a manner consistent with
applicable
34
<PAGE>
regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Administration Committee is making its
determination of the qualified status of the domestic relations order, the
Administration Committee must make a separate accounting of the amounts payable.
If the Administration Committee determines the order is a qualified domestic
relations order within eighteen (18) months of the date amounts first are
payable following receipt of the order, the Administration Committee will direct
the Trustee to distribute the payable amounts in accordance with the order. If
the Administration Committee does not make its determination of the qualified
status of the order within the 18-month determination period, the Administration
Committee will direct the Trustee to distribute the payable amounts in the
manner the Plan would distribute if the order did not exist and will apply the
order prospectively if the Administration Committee later determines the order
is a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the
qualified domestic relations order, the Administration Committee may direct the
Trustee to invest any partitioned amount in a segregated subaccount or separate
account and to invest the account in Federally insured, interest-bearing savings
account(s) or time deposit(s) (or a combination of both), or in other fixed
income investments. A segregated subaccount remains a part of the Trust, but it
alone shares in any income it earns, and it alone bears any expense or loss it
incurs. The Trustee will make any payments or distributions required under this
Section 6.04 by separate benefit checks or other separate distribution to the
alternate payee(s).
6.05 DISTRIBUTION DEMAND FOR EMPLOYER SECURITIES. Distribution of a
-------------------------------------------
Participant's benefit may be made in cash or Employer Securities or both,
provided, however, that if a Participant or Beneficiary so demands, such benefit
shall be distributed only in the form of Employer Securities. Prior to making a
distribution of benefits, the Administrator shall advise the Participant or his
Beneficiary, in writing, of the right to demand that benefits be distributed
solely in Employer Securities.
If a Participant or Beneficiary demands that benefits be distributed
solely in Employer Securities, distribution of a Participant's benefit will be
made entirely in whole shares or other units of Employer Securities. Any balance
in a Participant's General Investment Account will be applied to acquire for
distribution the maximum number of whole shares or other units of Employer
Securities at the then fair market value. Any fractional unit value unexpended
will be distributed in cash. If Employer Securities are not available for
purchase by the Trustee, then the Trustee shall hold such balance until Employer
Securities are acquired and then make such distribution, subject to this
Article.
If the charter or bylaws of the Company restrict the ownership of
substantially all outstanding shares of Employer Securities to current Employees
and the Trust, the distribution of a Participant's Accrued Benefit may be made
entirely in cash without granting him the right to demand distribution in
Employer Securities. Alternatively, Employer Securities may be
35
<PAGE>
distributed subject to the requirement that they be immediately resold to the
Company under payment terms that comply with Section 7.01.
Any balance in a Participant's segregated investment account is not
subject to the demand right that benefits be distributed in the form of Employer
Securities.
The Trustee will make distribution from the Trust only on instructions
from the Plan Administrator.
6.06 ROLLOVER OF LUMP SUM DISTRIBUTION. This Section applies to all
---------------------------------
distributions other than the distribution of Employer Securities.
Notwithstanding any provision of the Plan to the contrary that would otherwise
limit a distributee's election under this Article, a distributee may elect, at
the time and in the manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
For purposes of this Section, the following definitions apply:
(a) "Eligible rollover distribution." An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: (i) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten (10) years or more; (ii) any distribution to the extent
such distribution is required under Code ss.401(a)(9); and (iii) the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion of net unrealized appreciation with respect to Employer
Securities).
(b) "Eligible retirement plan." An eligible retirement plan is
an individual retirement account described in Code ss.408(a), an individual
retirement annuity described in Code ss.408(b), an annuity plan described in
Code ss.403(a), or a qualified trust described in Code ss.401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
(c) "Distributee." A distributee includes an Employee or
former Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse who is
the alternate payee under a qualified domestic relations order, as defined in
Code ss.414(p), are distributees with regard to the interest of the spouse or
former spouse.
(d) "Direct rollover." A direct rollover is a payment by the
Plan to the eligible retirement plan specified by the distributee.
36
<PAGE>
ARTICLE VII
EMPLOYER SECURITIES
7.01 PUT OPTION. The Employer will issue a "put option" to each
----------
Participant receiving a distribution of Employer Securities from the Trust if
the Employer Securities are not publicly traded. The put option will permit the
Participant to sell the Employer Securities to the Employer, at any time during
two option periods, at the current fair market value.
The first put option period runs for a period of at least sixty (60)
days commencing on the date of distribution of Employer Securities to the
Participant. The second put option period runs for a period of at least sixty
(60) days commencing after the new determination of the fair market value of
Employer Securities by the Administration Committee and notice to the
Participant of the new fair market value. A Disqualified Person shall be
required to wait for the determination of the next current fair market value
determination as required by Section 4.10.
If a Participant (or his Beneficiary) exercises his put option, the
Employer must purchase the Employer Securities at fair market value upon the
terms provided under this Section 7.01. The Employer may grant the Trust an
option to assume the Employer's rights and obligations at the time a Participant
exercises an option under this Section 7.01.
If the Employer (or the Trustee, at the direction of the Administration
Committee) exercises an option to purchase a Participant's Employer Securities
pursuant to an offer given under this Section 7.01, the purchaser(s) must make
payment in lump sum or, if the distribution to the Participant (or to his
Beneficiary) constitutes a Total Distribution, in substantially equal
installments over a period not exceeding five (5) years, subject to the
Participant's election for a longer payment period than five (5) years. A "Total
Distribution" to a Participant (or to a Beneficiary) is the distribution, within
one taxable year of the recipient, of the entire balance to the Participant's
credit under the Plan.
In the case of a distribution which is not a Total Distribution or
which is a Total Distribution with respect to which the purchaser(s) will make
payment in lump sum, the purchaser(s) must pay the Participant (or Beneficiary)
the fair market value of the Employer Securities repurchased no later than
thirty (30) days after the date the Participant (or Beneficiary) exercises the
put option. In the case of a Total Distribution with respect to which the
purchaser(s) will make installment payments, the purchaser(s) must make the
first installment payment no later than thirty (30) days after the Participant
(or Beneficiary) exercises the put option. For installment amounts not paid
within thirty (30) days of the exercise of the put option, the purchaser(s) must
evidence the balance of the purchase price by executing a promissory note,
delivered to the selling Participant at the Closing. The note delivered at
Closing must bear a reasonable rate of interest, determined as of the Closing
Date, and the purchaser(s) must provide adequate security. The note must provide
for equal annual installments with interest payable with each installment, the
first installment being due and payable one year after the Closing Date. The
note further must provide
37
<PAGE>
for acceleration in the event of thirty (30) days' default of the payment on
interest or principal and must grant to the maker of the note the right to
prepay the note in whole or in part at any time or times without penalty;
provided however, the purchaser(s) may not have the right to make any prepayment
during the calendar year or fiscal year of the Participant (or Beneficiary) in
which the Closing Date occurs.
In the case of a purchase from a Disqualified Person, all purchases of
Employer Securities shall be made at prices which, in the judgment of an
Independent Appraiser, do not exceed the fair market value of such shares as of
the date of the transaction.
The requirements of this Section 7.01 shall not apply to the
distribution of any portion of a Participant's Accrued Benefit which has been
diversified or transferred to another plan pursuant to the provisions of Section
7.02 hereof.
Notwithstanding the foregoing, the foregoing shall not be applicable to
a financial institution as defined in Code ss. 581 which is prohibited from
redeeming or purchasing its own securities, if the Participant has been provided
the option to receive its distribution from the Plan in cash.
The protections and rights described in this Section 7.01 are
nonterminable with respect to all Employer Securities acquired with an Exempt
Loan. Should this Plan cease to be an employee stock ownership plan, or should
the Exempt Loan be repaid, Employer Securities acquired with the proceeds of an
Exempt Loan will continue to be subject to the provisions of this Section 7.01
after the loan is paid.
7.02 DIVERSIFICATION OF INVESTMENTS. Within ninety (90) days after the
------------------------------
close of each Plan Year in the Qualified Election Period, each Participant who
has attained age fifty-five (55) and has completed ten (10) years of
participation under the Plan shall be permitted to direct the Plan as to the
investment of at least twenty-five percent (25%) of the number of shares ever
allocated to the Employer Securities Account, less those shares previously
diversified and or distributed. In the case of the sixth (6th) year of the
Qualified Election Period, the preceding sentence shall be applied by
substituting "fifty percent (50%)" for "twenty-five percent (25%)." The
Participant's direction shall be effective no later than ninety (90) days after
the close of the Plan Year.
For purposes of this Section, Qualified Election Period shall mean the
six (6) Plan Year periods beginning with the Plan Year in which the Participant
was first eligible to make the election.
The Administration Committee shall offer at least three (3) investment
options (not inconsistent with regulations prescribed by Internal Revenue
Service regulations) to each Participant who makes an election under this
Section 7.02 and such funds shall be held in a segregated investment account
under the General Investment Account.
38
<PAGE>
In lieu of offering such investment options, the Administration
Committee may direct that all amounts subject to Participant elections under
this Section 7.02 be distributed to Participants. All such distributions shall
be distributed within ninety (90) days after the close of the Plan Year and
shall be subject to the requirements of Article VI of this Plan.
In lieu of receiving a cash distribution under this Section 7.02, a
Participant may direct the Plan to transfer his distribution to another
qualified plan of the Company which accepts such transfers, provided that such
plan permits employee-directed investments and does not invest in Employer
Securities to a substantial degree. Such transfer shall be made within ninety
(90) days after the close of the Plan Year.
7.03 CASH DIVIDENDS. Cash dividends, if any, on shares of Employer
--------------
Securities allocated to Participant Accounts may be accumulated in the Trust or
may be paid to Participants currently as determined in the discretion of the
Board of Directors of the Company, exercised in a uniform and nondiscriminatory
manner. Provided that if the Plan is primarily invested in Employer Securities,
it is intended that the Company shall be allowed a deduction with respect to any
dividends paid on shares of Employer Securities of any class held by the Plan on
the record date to the extent such dividends are paid in cash directly to the
Participants, or their Beneficiaries, or are paid to the Plan and are
distributed from the Plan to the Participants or their Beneficiaries not later
than ninety (90) days after the close of the Plan Year in which paid. Provided
further that if the Plan is primarily invested in Employer Securities and the
dividends otherwise qualify as a deductible dividend under Section 404(k) of the
Code, it is also intended that the Company shall be allowed a deduction for any
dividends paid on shares of Employer Securities (whether or not allocated) and
used to make payments on an Exempt Loan, provided that in the case of dividends
paid on allocated shares, Employer Securities having a fair market value equal
to the dividends will be allocated to such Participants for the year in which
such dividends would otherwise have been allocated to such Participants.
7.04 RIGHT OF FIRST REFUSAL. If any Participant (or Beneficiary) who
----------------------
receives Employer Securities which are not publicly traded, under this Plan
desires to dispose of any of his Employer Securities for any reason during his
lifetime (whether by sale, assignment, gift or any other method of transfer), he
first must offer the Employer Securities for sale to the Employer. The
Administration Committee may require a Participant (or Beneficiary) entitled to
a distribution of Employer Securities to execute an appropriate stock transfer
agreement (evidencing the right of first refusal) prior to receiving a
certificate for Employer Securities.
In the case of an offer by a third party, the offer of the Employer is
subject to all the terms and conditions set forth in Section 7.01, based on the
price equal to the fair market value per share and payable in accordance with
the terms of Section 7.01, unless the selling price and terms offered to the
Participant by the third party are more favorable to the Participant than the
selling price and terms of Section 7.01, in which event, the selling price and
terms of the offer of the third party apply. The Employer must give written
notice to the offering Participant of its acceptance
39
<PAGE>
of the Participant's offer within fourteen (14) days after the Participant has
given written notice to the Employer, or the Employer's rights under this
Section 7.04 will lapse. The Employer may grant the Plan the option to assume
the Employer's rights and obligations with respect to all or any part of the
Employer Securities offered to the Employer under this Section 7.04.
7.05 VOTING EMPLOYER SECURITIES. The Trustee shall vote all Employer
--------------------------
Securities held by it as part of the Plan assets unless provided otherwise
hereinafter:
(a) If any agreement entered into by the Trust provides for
voting of any shares of Employer Securities pledged as security for any
obligation of the Plan, then such shares of Employer Securities shall
be voted in accordance with such agreement. Otherwise, the Trustee
shall vote the Employer Securities pledged.
(b) If the Employer has a registration-type class of securities,
each Participant or Beneficiary shall be entitled to direct the Trustee
as to the manner in which the Employer Securities which are allocated
to the Employer Securities Account of such Participant or Beneficiary
is to be voted.
(c) If the Employer does not have a registration-type class of
securities, each Participant or Beneficiary in the Plan shall be
entitled to direct the Trustee as to the manner in which voting rights
on shares of Employer Securities which are allocated to the Employer
Securities Account of such Participant or Beneficiary are to be
exercised with respect to any corporate matter which involves the
voting of such shares with respect to the approval or disapproval of
any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all
assets of a trade or business, or such similar transaction as
prescribed in applicable regulations.
(d) If the Employer does not have a registration-type class of
securities and the by-laws of the Employer require the Plan to vote an
issue in a manner that reflects a one-man, one-vote philosophy, each
Participant or Beneficiary shall be entitled to cast one vote on an
issue and the Trustee shall vote the shares held by the Plan in
proportion to the results of the votes cast on the issue by the
Participants and Beneficiaries. The Trustee may not vote Employer
Securities which a Participant or Beneficiary, pursuant to this
Section, fails to exercise unless compelled to by Department of Labor
rules and regulations.
(e) For purposes of this Section 7.05, the term "registration-
type class of securities" means: (i) a class of securities required to
be registered under Section 12 of the Securities Exchange Act of 1934;
and (ii) a class of securities which would be required to be so
registered except for the exemption from registration provided in
subsection (g)(2)(H) of such Section 12.
7.06 LOANS TO PURCHASE EMPLOYER SECURITIES. The Trustee is
-------------------------------------
specifically
40
<PAGE>
authorized to borrow money or to assume indebtedness for the purpose of
acquiring Employer Securities, subject to the following terms and conditions
which shall apply to the Exempt Loan:
(a) The Trustee will use the proceeds of the loan within a
reasonable time after receipt only for any or all of the following
purposes: (i) to acquire Employer Securities, (ii) to repay such loan,
or (iii) to repay a prior Exempt Loan. Except as provided in this
Section 7.06, no Employer Security acquired with the proceeds of an
Exempt Loan may be subject to a put, call or other option, or buy-sell
or similar arrangement while held by and when distributed from this
Plan, whether or not this Plan is then an employee stock ownership
plan.
(b) The interest rate of the Exempt Loan may not be more than
a reasonable rate of interest.
(c) Any collateral the Trustee pledges to the creditor must
consist only of the assets purchased by the borrowed funds and those
assets the Trust used as collateral on the prior Exempt Loan repaid
with the proceeds of the current Exempt Loan.
(d) The creditor may have no recourse against the Trust under
the Exempt Loan except with respect to such collateral given for the
Exempt Loan, contributions (other than contributions of Employer
Securities) that the Employer makes to the Trust to meet its
obligations under the Exempt Loan, and earnings attributable to such
collateral and the investment of such contributions. The payment made
with respect to an Exempt Loan by the Plan during a Plan Year must not
exceed an amount equal to the sum of such contributions and earnings
received during or prior to the year less such payments in prior years.
The Administration Committee and the Trustee must account separately
for such contributions and earnings in the books of account of the Plan
until the Trust repays the Exempt Loan.
(e) In the event of default upon the loan, the value of Plan
assets transferred in satisfaction of the Exempt Loan must not exceed
the amount of the default, and if the lender is a Disqualified Person,
the Exempt Loan must provide for transfer of Plan assets upon default
only upon and to the extent of the failure of the Plan to meet the
payment schedule of the Exempt Loan.
(f) The Trustee must add and maintain all assets acquired with
the proceeds of an Exempt Loan in a Loan Suspense Account. In
withdrawing assets from the Loan Suspense Account, the Trustee will
apply the provisions of Treas. Reg. (S)(S) 54.4975-7(b)(8) and (15) as
if all securities in the Loan Suspense Account were encumbered. Upon
the payment of any portion of the loan, the Trustee will effect the
release of assets in the Loan Suspense Account from encumbrances. For
each Plan Year during the duration of the Exempt Loan, the number of
Employer Securities released must equal the number of encumbered
Employer Securities held immediately before release for the current
Plan
41
<PAGE>
Year multiplied by a fraction. The numerator of the fraction is the
amount of principal and interest paid for the Plan Year. The
denominator of the fraction is the sum of the numerator plus the
principal and interest to be paid for all future Plan Years. The number
of future Plan Years under the loan must be definitely ascertainable
and must be determined without taking into account any possible
extension or renewal periods. If the interest rate under the Exempt
Loan is variable, the interest to be paid in future Plan Years must be
computed by using the interest rate applicable as of the end of the
Plan Year. If collateral includes more than one class of Employer
Securities, the number of Employer Securities of each class to be
released for a Plan Year must be determined by applying the same
fraction to each such class. The Administration Committee will allocate
assets withdrawn from the Loan Suspense Account to the Accounts of
Participants who otherwise share in the allocation of the Employer's
contribution for the Plan Year for which the Trustee has paid the
portion of the Exempt Loan resulting in the release of the assets. The
Administration Committee consistently will make this allocation as of
each Anniversary Date on the basis of non-monetary units, taking into
account the relative Compensation of all such Participants for such
Plan Year.
The Administration Committee may also elect at the initiation of
the Exempt Loan to have the Employer Securities released from the Loan
Suspense Account solely with reference to principal payments. However,
if release is determined with reference to principal payments only, the
following additional rules apply: (1) the Exempt Loan must provide for
annual payments of principal and interest at a cumulative rate that is
not less rapid at any time than level annual payments of such amounts
for ten (10) years; (2) interest included in any payment is disregarded
only to the extent that it would be determined to be interest under
standard loan amortization tables; and (3) the entire duration of the
Exempt Loan repayment period does not exceed ten (10) years, even in
the event of a renewal, extension or refinancing of the Exempt Loan.
(g) The loan must be for a specific term and may not be payable
at the demand of any person except in the case of default.
(h) Notwithstanding the fact this Plan ceases to be an employee
stock ownership plan, Employer Securities acquired with the proceeds of
an Exempt Loan will continue after the Trustee repays the loan to be
subject to the provisions of Section 7.01 and 7.04 (if applicable) as
required by Treas. Reg. (S)(S) 54.4975-7(b)(4), (10), (11) and (12)
relating to put, call or other options and to buy-sell or similar
arrangements, and shall not be subjected to any additional puts, calls,
options, buy-sell or similar arrangements while held by or when
distributed from the Plan, except to the extent provided therein.
42
<PAGE>
ARTICLE VIII
EMPLOYER ADMINISTRATIVE PROVISIONS
8.01 INFORMATION. The Employer shall, upon request or as may be
-----------
specifically required hereunder, furnish or cause to be furnished, all of the
information or documentation which is necessary or required by the
Administration Committee and Trustee to perform their respective duties and
functions under the Plan. The Employer's records as to the current information
the Employer furnishes to the Administration Committee and Trustee shall be
conclusive as to all persons.
8.02 NO LIABILITY. The Employer assumes no obligation or responsibility
------------
to any of the Employees, Participants, or Beneficiaries for any act of, or
failure to act, on the part of the Administration Committee (unless the Employer
is the Administration Committee), or the Plan Administrator (unless the Employer
is the Plan Administrator).
8.03 EMPLOYER ACTION. Any action required of the Employer shall be by
---------------
resolution of its Board of Directors or by a person authorized to act by Board
resolution.
8.04 INDEMNITY. The Employer agrees it will indemnify and save harmless
---------
the Board of Directors, individual Trustee(s), and the members of the
Administration Committee, and each of them, from and against any and all loss
resulting from liability to which the Board of Directors, individual Trustee(s),
and the Administration Committee, or the members of the Board of Directors and
Administration Committee, may be subjected by reason of any act or conduct
(except willful or reckless misconduct) in their official capacities in the
administration of this Plan or Trust or both, including all expenses reasonably
incurred in their defense, in case the Employer fails to provide such defense.
The indemnification provisions of this Section 8.04 shall not relieve the Board
of Directors, individual Trustee(s), or any members of the Administration
Committee from any liability each may have under the Act for breach of a
fiduciary duty.
43
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ARTICLE IX
ADMINISTRATION COMMITTEE
9.01 APPOINTMENT OF COMMITTEE. The Employer shall appoint an
------------------------
Administration Committee to administer the Plan, the members of which may or may
not be Participants in the Plan.
9.02 TERM. Each member of the Administration Committee shall serve
----
until his successor is appointed. Any member of the Administration Committee may
be removed by the Board of Directors, with or without cause, which shall have
the power to fill any vacancy which may occur. An Administration Committee
member may resign upon written notice to the Employer.
9.03 COMPENSATION. The members of the Administration Committee shall
------------
serve without compensation for services as such, but the Employer shall pay all
expenses, including the expenses for any bond required under Act (S) 412. To the
extent such expenses are not paid by the Employer, they shall be paid by the
Trustee from the Trust Fund.
9.04 POWERS OF ADMINISTRATION COMMITTEE. The Administration Committee
----------------------------------
shall have the following powers and duties, which it shall exercise under the
Plan in a uniform and nondiscriminatory manner:
(a) To direct the administration of the Plan in accordance with
the provisions herein set forth;
(b) To adopt rules of procedure and regulations necessary for
the administration of the Plan provided the rules are not inconsistent
with the terms of the Plan;
(c) To determine all questions with regard to rights of
Employees, Participants, and Beneficiaries under the Plan, including
but not limited to rights of eligibility of an Employee to participate
in the Plan, the value of a Participant's Accrued Benefit, and the
Accrued Benefit of each Participant;
(d) To enforce the terms of the Plan and the rules and
regulations it adopts;
(e) To direct the Trustee as respects the crediting and
distribution of the Trust and all other matters within its discretion
as provided in the Trust Agreement;
(f) To review and render decisions respecting a claim for (or
denial of a claim for) a benefit under the Plan;
44
<PAGE>
(g) To furnish the Employer with information which the Employer
may require for tax or other purposes;
(h) To engage the service of counsel (who may, if appropriate,
be counsel for the Employer) and agents whom it may deem advisable to
assist it with the performance of its duties;
(i) To prescribe procedures to be followed by distributees in
obtaining benefits;
(j) To receive from the Employer and from Employees such
information as shall be necessary for the proper administration of the
Plan;
(k) To receive and review reports of the financial condition and
of the receipts and disbursements of the Trust Fund from the Trustee;
(l) To establish a nondiscriminatory policy which the Trustee
shall observe in making loans, if any, to Participants;
(m) To maintain, or cause to be maintained, separate Accounts in
the name of each Participant to reflect each Participant's Accrued
Benefit under the Plan;
(n) To select a secretary, who need not be a member of the
Administration Committee;
(o) To interpret and construe the Plan;
(p) To select the issuing company or companies from which
insurance contracts, if any, shall be purchased as provided herein; and
to determine the form, type, and kind of such contract;
(q) To engage the services of an Investment Manager or Managers
(as defined in Act (S) 3(38)), each of whom shall have full power and
authority to manage, acquire or dispose of (or direct the Trustee with
respect to such acquisition or disposition) any plan asset under its
control; and
(r) To direct the Trustee in the investment, reinvestment, and
disposition of the Trust Fund as provided in the Trust Agreement.
9.05 MANNER OF ACTION. The decision of a majority of the members of the
----------------
Administration Committee appointed and qualified shall control. In case of a
vacancy in the membership of the Administration Committee, the remaining members
of the Administration Committee may exercise any and all of the powers,
authorities, duties, and discretions conferred
45
<PAGE>
upon such Administration Committee pending the filling of the vacancy. The
Administration Committee may, but need not, call or hold formal meetings. Any
decisions made or action taken pursuant to written approval of a majority of the
then members shall be sufficient. The Administration Committee shall maintain
adequate records of its decisions.
9.06 AUTHORIZED REPRESENTATIVE. The Administration Committee may
-------------------------
authorize any one of its members, or its secretary, to sign on its behalf any
notice, directions, applications, certificates, consents, approvals, waivers,
letters, or other documents. The Administration Committee must evidence this
authority by an instrument signed by all its respective members and filed with
the Trustee.
9.07 NONDISCRIMINATION. The Administration Committee shall administer
-----------------
the Plan in a uniform, nondiscriminatory manner for the exclusive benefit of the
Participants and their Beneficiaries.
9.08 INTERESTED MEMBER. No member of the Administration Committee may
-----------------
decide or determine any matter concerning the distribution, nature, or method of
settlement of his own benefits under the Plan unless there is only one person
acting alone in the capacity as the Administration Committee.
9.09 FUNDING POLICY. The Administration Committee shall review, not
--------------
less often than annually, all pertinent Employee information and Plan data in
order to establish the funding policy of the Plan and to determine the
appropriate methods of carrying out the Plan's objectives. The Administration
Committee shall communicate annually to the Trustee and to any Plan Investment
Manager the Plan's short-term and long-term financial needs so investment policy
can be coordinated with Plan financial requirements.
9.10 INDIVIDUAL STATEMENT. As soon as practicable after the Valuation
--------------------
Date of each Plan Year but within the time prescribed by the Act and the
regulations under the Act, the Administration Committee will deliver to each
Participant (and to each Beneficiary) a statement reflecting the condition of
his Accrued Benefit in the Trust as of that date and such other information the
Act requires be furnished the Participant or Beneficiary. No Participant, except
a member of the Administration Committee, shall have the right to inspect the
records reflecting the Account of any other Participant.
9.11 BOOKS AND RECORDS. The Administration Committee shall maintain, or
-----------------
cause to be maintained, records which will adequately disclose at all times the
state of the Trust Fund and of each separate interest therein. The books, forms,
and methods of accounting shall be the responsibility of the Administration
Committee.
9.12 UNCLAIMED ACCOUNT PROCEDURE. Neither the Trustee nor the
---------------------------
Administration Committee shall be obliged to search for, or ascertain the
whereabouts of, any Participant or Beneficiary. The Administration Committee, by
certified or registered mail addressed to his last known address of record with
the Administration Committee or the
46
<PAGE>
Employer, shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his distributive share
or make his whereabouts known in writing to the Administration Committee within
six (6) months from the date of mailing of the notice, or before this Plan is
terminated or discontinued, whichever should first occur, the Administration
Committee shall direct the Trustee to segregate the Participant's unclaimed
Accrued Benefit in a segregated interest bearing Account in the name of the
Participant or Beneficiary. The Administration Committee shall then notify the
Social Security Administration of the Participant's (or Beneficiary's) failure
to claim the distribution to which he is entitled. The Administration Committee
shall request the Social Security Administration to notify the Participant (or
Beneficiary) in accord with the procedures it has established for this purpose.
The segregated Account shall be entitled to all income it earns and shall bear
all expense or loss it incurs.
47
<PAGE>
ARTICLE X
PARTICIPANT ADMINISTRATIVE PROVISIONS
10.01 BENEFICIARY DESIGNATION. Any Participant may from time to time
-----------------------
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee shall pay his Accrued Benefit in the event of his death. A
Participant's Beneficiary designation shall not be valid unless the
Participant's spouse consents to the Beneficiary designation. A Participant's
Beneficiary designation does not require spousal consent if the Participant's
spouse is the Participant's designated Beneficiary, or if the Participant and
his spouse were not married throughout the one-year period ending on the date of
the Participant's death. The spousal consent shall be in a manner consistent
with (S) 401(a)(11) and (S) 417(a)(2)(A) of the Code, shall be in writing, shall
acknowledge the effect of the consent, and shall be witnessed by a notary public
or the Plan Administrator (or his representative). The Administration Committee
shall prescribe the form for the written designation of Beneficiary and, upon
the Participant's filing the form with the Administration Committee, it
effectively shall revoke all designations filed prior to that date by the same
Participant.
10.02 NO BENEFICIARY DESIGNATION. If a Participant fails to name a
--------------------------
Beneficiary in accordance with Section 10.01, or if the Beneficiary named by a
Participant predeceases him or dies before complete distribution of the
Participant's Accrued Benefit, then the Trustee shall pay the Participant's
Accrued Benefit in accordance with Article VII hereof in the following order of
priority:
(a) To the Participant's surviving spouse;
(b) To the Participant's surviving children, including adopted
children, in equal shares;
(c) To the Participant's surviving parents, in equal shares; or
(d) To the legal representative of the estate of the last to
die of the Participant and his Beneficiary.
The Administration Committee shall direct the Trustee as to the method
and to whom the Trustee shall make payment under this Section 10.02.
10.03 PERSONAL DATA TO ADMINISTRATION COMMITTEE. Each Participant and
-----------------------------------------
Beneficiary must furnish to the Administration Committee evidence, data, or
information as the Administration Committee considers necessary or desirable for
the purpose of administering the Plan. The provisions of this Plan are effective
for the benefit of each Participant upon the condition precedent that each
Participant will furnish promptly full, true, and complete evidence, data, and
information when requested by the Administration Committee, provided the
48
<PAGE>
Administration Committee shall advise each Participant of the effect of his
failure to comply with its request.
10.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary
------------------------
of a deceased Participant shall file with the Administration Committee, in
writing, his post office address, and each subsequent change of such post office
address. Any payment or distribution hereunder, and any communication addressed
to a Participant or his Beneficiary, mailed to the last address filed with the
Administration Committee, or if no such address has been filed, then to the last
address indicated on the records of the Employer, shall be deemed to have been
delivered to the Participant or his Beneficiary on the date that such
distribution or communication is deposited in the United States Mail, postage
prepaid.
10.05 ASSIGNMENT OR ALIENATION. Subject to Code (S) 414(p) relating to
------------------------
qualified domestic relations orders, no benefit payable under the Plan shall be
subject in any manner to alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, including any such liability which is for alimony or
other payments for the support of a spouse or former spouse, or for any other
relative of the Participant, prior to actually being received by the person
entitled to the benefit under the terms of the Plan. The Trust Fund shall not in
any manner be liable for, or subject to, the debts, contracts, liabilities,
engagements, or torts of any person entitled to benefits hereunder.
10.06 LITIGATION AGAINST THE TRUST. If any legal action which is filed
----------------------------
against the Trustee, Board of Directors, or the Administration Committee, or
against any member or members of the Administration Committee or Board of
Directors, by or on behalf of any Participant or Beneficiary, results adversely
to the Participant or to the Beneficiary, the Trustee shall reimburse itself,
the Board of Directors, Administration Committee, and any member or members of
the Administration Committee or Board of Directors, all costs and fees expended
by it or them by surcharging all costs and fees against the same payable under
the Plan to the Participant or to the Beneficiary, but only to the extent a
court of competent jurisdiction specifically authorizes and directs any such
surcharges.
10.07 INFORMATION AVAILABLE. Any Participant in the Plan or any
---------------------
Beneficiary may examine copies of the summary plan description, the latest
annual report, any bargaining agreement, this Plan, contracts, or any other
instrument under which the Plan was established or is operated. The
Administration Committee will maintain all of the items listed in this Section
in its office, or in such other place or places as may be designated from time
to time in order to comply with the regulations issued under the Act, for
examination during reasonable business hours. Upon the written request of a
Participant or Beneficiary, the Administration Committee shall furnish him with
a copy of any item listed in this Section. The Administration Committee may make
a reasonable charge to the requesting person for the copy so furnished.
10.08 BENEFICIARY'S RIGHT TO INFORMATION. A Beneficiary's right to (and
----------------------------------
the Administration Committee's duty to provide to the Beneficiary) information
or data concerning
49
<PAGE>
the Plan shall not arise until he first becomes entitled to receive a benefit
under the Plan.
10.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Administration
---------------------------------------
Committee shall provide adequate notice in writing to any Participant or to any
Beneficiary ("Claimant") whose claim for benefits under the Plan has been
denied. The Administration Committee's notice to the Claimant shall set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which
the Administration Committee based its denial;
(c) A description of any additional material and information
needed for the Claimant to perfect his claim and an explanation of why
the material or information is needed;
(d) A statement that the Claimant may;
(i) Request a review upon written application to the
Administration Committee;
(ii) Review pertinent Plan documents; and
(iii) Submit issues and comments in writing; and
(e) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Administration Committee within
seventy-five (75) days after receipt of the Administration Committee's
notice of denial of benefits. The Administration Committee's notice
must further advise the Claimant that his failure to appeal the action
to the Administration Committee in writing within the seventy-five
(75)-day period will render the Administration Committee's
determination final, binding, and conclusive.
If the Claimant should appeal to the Administration Committee, he, or
his duly authorized representative, may submit, in writing, whatever issues and
comments he, or his duly authorized representative, feels are pertinent. The
Administration Committee shall re-examine all facts related to the appeal and
make a final determination as to whether the denial of benefits is justified
under the circumstances. The Administration Committee shall advise the Claimant
of its decision within sixty (60) days of the Claimant's written request for
review, unless special circumstances (such as a hearing) would make a rendering
of a decision within the sixty (60) day limit infeasible, but in no event shall
the Administration Committee render a decision respecting a denial for a claim
for benefits later than one hundred twenty (120) days after its receipt of a
request for review. A written statement stating the decision on review, the
specific reasons for the decision, and the specific Plan provisions on which the
decision is based shall be mailed or delivered to the
50
<PAGE>
Claimant within such sixty (60) (or one hundred twenty (120)) day period.
The Administration Committee's notice of denial of benefits shall
identify the name of each member of the Administration Committee and the name
and address of the Administration Committee member to whom the Claimant may
forward his appeal.
10.10 NO RIGHTS IMPLIED. Nothing contained in this Plan, or any
-----------------
modification or amendment to the Plan, or in the creation of any benefit, or the
payment of any benefit, shall give any Employee, Participant, or any Beneficiary
any right to continue employment, or any legal or equitable right against the
Employer or any officer, director, or Employee of the Employer, or its agents or
employees, except as expressly provided by the Plan, or the Act.
10.11 NOTICE OF CHANGE OF TERMS. The Plan Administrator, within the
-------------------------
time prescribed by the Act and the applicable regulations, shall furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by the Act to be furnished without charge.
51
<PAGE>
ARTICLE XI
FIDUCIARIES' DUTIES
11.01 NAMED FIDUCIARY. The "Named Fiduciary" of the Plan shall consist
---------------
of the following:
(a) The Employer;
(b) The Administration Committee;
(c) The Trustee; and
(d) Such other person or persons that are designated to carry
out fiduciary responsibilities under the Plan in accordance with
Section 11.03(c) hereof.
Any person or group of persons may serve in more than one fiduciary capacity
with respect to the Plan. A Named Fiduciary may employ one or more persons to
render advice with regard to any responsibility such Named Fiduciary has under
the Plan.
11.02 ALLOCATION OF RESPONSIBILITIES. The powers and responsibilities
------------------------------
of the Named Fiduciary are hereby allocated as indicated below:
(a) Employer. The Employer shall be responsible for all
--------
functions assigned or reserved to it under the Plan and Trust
Agreement. Any authority assigned or reserved to the Employer under the
Plan and Trust Agreement shall be exercised by resolution of the
Employer's Board of Directors.
(b) Administration Committee. The Administration Committee
------------------------
shall have the responsibility and authority to control the operation
and administration of the Plan in accordance with the terms of the Plan
and Trust Agreement, except with respect to duties and responsibilities
specifically allocated to other fiduciaries. The Administration
Committee shall have the responsibility and authority to control the
investment of the Trust Fund in accordance with the terms of the Plan
and Trust Agreement, except with respect to duties and responsibilities
specifically allocated to other fiduciaries. The Administration
Committee shall have the authority to issue written directions to the
Trustee to the extent provided in the Trust Agreement. The Trustee
shall follow the Administration Committee's directions unless it is
clear that the actions to be taken under those directions would be
violations of applicable fiduciary standards or would be contrary to
the terms of the Plan or Trust Agreement.
(c) Trustee. The Trustee shall have the duties and
-------
responsibilities set out in the Trust Agreement, subject, however, to
direction by the Administration Committee as
52
<PAGE>
set out in the Trust Agreement.
(d) Allocation. Powers and responsibilities may be allocated
----------
to other fiduciaries in accordance with Section 11.03 hereof, or as
otherwise provided herein or in the Trust Agreement.
This Article is intended to allocate to each Named Fiduciary the individual
responsibility for the prudent execution of the functions assigned to it, and
none of such responsibilities or any other responsibility shall be shared by two
or more of such Named Fiduciaries unless such sharing shall be provided by a
specified provision of the Plan or Trust Agreement.
11.03 PROCEDURES FOR DELEGATION AND ALLOCATION OF RESPONSIBILITIES.
------------------------------------------------------------
Fiduciary responsibilities may be allocated as follows:
(a) The Administration Committee may specifically allocate
responsibilities to a specified member or members of the Administration
Committee.
(b) The Administration Committee may designate a person or
persons other than a Named Fiduciary to carry out fiduciary
responsibilities under the Plan. This authority shall not cause any
person or persons employed to perform ministerial acts and services for
the Plan to be deemed fiduciaries of the Plan.
(c) The Administration Committee may appoint an Investment
Manager or managers to manage (including the power to acquire and
dispose of) the assets of the Plan (or a portion thereof).
(d) If at any time there be more than one Trustee serving
under the Trust Agreement, such Trustees may allocate specific
responsibilities, obligations, or duties among themselves in such
manner as they shall agree.
Any allocation of responsibilities pursuant to this Section shall be made by
filing a written notice thereof with the Administration Committee specifically
designating the person or persons to whom such responsibilities or duties are
allocated and specifically setting out the particular duties and
responsibilities with respect to which the allocation or designation is made.
11.04 GENERAL FIDUCIARY STANDARDS. Subject to Section 11.05 hereof, a
---------------------------
Named Fiduciary shall discharge his duties with respect to the Plan solely in
the interest of the Participants and their Beneficiaries,
(a) for the exclusive purpose of providing benefits to
Participants and their Beneficiaries and defraying reasonable expenses
of administering the Plan; and
(b) with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters
53
<PAGE>
would use in the conduct of any enterprise of a like character and with
like aims; and
(c) by diversifying the investments of the Plan, other than
the investment in Employer Securities, so as to minimize the risk of
large losses, unless under the circumstances it is clearly prudent not
to do so; and
(d) in accordance with the documents and instruments governing
the Plan, insofar as such documents and instruments are consistent with
the provisions of Title I of the Act.
11.05 LIABILITY AMONG CO-NAMED FIDUCIARIES.
------------------------------------
(a) General. Except for any liability which he may have under
-------
the Act, a fiduciary shall not be liable for the breach of a fiduciary
duty or responsibility by another fiduciary of the Plan except in the
following circumstances:
(i) He participates knowingly in, or knowingly undertakes
to conceal, an act or omission of such other fiduciary, knowing
such act or omission is a breach;
(ii) By his failure to comply with the general fiduciary
standards set out in Section 11.04 hereof in the administration
of his specific responsibilities which give rise to his status as
a fiduciary to commit a breach; or
(iii) He has knowledge of a breach by such other fiduciary
and he does not undertake reasonable efforts under the
circumstances to remedy the breach.
(b) Co-Trustees. In the event that there are two or more
-----------
Trustees serving under the Trust Agreement, each should use reasonable
care to prevent a Co-Trustee from committing a breach of fiduciary
responsibility and they shall jointly manage and control assets of the
Plan, except that in the event of an allocation of responsibilities,
obligations, or duties, a Trustee to whom such responsibilities,
obligations, or duties have not been allocated shall not be liable to
any person by reason of this Section, either individually or as a
Trustee, for any loss resulting to the Plan arising from the acts or
omissions on the part of the Trustee to whom such responsibilities,
obligations, or duties have been allocated.
(c) Liability Where Allocation is in Effect. To the extent
---------------------------------------
that fiduciary responsibilities are specifically allocated by a Named
Fiduciary, or pursuant to the express terms hereof, to any person or
persons, then such Named Fiduciary shall not be liable for any act or
omission of such person in carrying out such responsibility except to
the extent that the Named Fiduciary violated Section 11.04 hereof: (i)
with respect to such allocation or designation, (ii) with respect to
the establishment or implementation of the procedure for making such an
allocation or designation, (iii) in continuing the allocation or
54
<PAGE>
designation, or (iv) the Named Fiduciary would otherwise be liable in
accordance with this Section 11.05.
(d) Liability of Trustee Following Administration Committee
-------------------------------------------------------
Directions. No Trustee shall be liable for following instructions of
----------
the Administration Committee given pursuant to Section 11.02(b) and (c)
hereof.
(e) No Responsibility for Employer Action. Neither the Trustee
-------------------------------------
nor the Administration Committee shall have any obligation or
responsibility with respect to any action required by the Plan to be
taken by the Employer, any Participant or eligible Employee, or the
failure of any of the above persons to act or make any payment or
contribution, or to otherwise provide any benefit contemplated under
this Plan, nor shall the Trustee or the Administration Committee be
required to collect any contribution required under the Plan, or
determine the correctness of the amount of any Employer contribution.
(f) No Duty to Inquire. Neither the Trustee nor the
------------------
Administration Committee shall have any obligation to inquire into or
be responsible for any action or failure to act on the part of others.
(g) Liability of Trustee Where Investment Manager Appointed.
-------------------------------------------------------
If an Investment Manager has been appointed pursuant to Section
11.03(c) hereof, then neither the Trustee nor the Administration
Committee shall be liable for the acts or omissions of such Investment
Manager, or be under any obligation to invest or otherwise manage any
assets of the Plan which are subject to the management of such
Investment Manager.
(h) Successor Fiduciary. No Named Fiduciary shall be liable
-------------------
with respect to any breach of fiduciary duty if such breach was
committed before he became a Named Fiduciary or after he ceased to be a
Named Fiduciary.
55
<PAGE>
ARTICLE XII
DISCONTINUANCE, AMENDMENT AND TERMINATION
12.01 DISCONTINUANCE. The Employer shall have the right, at any time,
--------------
to suspend or discontinue its contribution under the Plan.
12.02 AUTHORITY TO AMEND THE PLAN. The Employer may amend the Plan at
---------------------------
any time. However, it shall be impossible, at any time before the satisfaction
of all liabilities hereunder, for any monies to revert to the Employer or be
used for any purpose other than the exclusive benefit of the Participants and
persons claiming through them.
Provided however, that the amendment of the Plan (including any
Restatement) shall not:
(a) revise the vested Accrued Benefit of a Participant
determined as of the later of the date such amendment is adopted, or
the date such amendment becomes effective, if such revised vested
Accrued Benefit is less than that computed under the Plan without
regard to such amendment; or
(b) revise the vesting schedule under the Plan unless each
Participant having at least three (3) years or more of Service is
permitted to elect within a reasonable period after the adoption of
such amendment to have his vested Accrued Benefit computed under the
Plan without regard to such amendment. For Plan Years beginning prior
to January 1, 1989, the election described above applies only to
Participants having at least five (5) Years of Service with the
Employer. A reasonable period for purposes of this Section 12.02(b)
shall be a period which begins no later than the date the Plan
amendment is adopted and ends no later than the last to occur of the
following:
(i) sixty (60) days after the day the Plan
amendment is adopted;
(ii) sixty (60) days after the day on which the Plan
amendment becomes effective; or
(iii) sixty (60) days after a Participant is issued
written notice of the Plan amendment.
Provided further, no amendment shall:
(a) Authorize or permit any of the Trust Fund (other than the
part which is required to pay taxes and administration expenses) to be
used for or diverted to purposes other than for the exclusive benefit
of the Participants or their Beneficiaries;
(b) Cause or permit any portion of the Trust Fund to revert to
or become the
56
<PAGE>
property of the Employer;
(c) Increase the duties or responsibilities of the Trustee or
the Administration Committee without the written consent of the
affected Trustee or the affected member of the Administration
Committee.
The Employer shall make all amendments in writing. Each amendment shall state
the date to which it is either retroactively or prospectively effective.
12.03 TERMINATION. The Employer shall have the right to terminate the
-----------
Plan at any time. The Plan shall terminate upon the first to occur of the
following:
(a) The date terminated by action of the Board of Directors;
(b) The date the Employer shall be judicially declared
bankrupt or insolvent; or
(c) The dissolution, merger, consolidation, or reorganization
of the Employer or the sale by the Employer of all or substantially all
of its assets, unless the successor or purchaser makes provisions to
continue the Plan, in which event the successor or purchaser shall be
substituted as the Employer under this Plan.
12.04 VESTING ON TERMINATION OR SUSPENSION. Notwithstanding any other
------------------------------------
provision of the Plan to the contrary, upon the date of full or partial
termination of the Plan, or, upon complete discontinuance of contributions to
the Plan, an affected Participant's right to his Accrued Benefit shall be one
hundred percent (100%) Nonforfeitable. The Administration Committee shall
interpret and administer this Section 12.04 in accord with the intent and scope
of the regulations issued under Code (S) 411(d)(3).
12.05 PROCEDURE ON TERMINATION. In the event of termination of the Plan
------------------------
or permanent discontinuance of Employer contributions, the Employer shall, in
its sole discretion, authorize any one of the following procedures:
(a) Continue Plan. To continue the Plan in operation in all
-------------
respects until the Trustee has distributed all benefits under the Plan,
except that no further persons shall become Participants, no further
Employee contributions shall be made, all Accounts shall be fully
vested, and no further payments shall be made except in distribution of
the Trust Fund and payment of administration expenses; or
(b) Liquidate Plan. To wind up and liquidate the Plan and
--------------
Trust and distribute the assets thereof after deduction of all expenses
to the Participants, Former Participants, and Beneficiaries in
accordance with their respective Accounts as then constituted. If the
Employer makes no election before termination, then this subsection (b)
will govern distribution of the Trust Fund.
57
<PAGE>
12.06 MERGER. The Trustee shall not consent to, or be a party to, any
------
merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless immediately after the merger, consolidation,
or transfer, the surviving Plan provides each Participant a benefit equal to or
greater than the benefit each Participant would have received had the Plan
terminated immediately before the merger, consolidation, or transfer.
12.07 NOTICE OF CHANGE OF TERMS. The Administration Committee, within
-------------------------
the time prescribed by the Act and applicable regulations, shall furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by the Act to be furnished without charge.
12.08 INITIAL QUALIFICATION. Notwithstanding any other provisions of
---------------------
this Plan, the Employer's adoption of this Plan is subject to the condition
precedent that the Plan initially shall be approved and deemed qualified by the
Internal Revenue Service as satisfying the requirements of (S) 401(a) of the
Code and that the Trust shall be entitled to exemption under the provisions of
(S) 501(a). In the event the Employer shall fail to secure such initial
determination, the contributions made by the Employer together with any income
received or accrued thereon less any expenses paid shall be returned to the
Employer and the Plan and Trust shall terminate. No Participant or Beneficiary
shall have any right or claim to the Trust Fund or to any benefit under the Plan
before the Internal Revenue Service initially determines that the Plan and Trust
qualify under the provisions of (S)(S) 401(a) and 501(a) of the Code.
12.09 REVERSION OF EXCESS ACCOUNT. Notwithstanding any provisions
---------------------------
contained herein to the contrary, the Employer reserves the right to recover
upon the termination of the Plan and Trust Fund any amounts held in an excess
account that cannot be allocated to the accounts of Participants and their
Beneficiaries in the year of termination because of the limitations contained in
Article III of the Plan and (S) 415 of the Code after the satisfaction of all
fixed and contingent obligations to Participants and their Beneficiaries under
the Plan.
58
<PAGE>
ARTICLE XIII
THE TRUST
13.01 PURPOSE OF THE TRUST FUND. A Trust Fund has been created and will
-------------------------
be maintained for the purposes of the Plan, and the assets thereof shall be
invested in accordance with the terms of the Trust Agreement. The primary
purpose of the Plan is for the investment in Employer Securities. The Trustee
will apply contributions to pay any outstanding obligations of the Trust
incurred for the purchase of Employer Securities or they may be applied to
purchase additional Employer Securities from current shareholders, treasury
shares, or newly issued shares from the Company. All contributions will be paid
into the Trust Fund, and all benefits under the Plan will be paid from the Trust
Fund.
13.02 APPOINTMENT OF TRUSTEE. Trustee(s) shall be appointed by the
----------------------
Board of Directors to administer the Trust Fund. The Trustee's obligations,
duties, and responsibilities shall be governed solely by the terms of the Trust
Agreement.
13.03 EXCLUSIVE BENEFIT OF PARTICIPANTS. Subject to Sections 3.04 and
---------------------------------
12.08 hereof, the Trust Fund will be used and applied only in accordance with
the provisions of the Plan to provide the benefits thereof, and no part of the
corpus or income of the Trust Fund shall be used for or diverted to purposes
other than for the exclusive benefit of the Participants and their Beneficiaries
and with respect to expenses of administration. Notwithstanding the preceding
sentence, as provided in Section 12.09 hereof, the Employer reserves the right
to recover any amounts held in an excess account at the termination of the Trust
Fund that cannot be allocated to the accounts of Participants and their
Beneficiaries in the year of termination because of the limitations contained in
Article III of the Plan and (S) 415 of the Code.
13.04 BENEFITS SUPPORTED ONLY BY THE TRUST FUND. Any person having any
-----------------------------------------
claim under the Plan will look solely to the assets of the Trust Fund for
satisfaction.
59
<PAGE>
ARTICLE XIV
TOP HEAVY RULES
14.01 MINIMUM EMPLOYER CONTRIBUTION. If this Plan is top heavy in any
-----------------------------
Plan Year, the Plan guarantees a minimum contribution (subject to the provisions
of this Article XIV) of three percent (3%) of Compensation for each Non-Key
Employee who is a Participant employed by the Employer on the Valuation Date of
the Plan Year, without regard to Hours of Service completed by such Participant
during the Plan Year. The Plan satisfies the guaranteed minimum contribution for
the Non-Key Employee if the Non-Key Employee's contribution rate is at least
equal to the minimum contribution. For purposes of this paragraph, a Non-Key
Employee Participant includes any Employee otherwise eligible to participate in
the Plan but who is not a Participant because his Compensation does not exceed a
specified level.
If the contribution rate for the Key Employee with the highest
contribution rate is less than three percent (3%), the guaranteed minimum
contribution for Non-Key Employees shall equal the highest contribution rate
received by a Key Employee. The contribution rate is the sum of Employer
contributions (not including Employer contributions to Social Security) and
forfeitures allocated to the Participant's Account for the Plan Year divided by
his Compensation for the Plan Year. For purposes of determining the minimum
contribution, the Administration Committee shall consider contributions made to
any plan pursuant to a salary reduction agreement or similar arrangement as
Employer contributions with respect to Highly Compensated Employees, but shall
not consider such contributions as Employer contributions with respect to
non-Highly Compensated Employees. To determine the contribution rate, the
Administration Committee shall consider all qualified top heavy defined
contribution plans maintained by the Employer as a single plan.
14.02 ADDITIONAL CONTRIBUTION. If the contribution rate for the Plan
-----------------------
Year with respect to a Non-Key Employee described in Section 14.01 is less then
the minimum contribution, the Employer will increase its contribution for such
Employee to the extent necessary so his contribution rate for the Plan Year will
equal the guaranteed minimum contribution. The Administration Committee shall
allocate the additional contribution to the Account of the Non-Key Employee for
whom the Employer makes the contribution.
14.03 DETERMINATION OF TOP HEAVY STATUS. The Plan is top heavy for a
---------------------------------
Plan Year if the top heavy ratio as of the Determination Date exceeds sixty
percent (60%). The top heavy ratio is a fraction, the numerator of which is the
sum of the present value of Accrued Benefits of all Key Employees as of the
Determination Date, the contributions due as of the Determination Date, and
distributions made within the five (5) Plan Year period ending on the
Determination Date, and the denominator of which is a similar sum determined for
all Employees. The Administration Committee shall calculate the top heavy ratio
by disregarding the Accrued Benefit of any Non-Key Employee who was formerly a
Key Employee. The Administration Committee shall calculate the top heavy ratio
by disregarding the Accrued Benefit (including
60
<PAGE>
distributions, if any, of the Accrued Benefit) of an individual who has not
performed any service for the Employer during the five (5) Plan Year period
ending on the Determination Date. The Administration Committee shall calculate
the top heavy ratio, including the extent to which it must take into account
distributions, rollovers and transfers, in accordance with Code (S) 416 and the
regulations under that Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), this Plan is top heavy only if it is a part of the
Required Aggregation Group, and the top heavy ratio for both the Required
Aggregation Group and the Permissive Aggregation Group exceeds sixty percent
(60%). The Administration Committee will calculate the top heavy ratio in the
same manner as required by the first paragraph of this Section 14.03, taking
into account all plans within the Aggregation Group. To the extent the
Administration Committee must take into account distributions to a Participant,
the Administration Committee shall include distributions from a terminated plan
which would have been part of the Required Aggregation Group if it were in
existence on the Determination Date. The Administration Committee shall
calculate the present value of Accrued Benefits and the other amounts the
Administration Committee must take into account under defined benefit plans or
simplified employee pension plans included within the group in accordance with
the terms of those plans, Code (S) 416 and the regulations under that Code
section. If an aggregated plan does not have a valuation date coinciding with
the Determination Date, the Administration Committee shall value the Accrued
Benefits in the aggregated plan as of the most recent valuation date falling
within the twelve-month period ending on the Determination Date. The
Administration Committee shall calculate the top heavy ratio with reference to
the Determination Dates that fall within the same calendar year.
14.04 LIMITATION ON ALLOCATIONS. If, during any Limitation Year, this
-------------------------
Plan is top heavy, the Administration Committee shall apply the limitations of
Article III to a Participant by substituting "100%" for "125%" each place it
appears in Section 3.06. This Section 14.04 shall not apply if:
(a) The contribution rate for a Non-Key Employee who
participates only in the defined contribution plan(s) would satisfy
Section 14.01 if the Administration Committee substituted four percent
(4%) for three percent (3%).
(b) A Non-Key Employee who participates in the top heavy
defined benefit plan(s) receives an extra minimum contribution or
benefit which satisfies Code (S) 416(h)(2); and
(c) The top heavy ratio does not exceed ninety percent (90%).
14.05 DEFINITIONS. For purposes of applying the provisions of this
-----------
Article XIV:
(a) "Key Employee" shall mean, as of any Determination Date,
any Employee or former Employee (or Beneficiary of such Employee) who,
at any time
61
<PAGE>
during the Plan Year (which includes the Determination Date) or during
the preceding four (4) Plan Years, is an officer (having annual
Compensation in excess of 150% of the Code (S) 415(c)(1)(A) limitation
in effect for any such Plan Years) of the Employer, one of the
Employees (having annual Compensation in excess of the Code (S)
415(c)(1)(A) limitation in effect for any such Plan Years) owning the
ten (10) largest interests in the Employer, a more than five percent
(5%) owner of the Employer, or a more than one percent (1%) owner of
the Employer who has annual Compensation of more than $150,000. The
constructive ownership rules of Code (S) 318 (or the principles of that
section, in the case of an unincorporated Employer,) will apply to
determine ownership in the Employer. The Administration Committee will
make the determination of who is a Key Employee in accordance with Code
(S) 416(i) and the regulations under that Code section.
(b) "Non-Key Employee" is an Employee who does not meet the
definition of Key Employee.
(c) "Required Aggregation Group" means:
(1) Each qualified plan of the Employer in which at least
one (1) Key Employee participates; and
(2) Any other qualified plan of the Employer which enables
a plan described in (1) to meet the requirements of Code (S)
401(a)(4) or Code (S) 410.
(d) "Permissive Aggregation Group" is the Required Aggregation
Group plus any other qualified plans maintained by the Employer, but
only if such group would satisfy in the aggregate the requirements of
Code (S) 401(a)(4) and Code (S) 410. The Administration Committee shall
determine which plans to take into account in determining the
Permissive Aggregation Group.
(e) "Employer" shall mean all the members of a controlled
group of corporations (as defined in Code (S) 414(b)), of a commonly
controlled group of trades or businesses (whether or not incorporated)
(as defined in Code (S) 414(c)), or an affiliated service group (as
defined in Code (S) 414(m)), of which the Employer is a part. However,
the Administration Committee shall not aggregate ownership interests in
more than one member of a related group to determine whether an
individual is a Key Employee because of his ownership interest in the
Employer.
(f) "Determination Date" for any Plan Year is the Valuation
Date of the preceding Plan Year or, in the case of the first Plan Year
of the Plan, the Valuation Date of that Plan Year.
62
<PAGE>
14.06 MINIMUM VESTING. For any Plan Year in which this Plan is top
---------------
heavy, the minimum vesting schedule will automatically apply to the Plan, unless
the vesting schedule specified in Section 5.05 of the Plan results in more rapid
vesting for Participants.
If the minimum vesting schedule automatically applies, it shall apply
to all benefits within the meaning of (S) 411(a)(7) of the Code except those
attributable to Employee contributions, including benefits accrued before the
effective date of Code (S) 416 and benefits accrued before the Plan became top
heavy. Further, no reduction in vested benefits may occur in the event the
Plan's status as top heavy changes for any Plan Year. However, this Section does
not apply to the Accrued Benefit of any Employee who does not have an Hour of
Service after the Plan has initially become top heavy, and such Employee's
Accrued Benefit attributable to Employer contributions and forfeitures will be
determined without regard to this Section.
The nonforfeitable interest of each Employee in his or her Accrued
Benefit attributable to Employer Contributions shall be determined on the basis
of the following:
20% vesting after 2 years of service
40% vesting after 3 years of service
60% vesting after 4 years of service
80% vesting after 5 years of service
100% vesting after 6 years of service
Should the Plan cease to be top heavy, the above-stated vesting schedule shall
revert to that stated in Article V subject to the conditions of Article XII and
it shall be deemed that all Participants having three (3) or more years of
Service shall have elected to retain the schedule stated in this Section if it
results in more rapid vesting.
14.07 NONAPPLICATION OF THIS ARTICLE. If the Participant is provided
------------------------------
with the minimum benefit required by (S) 416 of the Code which is subject to the
above-stated vesting schedule in another plan of the Employer, the provisions of
this Article XIV will have no application.
63
<PAGE>
ARTICLE XV
MISCELLANEOUS
15.01 EXECUTION OF RECEIPTS AND RELEASES. Any payment to any
----------------------------------
Participant, or to his legal representative or Beneficiary, in accordance with
the provisions of the Plan, shall to the extent thereof be in full satisfaction
of all claims hereunder against the Plan and Trust. The Administration Committee
may require such a Participant, legal representative, or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release therefor
in such form as it shall determine.
15.02 NO GUARANTEE OF INTERESTS. Neither the Trustee, the
-------------------------
Administration Committee, nor the Employer guarantee the Trust Fund from loss or
depreciation. The Employer does not guarantee the payment of any money which may
be due or may become due to any person from the Trust Fund. The liability of the
Administration Committee and the Trustee to make any payment from the Trust Fund
is limited to the then available assets of the Trust.
15.03 PAYMENT OF EXPENSES. All expenses incident to the administration,
-------------------
termination, protection of the Plan and Trust, including but not limited to
legal, accounting, and Trustee fees, shall be paid by the Employer, except that
in case of failure of the Employer to pay the expenses, they will be paid from
the Trust Fund, and until paid, shall constitute a first and prior claim and
lien against the Trust Fund.
15.04 EMPLOYER RECORDS. Records of the Employer as to an Employee's or
----------------
Participant's period of employment, termination of employment and the reason
therefor, leaves of absence, re-employment, and compensation will be conclusive
on all persons, unless determined to be incorrect.
15.05 INTERPRETATIONS AND ADJUSTMENTS. To the extent permitted by law,
-------------------------------
an interpretation of the Plan and a decision of any matter within the Named
Fiduciary's discretion made in good faith is binding on all persons. A
misstatement or other mistake of fact shall be corrected when it becomes known
and the person responsible shall make such adjustment on account thereof as he
considers equitable and practicable.
15.06 UNIFORM RULES. In the administration of the Plan, uniform rules
-------------
will be applied to all Participants similarly situated.
15.07 EVIDENCE. Evidence required of anyone under the Plan may be by
--------
certificate, affidavit, document, or other information which the person acting
on it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
15.08 SEVERABILITY. In the event any provision of the Plan shall be
------------
held to be illegal or invalid for any reason, the illegal or invalid provisions
of the Plan shall be fully severable and
64
<PAGE>
the Plan shall be construed and enforced as if the illegal or invalid provision
had never been included herein.
15.09 NOTICE. Any notice required to be given herein by the Trustee,
------
the Employer, or the Administration Committee, shall be deemed delivered, when
(a) personally delivered, or (b) placed in the United States mail, postage
prepaid, in an envelope addressed to the last known address of the person to
whom the notice is given.
15.10 WAIVER OF NOTICE. Any person entitled to notice under the Plan
----------------
may waive the notice.
15.11 SUCCESSORS. The Plan shall be binding upon all persons entitled
----------
to benefits under the Plan, their respective heirs and legal representatives,
upon the Employer, its successors and assigns, and upon the Trustee, the
Administration Committee, and their successors.
15.12 HEADINGS. The titles and headings of Articles and Sections are
--------
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
15.13 GOVERNING LAW. All questions arising with respect to the
-------------
provisions of this Agreement shall be determined by application of the laws of
the State of North Carolina except to the extent North Carolina law is preempted
by Federal statute.
Signed the ______ day of ____________________, 1997, effective as of
the 1st day of January, 1997.
MOORESVILLE SAVINGS BANK, SSB
By:
_________________________________
President
ATTEST:
____________________________
Secretary
65
<PAGE>
EMPLOYEE STOCK OWNERSHIP TRUST
OF
MOORESVILLE SAVINGS BANK, SSB
Prepared By:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Greensboro and Raleigh, North Carolina
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
RECITALS...............................................................................1
TITLE AND DESCRIPTIONS.................................................................2
1.01 TITLE...............................................................2
1.02 TERMS DEFINED IN PLAN...............................................2
1.03 WORD USAGE..........................................................2
PLAN AND TRUST COMPLEMENTARY...........................................................3
2.01 COMPLEMENTARY.......................................................3
2.02 INTENT TO QUALIFY...................................................3
CONTRIBUTIONS..........................................................................4
3.01 CONTRIBUTIONS.......................................................4
3.02 COMMINGLING OF FUNDS................................................4
PAYMENTS FROM TRUST FUND...............................................................5
4.01 DISTRIBUTIONS.......................................................5
4.02 DIRECTION BY PLAN ADMINISTRATOR.....................................5
4.03 TRUST FUND FOR EXCLUSIVE BENEFIT OF PARTICIPANTS....................5
4.04 LIABILITY FOR PAYMENTS..............................................5
4.05 RETURN OF EMPLOYER CONTRIBUTIONS....................................5
4.06 PAYMENT IN THE EVENT OF DISABILITY OR INCAPACITY....................5
INVESTMENT OF TRUST FUND...............................................................7
5.01 INVESTMENTS.........................................................7
5.02 INVESTMENT MANAGER..................................................7
5.03 DIRECTION OF INVESTMENTS............................................8
5.04 SEPARATE INVESTMENT ACCOUNTS........................................9
5.05 INVESTMENT IN POOLED FUND...........................................9
POWERS OF THE TRUSTEE.................................................................10
6.01 INVESTMENT POWERS..................................................10
6.02 ANCILLARY TRUSTEE..................................................12
ADMINISTRATIVE PROVISIONS.............................................................14
7.01 ACCOUNTS AND RECORDS...............................................14
7.02 INTENTION TO QUALIFY...............................................14
7.03 PLAN ADMINISTRATOR ACTION..........................................14
7.04 VALUATION OF TRUST.................................................14
</TABLE>
<PAGE>
<TABLE>
Page
<S> <C> <C>
7.05 EMPLOYER ACTION....................................................15
7.06 RELIANCE ON WRITTEN INSTRUMENT.....................................15
7.07 LIABILITY FOR PAYMENT OF FUNDS.....................................15
7.08 LIABILITY OF TRUSTEE...............................................15
7.09 COURT PROCEEDINGS..................................................15
7.10 PARTIES TO LITIGATION..............................................15
7.11 THIRD PARTY........................................................15
7.12 AUTHORIZATION WITH RESPECT TO TAXES................................16
7.13 CONSULTATION WITH COUNSEL..........................................16
7.14 NO INTEREST IN EMPLOYER............................................16
7.15 FEES AND EXPENSES..................................................16
7.16 BONDING OF TRUSTEE.................................................16
7.17 RELATIONSHIP OF FIDUCIARIES........................................16
7.18 PRUDENT MAN RULE...................................................17
7.19 ALIENATION.........................................................17
7.20 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER
APPOINTED..................................................17
7.21 INSURANCE COMPANY PROTECTED........................................17
TRUSTEE LIABILITY.....................................................................18
8.01 TRUSTEE LIABILITY..................................................18
SUBSTITUTION OF TRUSTEE...............................................................19
9.01 TRUSTEE............................................................19
9.02 RESIGNATION........................................................19
9.03 REMOVAL............................................................19
9.04 SUCCESSION OF TRUSTEE..............................................19
9.05 MERGER OF CORPORATE TRUSTEE........................................19
AMENDMENT AND TERMINATION.............................................................20
10.01 AMENDMENT..........................................................20
10.02 TERMINATION........................................................20
10.03 SUSPENSION OF CONTRIBUTIONS........................................20
10.04 MERGER OR CONSOLIDATION............................................20
10.05 REVERSION OF SUSPENSE ACCOUNT......................................20
OTHER EMPLOYERS; SUCCESSOR EMPLOYERS..................................................21
11.01 ADOPTION BY OTHER EMPLOYERS........................................21
11.02 CONTINUATION BY EMPLOYER'S SUCCESSOR...............................21
MISCELLANEOUS PROVISIONS..............................................................22
12.01 CONTRIBUTIONS NOT RECOVERABLE......................................22
12.02 LIMITATIONS ON PARTICIPANTS' RIGHTS................................22
12.03 INDEMNIFICATION OF INDIVIDUAL TRUSTEE..............................22
12.04 RECEIPT OF RELEASE.................................................22
</TABLE>
<PAGE>
<TABLE>
Page
<S> <C> <C>
12.05 ACCEPTANCE.........................................................22
12.06 ACCOUNTING PERIOD..................................................22
12.07 TITLE OF TRUST ASSETS..............................................22
12.08 NOTICE.............................................................23
12.09 HEADINGS...........................................................23
12.10 GOVERNING LAW......................................................23
12.11 EXECUTIONS AND COUNTERPARTS........................................23
</TABLE>
<PAGE>
EMPLOYEE STOCK OWNERSHIP TRUST
OF
MOORESVILLE SAVINGS BANK, SSB
This Agreement by and between MOORESVILLE SAVINGS BANK, SSB, a North
Carolina corporation (the "Employer" and sometimes referred to herein as the
"Company"), and the undersigned Trustee(s) (the "Trustee").
RECITALS
--------
WHEREAS, MOORESVILLE SAVINGS BANK, SSB has adopted an Employee Stock
Ownership Plan for the benefit of its employees;
NOW, THEREFORE, the Employee Stock Ownership Trust of Mooresville
Savings Bank, SSB is hereby adopted in its entirety so that it shall provide as
follows:
1
<PAGE>
ARTICLE I
TITLE AND DESCRIPTIONS
1.01 TITLE. This Trust Agreement shall be known as the Employee Stock
-----
Ownership Trust of Mooresville Savings Bank, SSB.
1.02 TERMS DEFINED IN PLAN. The definitions set forth in the Plan are
---------------------
hereby incorporated by reference.
1.03 WORD USAGE. Words used in the masculine shall apply to the
----------
feminine where applicable, and wherever the context of the Plan dictates, the
plural shall be read as the singular and the singular as the plural.
2
<PAGE>
ARTICLE II
PLAN AND TRUST COMPLEMENTARY
2.01 COMPLEMENTARY. This Trust Agreement is established effective as of
-------------
the 1st day of January, 1997. The Trustee's rights, powers, titles, duties,
responsibilities, discretions, and immunities shall be governed solely by this
Trust Agreement except as specifically referenced in the provisions of the Plan.
2.02 INTENT TO QUALIFY. The Plan and Trust are intended to satisfy the
-----------------
requirements of Sections 401 and 501 of the Code and the requirements of the
Act, and all provisions hereof shall be construed to that result.
3
<PAGE>
ARTICLE III
CONTRIBUTIONS
3.01 CONTRIBUTIONS. The Trustee shall receive all contributions made to
-------------
it in cash or in other property acceptable to it. All contributions so received
together with the income therefrom and any other increment thereon shall be
held, managed, and administered by the Trustee pursuant to the terms of the Plan
and Trust without distinction between principal and income. The Trustee shall be
accountable to the Employer for the funds contributed to it by the Employer, but
shall have no duty to administer the Plan nor to determine that the
contributions received from the Employer comply with the provisions of the Plan
or that the assets of the Trust are adequate to provide any benefit payable
pursuant to the Plan. The Trustee shall not be obligated to collect any
contributions from the Employer, nor be obligated to see that funds deposited
with it are deposited according to the provisions of the Plan.
3.02 COMMINGLING OF FUNDS. Unless otherwise directed by the Plan
--------------------
Administrator, the Trustee shall hold, invest, and administer the Trust assets
as a single fund without identification of any part of the Trust assets to the
Employer or to any Participant or group of Participants or their Beneficiaries.
4
<PAGE>
ARTICLE IV
PAYMENTS FROM TRUST FUND
4.01 DISTRIBUTIONS. Payments shall be made from the Trust Fund by the
-------------
Trustee to such persons, in such manner, at such times, and in such amounts as
the Plan Administrator shall from time to time direct in writing, provided,
however, the Trustee may withhold compliance with the Plan Administrator's
direction to the extent that, and so long as, the Trustee shall deem such
withholding necessary to insure payment of the Trustee's expenses or to protect
the Trustee against liability for taxes or any other liability.
4.02 DIRECTION BY PLAN ADMINISTRATOR. The Trustee shall not be liable
-------------------------------
for any distribution made or acts done by it pursuant to written directions of
the Plan Administrator. The Trustee shall not be obligated to inquire as to
whether any payee or distributee is entitled to any payment or whether the
distribution is proper or within the terms of the Plan, or as to the manner of
making any payment or distribution. The Trustee shall be accountable only to the
Plan Administrator for any payment or distribution made by it on the order or
direction of the Plan Administrator.
4.03 TRUST FUND FOR EXCLUSIVE BENEFIT OF PARTICIPANTS. Subject to
------------------------------------------------
Section 4.05 hereof, it shall be impossible, at any time, for any part of the
Trust Fund, other than such part as is required to pay taxes and administration
expenses, to revert to the Employer, or to be used for, or diverted to, purposes
other than for the exclusive benefit of the Participants, Former Participants,
or their Beneficiaries prior to the satisfaction of all liabilities under the
Plan. The term "liability" as used herein includes both fixed and contingent
obligations owed to the Participants and their Beneficiaries. It shall be
impossible for the Employer to recover any portion of the Trust Fund other than
such amounts, if any, as may remain in the Trust Fund because of erroneous
actuarial calculations, after the satisfaction of all fixed and contingent
obligations to Participants and their Beneficiaries under the Plan.
4.04 LIABILITY FOR PAYMENTS. The liability of the Trustee to make
----------------------
payments from the Trust Fund is limited to the available assets of the Trust.
4.05 RETURN OF EMPLOYER CONTRIBUTIONS. Notwithstanding any provisions
--------------------------------
herein to the contrary, upon the Employer's request, a contribution which was
made upon a mistake of fact, conditioned upon qualification of the Plan, or upon
deductibility of the contribution under Section 404 of the Code, shall be
returned to the Employer within one year after payment of the contribution,
denial of the qualification, or disallowance of the deduction (to the extent
disallowed), as the case may be.
4.06 PAYMENT IN THE EVENT OF DISABILITY OR INCAPACITY. If any person
------------------------------------------------
entitled to benefits hereunder (the "Payee") shall be under a legal disability,
or, in the sole judgment of the Plan Administrator, shall be unable to apply
such payment in furtherance of his own interest and advantage, payments
hereunder may be made in any one or more of the
5
<PAGE>
following ways as directed by the Plan Administrator:
(a) To the Payee directly;
(b) To the guardian of his person or his estate;
(c) To a relative of the Payee, to be expended for his
benefit; or
(d) To the custodian of the Payee under any Uniform Gifts (or
Transfers) to Minors Act.
The Trustee shall not be obligated to determine whether any Payee is a minor or
is so incapacitated, but may rely on the Plan Administrator's directions as to
payment of benefits. The Plan Administrator's determination of minority or
incapacity of the Payee shall be final. Any payment made by the Trustee pursuant
to the powers herein conferred shall operate as a complete discharge of all
obligations of the Trustee and the Plan Administrator, to the extent of the
distributions so made.
6
<PAGE>
ARTICLE V
INVESTMENT OF TRUST FUND
5.01 INVESTMENTS. The Trust Fund, except such estimated amounts as in
-----------
the opinion of the Trustee are required by current payments and expenses, shall
be invested and reinvested by the Trustee without distinction between principal
and income in Employer Securities unless specifically provided to the contrary.
It is specifically acknowledged that the purpose of this Trust is to invest in
Employer Securities as provided in the Act. Subject to the provisions of this
Article V and Article VI hereof, the Trustee is authorized to invest and
reinvest the Trust Fund in such bonds, notes, debentures, mortgages,
interest-bearing accounts and certificates (including those maintained by the
Trustee, if the Trustee is a bank), investment trust certificates, preferred or
common stock, real estate, savings and loan accounts, interest in oil, gas and
minerals, Insurance Contracts, with or without cash surrender value, or in such
other property, real, personal or mixed, either within or without the state of
North Carolina, without being limited by any statute or rule of law regarding
investments by trustees. The Trustee may invest in any common collective trust
fund or pooled investment fund (which could constitute a permissible investment
with respect to the Plan) maintained by any bank (including itself, if the
Trustee is a bank) in North Carolina or in any other state of the United States.
The Trustee may hold any portion of the Trust Fund in cash for a reasonable
period pending investment or payment of expenses or benefits. The Trustee shall
have the further right, to the extent permissible under applicable law and the
Plan, to (a) purchase, sell, exchange, and retain preferred or common stocks or
other marketable obligations, consisting of bonds, debentures, notes,
certificates, or other evidences of indebtedness, issued by an Employer or by an
Affiliate and (b) acquire and hold parcels or real property (and related
personal property) which is leased, or is to be leased, to an Employer or to an
Affiliate. For the purposes of this Section, an Affiliate shall mean any
corporation which is an Affiliate (within the meaning of Section 407(d)(7) of
the Act) of any Employer.
5.02 INVESTMENT MANAGER. The Plan Administrator is given the power to
------------------
appoint one or more Investment Managers (herein so called) to exercise full
investment management authority with respect to all or a portion of the assets
of the Trust Fund and to authorize payment of the fees and expenses of such
Investment Manager from the assets of the Trust Fund. In the event the Plan
Administrator exercises this right, the Plan Administrator shall certify to the
Trustee and such Investment Manager the scope of the duties and responsibilities
of the Investment Manager. Such Investment Manager shall be either (a)
registered as an investment adviser under the Investment Advisers Act of 1940,
(b) a bank, as defined in the Investment Advisers Act of 1940, or (c) an
insurance company qualified to manage, acquire or dispose of plan assets under
the laws of more than one state. Upon its appointment, the Investment Manager
shall certify and acknowledge in writing to the Plan Administrator and the
Trustee that he is a fiduciary with respect to the Plan and Trust, and that he
has assumed the duties and responsibilities conferred upon him by the Plan
Administrator. The duties, responsibilities, and authority of any such
Investment Manager may be revoked or modified by the Plan Administrator at any
time by written notice to such Investment Manager and to the Trustee. Any
Investment
7
<PAGE>
Manager duly appointed and authorized by the Plan Administrator, shall, during
the period of his appointment, possess fully and absolutely those powers,
rights, and duties of the Trustee (to the extent delegated by the Plan
Administrator and to the extent permissible under the terms of this Trust
Agreement) with respect to the investment or reinvestment of that portion of the
plan assets over which such Investment Manager has investment management
authority. During any period of time when such Investment Manager is so
appointed and serving, and with respect to those assets of the Trust Fund over
which such Investment Manager exercises investment management authority, the
Trustee's responsibility shall be limited to holding such assets as a custodian,
providing accounting services, disbursing benefits as authorized, and executing
such investment instructions only as directed by such Investment Manager. The
Trustee shall not be responsible for any acts or omissions of such Investment
Manager. Any certificates or other instrument duly signed by such Investment
Manager (or the authorized representative of such Investment Manager),
purporting to evidence any instruction, direction or order of such Investment
Manager with respect to the investment of those assets of the Plan over which
the Investment Manager has investment management authority shall be accepted by
the Trustee as conclusive proof thereof. The Trustee shall also be fully
protected in acting in good faith upon any notice, instruction, direction,
order, certification, opinion, letter, telegram, or other document believed by
the Trustee to be genuine and to be by such Investment Manager (or the
authorized representative of such Investment Manager). The Trustee shall not be
liable for any action taken or omitted by such Investment Manager or for any
mistakes of judgment or other action made, taken or omitted by the Trustee in
good faith upon direction of such Investment Manager.
5.03 DIRECTION OF INVESTMENTS. Notwithstanding any provision contained
------------------------
herein to the contrary, the Plan Administrator shall have the right and power at
any time and from time to time (but shall not be obliged) to direct the Trustee
in writing to purchase, sell, lease, retain, or otherwise act for the Trustee in
regard to any property, real, personal, or mixed, tangible or intangible and the
Trustee shall comply with and carry out such directions without being liable or
responsible in any way for any losses or unfavorable results resulting from its
compliance with such directions; provided that:
(a) So long as, and to the extent that, the Plan Administrator
fails to deliver directions to the Trustee under this Section, the
Trustee shall manage, control, invest, and reinvest the Trust Fund
under the powers granted in Article VI hereof with the same force and
effect as if this Section were not a part of this Agreement.
(b) No person dealing with the Trustee shall be required to
determine whether any sale or purchase by the Trustee has been
authorized or directed by the Plan Administrator, but each person shall
be fully protected in dealing with the Trustee in the same manner as if
this Section were not a part of this Agreement; and
(c) The Plan Administrator shall not direct the Trustee to
invest in the stocks, bonds, notes, debentures, or other obligations of
an Employer or any of its subsidiaries, whether domestic or foreign,
nor direct the purchase of any such investment or any other
property from, or sell to, an Employer or any of its subsidiaries
without first obtaining a
8
<PAGE>
prior ruling from the Internal Revenue Service that such purchase or
sale would not adversely affect the qualified status of this Trust
under Section 401(a) of the Code. The Trustee, in its sole discretion,
may refuse to comply with any direction of the Plan Administrator which
the Trustee deems to be improper or contrary to the provisions of the
Plan or any applicable Federal or state statutes.
5.04 SEPARATE INVESTMENT ACCOUNTS. The Plan Administrator may direct
----------------------------
the Trustee to maintain separate Investment Accounts (herein so called) for each
Participant and Beneficiary. The Administration Committee may direct the Trustee
as to the investment of each separate Investment Account and the Trustee shall
be fully protected with respect to any investment so made. If separate
Investment Accounts are established, as of the Valuation Date for each
Limitation Year, the Trustee shall allocate and credit the net income (or net
loss) of each Participant's segregated Investment Account solely to such
Investment Account.
5.05 INVESTMENT IN POOLED FUND. If a bank is acting as Trustee, the
-------------------------
Plan Administrator may specifically authorize the Trustee to invest all or any
portion of the assets comprising the Trust Fund in any collective investment
trust which at the time of the investment provides for the pooling of the assets
of plans described in Section 401(a) of the Code. This authorization applies
solely to a collective investment trust the Trustee maintains and only if the
Trustee has received a determination letter from the Internal Revenue Service to
the effect the collective investment trust is exempt from Federal income tax.
The provisions of the collective investment trust agreement, as amended by the
Trustee from time to time, are by this reference incorporated within the Plan
and this Trust. The provisions of the collective investment trust shall govern
any investment of Plan assets in that trust.
9
<PAGE>
ARTICLE VI
POWERS OF THE TRUSTEE
6.01 INVESTMENT POWERS. Subject to the provisions of Article VIII, the
-----------------
Trustee is authorized and empowered, but not by way of limitation, with the
following powers, rights, and duties:
(a) Property Transactions. To sell, exchange, convey,
---------------------
transfer, or dispose of and also to grant options with respect to any
property, whether real or personal, at any time held by it, and any
sale may be made by private contract or by public auction, and no
person dealing with the Trustee shall be bound to see to the
application of the purchase money or to inquire into the validity,
expediency, or propriety of any such sale or other disposition.
(b) Operation and Lease. To retain, manage, operate, repair,
-------------------
and improve and to mortgage or lease for any period and on such terms
as the Trustee shall deem proper any
real estate or personal property held by the Trustee, including power
to demolish any buildings or other improvements in whole or in part; to
erect buildings or other improvements; to make leases that may extend
beyond the term of the Trust; and to foreclose, extend, renew, assign,
release or partially release and discharge mortgages or other liens.
(c) Vote. To vote in person or by proxy, with or without power
----
of substitution, any stocks, bonds, or other securities held in Trust.
(d) Stock Rights. To exercise any options appurtenant to any
------------
stocks, bonds, or other securities for the conversion thereof into
other stocks, bonds or securities, or to exercise any rights to
subscribe for additional stocks, bonds, or other securities and to make
any and all necessary payments thereof; to join in, dissent from, or
oppose the reorganization, recapitalization, consolidation, sale, or
merger of corporations or properties in which it may be interested as
Trustee, upon such terms and conditions as it may deem wise and to
accept any securities which may be issued upon any such reorganization,
recapitalization, consolidation, sale, or merger and thereafter to hold
the same.
(e) Bank Trustee: Transaction by Trustee with Itself. If the
------------------------------------------------
Trustee is a bank, to contract or otherwise enter into transactions
between itself as Trustee and as a bank, between itself as Trustee and
the Employer, its subsidiaries and affiliates or any of them, or
between itself as Trustee and any other institution for which it then,
theretofore, or thereafter may be acting as Trustee, subject to the
provisions of the Act.
(f) Borrow. To borrow money from any source in such amounts
------
and upon such terms and for such purposes as the Trustee may determine
and in connection
10
<PAGE>
therewith to execute promissory notes, mortgages, or other obligations
and to pledge or mortgage any Trust assets as security.
(g) Cash. To retain in cash so much of the Trust Fund as it
----
may deem advisable to satisfy liquidity needs of the Plan and to
deposit any cash held in the Trust Fund in a bank account without
liability for the highest rate of interest available, including, if a
bank is acting as Trustee, specified authority to invest in deposits of
the Trustee.
(h) Investments. To invest and reinvest all or any part of the
-----------
Trust Fund in bonds, debentures, mortgages, notes, common or preferred
stocks, with or without par value, real estate, and such other property
as the Trustee deems proper.
(i) Mineral Investments. To purchase, convey, lease, and
-------------------
otherwise deal with oil, gas and other minerals, mineral rights, and
royalties; to operate and develop oil, gas, and other mineral
properties and interest, including, but not limited to, the power to
make and release oil, gas, and mineral leases and subleases; to make
mineral deeds and royalty transfers; to create, reserve and dispose of
overriding royalties, oil payments, gas payments, and any other
interests; to execute division orders and transfer orders; to enter
into development and drilling contracts, operating agreements and
utilization agreements; and to make agreements for present or future
pooling of any and all interests in oil, gas and other minerals.
(j) Agents. To employ and compensate accountants, attorneys,
------
brokers, attorneys-in-fact, attorneys-at-law, tax specialists,
appraisers, and other advisers and agents deemed by the Trustee
necessary or appropriate for the proper administration of the Trust
created hereunder.
(k) Nominee. To hold securities or other property in the name
-------
of the Trustee or its nominee, or in another form as it may deem best,
with or without disclosing the trust relationship.
(l) Documents. To make, execute and deliver any and all
---------
contracts, deeds, leases, waivers, releases, guaranties, pledges,
conveyances, powers of attorney, or other instruments necessary or
proper for the accomplishment of any of the powers herein granted.
(m) Litigation. To begin, maintain, or defend any litigation
----------
necessary in connection with the administration of the Plan, except
that the Trustee shall not be obliged or required to do so unless
indemnified to its satisfaction.
(n) Compromise Claims. To compromise, arbitrate, contest, or
-----------------
abandon any claims or demands.
(o) Taxes. To file all tax returns required of the Trustee and
-----
pay any estate, inheritance, income, or other tax, charge or assessment
attributable to any benefit payable
11
<PAGE>
under the Plan required of the Trustee; to defer making payment of any
tax, charge, or assessment if it is indemnified to its satisfaction in
the premises; and to require before making any payment a release or
other document from any lawful taxing authority.
(p) Retention of Funds. To retain any funds or property
------------------
subject to any dispute, and to decline to make payment or delivery of
the funds or property until final adjudication is made by a court of
competent jurisdiction.
(q) Common Funds. To invest in undivided interests, in common
------------
with any other trust, or trusts, however created, or any other
individual, or individuals, including investments in so-called "common
funds", or in partnerships or joint ventures, operated or created by
any person, trust, or corporation.
(r) Loans. To invest in loans to a Participant in accord with
-----
the loan policy established by the Plan Administrator, provided any
loan is adequately secured, bears a reasonable rate of interest,
provides for repayment within a specified time, and otherwise conforms
to the Participant loan exemption provided by the Code.
(s) General Authorization. To exercise all the further rights,
---------------------
powers, options, and privileges granted, provided for, or vested in
trustees generally under applicable Federal and North Carolina laws, as
amended from time to time, it being intended that, except as herein
otherwise provided, the powers conferred upon the Trustee herein shall
not be construed as being in limitation of any authority conferred by
law, but shall be construed as in addition thereto.
Notwithstanding anything in the Plan or Trust to the contrary, the Trustee shall
not be required by any fiduciary to engage in any action, nor make any
investment which constitutes a prohibited transaction or is otherwise contrary
to the provisions of Sections 406, 407, 408, and 2003 of the Act, or which is
otherwise contrary to law or the terms of the Plan or Trust.
6.02 ANCILLARY TRUSTEE. Whenever and as often as the Trustee deems such
-----------------
action desirable, it may by written instrument appoint any person or corporation
in any State of the United States to act as "Ancillary Trustee" with respect to
any portion of the Trust Fund then held or about to be acquired on behalf of the
Trust. Each such Ancillary Trustee shall have such rights, powers, duties, and
discretions as are delegated to it by the Trustee, but shall exercise the same
subject to limitations or further directions of the Trustee as shall be
specified in the instrument evidencing its appointment.
The Ancillary Trustee may resign or may be removed by the Trustee as to
all or any portion of the assets so held at any time or from time to time by
written instrument delivered one to the other, and the Trustee may thereupon
appoint another Ancillary Trustee as successor to whom such assets shall be
transferred, or may itself receive such assets in termination of the Ancillary
Trusteeship to that extent. Each Ancillary Trustee shall be accountable solely
to the Trustee. The Trustee may pay the Ancillary Trustee reasonable
compensation and may absolve it
12
<PAGE>
from any requirement that it post bond or other security.
13
<PAGE>
ARTICLE VII
ADMINISTRATIVE PROVISIONS
7.01 ACCOUNTS AND RECORDS. The Trustee shall maintain accurate records
--------------------
and accounts of all transactions hereunder, which shall be available at all
reasonable times for inspection or audit by any person or persons designated by
the Plan Administrator. If the Plan Administrator so directs, the Trustee shall
submit to the Plan Administrator such interim valuations, reports, or other
information as the Plan Administrator may reasonably require. Within ninety (90)
days following (a) the close of each Plan Year or (b) the effective date of the
removal or resignation of the Trustee, the Trustee shall file with the Plan
Administrator a written account setting forth all transactions effected by it
subsequent to the end of the period for the last previous report and account, in
such form and detail as the Plan Administrator may request. The approval of any
such report and account by the Plan Administrator shall be a full acquittance
and discharge by the Plan Administrator of the Trustee with respect to the
matters therein set forth. Nothing herein contained, however, shall be deemed to
preclude the Trustee from its right to have its accounts judicially settled by a
court of competent jurisdiction, in which event only the Trustee and the
Employer shall be necessary parties.
7.02 INTENTION TO QUALIFY. It is intended that this Trust and Plan
--------------------
constitute a qualified trust under Section 401(a) of the Code and that this
Trust constitutes a tax-exempt trust under Section 501 of the Code, and until
advised to the contrary in writing, the Trustee may assume that the Trust is so
qualified and is entitled to the exemption from Federal income taxes provided
for in said sections. In the event the Trustee at any time believes such
exemption to be uncertain, the Trustee may take such steps and withhold such
payments as it deems necessary to protect itself.
7.03 PLAN ADMINISTRATOR ACTION. The Employer shall promptly notify the
-------------------------
Trustee of the name of the Plan Administrator as of the date of this Agreement
and of any subsequent changes in the Plan Administrator. In the absence of any
notification of changes, the Trustee may assume that the Plan Administrator is
the same as last reported by the Employer to the Trustee. The Plan Administrator
shall furnish the Trustee with all the necessary factual information required by
it to perform its duties as Trustee hereunder, including a specimen signature of
the Plan Administrator. The Trustee shall not be required to verify the facts so
furnished by the Plan Administrator. The Trustee, in following the directions of
the Plan Administrator, is authorized to act upon the written instructions of
the Plan Administrator and shall not be liable for its acts with respect to
payments from the Trust Fund when following such instructions or directions, or
for failure to act in the absence of such instructions or directions.
7.04 VALUATION OF TRUST. The Trustee shall value the Trust Fund as of
------------------
the end of the Plan Year to determine the fair market value of its assets. The
Trustee shall value the Trust Fund on such other date(s) as may be necessary for
the purpose of the Plan and Trust.
7.05 EMPLOYER ACTION. Any action by an Employer hereunder, pursuant to
---------------
the
14
<PAGE>
Plan, shall be evidenced by a certified copy of a resolution of its Board of
Directors, or by written instrument executed by any person authorized by the
Board of Directors to take such action, and the Trustee shall be fully protected
in acting in accordance with such written instrument or resolution delivered to
it.
7.06 RELIANCE ON WRITTEN INSTRUMENT. The Trustee shall be fully
------------------------------
protected in acting upon any instrument, certificate, resolution, instruction,
direction, order, opinion, letter, telegram, or other document believed by it to
be genuine, and to be signed or presented by the proper person or persons, and
the Trustee shall be under no duty to make any investigation or inquiry as to
any statement contained in any such writing but may accept the same as
conclusive evidence of the truth and accuracy of the statements therein
contained.
7.07 LIABILITY FOR PAYMENT OF FUNDS. The Trustee shall not be liable
------------------------------
for its action in making payment or delivery of any cash or other property to
any person at the direction of the Plan Administrator and, in the event of
litigation, the Trustee shall not be liable for declining to make delivery
thereof until final adjudication shall be made in a court of competent
jurisdiction by agreement of the parties. The Trustee, at its discretion, may
bring any action in the nature of an interpleader, but shall not be obligated to
do so.
7.08 LIABILITY OF TRUSTEE. The Trustee shall not be liable for any
--------------------
action taken or omitted upon direction of the Plan Administrator or the
Employer. If at any given time the Plan Administrator or the Employer should
fail to give directions or instructions to the Trustee as provided in this
Agreement, the Trustee shall act or refrain from acting without such directions
or instructions and may exercise its own discretion and judgment as seems
appropriate and advisable under the circumstances in carrying out the purposes
of this Agreement, without liability to the Plan Administrator or the Employer
therefor.
7.09 COURT PROCEEDINGS. The Trustee may institute, maintain, or defend
-----------------
any litigation necessary in connection with the administration of the Trust
Fund, provided, the Trustee shall be under no duty or obligation to do so unless
it shall have been indemnified to its satisfaction against all expenses and
liabilities which it may sustain or reasonably anticipate by reason thereof. All
costs and expenses of litigation for which the Trustee would be liable shall be
paid by the Employer, or if not paid by the Employer, from the Trust Fund.
7.10 PARTIES TO LITIGATION. Except as otherwise provided by the Act,
---------------------
only the Employer, the Plan Administrator, and the Trustee shall be necessary
parties to any court proceeding involving the Trustee or the Trust Fund. No
Participant or Beneficiary shall be entitled to any notice of process unless
required by the Act. Any final judgment entered in any proceeding shall be
binding upon the Employer, the Plan Administrator, the Trustee, Participants,
and Beneficiaries.
7.11 THIRD PARTY. No person dealing with the Trustee shall be obligated
-----------
to see to the proper application of any money paid or property delivered to the
Trustee, or to inquire whether the Trustee has acted pursuant to any of the
terms of the Plan. Each person dealing with
15
<PAGE>
the Trustee may act upon any notice, request, or representation in writing by
the Trustee, or by the Trustee's duly authorized agent, and shall not be liable
to any person whomever in so doing. The certificate of the Trustee that it is
acting in accordance with the Plan shall be conclusive in favor of the person
relying on the certificate.
7.12 AUTHORIZATION WITH RESPECT TO TAXES. The Trustee may pay out of
-----------------------------------
the Trust Fund all real and personal property taxes, income taxes, and other
taxes of any and all kinds levied or assessed under existing or future laws
against the Trust Fund, or against the Trustee by reason of its office. The
Trustee is further authorized, but not required, to withhold from distributions
to any payee such sum as the Trustee may reasonably estimate as necessary to
cover Federal and states taxes for which the Trustee may be liable, which are,
or may be, assessed with regard to the amount distributable to such payee. Prior
to making any payment or distribution hereunder, the Trustee may require such
releases or other documents from any lawful taxing authority and may require
such indemnity from any payee or distributee as the Trustee shall reasonably
deem necessary for its protection.
7.13 CONSULTATION WITH COUNSEL. Trustee may consult with legal counsel,
-------------------------
who may be counsel for the Employer, if appropriate, with respect to any of its
rights, duties, or obligations hereunder.
7.14 NO INTEREST IN EMPLOYER. Neither the creation of this Trust nor
-----------------------
anything contained in this Agreement shall be construed as giving any person
entitled to benefits hereunder or other employee of the Employer any equity or
other interest in the assets, business, or affairs of the Employer.
7.15 FEES AND EXPENSES. The Trustee shall be reimbursed for all of its
-----------------
expenses and shall be paid such reasonable fees as may be agreed upon from time
to time by the Employer and the Trustee. Such fees and compensation shall be
paid from the Trust Fund if not paid by the Employer; provided, however, that
any person who already receives full-time pay from the Employer shall not
receive any fees for his services as Trustee.
7.16 BONDING OF TRUSTEE. The Trustee shall not be required to furnish
------------------
any bond or security for the performance of its powers and duties hereunder,
unless, irrespective of this provision, the Trustee is required to do so by
state or Federal statute or regulation.
7.17 RELATIONSHIP OF FIDUCIARIES. It is the intent of all fiduciaries
---------------------------
under the Plan and Trust that each fiduciary shall be solely responsible for its
own acts or omissions. Except to the extent imposed by the Act or the Code, no
fiduciary shall have the duty to question whether any other fiduciary is
fulfilling all of the responsibilities imposed upon such other fiduciary by the
Act or by any regulations or rulings issued thereunder. No fiduciary shall have
any liability for a breach of fiduciary responsibility of another fiduciary with
respect to the Plan and this Trust unless he participates knowingly in such
breach, knowingly undertakes to conceal such breach, has actual knowledge of
such breach and fails to take reasonable remedial action to remedy said breach
or, through his negligence in performing his own specific fiduciary
16
<PAGE>
responsibilities which give rise to his status as a fiduciary, has enabled such
other fiduciary to commit a breach of the latter's fiduciary responsibilities.
7.18 PRUDENT MAN RULE. The Trustee, the Plan Administrator, and all
----------------
other Fiduciaries with respect to the Plan and Trust are required to discharge
their duties solely in the interests of Participants and Beneficiaries and for
the exclusive purpose of providing benefits to Participants and Beneficiaries
and defraying reasonable expenses of administration with the care, skill,
prudence, and diligence, under the circumstances then prevailing, that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of like character and with like aims by diversifying
the investments so as to minimize the risks of large losses unless under the
circumstances it is clearly prudent not to do so, and in accordance with the
Plan, this Trust Agreement, the rules and directions of the Plan Administrator
and the provisions of the Act.
7.19 ALIENATION. Except as otherwise provided in the Plan, the
----------
benefits, proceeds, payments, or claims of any Participant or Beneficiary
payable from the Trust assets shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary, including any such liability which is for alimony or other payments
for support of a spouse or former spouse. Any attempt to anticipate, alienate,
sell, transfer, assign, pledge, encumber, garnish, levy, or otherwise dispose of
or execute upon any right or benefit payable hereunder shall be void. The Trust
assets shall not in any manner be liable for or subject to the debts, contracts,
liabilities, engagements, or torts of any Participant entitled to benefits
hereunder and such benefits shall not be considered an asset of the Participant
in the event of his insolvency or bankruptcy.
7.20 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER APPOINTED. The
---------------------------------------------------------
Trustee shall not be liable for the acts or omissions of any Investment Manager
or Managers the Plan Administrator may appoint, nor shall the Trustee be under
any obligation to invest or otherwise manage any assets of the Plan which is
subject to the management of a properly appointed Investment Manager.
7.21 INSURANCE COMPANY PROTECTED. No insurance company shall be under
---------------------------
any duty to inquire into the terms of this Trust Agreement or see to the
application of any proceeds of insurance paid to the Trustee pursuant to any
policy of insurance payable to this Trust. The receipt of the Trustee for any
such payment shall be a full and complete acquittance to the insurance company
making payment.
17
<PAGE>
ARTICLE VIII
TRUSTEE LIABILITY
8.01 TRUSTEE LIABILITY. Notwithstanding any provision in this Trust
-----------------
Agreement to the contrary, the Trustee shall be subject to the standards of
conduct, and shall have the powers and immunities set out in Article VI of the
Plan.
18
<PAGE>
ARTICLE IX
SUBSTITUTION OF TRUSTEE
9.01 TRUSTEE. There shall be one or more individual Trustees or one
-------
corporate Trustee, or any combination thereof, as determined from time to time
by the Company. Each Trustee shall serve until a successor Trustee shall be
named by the Company or until such Trustee's resignation, death, incapacity, or
removal, in which event the Company shall name a successor Trustee. The word
"Trustee" as used herein, shall include the original and any successor Trustee
or Trustees, whether corporate or individual.
9.02 RESIGNATION. Any Trustee may resign at any time upon giving sixty
-----------
(60) days' written notice in advance to the Company and to the Plan
Administrator unless such notice shall be waived.
9.03 REMOVAL. The Company, by giving thirty (30) days' written notice
-------
in advance to the Trustee, may remove any Trustee with or without cause.
9.04 SUCCESSION OF TRUSTEE. Each successor Trustee shall succeed to the
---------------------
title to the Trust vested in his predecessor by accepting in writing his
appointment as successor Trustee and filing the acceptance with the former
Trustee and the Plan Administrator without the signing or filing of any further
statement. The resigning or removed Trustee, upon receipt of acceptance in
writing of the Trust by the successor Trustee, shall execute all documents and
do all acts necessary to vest the title of record in any successor Trustee. Each
successor Trustee shall have and enjoy all of the powers, both discretionary and
ministerial, conferred under this Agreement upon his predecessor. No successor
Trustee shall be personally liable for any act or failure to act of any
predecessor Trustee.
9.05 MERGER OF CORPORATE TRUSTEE. If any corporate Trustee should,
---------------------------
before or after qualification, change its name, become consolidated or merged
with another corporation or otherwise should reorganize, any resulting
corporation which succeeds to the fiduciary business of such corporate Trustee
shall become a Trustee hereunder in lieu of such corporate Trustee.
19
<PAGE>
ARTICLE X
AMENDMENT AND TERMINATION
10.01 AMENDMENT. The Company shall have the right at any time by an
---------
instrument in writing to amend the Trust in any manner provided no amendment
shall:
(a) Authorize or permit any of the Trust Fund (other than the
part which is required to pay taxes and administration expenses) to be
used for or diverted to purposes other than for the exclusive benefit
of the Participants or their Beneficiaries.
(b) Cause or permit any portion of the Trust Fund to revert to
or become the property of the Employer.
(c) Increase the duties or responsibilities of the Trustee
without the written consent of the affected Trustee.
10.02 TERMINATION. This Trust may be terminated at any time by the
-----------
Company by delivery to the Trustee of a copy of the resolution of the Board of
Directors specifying such termination. In the event of termination of the Trust,
the Trustee shall distribute all property then constituting the Trust Fund, less
any amounts constituting charges against the Trust Fund, in such manner and at
such times as may be directed by the Plan Administrator. This Trust shall
automatically terminate when no cash or other property remains in the Trust.
10.03 SUSPENSION OF CONTRIBUTIONS. Nothing in this Agreement shall be
---------------------------
construed to prevent the Employer from suspending contributions to the Trust for
any period whatsoever or permanently. Such a suspension, whether temporary or
permanent, shall not, of itself, terminate the Trust.
10.04 MERGER OR CONSOLIDATION. The Plan and this Trust shall not be
-----------------------
merged or consolidated with, nor shall its assets or liabilities be transferred
to, any other plan unless each Participant in the Plan (if the Plan then
terminated) would receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit such Participants,
respectively, would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had been terminated). Where the
foregoing requirements are satisfied the Plan and this Trust may be merged or
consolidated with another qualified plan and trust.
10.05 REVERSION OF SUSPENSE ACCOUNT. Notwithstanding any provisions
-----------------------------
contained herein to the contrary, the Employer reserves the right upon
termination of the Plan and trust to recover any amounts held in a Suspense
Account that cannot be allocated to the accounts of Participants and their
Beneficiaries in the year of termination because of the limitations contained in
Article III of the Plan and Section 415 of the Code after the satisfaction of
all fixed and contingent obligations to Participants and their Beneficiaries
under the Plan.
ARTICLE XI
20
<PAGE>
OTHER EMPLOYERS; SUCCESSOR EMPLOYERS
11.01 ADOPTION BY OTHER EMPLOYERS. Pursuant to the Plan, any business
---------------------------
entity, which is eligible to and does in fact adopt the Plan, may pursuant to
resolutions of its board of directors, adopt this Trust by written instrument,
duly executed, acknowledged, and delivered to the Trustee, the Plan
Administrator, and the Board of Directors of the Company.
11.02 CONTINUATION BY EMPLOYER'S SUCCESSOR. Any corporation succeeding
------------------------------------
to the interest of an Employer by sale, transfer, consolidation, merger, or
bankruptcy, may elect to continue this Trust by adopting this Trust Agreement
and assuming the duties and responsibilities of the Plan and Trust, or such
corporation may establish a separate plan and trust for the continuation of
benefits for its employees in which event the Trust Fund, held on behalf of the
Employees or the prior Employer, shall (subject to Section 10.04 hereof) be
transferred to the trustee of the new trust.
21
<PAGE>
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01 CONTRIBUTIONS NOT RECOVERABLE. Except where contributions are
-----------------------------
required to be returned to the Employer by the provisions of the Plan as
permitted or required by the Act or by the Code, no part of the principal or
income of this Trust shall be used for, or diverted to, purposes other than the
exclusive benefit of Participants or Beneficiaries.
12.02 LIMITATIONS ON PARTICIPANTS' RIGHTS. Participation in this Trust
-----------------------------------
shall not give the Employee the right to be retained as an Employee of the
Employer or any right or interest in this Trust other than as herein provided.
The Employer reserves the right to dismiss any Employee without any liability
for any claim either against this Trust, except to the extent provided herein,
or against the Employer. All benefits payable hereunder shall be provided solely
from the assets of the Trust.
12.03 INDEMNIFICATION OF INDIVIDUAL TRUSTEE. The Employer hereby agrees
-------------------------------------
to indemnify and hold harmless any individual Trustee for any claim, suit,
judgment, or liability arising from the performance of the Trustee hereunder and
as otherwise required by the Plan, so long as such claim, suit, judgment, or
liability does not result from the willful or reckless misconduct of the
individual Trustee. The Trustee assumes no obligation or responsibility with
respect to any action required by this Trust Agreement or by the Plan on the
part of the Employer.
12.04 RECEIPT OF RELEASE. Any payment to any Participant or Beneficiary
------------------
in accordance with the provisions of this Trust shall, to the extent thereof, be
in full satisfaction of all claims against the Trustee, the Plan Administrator,
and the Employer and the Trustee may require such Participant or Beneficiary, as
a condition precedent to such payment, to execute a receipt and release to such
effect.
12.05 ACCEPTANCE. The Trustee accepts the Trust created under the Plan
----------
and agrees to perform the obligations imposed therein.
12.06 ACCOUNTING PERIOD. This Trust shall adopt for accounting purposes
-----------------
the fiscal year beginning January 1 of each year and ending on the last day of
December.
12.07 TITLE OF TRUST ASSETS. The legal and equitable title and
---------------------
ownership of all assets at any time constituting a part of the Trust Fund shall
be and remain with the Trustee and neither the Employer nor any Participant
shall ever have legal or equitable estate therein, save and except that a
Participant shall be entitled to receive distributions as and when lawfully made
under the terms of the Plan and this Trust.
12.08 NOTICE. Any notices required to be given herein by the Trustee
------
shall be deemed delivered when placed in the United States mails, postage
prepaid, in an envelope addressed to the last known address of the person to
whom the notice is given.
22
<PAGE>
12.09 HEADINGS. The titles and headings of Articles and Sections are
--------
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
12.10 GOVERNING LAW. All questions arising with respect to the
-------------
provisions of this Agreement shall be determined by application of the laws of
the State of North Carolina except to the extent North Carolina law is
superseded by Federal statute.
12.11 EXECUTIONS AND COUNTERPARTS. This Agreement may be executed in a
---------------------------
number of counterparts, each of which shall be deemed an original.
IT WITNESS WHEREOF, this Agreement has been executed this the _____ day
of ___________________, 1997, effective as of the 1st day of January, 1997.
A S E M P L O Y E R
-------------------
MOORESVILLE SAVINGS BANK, SSB
By:
--------------------------------------
George W. Brawley, Jr.
President
ATTEST:
- ----------------------------------------
Secretary
(Corporate Seal)
A S T R U S T E E
-----------------
(SEAL)
-----------------------------
Willis L. Barnette
(SEAL)
-----------------------------
Jack G. Lawler
(SEAL)
-----------------------------
Claude U. Voils, Jr.
23
<PAGE>
Exhibit 10(d)
MOORESVILLE SAVINGS BANK, INC., SSB
MANAGEMENT RECOGNITION PLAN
(If Implemented Within One Year Of Conversion)
Mooresville Savings Bank, Inc., SSB, a North Carolina chartered
savings bank (the "Bank"), does herein set forth the terms of its Management
Recognition Plan (the "Plan").
1. Purpose of this Plan. The purpose of this Plan is to provide
--------------------
to the directors, officers and employees (the "Participants") of the Bank and of
any corporation or other entity of which the Bank owns, directly or indirectly,
not less than fifty percent (50%) of any class of the equity securities thereof
(a "Subsidiary"), an ownership interest in the Bank's parent holding company,
Coddle Creek Financial Corp. (the "Corporation") by making awards (hereinafter
referred to as "Awards" or singularly, "Award") of shares of common stock of the
Corporation (the "Common Stock"). The Board of Directors of the Bank (the
"Board") and the Board of Directors of the Corporation believe that
participation in the ownership of the Corporation will induce Participants to
continue to serve the Bank or any Subsidiary as directors, officers and/or
employees and encourage them to contribute to the future growth and profits of
the Bank and the Corporation. In addition, the existence of this Plan will make
it possible for the Bank and its Subsidiaries to attract capable individuals to
serve as directors or officers of the Bank and its Subsidiaries. The Board
believes that the existence of this Plan will provide incentives to the
directors, officers and employees of the Bank and any Subsidiaries which will
contribute materially to the success of such companies.
2. Administration of this Plan.
---------------------------
(a) This Plan shall be administered by a committee of the
Board (the "Committee") which shall consist of not less than three non-employee
members of the Board who are "disinterested persons" as described in Rule
16b-3(c)(2)(i) of the Rules and Regulations under the Securities Exchange Act of
1934 (the "Exchange Act"). In the absence of a duly appointed Committee, the
Plan shall be administered by those members of the Board who are "disinterested
persons," and by the Board if there are less than three "disinterested persons."
The Committee shall have full power and authority to construe, interpret and
administer this Plan. All actions, decisions, determinations, or interpretations
of the Committee shall be final, conclusive, and binding upon all parties.
Members of the Committee shall serve at the pleasure of the Board.
(b) The Committee shall decide (i) to whom Awards shall be
made under this Plan, except as provided in subparagraph 3(b) and paragraph 5
hereof, (ii) the number of shares of Common Stock subject to each award except
as provided in subparagraph 3(b) and paragraph 5 hereof, (iii) the number of
additional shares, if any, to be purchased or allocated for the purposes of this
Plan, (iv) the determination of leaves of absence which may be granted to
Participants without constituting a termination of their employment for purposes
of the Plan and (v) such additional terms and conditions for Awards as the
Committee shall deem appropriate, including, without limitation, any
determinations as to the restrictions or conditions on transfer of shares of
Common Stock that are necessary or appropriate to satisfy all applicable
securities laws, rules, regulations, and listing requirements.
(c) The Committee may designate any officers or employees of
the Bank or of any Subsidiary to assist in the administration of this Plan. The
Committee may authorize such individuals to execute documents on its behalf and
may delegate to them such other ministerial and limited discretionary duties as
the Committee may see fit.
(d) Any unallocated, undistributed or forfeited shares of
Common Stock held under this Plan shall be held by ________________________,
_____________________ and
<PAGE>
____________________ (the "Trustees") and any successor or successors who from
time to time may be appointed by the Board.
3. Shares of Common Stock Available Under the Plan.
-----------------------------------------------
(a) The Plan or a trust established to facilitate the
implementation of the Plan (the "MRP Trust") shall acquire a number of shares of
Common Stock of the Corporation equal to four percent (4%) of the shares of
Common Stock issued in connection with the conversion of the Bank from a North
Carolina chartered mutual savings bank to a North Carolina chartered stock
savings bank on _____________, 1997 (the "Conversion"). Such shares of Common
Stock may be purchased by the Plan or the MRP Trust in the open market, or,
subject to approval of the Board of Directors of the Corporation, may be
acquired through the issuance by the Corporation to the Plan or the MRP Trust of
authorized but unissued shares of Common Stock on such terms as may be approved
by the Committee and the Board of Directors of the Corporation. Such shares (the
"Plan Shares") shall be held by the Trustees until they have been allocated and
distributed pursuant to the terms of this Plan.
(b) Upon the purchase of the Plan Shares as provided in
subparagraph (a) above, such Plan Shares shall be allocated as provided in
paragraph 5 hereof.
4. Eligibility. The Participants in this Plan to whom Awards may
-----------
be made shall be the following: members of the Board, members of the Board of
Directors of any Subsidiary, and such officers and employees of the Bank and/or
of any Subsidiary as may be designated by the Board. Notwithstanding the
foregoing, no member of the Committee is eligible to receive any grants or any
awards of shares under this Plan during the one-year period prior to serving on
the Committee or during such service, except for Awards of Plan Shares which are
distributed pursuant to the provisions of paragraph 5 hereof.
In addition, (i) no individual participant shall be awarded more
than twenty-five (25) percent of the Plan Shares to be issued pursuant to this
Plan, (ii) no participant who is a non-employee director of the Bank or a
Subsidiary shall be awarded more than five (5) percent of the Plan Shares to be
issued pursuant to this Plan and (iii) all participants who are non-employee
directors of the Bank or a Subsidiary shall be awarded no more than thirty (30)
percent of the Plan Shares to be issued pursuant to this Plan.
5. Award of Plan Shares. Subject to the provisions of paragraph 7
--------------------
hereof, effective after this Plan is approved by a majority of the shareholders
of the Corporation, the Plan Shares shall be awarded and distributed to
Participants listed in, and in the amounts set forth in, Exhibit A. Awards of
Plan Shares under this Plan shall be effective upon execution and delivery of
the Stock Grant Agreement described in paragraph 7.
6. Vesting of Shares.
-----------------
(a) Shares granted under this Plan shall vest and the right of
a Participant to the Plan Shares shall be nonforfeitable in accordance with the
following schedule:
<TABLE>
<CAPTION>
Date When Plan Shares Percentage of Plan
Become Vested Shares Vested
--------------------- -----------------
<S> <C>
First Anniversary of Award of Plan Shares 20%
Second Anniversary of Award of Plan Shares 20%
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Third Anniversary of Award of Plan Shares 20%
Fourth Anniversary of Award of Plan Shares 20%
Fifth Anniversary of Award of Plan Shares 20%
</TABLE>
(b) In determining the number of shares vested under the above
vesting schedule, a Participant shall not receive fractional shares. If the
product resulting from multiplying the vested percentage times the allocated
shares results in a fractional share, then a Participant's vested right shall be
rounded down to the nearest whole number of shares.
(c) In the event any Participant shall no longer be either a
director or an employee of the Bank or any Subsidiary for any reason, other than
as provided in subparagraph 6(d)below, and such Participant does not have a 100%
vested interest in his or her shares under the Plan, then any shares which are
not vested, based upon the applicable schedule in subparagraph 6(a) above, shall
be forfeited and, provided this Plan has not terminated pursuant to paragraph 18
below, shall be available again for Awards to Participants as may be determined
by the Committee.
(d) In the event that a Participant shall no longer be an
employee or a director of the Bank or any Subsidiary because of such
Participant's disability or death, prior to the date when all shares allocated
to him or her would be 100% vested in accordance with the schedule in
subparagraph 6(a) above, then, notwithstanding the foregoing schedule in
subparagraph 6(a) above, all shares allocated to such Participant shall
immediately become fully vested and nonforfeitable. For purposes of this Plan,
the term "disability" shall be defined in the same manner as such term is
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the "Code").
7. Action Required of Participants.
-------------------------------
(a) If required by the Committee, each Participant receiving
an Award of shares under this Plan shall represent to and agree with the
Corporation, the Bank, the Committee and the Trustees (i) that he is acquiring
such shares on his own behalf as an investment and not with a present intention
of distribution or re-sale and (ii) that there shall be placed upon the
certificates representing such shares a legend setting forth these
representations and agreements or a reference thereto. Such shares shall be
transferable thereafter only if the proposed transfer shall be permissible under
this Plan and if, in the opinion of counsel for the Corporation, such transfer
shall at such time be in compliance with all applicable federal and state
securities laws and regulations.
(b) Each Participant receiving an Award of Plan Shares under
this Plan shall deliver to the Bank a Stock Grant Agreement, substantially in
the form attached hereto as Exhibit B, as modified as the Committee deems
necessary or desirable (a "Stock Grant Agreement"), which shall be signed by
such Participant.
8. Restrictions.
------------
(a) Plan Shares subject to an award made under this Plan shall
forthwith, after the Participant makes any representations required by paragraph
7 hereof, be issued in a certificate or certificates for such shares which shall
be prepared in the name of such Participant or any transferee permitted by
paragraph 12(a) (a "Permitted Transferee"). Such Participant or transferee shall
thereupon be a shareholder with respect to all of the shares represented by such
certificate or certificates and shall have all of the rights of a shareholder
with respect to all of such shares, including the right to vote such shares and
to receive all
3
<PAGE>
dividends and other distributions with respect thereto subject to possible
forfeiture as set forth in paragraph 6 and subject to the provisions of
paragraph 10 hereof.
(b) Certificates of stock representing shares subject to an
Award made under this Plan shall be imprinted with a legend to the effect that
the shares represented are subject to restrictions on transfer and potential
forfeiture in accordance with the terms of the Stock Grant Agreement and this
Plan, and the transfer agent for Common Stock shall be instructed to that effect
with respect to such shares. In aid of such restrictions, the Participant or
Permitted Transferee shall, immediately upon receipt of the certificate or
certificates, deposit such certificate or certificates together with a stock
power or other instrument of transfer, appropriately endorsed in blank, with the
Trustees or with such other escrow agent as may be designated by the Trustees,
with the expenses of any such escrow arrangement to be borne by the Bank.
(c) In addition, all Plan Shares which are awarded with
respect to Participants who are directors or executive officers of the Bank,
without the written consent of the Administrator of the Savings Institutions
Division of the North Carolina Department of Commerce, may not be sold during a
period of one year following the effective date of the Conversion, except upon
death of the director or executive officer. Certificates of stock representing
Plan Shares awarded with respect to Participants who are directors and executive
officers of the Bank (including those transferred to Permitted Transferees)
shall be imprinted with a legend to that effect, and the transfer agent for such
Plan Shares shall be instructed to that effect with respect to such shares.
(d) In the event that, as the result of a stock split or stock
dividend or combination of shares or any other change or exchange for other
securities by reclassification, reorganization, merger, consolidation,
recapitalization, or otherwise, a Participant or Permitted Transferee shall, as
the owner of the shares subject to an Award made under this Plan and subject to
the restrictions hereunder, be entitled to new or additional or different shares
of Common Stock or other securities, the certificate or certificates for, or
other evidence of, such new or additional or different shares or other
securities, together with a stock power or other instrument of transfer
appropriately endorsed, shall also be imprinted with one or more legends as
provided in subparagraph 8(b) and 8(c) above and deposited by such Participant
or Permitted Transferee with the Trustees, and all provisions of this Plan
relating to vesting, restrictions and lapse of restrictions herein set forth
shall thereupon be applicable to such new or additional or different shares or
other securities to the extent applicable to the shares with respect to which
they were distributed; provided, however, that if a Participant or Permitted
Transferee should receive rights, warrants or fractional interests in respect of
any of such shares then being held under the terms of this Plan, such rights or
warrants may be held, exercised, sold or otherwise disposed of, and such
fractional interests may be settled, by such Participant or Permitted Transferee
free and clear of the restrictions herein set forth.
(e) The restriction to which shares subject to an Award made
under this Plan shall be subject is that if the directorship or employment of
the Participant with respect to whom an Award is made (whichever position
resulted in the Award) should be terminated for any reason during the
"restricted period" (as defined in subparagraph 12(b) hereof), except as
otherwise specifically provided in paragraph 6 hereof, the Participant's or
Permitted Transferee's interest in the shares issued under this Plan shall be
forfeited as provided in the applicable schedule in subparagraph 6(a) hereof.
9. Effect of Award on Status of Participant. The fact that an
----------------------------------------
Award is made to a Participant under this Plan shall not confer on such
Participant any right to continued service on the Board or on the Board of
Directors of any Subsidiary, nor any right to continued employment with the Bank
or any Subsidiary; nor shall it limit the right of the Bank, the Corporation, or
any Subsidiary to remove such
4
<PAGE>
Participant from any such boards, or to terminate his or her employment at any
time.
10. Voting Rights; Dividends; Other Distributions. After an Award
---------------------------------------------
of Plan Shares to a Participant or Permitted Transferee, the Participant or
Permitted Transferee shall have the full power to vote all of the Plan Shares
held by the Trustees in his name from time to time and shall be entitled to
receive all cash dividends declared upon any such Plan Shares held by the
Trustees in his name from time to time. All shares of Common Stock or other
securities, including but not limited to stock dividends, issued in respect of
such Plan Shares or in substitution thereof, whether by the Corporation or by
another issuer, shall be held by the Trustees and shall be subject to all terms
and conditions of this Plan and shall be redelivered to a Participant or
Permitted Transferee or delivered as instructed by the Committee under the same
circumstances as the shares with respect to, or in substitution for, which they
were issued; provided, however, that if a Participant or Permitted Transferee
should receive rights, warrants or fractional interests in respect of any of the
shares held by the Trustees in his name, such rights or warrants may be held,
exercised, sold or otherwise disposed of, and such fractional interests may be
settled, by such Participants or Permitted Transferees free and clear of the
restrictions herein set forth.
Notwithstanding the foregoing, if a Participant or Permitted
Transferee hereunder forfeits any Plan Shares pursuant to the terms of this
Plan, the Participant or Permitted Transferee, as applicable, shall, within 30
days after the effective date of such forfeiture, pay the Corporation an amount
equal to the dividends received by such Participant or Permitted Transferee with
respect to such forfeited Plan Shares. In the alternative, at the option of the
Bank or a Subsidiary, the amount to be repaid may be withheld by the Bank or
Subsidiary from the final compensation or fees payable to the Participant.
11. Adjustment Upon Changes in Capitalization; Dissolution or
---------------------------------------------------------
Liquidation. In the event of a change in the number or type of shares of Common
- -----------
Stock outstanding, or in the event shares of Common Stock are decreased, changed
into or exchanged for securities of a different entity, by reason of a
reclassification, recapitalization, reorganization, or other similar capital
adjustment; merger or consolidation of the Corporation; or the sale by the
Corporation of all or a substantial portion of its assets, or the occurrence of
any other event which could affect the implementation of this Plan and the
realization of its objectives, the number or kind of shares subject to Awards
which have occurred, or could occur, under this Plan shall be proportionately
and equitably adjusted by the Committee.
12. Non-Transferability.
-------------------
(a) Any shares subject to an Award made under this Plan shall
not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed
of during the "restricted period." Nothing herein shall preclude a Participant
from making a gift of any such shares to a spouse, child, stepchild, grandchild,
parent or sibling, or legal dependent of such Participant, to a trust of which
the beneficiary or beneficiaries of the trust shall be either a person
designated herein or such Participant, or to a civic or charitable organization
designated by the Participant; provided, however, that any such shares so given
by a Participant shall remain subject to the restrictions, obligations and
conditions set forth in this Plan, including, but not limited to, the escrow
provisions set forth in paragraph 8(b). In addition, such shares may be tendered
in response to a tender offer for or a request or invitation to tenders of
greater than fifty percent (50%) of the outstanding Common Stock and may be
surrendered in a merger, consolidation or share exchange involving the
Corporation; provided, however, in each case, that except as otherwise provided
herein, the securities or other consideration received in exchange therefor
shall thereafter be subject to the restrictions and conditions set forth in this
Plan, including, but not limited to, the escrow provisions set forth in
paragraph 8(b) hereof.
5
<PAGE>
(b) The term "restricted period" with respect to shares
subject to an Award made under this Plan shall be the period commencing on the
date of making such Award of such shares to a Participant and ending on the date
on which such shares are no longer subject to forfeiture as provided in
paragraph 6 hereof. The date of making an Award shall be the date of execution
by a Participant of a Stock Grant Agreement in the form referred to in
subparagraph 7(b) hereof.
13. Impact of Award on Other Benefits of Participant. The value
------------------------------------------------
of any Award, either on the date of the Award or at the time such shares become
vested, shall not be includable as compensation or earnings for purposes of any
other benefit plan offered by the Bank, the Corporation or any Subsidiary.
14. Corporate Action. The making of an Award under this Plan
----------------
shall not affect in any way the right or power of the Corporation or its
shareholders or the Bank or its shareholders or any Subsidiary or its
shareholders to make or authorize any adjustment, recapitalization,
reorganization, or other change in the Corporation's, the Bank's or any
Subsidiary's capital structure or its business, or any merger or consolidation
of the Corporation, the Bank or any Subsidiary, or the issuance of any bonds,
debentures, preferred or other capital stock or rights with respect thereto, or
the dissolution or liquidation of the Corporation, the Bank or any Subsidiary,
or any sale or transfer of all or any part of the Corporation's, the Bank's or
any Subsidiary's assets or business.
15. Tax Withholding. The Bank, the Corporation or any Subsidiary
---------------
shall have the right to deduct or otherwise effect a withholding of any amount
required by federal or state laws to be withheld with respect to the making of
an Award or the sale of shares acquired under this Plan in order for the Bank,
the Corporation or any Subsidiary to obtain a tax deduction otherwise available
as a consequence of such Award or sale, as the case may be.
16. Exculpation and Indemnification. In connection with this
-------------------------------
Plan, no member of the Board, no member of the Board of Directors of the
Corporation, no member of the Committee and no Trustee shall be personally
liable for any act or omission to act in his capacity as a member of the Board,
the Board of Directors of the Corporation or the Committee or as a Trustee, nor
for any mistake in judgment made in good faith, unless arising out of, or
resulting from, such person's own bad faith, willful misconduct, or criminal
acts. To the extent permitted by applicable law and regulation, the Bank shall
indemnify, defend and hold harmless the members of the Board, the members of the
Board of Directors of the Corporation and the Committee and each Trustee and
each other officer or employee of the Bank, the Corporation or of any Subsidiary
to whom any duty or power relating to the administration or interpretation of
this Plan may be assigned or delegated, from and against any and all liabilities
(including any amount paid in settlement of a claim with the approval of the
Board) and any costs or expenses (including counsel fees) incurred by such
persons arising out of, or as a result of, any act or omission to act in
connection with the performance of such person's duties, responsibilities, and
obligations under this Plan, other than such liabilities, costs, and expenses as
may arise out of, or result from, the bad faith, willful misconduct, or criminal
acts of such persons.
17. Amendment and Modification of this Plan. The Board may at any
---------------------------------------
time, and from time to time, amend or modify this Plan (including the form of
Stock Grant Agreement) in any respect; provided, however, any amendment or
modification of this Plan shall not in any manner affect any Award of shares
theretofore made to a Participant under this Plan without the consent of such
Participant or any permitted transferee of such Participant and further provided
that no amendment shall be made to paragraph 5 of the Plan more than once every
six months other than to comport with changes in the Code, Employee Retirement
Income Security Act or the rules thereunder.
6
<PAGE>
18. Termination and Expiration of this Plan. This Plan may be
---------------------------------------
abandoned, suspended, or terminated, in whole or in part, at any time by the
Board; provided, however, that abandonment, suspension, or termination of this
Plan shall not affect any Award theretofore made under this Plan; and provided
further, that in no event shall this Plan be terminated at the time of or
following any merger or consolidation of the Corporation or the Bank, unless and
until the surviving entity shall have made provision for an equivalent benefit
for all the then current participants in the Plan. Unless sooner terminated,
this Plan shall terminate at the close of business on the day that is the tenth
(10th) anniversary of the date of approval of the Plan by a majority of the
shareholders of the Corporation; and no Award of shares may be made under this
Plan thereafter. Such termination shall not effect any Award of shares
theretofore made. In the event that the Board terminates this Plan in whole, any
shares held by the Trustees pursuant to paragraph 2(d) which have not been
allocated to eligible Participants, together with any other assets held by the
Trustees in their capacities as such, shall revert to the Bank.
19. Effective Date. This Plan has been adopted by the Board to be
--------------
effective as of the date of approval of the Plan by a majority of the
shareholders of the Corporation as required by the regulations of the Federal
Deposit Insurance Corporation.
20. Captions and Headings; Gender and Number. Captions and
----------------------------------------
paragraph headings used herein are for convenience only, do not modify or affect
the meaning of any provision herein, are not a part hereof, and shall not serve
as a basis for interpretation or construction of this Plan. As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.
21. Expenses of Administration of Plan. All costs and expenses
----------------------------------
incurred in the operation and administration of this Plan shall be borne by the
Bank or by a Subsidiary.
22. Governing Law. Without regard to the principles of conflicts
-------------
of laws, the laws of the State of North Carolina shall govern and control the
validity, interpretation, performance, and enforcement of this Plan.
23. Inspection of Plan. A copy of this Plan, and any amendments
------------------
thereto, shall be maintained by the Secretary of the Bank and shall be shown to
any proper person making inquiry about it.
7
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Percentage of Total
Name Plan Shares/1/
- ---- -------------------
<S> <C>
Willis L. Barnette 5%
Donald R. Belk 5%
Jack G. Lawler 5%
Calvin E. Tyner 5%
Claude U. Voils, Jr. 5%
George Brawley 25%
Dale Brawley 25%
Donald Jones 6%
Richard Wood 6%
Billy R. Williams 6%
</TABLE>
Remaining 7% to be held in reserve for future distribution.
- -------------------
/1/Total Plan Shares shall be equal to four percent (4%) of the number of
shares of Common Stock issued by the Corporation in connection with the
Conversion.
<PAGE>
EXHIBIT B
STATE OF NORTH CAROLINA
COUNTY OF IREDELL
STOCK GRANT AGREEMENT
THIS STOCK GRANT AGREEMENT (the "Agreement") is made and entered
into as of the ____ of ___________________, _______ (the "Effective Date"), by
and among Mooresville Savings Bank, Inc., SSB (the "Bank"), a North Carolina
corporation, _______________________ (the "Participant") and
______________________, ___________________ and ____________________ (the
"Trustees").
WHEREAS, a Management Recognition Plan (the "Plan") was adopted
by the Board of Directors of the Bank (the "Bank") and approved by the Board of
Directors and by a majority of the shareholders of Coddle Creek Financial Corp.,
the holding company of the Bank (the "Corporation").
WHEREAS, it has been determined that it is desirable and in the
best interest of the Bank to make an award (the "Award") of certain shares of
the Common Stock of the Corporation, under the Plan, to the Participant, subject
to certain restrictions as specified below; and
WHEREAS, capitalized terms not otherwise defined herein shall
have the same meaning given to such terms in the Plan.
NOW, THEREFORE, the Parties agree as follows:
1. Date of Award. The date of making the Award under this
-------------
Agreement is the _____ day of _________________, ______. This Award has been
made in recognition of the Participant's status and service as a
____________________ of _____________________________________________. The
Participant is ____ or _____ is not a director or executive officer of the Bank.
2. Receipt by Participant. The Participant acknowledges receipt
----------------------
of ________________________________ (__________) shares of Common Stock (the
"Restricted Stock"), and agrees to the execution of stock powers or such other
transfer authorizations as the Committee shall request, in blank, covering the
Restricted Stock to be held by the Trustees until the Restricted Stock becomes
vested and nonforfeitable pursuant to the Plan and this Agreement.
3. Investment Representation and Transfer Restrictions.
---------------------------------------------------
(a) Investment Representation. Participant makes and agrees to
-------------------------
the investment representation, if any, attached hereto as Annex A, and the
Committee may cause a legend to be placed on any certificate representing any of
the shares of Restricted Stock to make appropriate reference to such
representation.
(b) Securities Law and Regulations. The Participant agrees
------------------------------
that the Restricted Stock shall be subject to such stop-transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange or interdealer quotation system upon which the Common Stock
is then listed and any other applicable federal or state securities laws, rules
or regulations, and the Committee may cause a legend or
<PAGE>
legends to be placed on any certificate representing any of the shares of
Restricted Stock to make appropriate reference to such restrictions.
(c) Other Transfer Restrictions. If paragraph 1 above states
---------------------------
that Participant is a director or an executive officer of the Bank and if less
than one year has passed since the consummation of the Conversion (defined
below), the Participant agrees with the Bank that each certificate representing
any of the Restricted Stock may bear a legend, substantially in the form
attached as Annex B hereto, to the effect that, during the one year period
following the effective date of the conversion of the Bank from a North Carolina
chartered mutual savings bank to a North Carolina chartered stock savings bank
(the "Conversion"), the Restricted Stock represented thereby may not be sold
without the written consent of the Administrator of the Savings Institutions
Division, North Carolina Department of Commerce, except upon the death of the
Participant.
4. Receipt by the Trustees. The Trustees acknowledge receipt from
-----------------------
the Participant of the Restricted Stock, registered in the name of the
Participant, and acknowledge receipt of stock powers executed in blank by the
Participant covering all of the Restricted Stock. The Restricted Stock shall be
held by the Trustees and distributed or transferred in accordance with the Plan
and as set forth herein.
5. Vesting and Delivery of Restricted Stock by the Trustees.
--------------------------------------------------------
(a) Periodic Vesting. Restricted Stock shall vest and become
----------------
nonforfeitable in accordance with the Plan.
(b) Delivery of Restricted Stock to the Participant. After (i)
-----------------------------------------------
the date on which shares of Restricted Stock have become vested as provided in
the Plan, the Committee shall instruct the Trustees to deliver to the
Participant, the Participant's designee, such other person as shall have been
designated as Participant's beneficiary in accordance with this Agreement, or
any other permitted recipient pursuant to the Plan, as applicable, certificates
representing the shares of Restricted Stock which have become vested and
nonforfeitable, as the Committee shall determine, free from any restrictions
imposed by this Agreement other than such restrictions and conditions as may be
deemed necessary by the Committee pursuant to paragraph 3 above.
(c) Delivery of Forfeited Restricted Stock. If the Restricted
--------------------------------------
Shares, or any of them, are forfeited pursuant to the Plan, the Board shall
instruct the Trustees concerning the disposition of such forfeited shares.
Thereafter such forfeited shares shall cease to be subject to this Agreement.
6. Repayment of Dividends. If the Participant hereunder forfeits
----------------------
any shares of Restricted Stock pursuant to the Plan, the Participant shall,
within 30 days after the effective date of such forfeiture, pay the Corporation
an amount equal to the dividends received by the Participant with respect to
forfeited shares of Restricted Stock as set forth in the Plan. In the
alternative, at the option of the Bank or a Subsidiary, the amount to be repaid
may be withheld by the Bank or Subsidiary from the final compensation or fees
payable to the Participant. Each acceptance by a Participant of dividends with
respect to Restricted Shares still subject to forfeiture shall constitute a
reaffirmation of the agreements set forth in this paragraph 6.
7. Designation of Beneficiary. The Participant hereby designates
--------------------------
the person(s) described on Annex C as the beneficiary or beneficiaries who shall
be entitled to receive the Restricted Stock, if any, distributable to the
Participant upon his death. The Participant may, from time to time, revoke or
change his beneficiary designation without the consent of any prior beneficiary,
if any, by filing a new designation with
2
<PAGE>
the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date prior to
such receipt.
If no such beneficiary designation is in effect at the time of
the Participant's death, or if no designated beneficiary survives the
Participant, or if such designation conflicts with law, the Participant's estate
shall be deemed to have been designated his beneficiary and shall receive the
Restricted Stock, if any, distributable to the Participant upon his death. If
the Committee is in doubt as to the right of any person to receive such
distribution, the Committee may direct the Trustees to retain the Restricted
Stock, without liability for any interest in respect thereof, until the rights
thereto are determined, or the Committee may direct the transfer of such
Restricted Stock into any court of appropriate jurisdiction and such transfer
shall be deemed a complete discharge of the obligations of the Bank, the
Corporation, the Committee and Trustees hereunder.
8. Effect of Award on Status of Participant. The fact that an
----------------------------------------
Award has been made to the Participant under this Plan shall not confer on the
Participant any right to continued service on the Board, on the board of
directors of the Corporation or on the board of directors of any Subsidiary, nor
to continued employment with the Bank, the Corporation or any Subsidiary; nor
shall it limit the right of the Bank, the Corporation or of any Subsidiary to
remove the Participant from any such boards, or to terminate his employment at
any time without prior notice.
9. Impact of Award on Other Benefits of Participant. The value of
------------------------------------------------
the Restricted Stock on the date of the Award or at the time the Restricted
Stock becomes vested, shall not be includable as compensation or earnings for
purposes of any other benefit plan offered by the Bank, the Corporation or any
Subsidiary.
10. Tax Withholding. All Restricted Stock distributed pursuant to
---------------
this Agreement shall be subject to applicable federal, state and local
withholding for taxes. The Participant expressly acknowledges and agrees to such
withholding without regard to whether the Restricted Stock may then be sold or
otherwise transferred by the Participant.
11. Notices. Any notices or other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been sufficiently given if delivered personally or three business
days after deposit in the United States mail as Certified Mail, return receipt
requested, properly addressed and postage prepaid, if to the Bank, the Committee
or the Trustees at the Bank's principal office address at Post Office Box 117,
347 North Main Street, Mooresville, North Carolina 28115; and, if to the
Participant, at his last address appearing on the books of the Bank. The Bank
and the Participant may change their address or addresses by giving written
notice of such change as provided herein. Any notice or other communication
hereunder shall be deemed to have been given on the date actually delivered or
as of the third (3rd) business day following the date mailed as set forth above,
as the case may be.
12. Construction Controlled by Plan. The Plan, a copy of which is
-------------------------------
attached hereto as Annex D, is incorporated herein by reference. The Award of
Restricted Shares shall be subject to the terms and conditions of the Plan, and
the Participant hereby assumes and agrees to comply with all of the obligations
imposed upon the Participant in the Plan. This Agreement shall be construed so
as to be consistent with the Plan; and the provisions of the Plan shall be
deemed to be controlling in the event that any provision hereof should appear to
be inconsistent therewith.
13. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in
3
<PAGE>
such a manner as to be valid and enforceable under applicable law, but if any
provision of this Agreement is determined to be unenforceable, invalid or
illegal, the validity of any other provision or part thereof shall not be
affected thereby and this Agreement shall continue to be binding on the parties
hereto as if such unenforceable, invalid or illegal provision or part thereof
had not been included herein.
14. Governing Law. Without regard to the principles of conflicts
-------------
of laws, the laws of the State of North Carolina shall govern and control the
validity, interpretation, performance, and enforcement of this Agreement.
15. Modification of Agreement; Waiver. This Agreement may be
---------------------------------
modified, amended, suspended or terminated, and any terms, representations or
conditions may be waived, but only by a written instrument signed by each of the
parties hereto or their successors in interest. No waiver hereunder shall
constitute a waiver with respect to any subsequent occurrence or other
transaction hereunder or of any other provision hereof.
16. Binding Effect. This Agreement shall be binding upon and
--------------
shall inure to the benefit of the parties hereto, and their respective heirs,
legatees, personal representatives, executors, and administrators, successors
and assigns.
17. Entire Agreement. This Agreement and the Plan constitute and
----------------
embody the entire understanding and agreement of the parties hereto and, except
as otherwise provided hereunder, there are no other agreements or
understandings, written or oral, in effect between the parties hereto relating
to the matters addressed herein.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
19. Substitution of Trustee. In the event any new trustee is
-----------------------
substituted for any Trustee pursuant to the Plan, such substitute trustee shall
also be substituted as a Trustee hereunder.
IN WITNESS WHEREOF, the Bank has caused this instrument to be
executed in its corporate name by its President, or one of its Vice Presidents,
and attested by its Secretary or one of its Assistant Secretaries, and its
corporate seal to be hereto affixed, all by, authority of its Board of Directors
first duly given; and each individual party hereto has hereunto set his hand and
adopted as his seal the typewritten word "SEAL" appearing beside his name, all
done this the day and year first above written.
MOORESVILLE SAVINGS BANK, INC., SSB
By:
----------------------------------
President
ATTEST:
- -------------------------
Secretary
4
<PAGE>
[Corporate Seal]
PARTICIPANT
(SEAL)
---------------------------------------
(SEAL)
---------------------------------------
TRUSTEE
(SEAL)
---------------------------------------
TRUSTEE
(SEAL)
---------------------------------------
TRUSTEE
5
<PAGE>
ANNEX A
Investment Representation
-------------------------
<PAGE>
ANNEX B
Form of Legend
--------------
The shares represented by this certificate are subject to
restrictions on transfer and, for a period ending ______________, 1998, may not
be sold without the written permission of the Administrator of the Savings
Institutions Division, North Carolina Department of Commerce, except in the
event of the death of the holder thereof.
<PAGE>
ANNEX C
Management Recognition Plan
---------------------------
Beneficiary Designation Form
----------------------------
As Beneficiary to receive any shares of stock distributable on my
behalf pursuant to the Mooresville Savings Bank, Inc., SSB Management
Recognition Plan, I hereby designate the following:
Name Address Relationship
Primary
Beneficiary: ----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
Contingent
Beneficiary:
(if any) ----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
If more than one primary beneficiary is named, shares will be paid in equal
shares to surviving primary beneficiaries. Should the contingent beneficiaries
be eligible to receive the benefits (i.e., all primary beneficiaries are
deceased), such benefits will be paid in equal shares to such surviving
contingent beneficiaries.
Name of Spouse if not given above:
---------------------------------------------
- -------------------------------- -----------------------------------
Witness Participant
-----------------------------------
Date
<PAGE>
ANNEX D
Management Recognition Plan
---------------------------
<PAGE>
EXHIBIT 10(e)
CODDLE CREEK FINANCIAL CORP.
STOCK OPTION PLAN AND TRUST AGREEMENT
(If Implemented Within One Year Of Conversion)
THIS IS THE CODDLE CREEK FINANCIAL CORP. STOCK OPTION PLAN ("Plan") AND
TRUST AGREEMENT (the "Trust") of Coddle Creek Financial Corp. (the
"Corporation"), a North Carolina corporation, with its principal office in
Mooresville, Iredell County, North Carolina, adopted by the Board of Directors
of the Corporation and effective upon the approval of the Plan by a majority of
the shareholders of the Corporation and the receipt of all necessary regulatory
approvals, under which options may be granted from time to time to eligible
directors and employees of the Corporation, Mooresville Savings Bank, Inc., SSB
(the "Bank") and of any corporation or other entity of which either the
Corporation or the Bank owns, directly or indirectly, not less than fifty
percent (50%) of any class of equity securities (a "Subsidiary"), to purchase
shares of common stock of the Corporation ("Common Stock"), subject to the
provisions set forth as follows:
1. PURPOSE OF THE PLAN. The purpose of the Plan is to aid the
-------------------
Corporation, the Bank and any Subsidiary in attracting and retaining capable
directors and employees and to provide a long range incentive for directors and
employees to remain in the management of the Corporation, the Bank or any
Subsidiary, to perform at increasing levels of effectiveness and to acquire a
permanent stake in the Corporation with the interest and outlook of an owner.
These objectives will be promoted through the granting of options to acquire
shares of Common Stock pursuant to the terms of this Plan.
2. ADMINISTRATION. The Plan shall be administered by the committee (the
--------------
"Committee"), who are three members of the Board of Directors of the Corporation
(the "Board") who are "disinterested persons" as described in Rule 16b-
3(c)(2)(i) of the Rules and Regulations under the Securities Act of 1934 (the
"Exchange Act"). Members of the Committee shall serve at the pleasure of the
Board. In the absence at any time of a duly appointed Committee, this Plan
shall be administered by those members of the Board who are "disinterested
persons," and by the Board if there are less than three "disinterested persons."
The Committee may designate any officers or employees of the Corporation, the
Bank or any Subsidiary to assist in the administration of the Plan and to
execute documents on behalf of the Committee and perform such other ministerial
duties as may be delegated to them by the Committee.
The Trust shall have three Trustees who shall be appointed by the Board and
shall serve at the pleasure of the Board.
Subject to the provisions of the Plan, the determinations or the
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby. By way of
illustration and not of limitation, the Committee shall have the discretion (a)
to construe and interpret the Plan and all options granted hereunder and to
determine the terms and provisions (and amendments thereof) of the options
granted under the Plan (which need not be identical); (b) to define the terms
used in the Plan and in the options granted hereunder; (c) to prescribe, amend
and rescind the rules and regulations relating to the Plan; (d) to determine the
individuals to whom and the time or times at which such options shall be granted
(except for the options described in paragraph 6), the number of shares to be
subject to each option (except for the options described in paragraph 6), the
option price, and the determination of leaves of absence which may be granted to
participants without constituting a termination of their employment for the
purposes of the Plan; and (e) to make all other determinations necessary or
advisable for the administration of the Plan.
1
<PAGE>
It shall be in the discretion of the Committee to grant options which
qualify as "incentive stock options" (as that term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended) or which do not qualify as
incentive stock options and which will be given tax treatment as "nonqualified
stock options" (herein referred to collectively as "options;" however, whenever
reference is specifically made only to "incentive stock options" or
"nonqualified stock options," such reference shall be deemed to be made to the
exclusion of the other). Any options granted which fail to satisfy the
requirements for incentive stock options shall become nonqualified stock
options.
3. STOCK AVAILABLE FOR OPTIONS. In the discretion of the Committee, the
---------------------------
stock to be subject to options under the Plan shall be authorized but unissued
shares of Common Stock which are issued to and held by the Trust or which are
issued directly to optionees upon exercise of options and/or shares of Common
Stock which are acquired by the Trust in the open market either before or after
the exercise of options under this Plan. It is contemplated that shares of
Common Stock may be acquired by the Trust at any time following consummation of
the conversion of the Bank from a North Carolina mutual savings bank to a North
Carolina stock savings bank on __________________, 1997 (the "Conversion"), and
prior to the time options become vested under the terms of the Plan. The total
number of shares of Common Stock for which options may be granted under the Plan
is the number of shares equal to ten percent (10%) of the total number of shares
of Common Stock issued by the Corporation in connection with the Conversion.
Such number of shares is subject to any capital adjustments as provided in
Section 15. In the event that an option granted under the Plan is forfeited,
released, expires or is terminated unexercised as to any shares covered thereby,
such shares thereafter shall be available for the granting of options under the
Plan; however, if the forfeiture, expiration, release or termination date of an
option is beyond the term of existence of the Plan as described in Section 22,
then any shares covered by forfeited, unexercised, released or terminated
options shall not reactivate the existence of the Plan and therefore may not be
available for additional grants under the Plan. The Corporation, until the
Trust has acquired all shares of Common Stock necessary to satisfy options
granted under the Plan, will reserve and keep available a number of shares of
Common Stock sufficient to satisfy the requirements of the Plan.
4. CONTRIBUTIONS TO TRUST. The Board shall determine the amount (or the
----------------------
method of computing the amount) and timing of any contributions by the
Corporation, the Bank and any Subsidiary to the Trust established under this
Plan. Such amounts may be paid in cash or in shares of Common Stock and shall
be paid to the Trust at the designated time of contribution. No contributions
by participants under the Plan shall be permitted.
Except for amounts distributed to the Trust pursuant to Section 17 (which
shall be invested as set forth in Section 18), the Trustees shall, after paying
the expenses of the Trust, invest all of the Trust's assets primarily in Common
Stock. Upon the direction of the Committee, a number of shares up to the
aggregate number of shares of Common Stock available for distribution pursuant
to this Plan, as set forth in Section 3 above, shall be acquired by the Trustees
at any time following consummation of the Conversion. In the discretion of the
Committee, such shares may be acquired either before or upon the exercise of
options under this Plan. In the event that cash is contributed to the Trust and
it is necessary for the Trustees to acquire shares of Common Stock in the open
market, such shares shall be acquired on such terms as the Trustees deem
appropriate.
5. ELIGIBILITY. Options shall be granted only to individuals who meet all
-----------
of the following eligibility requirements:
2
<PAGE>
(a) Such individual must be an employee or a member of the Board of
Directors of the Corporation, the Bank or a Subsidiary. For this purpose,
an individual shall be considered to be an "employee" only if there exists
between the Corporation, the Bank or a Subsidiary and the individual the
legal and bona fide relationship of employer and employee. In determining
whether such relationship exists, the regulations of the United States
Treasury Department relating to the determination of such relationship for
the purpose of collection of income tax at the source on wages shall be
applied.
(b) Such individual must have such knowledge and experience in
financial and business matters that he or she is capable of evaluating the
merits and risks of the investment involved in the exercise of the options.
(c) Such individual, being otherwise eligible under this Section 5,
shall have been selected by the Committee as a person to whom an option
shall be granted under the Plan or shall have been designated in Section 6
hereof.
In determining the directors and employees to whom options shall be granted
and the number of shares to be covered by each option, the Committee shall take
into account the nature of the services rendered by respective directors and
employees, their present and potential contributions to the success of the
Corporation, the Bank and any Subsidiary and such other factors as the Committee
shall deem relevant. A director or employee who has been granted an option
under the Plan may be granted an additional option or options under the Plan if
the Committee shall so determine.
If, pursuant to the terms of the Plan, it is necessary that the percentage
of stock ownership of any individual be determined, stock ownership in the
Corporation or of a related corporation which is owned (directly or indirectly)
by or for such individual's brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants or by or for any corporation,
partnership, estate or trust of which such employee is a shareholder, partner or
beneficiary shall be considered as owned by such director or employee.
Notwithstanding anything in this Plan to the contrary, (i) no individual
optionee shall be granted options to acquire more than twenty-five (25) percent
of the shares of Common Stock to be issued pursuant to this Plan, (ii) no
optionee who is a non-employee director of the Corporation, the Bank or a
Subsidiary shall be granted options to acquire more than five (5) percent of the
shares of Common Stock to be issued pursuant to this Plan and (iii) all
optionees who are non-employee directors of the Corporation, the Bank or a
Subsidiary shall be granted options to acquire no more than thirty (30) percent
of the shares of Common Stock to be issued pursuant to this Plan.
6. INITIAL GRANTS. Subject to the provisions of this Plan, options shall
--------------
be awarded to the directors and employees as set forth on Exhibit A. Such
options shall be granted after the date the Plan is approved by a majority of
the Corporation's shareholders and by all necessary regulatory authorities, and
after execution by the optionee of a Stock Option Grant and Agreement (the
"Option Agreement") in the form attached hereto as Exhibit B as modified by the
Committee to the extent it deems such modification to be necessary or desirable.
Such options shall be granted with the intention that they will be nonqualified
or incentive stock options as denominated in the Option Agreement. Any option
granted with the intention that it will be an incentive stock option but which
fails to satisfy a requirement for incentive stock options shall continue to be
valid and shall be treated as a nonqualified stock option.
7. OPTION PRICE.
------------
3
<PAGE>
(a) The option price of each option granted under the Plan shall be
not less than one hundred percent (100%) of the market value of the stock
on the date of grant of the option. In the case of incentive stock options
granted to a shareholder who owns stock possessing more than 10 percent
(10%) of the total combined voting power of all classes of stock of the
Corporation, the Bank or a Subsidiary (a "ten percent shareholder"), the
option price of each option granted under the Plan shall not be less than
one hundred and ten percent (110%) of the market value of the stock on the
date of grant of the option. 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 not less than
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 market price
per share shall be equal to the average 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 price per
share shall be equal to the average 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. The Committee shall maintain a written record of its
method of determining such value.
(b) The option price shall be payable to the Corporation either (i)
in cash or by check, bank draft or money order payable to the order of the
Corporation, or (ii) at the discretion of the Committee, through the
delivery of shares of the common stock of the Corporation owned by the
optionee with a market value (determined in a manner consistent with (i)
above) equal to the option price, or (iii) at the discretion of the
Committee by a combination of (i) and (ii) above. No shares shall be
delivered until full payment has been made. The Committee may not approve
a reduction of such purchase price in any such option, or the cancellation
of any such options and the regranting thereof to the same optionee at a
lower purchase price, at a time when the market value of the shares is
lower than it was when such option was granted.
4
<PAGE>
8. EXPIRATION OF OPTIONS. The Committee shall determine the expiration
---------------------
date or dates of each option, but such expiration date shall be not later than
ten (10) years after the date such option is granted. In the event an incentive
stock option is granted to a ten percent shareholder, the expiration date or
dates of each option shall be not later than five (5) years after the date such
option is granted. The Committee, in its discretion, may extend the expiration
date or dates of an option after such date was originally set; however, such
expiration date may not exceed the maximum expiration date described in this
Section 8.
9. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) All options must be granted within ten (10) years of the
Effective Date of this Plan as defined in Section 21.
(b) The Committee may grant options which are intended to be
incentive stock options and nonqualified stock options, either separately
or jointly, to an eligible employee.
(c) The grant of options shall be evidenced by a written instrument
(an Option Agreement) containing terms and conditions established by the
Committee consistent with the provisions of this Plan.
(d) Not less than 100 shares may be purchased at any one time unless
the number purchased is the total number at that time purchasable under the
Plan.
(e) The recipient of an option shall have no rights as a shareholder
with respect to any shares covered by his option until payment in full by
him for the shares being purchased. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is
prior to the date such stock is fully paid for, except as provided in
Section 15.
(f) The aggregate fair market value of the stock (determined as of
the time the option is granted) with respect to which incentive stock
options are exercisable for the first time by any participant during any
calendar year (under all benefit plans of the Corporation, the Bank or any
Subsidiary, if applicable) shall not exceed $100,000; provided, however,
that such $100,000 limit of this subsection (f) shall not apply to the
grant of nonqualified stock options. The Committee may grant options which
are exercisable in excess of the foregoing limitations, in which case
options granted which are exercisable in excess of such limitation shall be
nonqualified stock options.
(g) All stock obtained pursuant to an option which qualifies as an
incentive stock option shall be held in escrow for a period which ends on
the later of (i) two (2) years from the date of the granting of the option
or (ii) one (1) year after the transfer of the stock pursuant to the
exercise of the option. The stock shall be held by the Corporation or its
designee. The employee who has exercised the option shall during such
holding period have all rights of a shareholder, including but not limited
to the rights to vote, receive dividends and sell the stock. The sole
purpose of the escrow is to inform the Corporation of a disqualifying
disposition of the stock within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and it shall be administered solely for
that purpose.
5
<PAGE>
10. EXERCISE OF OPTIONS.
-------------------
(a) An optionee receiving options by virtue of his position as a
director must remain continuously a member of the Board of Directors of the
Corporation, the Board of Directors of the Bank or the Board of Directors
of one or more of the Subsidiaries from the date of the grant until the
exercise of the option except as provided in Sections 11, 12 and 13 of this
Plan. An optionee receiving options by virtue of his position as an
employee must at all times be employed by the Corporation, the Bank or a
Subsidiary from the date of grant until the exercise of the options granted
except as provided in Sections 11, 12 and 13. All options granted under
the Plan shall be exercisable in annual installments in accordance with the
following schedule:
Twenty percent (20%) of the shares beginning 1 year after the date of
the grant of the options;
Twenty percent (20%) of the shares beginning 2 years after the date of
the grant of the options;
Twenty percent (20%) of the shares beginning 3 years after the date of
the grant of the options;
Twenty percent (20%) of the shares beginning 4 years after the date of
the grant of the options; and
Twenty percent (20%) of the shares beginning 5 years after the date of
the grant of the options.
Notwithstanding the foregoing, options shall become exercisable with
respect to all of the shares subject thereto upon the optionee's death or
upon the optionee's disability within the meaning of Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended.
The right to exercise options in annual installments shall be cumulative
and any vested installments may be exercised, in whole or in part, at the
election of the optionee. The exercise of any option must be evidenced by
written notice to the Corporation that the optionee intends to exercise his
option.
In no event shall an option be deemed granted by the Corporation or
exercisable by a recipient prior to the mutual execution by the Corporation
and the recipient of an Option Agreement which comports with the
requirements of Section 6 and Section 9(c).
6
<PAGE>
(b) The inability of the Corporation or Bank to obtain approval from
any regulatory body or authority deemed by counsel to be necessary to the
lawful issuance and sale of any shares of Common Stock hereunder shall
relieve the Corporation and the Bank of any liability in respect of the
non-issuance or sale of such shares. As a condition to the exercise of an
option, the Corporation may require the person exercising the Option to
make such representations and warranties as may be necessary to assure the
availability of an exemption from the registration requirements of federal
or state securities laws.
(c) The Committee shall have the discretionary authority to impose in
the Option Agreements such restrictions on shares of Common Stock 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.
11. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - EXCEPT BY DISABILITY OR
-------------------------------------------------------------------
DEATH. If any optionee receiving the grant of an option by virtue of his
- -----
position as a director ceases to be a director of at least one of the
Corporation, the Bank or any Subsidiary for any reason other than death or
disability (as defined in Section 12) or if any optionee receiving the grant of
an option by virtue of his position as an employee ceases to be an employee of
at least one of the Corporation, the Bank and any Subsidiary for any reason
other than death or disability (as defined in Section 12), he may, (i) at any
time within three (3) months after his date of termination, but not later than
the date of expiration of the option, exercise any option designated in the
Option Agreement as an incentive stock option and (ii) at any time prior to the
date of expiration of the option, exercise any option designated in the Option
Agreement as a nonqualified stock option. However, in either such event the
optionee may exercise any option only to the extent it was vested and he or she
was entitled to exercise the option on the date of termination. Any options or
portions of options of terminated directors or employees not so exercised shall
terminate and be forfeited.
12. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - DISABILITY. If any
------------------------------------------------------
optionee receiving the grant of an option by virtue of his position as a
director ceases to be a director of at least one of the Corporation, the Bank or
any Subsidiary due to his becoming disabled within the meaning of Section
22(e)(3) of the Internal Revenue Code of 1986, as amended, or if any employee
receiving the grant of an option by virtue of his position as an employee ceases
to be employed by at least one of the Corporation, the Bank and any Subsidiary
due to his becoming disabled within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended, he may, (i) at any time within 12
months after his date of termination, but not later than the date of expiration
of the option, exercise any option designated in the Option Agreement as an
incentive stock option with respect to all shares subject thereto and (ii) at
any time prior to the date of expiration of the option, exercise any option
designated in the Option Agreement as a nonqualified stock option with respect
to all shares subject thereto. Any portions of options of terminated directors
or employees not so exercised shall terminate.
13. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - DEATH. If an optionee
-------------------------------------------------
receiving the grant of an option by virtue of his position as a director dies
while a director of the Corporation, the Bank or any Subsidiary or if any
employee receiving the grant of an option by virtue of his position as an
employee dies while in the employment of the Corporation, the Bank or a
Subsidiary, the person or persons to whom the option is transferred by will or
by the laws of descent and distribution may exercise the option at any time
until the term of the option has expired, with respect to all shares subject
thereto, to the same extent and upon the same terms and conditions the optionee
would have been entitled to do so had he lived. Any options or portions of
options of deceased directors or employees not
7
<PAGE>
so exercised shall terminate.
14. RESTRICTIONS ON TRANSFER. An option granted under this Plan may not
------------------------
be transferred except by will or the laws of descent and distribution and,
during the lifetime of the optionee to whom it was granted, may be exercised
only by such optionee.
15. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK.
------------------------------------------
(a) If the outstanding shares of Common Stock of the Corporation are
increased, decreased, changed into or exchanged for a different number or
kind of shares or other securities of the Corporation or another entity as
a result of a recapitalization, reclassification, stock dividend, stock
split, amendment to the Corporation's Certificate of Incorporation, reverse
stock split, merger or consolidation, an appropriate adjustment shall be
made in the number and/or kind of securities allocated to the options
previously and subsequently granted under the Plan, without change in the
aggregate purchase price applicable to the unexercised portion of the
outstanding options but with a corresponding adjustment in the price for
each share or other unit of any security covered by the options.
(b) To the extent that the foregoing adjustments relate to particular
stock or securities of the Corporation subject to option under this Plan,
such adjustments shall be made by the Committee, whose determination in
that respect shall be final and conclusive.
(c) The grant of an option pursuant to this Plan shall not affect in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
(d) No fractional shares of stock shall be issued under the Plan for
any such adjustment.
(e) Any adjustment made pursuant to this Section 15, shall be made in
such manner as not to constitute a modification of any outstanding
incentive stock options within the meaning of Section 424(h) of the
Internal Revenue Code of 1986, as amended.
16. INVESTMENT PURPOSE. At the discretion of the Committee, any Option
------------------
Agreement may provide that the optionee shall, by accepting the option,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all shares of stock purchased upon the exercise
of the option will be acquired for investment and not for resale or
distribution, and that upon each exercise of any portion of an option, the
person entitled to exercise the same shall furnish evidence of such facts which
is satisfactory to the Corporation. Certificates for shares of stock acquired
under the Plan may be issued bearing such restrictive legends as the Corporation
and its counsel may deem necessary to ensure that the optionee is not an
"underwriter" within the meaning of the regulations of the Securities Exchange
Commission.
17. DISTRIBUTION OF DIVIDENDS. Any cash dividends, returns of capital or
-------------------------
other distributions paid or made in respect of any shares of Common Stock held
in the Trust, plus the earnings on such amounts shall be paid by the Trustees to
the Corporation.
8
<PAGE>
18. TRUST. The Trustees shall receive, hold, administer, invest and make
-----
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to the Plan.
It is the intent of this Plan and Trust that the Trustees shall have
complete authority and discretion with respect to the arrangement, control and
investment of the Trust, and that the Trustees shall invest all assets of the
Trust, except for amounts received pursuant to Section 17 above, in Common Stock
to the fullest extent practicable, except (i) to the extent that the Trustees
determine that the holding of monies in cash or cash equivalents is necessary to
meet the obligations of the Trust and (ii) contributions to the Trust may be
temporarily invested in such interest-bearing account or accounts as the
Trustees shall determine to be appropriate. Amounts received by the Trustees
pursuant to Section 17 shall be invested in such interest-bearing accounts or in
other investments as the Trustees determine to be appropriate. In performing
their duties, the Trustees shall have the power to do all things and execute
such instruments as may be deemed necessary or proper, including the following
powers:
(a) To invest up to 100% of all Trust assets in Common Stock without
regard to any law now or hereafter in force limiting investments for
trustees or other fiduciaries. The investment authorized herein may
constitute the only investment of the Trust, except for the investment of
amounts received by the Trustees pursuant to Section 17, and in making such
investment, the Trustees are authorized to purchase Common Stock from the
Corporation or from any other source, and such Common Stock so purchased
may be outstanding or newly issued.
(b) To invest any Trust assets not otherwise invested in accordance
with (a) above, in such deposit accounts (including, without limitation,
deposit accounts at the Bank), certificates of deposit, obligations of the
United States Government or its agencies or such other investments as shall
be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be maintained
showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may in the
opinion of the Trustees be reasonable for the proper operation of the Plan
and Trust.
(f) To employ brokers, agents, custodians, consultants and
accountants.
(g) To hire counsel to render advice with respect to its rights,
duties and obligations hereunder, and such other legal services or
representation as the Trustees deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to an optionee or his beneficiary as a consequence of a dispute
as to the disposition thereof, whether in a segregated account or held in
common with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustees
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of a court for the
9
<PAGE>
exercise of any power herein contained, or to give any bond.
The Trustees shall maintain accurate and detailed records and accounts of
all transactions of the Trust, which shall be available at all reasonable times
for inspection by any legally entitled person or entity to the extent required
by applicable law, or any other person determined by the Committee.
After a stock option has been granted under this Plan, the optionee shall
be entitled to direct the Trustees as to the voting of the shares of Common
Stock held by the Trustees to satisfy the options which have been granted to
such optionee, regardless of whether or not such options have become vested and
nonforfeitable, subject to any rules and procedures adopted by the Committee for
this purpose. If any optionee does not direct the Trustees as to the voting of
the shares held to satisfy options granted to such optionee, such shares shall
not be voted by the Trustees. In the event a tender offer is made for shares of
Common Stock held to satisfy options granted to an optionee, the Trustees shall
tender shares held by the Trustees to satisfy options granted to such optionee
in accordance with instructions from such optionee. Any shares of Common Stock
held by the Trustees to satisfy options not granted to an optionee shall be
voted or tendered by the Trustees in their sole discretion.
It is intended that the trust established hereby be treated as a Grantor
Trust of the Corporation under the provisions of Section 671 et seq. of the
Internal Revenue Code of 1986, as amended.
Notwithstanding anything to the contrary in this Plan or Trust, the assets
of the Plan and Trust are subject to the payment of the claims of creditors of
the Corporation in the event of its insolvency or bankruptcy. The Corporation
is insolvent or bankrupt if it is the subject of a proceeding under the
Bankruptcy Code, 11 U.S.C. Section 101 et seq. or is unable to pay its debts.
The Board of Directors or the chief executive officer of the Corporation must
give written notice to the Trustees of the Corporation's bankruptcy or
insolvency as soon as practicable following the occurrence of such event. Upon
receipt of such notice or other written allegations of the Corporation's
bankruptcy or insolvency, or in the case of the Trustees' actual knowledge of or
determination of the Corporation's bankruptcy or insolvency, the Trustees shall
discontinue delivery of Trust assets to the optionees or the Corporation and
shall hold the assets of the Trust for the benefit of the Corporation's general
creditors and, upon a determination that the Corporation is bankrupt or
insolvent, shall distribute such assets to or for the benefit of the general
creditors. The Trustees shall resume delivery of Trust assets to the optionees
or the Corporation only after it is determined that the Corporation is no longer
bankrupt or insolvent. Determination of the bankruptcy or insolvency shall be
determined by a court of competent jurisdiction or by an arbitrator selected by
and pursuant to rules of the American Arbitration Association upon petition by
an interested party.
19. APPLICATION OF FUNDS. The proceeds received by the Corporation from
--------------------
the sale of Common Stock pursuant to options will be used for general corporate
purposes.
20. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
--------------------------------
impose no obligation upon the optionee to exercise such option.
21. EFFECTIVE DATE OF PLAN. The Plan will become effective upon the
----------------------
approval of the Plan by a majority of the shareholders of the Corporation as
required by regulations of the FDIC and the receipt of all necessary regulatory
approvals.
22. TERM OF PLAN. Options may be granted pursuant to this Plan from time
------------
to time
10
<PAGE>
within ten (10) years from the effective date of the Plan.
23. TIME OF GRANTING OF OPTIONS. Nothing contained in the Plan or in any
---------------------------
resolution adopted or to be adopted by the Committee or the shareholders of the
Corporation and no action taken by the Committee shall constitute the granting
of any option hereunder. The granting of an option pursuant to the Plan shall
take place only when an Option Agreement shall have been duly executed and
delivered by and on behalf of the Corporation at the direction of the Committee.
24. WITHHOLDING TAXES. Whenever the Corporation proposes or is required
-----------------
to issue or transfer shares of stock or other assets under the Plan, the
Corporation shall have the right to require the optionee to remit to the
Corporation an amount sufficient to satisfy any Federal, state and/or local
withholding tax requirements prior to the issuance of any certificate or
certificates for such shares or delivery of other assets. Alternatively, the
Corporation may issue or transfer such shares of stock or make other
distributions of assets net of the number of shares or other amounts sufficient
to satisfy the withholding tax requirements. For withholding tax purposes, the
shares of stock and other assets to be distributed shall be valued on the date
the withholding obligation is incurred.
25. TERMINATION AND AMENDMENT. The Board may at any time alter, suspend,
-------------------------
terminate or discontinue the Plan, but may not, without the consent of the
holder of an option previously granted, make any alteration which would deprive
the optionee of his rights with respect thereto; provided, however, that
-------- -------
shareholder approval of certain amendments may be necessary if it is desirable
for the Plan to continue to satisfy the requirements of Rule 16b-3 of the
Securities Exchange Commission; and provided further, that in no event shall
-------- -------
this Plan be terminated at the time of or following any merger or consolidation
of the Corporation or the Bank, unless and until the surviving entity shall have
made provision for an equivalent benefit for all the then current option
holders. Notwithstanding anything herein to the contrary, the Board may not
amend Section 6 hereof or any other provisions of this Plan described in Rule
16b-3(c)(2)(ii)(A) of the regulations promulgated pursuant to the Exchange Act
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder.
26. CAPTIONS AND HEADINGS; GENDER AND NUMBER. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part, and shall not serve as a basis
for interpretation or construction of, this Plan. As used herein, the masculine
gender shall include the feminine and neuter, and the singular number shall
include the plural, and vice versa, whenever such meanings are appropriate.
27. COST OF PLAN; EXCULPATION AND INDEMNIFICATION. All costs and expenses
---------------------------------------------
incurred in the operation and administration of the Plan and the Trust shall be
borne by the Corporation, the Bank and the Subsidiaries. In connection with
this Plan, no member of the Board, no member of the Board of Directors of the
Bank, and no member of the Board of Directors of any Subsidiary, no member of
the Committee and no Trustee shall be personally liable for any act or omission
to act, nor for any mistake in judgment made in good faith, unless arising out
of, or resulting from, such person's own bad faith, willful misconduct or
criminal acts. To the extent permitted by applicable law and regulation, the
Corporation shall indemnify, defend and hold harmless the members of the Board,
the members of the Board of Directors of the Bank and the members of the Board
of Directors of any Subsidiary, and members of the Committee, each Trustee, and
each other officer or employee of the Bank, the Corporation or of any Subsidiary
to whom any power or duty relating to the administration or
11
<PAGE>
interpretation of this Plan may be assigned or delegated, from and against any
and all liabilities (including any amount paid in settlement of a claim with the
approval of the Board), and any costs or expenses (including counsel fees)
incurred by such persons arising out of or as a result of, any act or omission
to act, in connection with the performance of such person's duties,
responsibilities and obligations under this Plan, other than such liabilities,
costs, and expenses as may arise out of, or result from the bad faith, willful
misconduct or criminal acts of such persons.
28. GOVERNING LAW. Without regard to the principles of conflicts of laws,
-------------
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.
29. INSPECTION OF PLAN. A copy of this Plan, and any amendments thereto,
------------------
shall be maintained by the Secretary of the Corporation and shall be shown to
any proper person making inquiry about it.
30. OTHER PROVISIONS. The Option Agreements authorized under this Plan
----------------
shall contain such other provisions not inconsistent with the foregoing,
including, without limitation, increased restrictions upon the exercise of
options, as the Committee may deem advisable.
12
<PAGE>
WITNESS the signatures of the undersigned, this the ____ day of
__________________, 1997.
CODDLE CREEK FINANCIAL CORP.
By:
----------------------------------------
President
----------------------------------------
Trustee
----------------------------------------
Trustee
----------------------------------------
Trustee
13
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Percentage of Total
Shares Subject to Option
Optionee Under Plan
- -------- ------------------------
<S> <C>
Willis L. Barnette 5%
Donald R. Belk 5%
Jack G. Lawler 5%
Calvin E. Tyner 5%
Claude U. Voils, Jr. 5%
George Brawley 25%
Dale Brawley 25%
Donald Jones 6%
Richard Wood 6%
Billy R. Williams 6%
</TABLE>
Remaining 7% to be held in reserve for future distribution.
<PAGE>
EXHIBIT B
---------
STOCK OPTION GRANT AND AGREEMENT
THIS STOCK OPTION GRANT AND AGREEMENT ("Agreement"), being made according
to and subject to the terms and conditions of the STOCK OPTION PLAN of Coddle
Creek Financial Corp. ("Plan"), a copy of which is attached hereto as Annex A
and is hereby incorporated by reference and made a part of this Agreement, is
herein executed and effective the _______ day of _______________, _____, between
Coddle Creek Financial Corp. (the "Corporation") and ____________________
("Optionee"):
1. Grant. As of the above date, the Corporation hereby grants: (i) an
-----
incentive stock option (as that term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) to purchase ________ shares of
Common Stock of the Corporation to the Optionee at the price stated in this
Agreement; and/or (ii) a nonqualified stock option to purchase __________ shares
of Common Stock of the Corporation to the Optionee at the price stated in this
Agreement.
The option(s) granted under this section and as described in this Agreement
is (are) in all respects subject to and conditioned by the terms, definitions,
and provisions of this Agreement and of the Plan. Capitalized terms in this
Agreement which are not otherwise defined but which are defined in the Plan
shall have the same meaning given to those terms in the Plan.
2. Price. The option price is $_____________ for each share.
-----
3. Exercise of Option. The option(s) granted under this Agreement shall
------------------
be exercisable pursuant to the terms and conditions of the Plan and as set forth
below:
(a) Right to Exercise: There are no other terms and conditions
-----------------
imposed on the Optionee's right to exercise his options other than those
imposed in the Plan, except as stated below:
-------------------------------------------------------------------------
------------------------------------------------------------------
(b) Annual Installments: Subject to the terms and conditions of the
-------------------
Plan, the incentive stock options can be exercised in annual installments
as follows:
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
<PAGE>
The nonqualified options can be exercised in annual installments as
follows:
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
The right to exercise the option(s) in annual installments shall be
cumulative. In addition, the option(s) shall be exercisable upon
disability and death as set forth in the Plan.
(c) Method of Exercise: The options under this Agreement shall be
------------------
exercisable by a written notice to the Secretary of the Corporation which
shall include the following:
(1) State the election to exercise the option, the number of
shares in respect of which it is being exercised, the person in whose
name the stock certificate or certificates for such shares of Common
Stock is to be registered, his or her address, and social security
number;
(2) Contain any such representation and agreements as to
Optionee's investment intent with respect to such shares of Common
Stock as may be required by the Corporation;
(3) Be signed by the person entitled to exercise the option and,
if the option is being exercised by any person or persons other than
the Optionee, be accompanied by proof, satisfactory to the
Corporation, of the right of such person or persons to exercise the
option in accordance with the Plan; and
(4) Be accompanied by payment of the purchase price of any
shares with respect to which the option is being exercised which
payment shall be in form acceptable to the Committee pursuant to
Section 6(b) of the Plan.
(d) Representations and Warranties: In order to exercise an option,
------------------------------
the person exercising the option must make the representations and
warranties to the Corporation as may be required by any applicable law or
regulation, or as may otherwise be required pursuant to the Plan.
(e) Approvals. In order for an option to be exercised, all filings
---------
and approvals required by applicable law and regulations or pursuant to the
Plan must have been made and obtained.
4. Non-transferability of Option. This option may not be transferred in
-----------------------------
any manner otherwise than by will or the laws of descent and distribution and
may be exercised during the life of the Optionee only by him or her.
5. Investment Purpose. This option may not be exercised if the issuance
------------------
of shares upon such exercise would constitute a violation of any applicable
federal or state securities law or other law or valid regulation.
2
<PAGE>
6. Expiration of Option. This option shall expire on _________,________.
--------------------
7. Escrow. All stock purchased pursuant to an incentive stock option
------
shall be held in escrow for a period which ends on the later of (i) two (2)
years from the date of the granting of the option or (ii) one (1) year after the
transfer of the stock pursuant to the exercise of the option. The stock shall
be held by the Corporation or its designee. The optionee who has exercised the
option shall have all rights of a stockholder, including, but not limited to,
the rights to vote, receive dividends and sell the stock. The sole purpose of
the escrow is to inform the Corporation of a disqualifying disposition of the
stock within the meaning of Section 422 of the Code, and it shall be
administered solely for this purpose.
8. Resolution of Disputes. Any dispute or disagreement which should arise
----------------------
under, or as a result of, or in any way relate to, the interpretation,
construction, or application of this Agreement will be determined by the
Committee designated in Section 2 of the Plan. Any determination made by such
Committee shall be final, binding, and conclusive for all purposes.
9. Construction Controlled by Plan. The options evidenced hereby shall be
-------------------------------
subject to all of the requirements, conditions and provisions of the Plan. This
Agreement shall be construed so as to be consistent with the Plan; and the
provisions of the Plan shall be deemed to be controlling in the event that any
provision should appear to be inconsistent therewith.
10. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.
11. Modification of Agreement; Waiver. This Agreement may be modified,
---------------------------------
amended, suspended or terminated, and any terms, representations or conditions
may be waived, but only by a written instrument signed by each of the parties
hereto and only subject to the limitations set forth in the Plan. No waiver
hereunder shall constitute a waiver with respect to any subsequent occurrence or
other transaction hereunder or of any other provision.
12. Captions and Headings; Gender and Number. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part, and shall not serve as a basis
for interpretation or construction, of this Agreement. As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.
13. Governing Law; Venue and Jurisdiction. Without regard to the
-------------------------------------
principles of conflicts of laws, the laws of the State of North Carolina shall
govern and control the validity, interpretation, performance, and enforcement of
this Agreement.
14. Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the Corporation, and its successors and assigns, and shall be
binding upon and inure to the benefit of the Optionee, and his or her heirs,
legatees, personal representative, executor, administrator and permitted
assigns.
3
<PAGE>
15. Entire Agreement. This Agreement and the Plan constitute and embody
----------------
the entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the matters
addressed herein.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have set their hands and seals the day and
year first above written.
ATTEST: CODDLE CREEK FINANCIAL CORP.
By:
- ---------------------------------- --------------------------------
(Corporate Seal) President
OPTIONEE:
------------------------------(SEAL)
4
<PAGE>
Exhibit 10(f)
MOORESVILLE SAVINGS BANK, INC., SSB
SEVERANCE PLAN
THIS IS THE SEVERANCE PLAN ("PLAN") OF MOORESVILLE SAVINGS BANK, INC., SSB
(THE "BANK"), A NORTH CAROLINA-CHARTERED SAVINGS BANK, WITH ITS PRINCIPAL OFFICE
IN MOORESVILLE, NORTH CAROLINA, ADOPTED BY THE BOARD OF DIRECTORS OF THE BANK,
TO BE EFFECTIVE ON THE DATE OF CONSUMMATION OF THE CONVERSION OF THE BANK FROM
MUTUAL TO STOCK FORM.
1. Purpose. The purpose of this Plan is to aid the Bank in attracting and
-------
retaining capable employees by providing the employees with the severance
benefits set forth herein in the event that there is a change in control of the
Bank. For purposes of this Plan, the term "Employee" means and includes any
person employed by the Bank on a full time basis on the date of consummation or
occurrence of a "Change in Control" (as defined in Subparagraph 2(c) below),
excluding any person employed by the Bank on such date pursuant to a written
employment agreement between such employee and the Bank which has a remaining
term in excess of two years and excluding any person employed by the Bank on
such date who has received a special termination agreement or other similar
agreement from the Savings Bank or any parent holding company of the Bank which
agreement provides for the payment of a specified amount of severance pay to
such person in the event his or her employment is terminated or changed after a
change in control of the Bank.
2. Severance Benefit.
-----------------
(a) In the event (i) the Bank or its successor terminates the employment
of any Employee in connection with, or within twenty-four (24) months
after, a "Change in Control" (as defined in Subparagraph (c) below),
other than for "cause" (as defined in Paragraph 3 below) or (ii) an
Employee terminates his employment following a Termination Event
pursuant to Paragraph 2(b) below, the Bank shall pay the Employee a
severance benefit equal to the greater of (A) an amount equal to two
weeks salary at the Employee's existing salary rate at the time of
termination multiplied times the Employee's number of complete years
of service as an employee of the Bank or (B) the amount of one months
salary at the Employee's existing salary rate at the time of
termination; provided, however, that the severance benefit shall not
exceed one-half of the annual salary payable to any Employee at his
salary rate existing on the date of such termination. Such sum shall
be payable as provided in Subparagraph (d) below.
(b) An Employee shall have the right to terminate his or her employment
upon the occurrence of any of the following events (the "Termination
Events") within twenty-four (24) months following a Change in Control:
(i) The Employee's annual base salary rate is decreased from the
level existing at the effective time of the Change in Control; or
(ii) The Employee is transferred to a location more than forty (40)
miles distant from the Employee's primary work station at the
time of the Change in Control.
A Termination Event shall be deemed to have occurred on the date such
action or event is
1
<PAGE>
implemented or takes effect.
(c) For the purposes of this Plan, the term "Change in Control" shall mean
any of the following events:
(i) a change in control of a nature that would be required to be
reported in response to Item 1 of the Current Report on Form 8-K
by the Bank or by any parent holding company of the Bank
pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 as in effect on the date hereof (the "Exchange Act"); or
(ii) such time as any "person" (as such 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 under the Exchange
Act), directly or indirectly, of securities of the Bank or any
parent holding company of the Bank representing 25 percent or
more of the combined voting power of the outstanding capital
stock of the Bank or any parent holding company of the Bank; or
(iii) individuals who constitute the Board of Directors of the Bank or
any parent holding company of the Bank on the date hereof (each,
an "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 shareholders of the Bank or any parent holding company of
the Bank was approved by the Board of Directors of the Bank or
any parent holding company of the Bank or any Nominating
Committee of any such Board, as applicable, shall be considered
as though he or she were a member of the Incumbent Board; or
(iv) the Bank or any parent holding company of the Bank consolidates
or merges with or into another corporation, association or
entity or is otherwise reorganized, where the Bank or any parent
holding company of the Bank is not the surviving corporation in
such transaction; or
(v) all or substantially all of the assets of the Bank or any parent
holding company of the Bank are sold or otherwise transferred to
or are acquired by any other entity or group.
Notwithstanding the other provisions of this Paragraph 2(c), any other
event or transaction which the Board of Directors of the Bank shall
determine is not a Change in Control for purposes of its Plan prior to
the consummation or occurrence thereof, shall not constitute a Change
in Control. In addition, a transaction or event shall not be
considered a Change in Control with respect to any Employee benefitted
hereby if, prior to the consummation or occurrence of such transaction
or event, such Employee and the Bank agree in writing that the same
shall not be treated as a Change in Control for purposes of this Plan.
(d) Amounts payable pursuant to this Paragraph 2 shall be paid, at the
option of the Bank or any successor in one lump sum or in equal
monthly payments over a period not to exceed a number of months equal
to the Employee's years of service with the Bank divided by two.
2
<PAGE>
(e) Following a Termination Event which gives rise to an Employee's rights
hereunder, the Employee shall have six (6) months from the date of
occurrence of the Termination Event to terminate his or her employment
pursuant to this Paragraph 2. Any such termination shall be deemed to
have occurred only upon delivery to the Bank (or to any successor
corporation) of written notice of termination which describes the
Change in Control and Termination Event. If an Employee does not so
terminate his employment within such six-month period, he or she shall
thereafter have no further rights hereunder with respect to that
Termination Event, but shall retain rights, if any, hereunder with
respect to any other Termination Event as to which such six month
period has yet to expire.
3. Termination for "Cause." Termination for "cause" shall include
----------------------
termination because of the Employee's personal dishonesty, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, or willful violation of any law, rule, regulation (other
than traffic violations or similar offenses) or final cease-and-desist order.
4. Effect on Other Benefits. The benefits payable to or owed to any
------------------------
Employee under this Plan shall not be reduced or otherwise affected by the
Employee's receipt or entitlement to benefits under (i) any agreement between
the Employee and the Bank or any parent holding company of the Bank, or (ii)
any other fringe benefit, compensation, or other employee benefit plan of the
Bank or any parent holding company of the Bank, including, but not limited to,
any employment agreement, stock option plan, restricted stock agreements or
employee stock ownership plan. In addition, the benefits payable to or owed to
any Employee under any such fringe benefit, compensation or other employee
benefit plan of the Bank or any parent holding company of the Bank shall not be
reduced or otherwise affected by the Employee's receipt or entitlement to
benefits under this Plan.
5. Binding Effect. This Plan shall 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 of the Bank.
6. Modification, Waiver, Amendments. Prior to the consummation or
--------------------------------
occurrence of a Change in Control, as defined herein, this Plan may be
terminated, modified or amended in any manner whatsoever, by resolution adopted
by the Bank's Board of Directors. Prior to the time of the consummation or
occurrence of any Change in Control, no employee shall have any vested rights
pursuant to this Plan. After the consummation or occurrence of a Change in
Control, all Employees shall have vested rights pursuant to this Plan, and this
Plan may not be terminated or modified or amended in a manner to reduce the
benefits payable to any Employee, without the written consent of such Employee.
7. Effect of Plan on Employees. This Plan shall not confer upon any
---------------------------
employee of the Bank the right to continued employment with the Bank or any
successor to the Bank, nor shall it limit the right of the Bank or any successor
of the Bank to terminate the employment of any employee at any time, subject to
the terms hereof.
8. Withholding. The Bank or any successor to the Bank shall have the
-----------
right to deduct or otherwise effect a withholding of any amount required by
federal or state laws to be withheld as a result of any payments required to be
made under this Plan.
9. Governing Law. Without regard to principles of conflicts of laws, the
-------------
laws of the State of
3
<PAGE>
North Carolina shall govern and control the validity, interpretation,
performance and enforcement of this Plan.
10. Inspection of Plan. A copy of this Plan, and any amendments thereto,
------------------
shall be maintained by the Secretary of the Bank and shall be shown to any
proper person making inquiry with respect thereto.
11. Waiver. Any Employee shall have the right to waive the receipt of any
------
benefits which would otherwise be payable to such Employee pursuant to this Plan
by executing a writing setting forth the terms of such waiver.
12. Excise Taxes. It is the intent of the parties hereto that all
------------
payments made pursuant to this Plan shall be deductible by the Bank for federal
income tax purposes and not result in the imposition of an excise tax on any
Employee. Notwithstanding anything contained in this Plan to the contrary, any
payments to be made to or for the benefit of any Employee which are deemed to be
"parachute payments," as such term is defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), shall be modified or reduced to
the extent, but only to the extent, reasonably deemed to be necessary by the
Bank to avoid the imposition of excise taxes on the Employee under Section 4999
of the Code or the disallowance of a deduction to the Bank under Section 280G(a)
of the Code.
4
<PAGE>
Exhibit 10(g)
STATE OF NORTH CAROLINA
COUNTY OF IREDELL CAPITAL MAINTENANCE AGREEMENT
This Capital Maintenance Agreement (the "Agreement"), dated as of
____________, 1997, by and between Coddle Creek Financial Corp., Mooresville,
North Carolina, a North Carolina-chartered bank holding company (the "Holding
Company") and Mooresville Savings Bank, Inc., SSB, a North Carolina-chartered
stock savings bank (the "Savings Bank").
WHEREAS, the Savings Bank has applied to the Administrator,
Savings Institutions Division, North Carolina Department of Commerce (the
"Administrator") for permission to convert from a North Carolina mutual savings
bank to a North Carolina stock owned savings bank (the "Conversion"); and
WHEREAS, as a part of the Conversion, the Holding Company has
applied to the Administrator for permission to acquire all of the capital stock
issued by the Savings Bank in the Conversion (the "Acquisition") and to sell
shares of the Holding Company's common stock to certain persons in a
subscription and a community offering and, if necessary, in a syndicated
community offering; and
WHEREAS, the Administrator, the Holding Company and the Savings
Bank wish to protect the interests of the depositors of the Savings Bank and the
Savings Association Insurance Fund; and
WHEREAS, by letter dated _____________, 1997, the Administrator
has approved the Conversion and the Acquisition conditional upon, among other
things, the Holding Company and the Savings Bank entering this Agreement (the
"Approval").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties agree that, following the
Conversion and Acquisition, the Holding Company and the Savings Bank will
maintain the capital of the Savings Bank at all times in compliance with the
applicable capital requirements of all federal and state regulatory agencies
having supervisory authority over the Savings Bank, including the capital
requirements of the Administrator and the Federal Deposit Insurance Corporation.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by each
director of the Holding Company and the Savings Bank.
DIRECTORS OF CODDLE CREEK DIRECTORS OF MOORESVILLE
SAVINGS
FINANCIAL CORP.: BANK, INC., SSB:
- ---------------------------------- ----------------------------------
Willis L. Barnette Willis L. Barnette
- ---------------------------------- ----------------------------------
Donald R. Belk Donald R. Belk
- ---------------------------------- ----------------------------------
Dale W. Brawley Dale W. Brawley
- ---------------------------------- ----------------------------------
George W. Brawley, Jr. George W. Brawley, Jr.
- ---------------------------------- ----------------------------------
Jack G. Lawler Jack G. Lawler
- ---------------------------------- ----------------------------------
Calvin E. Tyner Calvin E. Tyner
- ---------------------------------- ----------------------------------
Claude U. Voils, Jr. Claude U. Voils, Jr.
2
<PAGE>
Exhibit 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement/Prospectus of Coddle
Creek Financial Corp. of our report dated January 16, 1997 relating to the
statements of financial condition of Mooresville Savings Bank, S.S.B. as of
December 31, 1996 and 1995, and the related statements of income, equity and
cash flows for each of the years in the two year period ended December 31, 1996
and the nine month period ended December 31, 1994 and to the reference to our
firm in the Registration Statement/Prospectus under the caption "Experts".
/S/ McGLADREY & PULLEN, LLP
Charlotte, North Carolina
September 9, 1997
<PAGE>
Exhibit 23(b)
[COMPANY LETTERHEAD APPEARS HERE]
September 2, 1997
Board of Directors
Mooresville Savings Bank, SSB
347 Main Street
Mooresville, NC 28115
Dear Sirs:
We hereby consent to the use of our firm's name in the applications
for conversion of Mooresville Savings, SSB, Mooresville, North Carolina, and any
amendments thereto, filed with the Division of Savings Institutions, North
Carolina Department of Commerce (the "Division"), and the Federal Deposit
Insurance Corporation, in the Form S-1 Registration Statement, and any
amendments thereto, and in the Acquisition Application and the Holding Company
Application of Coddle Creek Financial Corp., as filed with the Division and the
Federal Reserve Board, respectively. We also hereby consent to the inclusion of,
a summary of, a summary of, and references to our appraisal report, including
updates, and our opinion concerning subscription rights in such filings
including the Prospectus of Coddle Creek Financial Corp., and the Proxy
Statement of Mooresville Savings, SSB.
Sincerely,
[SIGNATURE APPEARS HERE]
JMP Financial, Inc.
<PAGE>
Exhibit 23(c)
LETTERHEAD OF
BROOKS, PIERCE, McLENDON, HUMPHREY & LEONARD, L.L.P.
September 12, 1997
Board of Directors
Coddle Creek Financial Corp.
347 North Main Street
Mooresville, North Carolina 28115
Gentlemen:
We hereby consent to reference to our firm in the "Legal Opinions" section
of the Prospectus included in the Registration Statement of Coddle Creek
Financial Corp. on Form S-1, as amended (the "Registration Statement") and to
the reference to the opinions rendered by our firm which are described in such
section of the Registration Statement, as amended.
Very truly yours,
BROOKS, PIERCE, MCLENDON,
HUMPHREY & LEONARD, L.L.P.
By: /s/ Edward C. Winslow III
-------------------------
Edward C. Winslow III
ECWIII/cln
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 246 422
<INT-BEARING-DEPOSITS> 2,348 2,253
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 3,446 3,959
<INVESTMENTS-CARRYING> 3,308 3,808
<INVESTMENTS-MARKET> 3,305 3,805
<LOANS> 100,506 97,951
<ALLOWANCE> 617 388
<TOTAL-ASSETS> 114,162 112,552
<DEPOSITS> 95,872 93,785
<SHORT-TERM> 1,000 2,000
<LIABILITIES-OTHER> 2,599 2,355
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 14,671 14,412
<TOTAL-LIABILITIES-AND-EQUITY> 114,162 112,552
<INTEREST-LOAN> 4,130 7,963
<INTEREST-INVEST> 251 628
<INTEREST-OTHER> 52 88
<INTEREST-TOTAL> 4,433 8,679
<INTEREST-DEPOSIT> 2,308 4,624
<INTEREST-EXPENSE> 2,366 4,658
<INTEREST-INCOME-NET> 2,067 4,021
<LOAN-LOSSES> 230 0
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,428 3,146
<INCOME-PRETAX> 496 1,075
<INCOME-PRE-EXTRAORDINARY> 496 1,075
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 287 721
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 3.77 3.74
<LOANS-NON> 793 1,104
<LOANS-PAST> 304 143
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 1,096 1,300
<ALLOWANCE-OPEN> 388 396
<CHARGE-OFFS> 2 13
<RECOVERIES> 1 5
<ALLOWANCE-CLOSE> 617 388
<ALLOWANCE-DOMESTIC> 303 308
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 314 80
</TABLE>
<PAGE>
[LETTERHEAD OF JMP FINANCIAL, INC. APPEARS HERE]
September 2, 1997
Board of Directors
Mooresville Savings Bank
347 North Main Street
Mooresville, North Carolina 28115
Gentlemen:
At your request, JMP Financial, Inc. ("JMP") hereby provides an
independent appraisal of the estimated pro forma market value of the Common
Stock ("the Stock") of Mooresville Savings Bank, SSB ("the Bank"). The Stock
will be distributed in connection with the conversion of the Bank from the
mutual to the stock form of organization. This appraisal is furnished pursuant
to the Plan of Conversion adopted by the Bank's Board of Directors and is
prepared pursuant to the requirements of Federal Deposit Insurance Corporation
regulations.
In preparing our appraisal, we conducted an analysis of the Bank
which included discussions with the Bank's management, their independent
auditors, and their conversion counsel. In addition, where appropriate, we
considered information based on other available published sources that we
believe are reliable. However, we can not guarantee the accuracy and
completeness of such information.
In making our evaluation, we have reviewed, among other things, the
economy in the Bank's primary market area and compared its financial condition
and operating performance with that of select publicly traded thrift
institutions. We reviewed conditions in the securities markets in general and
for thrift institution equities in particular. We have also considered the
expected market for the Bank's to-be-outstanding common stock after the
conversion.
Our appraisal is based on the Bank's representation that the
financial data and information contained in the Preliminary Subscription
Offering Prospectus and additional evidence furnished to us by the Bank are
truthful, accurate, and complete. We did not independently verify such financial
data and other information provided by the Bank nor did we independently value
the assets or liabilities of the Bank, nor did we obtain any appraisal of the
assets or liabilities of the Bank.
<PAGE>
Board of Directors
Mooresville Savings Bank, SSB
September 2, 1997
Page 2
It is our opinion that, as of September 2, 1997 the estimated pro
forma market value of the Bank's to-be-outstanding common stock is $23,000,000
which yields an effective valuation range of $19,550,000 to $26,450,000 at the
maximum and $30,417,500 at the super maximum. The Bank will issue a minimum of
391,000 shares and a maximum of 608,350 shares at a uniform price of $50.00.
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. 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 valuation of the pro forma market value thereof.
The valuation will be updated as required under the normal conversion
process. Any updates will consider, among other factors, any developments or
changes in the Bank's policies, and current conditions in the equities markets
for thrift institutions' common stock. Should any such new developments or
changes be material, in our opinion, to the valuation of the Bank's common
stock, appropriate adjustments to the estimated pro forma market value will be
made at these times.
JMP Financial, Inc. is an independent Investment Banking Company
incorporated in the State of Michigan specializing in financial advisory
services and capital placement for regional financial institutions. Principals
of JMP have extensive experience in the valuation and appraisal of savings and
loan conversions. More information on JMP is included in the exhibits to the
appraisal.
Respectfully,
JMP FINANCIAL, INC.
/s/ John Michael Palffy
John Michael Palffy
President
<PAGE>
CONVERSION VALUATION APPRAISAL REPORT
Prepared For:
MOORESVILLE SAVINGS BANK, SSB
And
CODDLE CREEK FINANCIAL CORP.
Mooresville, North Carolina
PREPARED IN ACCORDANCE WITH
FEDERAL DEPOSIT INSURANCE CORPORATION REGULATIONS
SEPTEMBER 2, 1997
By:
JMP Financial, Inc.
753 Grand Marais
Grosse Pointe Park, Michigan 48230
(313) 824-1711
<PAGE>
CONVERSION VALUATION APPRAISAL REPORT
Prepared For:
MOORESVILLE SAVINGS BANK, SSB
And
CODDLE CREEK FINANCIAL CORP.
Mooresville, North Carolina
PREPARED IN ACCORDANCE WITH
FEDERAL DEPOSIT INSURANCE CORPORATION REGULATIONS
SEPTEMBER 2, 1997
By:
JMP Financial, Inc.
753 Grand Marais
Grosse Pointe Park, Michigan 48230
(313) 824-1711
<PAGE>
<TABLE>
TABLE OF CONTENTS
PAGE
<S> <C> <C> <C>
INTRODUCTION 1
SECTION ONE - DESCRIPTION OF MOORESVILLE SAVINGS BANK, SSB 2
Overview 2
History 2
Market Area 2
Regulation 2
Asset Composition 3
Deposit Composition 3
Financial Performance and Growth 3
Balance Sheet 4
Financial Performance 5
Interest Rate Sensitivity 6
Lending Activities 8
General 8
Composition of Loan Portfolio 8
One-to-four Family Mortgage Real Estate Loans 8
Commercial Real Estate Loans 9
Multi-Family Real Estate Loans 9
Construction Loans 10
Home Equity Loans 10
Consumer Loans 10
Underwriting 10
Origination, Purchases, and Sales 11
Delinquencies and Non-Performing Assets 11
Investment Activities 12
Sources of Funds 13
Deposits 13
Borrowed Funds 13
Subsidiaries 14
Property and Equipment 14
Management 14
Directors 14
Officers 15
Employees 15
SECTION TWO - MARKET AREA ANALYSIS 16
Primary Market Area 16
Market Area Economy 16
Income and Income Trends 18
Population Base and Growth 19
</TABLE>
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Competition 21
Interest Rate Trends 23
SECTION THREE - PUBLICLY-HELD THRIFT INSTITUTION COMPARISON 24
Selection Criteria 24
Average Pricing Ratios by Stock Exchange 24
Average Pricing Ratios by Geographic Region 26
Selection Procedure 27
Review of Comparative Group 28
Comparative Group Composite Performance 31
Performance of Recently Converted Thrifts 33
SECTION FOUR - MARKET VALUE ADJUSTMENTS 34
Introduction 34
Financial Condition 34
Asset Quality 34
Profitability Levels 35
Return on Average Equity 35
Growth and Predictability of Earnings 36
Deposit Composition 36
Management 37
Dividend Payments 37
Liquidity of the Issue 37
Marketing of the Issue 38
Market Area 39
Summary of Discounts 39
SECTION FIVE - VALUATION METHODS 41
Price\Earnings 41
Price to Book Value 42
Price to Assets 43
Valuation Conclusion 43
</TABLE>
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit #
<S> <C>
1. Market Area Map
2. Audited Financial Statements
3. Selected Consolidated Financial and Operations Data
4. Selected Consolidated Financial Ratios and Other Data
5. Interest Rate GAP Analysis
6. Market Value of Portfolio Equity
7. Yield and Cost Trends
8. Volume\Rate Analysis
9. Loan Portfolio Composition
10. Loan Portfolio Maturity Schedule
11. Loan Originations, Purchases, Sales, and Repayments
12. Non-performing Assets
13. Charge-offs and Recoveries
14. Distribution of Loss Allowances
15. Composition of Securities Portfolio
16. Maturity Schedule and Yield Analysis, Securities
17. Flow of Deposits
18. Composition and Average Rate Paid for Deposits
19. Composition and Average Rate Paid for Certificates
20. All Publicly Traded Thrifts - Market and Financial Information
21. Comparative Group - General Data
22. Comparative Group - Financial Performance
23. Comparative Group - Capital Ratios
24. Comparative Group - Loan Portfolio Composition
25. Comparative Group - Balance Sheet Ratios
26. Comparative Group - Growth Rates
27. Comparative Group - Asset and Risk Ratios
28. Comparative Group - Yield-Cost Spread Analysis
29. Comparative Group - Capital Market Issues
</TABLE>
<PAGE>
LIST OF EXHIBITS (CONTINUED)
<TABLE>
<S> <C>
30. Comparative Group - Pricing Ratios
31. Recently Converted Thrifts
32. Pro Forma Analysis
33. Pro Forma Effect of Conversion Proceeds
34. Summary of Valuation Premium or Discount
</TABLE>
APPENDIX
JMP Financial, Inc. -- Background and Qualifications
<PAGE>
Introduction
Set forth herein is the independent appraisal by JMP Financial, Inc.
("JMP") of the estimated proforma fair market value of the common stock of
Coddle Creek Financial Corp. to be sold pursuant to the Application for
Conversion of Mooresville Savings Bank, SSB, filed with the Federal Deposit
Insurance Corporation ("FDIC") which has been reviewed by us with Bank's
management. This appraisal was prepared in accordance with FDIC application
requirements and the FDIC's guidelines for appraisal reports and represents a
full appraisal report.
Pro forma market value is defined as the estimated price at which the
Bank's common stock after conversion would change hands between a willing buyer
and a willing seller, neither being under any compulsion to buy or sell and both
having reasonable knowledge of the relevant facts.
In the course of preparing this appraisal, we reviewed and discussed
with the Bank's management the audited financial statements of the Bank's
operation for the fiscal years ended March 1992 through December 1996 and for
the six months ended June 30, 1996 and June 30, 1997. We also reviewed and
discussed with management other financial matters of the Bank.
Where appropriate, we considered information based upon other
available public sources, which we believed to be reliable. However, we cannot
guarantee the accuracy or completeness of such information. We visited the
Bank's primary market area and examined the prevailing economic conditions and
compared them with national economic conditions. We also examined the
competitive environment within which the Bank operates and assessed the Bank's
relative strengths and weaknesses.
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. Moreover, because such valuation is necessarily based upon estimates and
projection 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 valuation of the pro forma market value thereof.
<PAGE>
SECTION I
DESCRIPTION OF MOORESVILLE SAVINGS BANK, SSB
Overview
History
Mooresville Savings Bank, SSB has served its customers and market
area for over 60 years, having been founded in Mooresville on January 18, 1937
as Mooresville Savings and Loan Association. The institution became a member of
the Federal Home Loan Bank System ("FHLB") and the Federal Savings & Loan
Insurance Corporation in 1947 and changed its name to Mooresville Savings Bank,
SSB in 1993, pursuant to its conversion to a state chartered savings bank.
As of June 30, 1997 the Bank had assets of $114.162 million, deposits
of $95.872 million and retained earnings of $14.691 million. The Bank reported
net income of $579 thousand for the twelve months ended June 30, 1997, $721,000
for the year ended December 31, 1996 and $287 thousand for the six months ended
June 30, 1997 and $429 thousand for the six months ended June 30, 1996.
Market Area
The main office of the institution is located at 347 North Main
Street, Mooresville, North Carolina in southeastern Iredell County. The bank
currently has two branch offices, located in Cornelius and Huntersville in
neighboring Mecklenburg County to the south. The Bank's primary deposit and
lending area consists of roughly a fifteen mile radius surrounding Mooresville.
Exhibit 1 portrays the Bank's market area in perspective to the state of North
Carolina.
Regulation
The Bank is a member of the FHLB of Atlanta and its deposits are
insured up to the applicable limits by the Savings Association Insurance Fund
("SAIF") of the FDIC. The FDIC is the Bank's primary federal regulator. The Bank
is supervised at the state level by the Savings Institutions Division of the
North Carolina Department of Commerce.
On September 30, 1996 the Deposit Insurance Funds Act of 1996 was
signed into law. The legislation included a special assessment to recapitalize
the SAIF insurance fund up to its statutory goal of 1.25 percent of insured
deposits. The assessment was approximately equal to 65 basis points of the
assessable base of the institution as of March 31, 1995.
The U.S. Congress is expected to consider legislation that may
eliminate the thrift industry as a separate industry. The Deposit Insurance
Funds Act of 1996 ("DIF Act")
- --------------------------------------------------------------------------------
2
<PAGE>
provides that the Savings Association Insurance Fund ("SAIF") will be merged
with the Bank Insurance Fund ("BIF") on January 1, 1999, but only if there are
no thrift institutions in existence. The DIF Act requires the Treasury
Department to study the development of a common charter for banks and thrifts
and to submit a report of its finding to Congress. If developed, the common
charter may not offer all the advantages that the Bank now enjoys or that the
Company, as a bank holding company, will enjoy upon consummation of the
Conversion
Asset Composition
Mooresville Savings is a community oriented institution principally
engaged in the business of attracting deposits from the general public and using
such deposits primarily to originate one-to-four family residential real estate
loans and secondarily home equity line of credit loans, construction, commercial
real estate loans, multi-family residential and other loans and investments.
At June 30, 1997 approximately 80 percent of the Bank's net loan
portfolio was comprised of 1-4 family mortgages, approximately 6 percent were
home equity loans, less than 6 percent were residential construction loans, less
than 3 percent were commercial real estate loans, less than 4 percent were
consumer installment loans, and less than 1 percent were multi-family
residential mortgage loans. The bank retains all its loans in portfolio.
The Bank's investment portfolio of approximately $10.0 million
consisted of U.S. Government and agency securities, municipal bonds,
interest-earning deposits in other financial institutions, and stock of the
Federal Home Loan Mortgage Corporation and Federal Home Loan Bank of Atlanta.
Deposit Composition
As of June 30, 1997 the Bank held approximately $95.9 million in
deposits. Of these deposits approximately 75 percent consisted of certificates
of deposits, 12 percent consisted of passbook and statement savings accounts, 12
percent consisted of interest-bearing transaction accounts and less than 2
percent consisted of non-interest bearing transaction accounts. Approximately 14
percent of the Bank's deposits consisted of jumbo deposits of $100,000 or more.
Financial Performance and Growth
Exhibit 2 presents the summary audited financial statements of the
Bank for the years ended December 31, 1994 to 1996, the fiscal years ended March
1992 through December 1996 and for the six months ended June 30, 1997. Exhibits
3 and 4 present Selected Financial Condition and Operations Data and Ratios for
the same period.
- --------------------------------------------------------------------------------
3
<PAGE>
Balance Sheet
Tables I.1 through I.5 present summary financial condition and
performance parameters and rates of change in those parameters for the Bank
since March 31, 1992.
Asset growth has averaged approximately 2.3 percent annually since
March 31, 1992 and 2.6 percent annually since June 30, 1996. The Bank's
investment portfolio has decreased at an annual rate of approximately 10.0
percent since March 1992. Loans have increased approximately 4.2 percent
annually since March 1992 and 8.0 percent since June 1996. Deposits have
increased approximately 1.4 percent annually since March 1992, about half as
much as assets and at one-third the rate of loans. Deposits increased 1.8
percent from June 1996 to June 1997.
<TABLE>
<CAPTION>
Table I.1
Summary of Financial Condition
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
At June 30, At December 31, At March 31
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Assets 114,162 109,427 112,552 108,033 99,966 98,869 100,048 101,401
- ---------------------------------------------------------------------------------------------------------------------------
Investments 10.032 11,750 10,889 13,903 14,220 16,585 16,760 17,414
- ---------------------------------------------------------------------------------------------------------------------------
Loans Rcvble, net 100,506 94,134 97,751 90,555 82,453 79,031 80,189 80,829
- ---------------------------------------------------------------------------------------------------------------------------
Deposits 95,872 92,949 93,785 92,103 85,105 84,863 87,222 88,990
- ---------------------------------------------------------------------------------------------------------------------------
Borrowings 1000 2000 2000 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Equity 14,691 14,039 14,412 13,726 12,883 12,208 11,414 10,483
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Table I.2
Summary of Financial Performance
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
For the Six Months For the Year
Ended June 30, For the Year Ended Ended March 31,
($,000) December 31, ($,000) ($,000)
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income 2067 1947 4021 3530 2937 3582 3521
- ---------------------------------------------------------------------------------------------------------------------------
Non-Interest Income 87 104 200 190 149 233 238
- ---------------------------------------------------------------------------------------------------------------------------
Non-Interest Expense 1428 1365 3146 2624 2032 2578 2160
- ---------------------------------------------------------------------------------------------------------------------------
Income before Taxes 209 257 1075 1084 1036 1134 1473
- ---------------------------------------------------------------------------------------------------------------------------
Net Income Aft Taxes 287 429 721 780 675 794 931
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
<TABLE>
<CAPTION>
Table I.3
Percentage Change in Financial Condition from Previous Period
- ------------------------------------------------------------------------------------------------------------------------------------
Period Ended June 30, Year Ended December 31 Year Ended March 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 2.9 4.2 8.1 1.5 -1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Investments -42.9 -27.8 -2.2 -18.5 -1.0
- ------------------------------------------------------------------------------------------------------------------------------------
Loans Rcvble, net 5.7 7.9 9.8 5.8 -1.4
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits 4.5 1.8 8.2 0.4 -2.7
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowings -74.9 NA NA NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
Equity 3.9 5.0 6.5 7.4 7.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table I.4
Annualized Percentage Change in Financial Performance from Previous Period
- ------------------------------------------------------------------------------------------------------------------------------------
For Six Months
Ended June 30, For the Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 6.2 14.3 -10.2 -23.3 35.6
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Interest Income -16.3 5.3 -4.4 -44.9 30.5
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Interest Expense 4.6 19.9 -3.1 -27.2 59.1
- ------------------------------------------------------------------------------------------------------------------------------------
Income before Taxes -18.7 -0.6 -21.5 -11.4 2.6
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income Aft Taxes -35.1 -7.6 -13.3 -16.5 13.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table I.5
Rate of Change in Financial Condition
Since March 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Annualized Cumulative
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 2.3 12.6
- ------------------------------------------------------------------------------------------------------------------------------------
Investments -10.0 -42.4
- ------------------------------------------------------------------------------------------------------------------------------------
Loans Rcvble, net 4.2 24.3
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits 1.4 7.7
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowings NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
Equity 6.6 40.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Financial Performance
Tables I.2 and I.4 illustrate the growth in key income and expense
areas of the Bank. Net interest income has increased from $3.5 million for the
year ended March 31, 1993 to $4.1 million for the twelve months ended June 30,
1997, an annual rate of growth of 3.9 percent. Net interest income increased
from $1.9 to $2.1 million for the six months ended June 30, 1996 to 1997.
Non-interest income decreased from $238 thousand for the year ended March 31,
1993 to $183 thousand for the twelve months ended June 30, 1997,
- --------------------------------------------------------------------------------
5
<PAGE>
an annual rate of decrease of 6.0 percent. Non-interest income decreased from
$104 thousand to $87 thousand for the six months ended June 30, 1996 to June
1997. Non-interest expense increased from $2.2 million for the year ended March
31, 1993 to $3.2 million for the twelve months ended June 30, 1997, an annual
rate of increase of 9.7 percent. Non-interest expense increased from $1.37
million to $1.43 million for the six months ended June 30, 1996 to June 30,
1997. Net income before taxes decreased from $1.4 million for the year ended
March 31, 1993 to $598 thousand for the twelve months ended June 30, 1997, an
annual rate of decrease of 19.2 percent . Net income before taxes declined from
$686 thousand to $287 thousand from the six months ended June 30, 1996 to June
30, 1997. The decline in net income before taxes is due to a decline in the
Bank's interest rate spread, an increase in operating expenses and an FDIC
special assessment of $520 thousand in September 1996. Net income declined
commensurate with net income before taxes from $931 thousand for the year ended
March 31, 1993 to $579 thousand for the twelve months ended June 30, 1997.
<TABLE>
<CAPTION>
Table I.6
Summary Financial Ratios
(percent)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended
For Six Months --------------------------------------------------------
Ended June 30, December 31 March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Return on Average Assets 0.51 0.79 0.66 0.75 0.68 0.80 0.92
- ------------------------------------------------------------------------------------------------------------------------------------
Return on Average Equity 3.99 6.25 5.37 6.05 5.55 6.72 8.50
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Commensurate with declining income the Bank's return on average
assets has declined from 0.92 percent for the year ended March 31, 1993 to 0.51
percent for the six months ended June 30, 1997. Return on average equity
decreased from 8.50 percent to 3.99 percent during the same period due to
declining income and increasing capital.
INTEREST RATE SENSITIVITY
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. Recently the Bank has also placed emphasis on
reviewing the amounts by which the net present value of the institution's cash
flow from assets, liabilities and off balance sheet items (the institution's net
portfolio value, or "NPV") would change in the event of an instantaneous change
in market interest rates. The FHLB 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 from an
instantaneous and permanent 1 to 4 percentage point increase or decrease in
market interest rates.
Exhibit 5 illustrates that at June 30, 1997 the Bank's one-year
interest rate gap was negative 55 percent. Exhibit 6 provides the Bank's NPV as
of June 30, 1997 and the change in the Bank's NPV under rising and declining
interest rates. The projected decline
- --------------------------------------------------------------------------------
6
<PAGE>
in the market value of portfolio equity given a 200 basis point increase in
interest rates is 22.9 percent according to analysis of the Bank's balance sheet
as of June 1997. The projected decline in net interest income for a 200 basis
point increase in interest rates is 7.0 percent.
Management intends to seek an acceptable balance between maximizing
yield potential and limiting exposure to changing interest rates. It
acknowledges the inherent risks of a portfolio with unmatched maturities, but
has determined that this risk is tolerable and profitable if credit risk is
managed and the Bank can keep operating expenses low and interest rate spreads
high. As a result of this strategy the Bank can expect higher than normal
returns in periods of stable or decreasing rates and lower than normal returns
in periods of increasing rates.
In order to minimize and manage interest rate risk, management has
adopted the following policies:
. investing excess liquidity in short or adjustable rate instruments,
with maturities or repricing periods of five years or less.
. promoting adjustable rate mortgage loans.
. promoting longer term CDs.
. increasing our capital ratio, which provides us with a favorable
level of interest-earning assets relative to
. interest-bearing liabilities.
. increase marketing of higher yielding-adjustable rate home equity
loans.
Exhibit 7 presents the Bank's weighted average yields and costs on
interest earning assets and interest bearing liabilities for the periods ended
June 30, 1996 and 1997, for the year ended December 31, 1996 and 1995, and for
the nine months ended March 31, 1994.
The Bank's yield on interest earning assets increased 10 basis points
from 7.97 percent to 8.07 percent for the six months ended June 30, 1996 to June
30, 1997, but declined to 7.95 percent at June 30, 1997. Since December 1994 the
Bank's yield on interest-earning assets has increased 30 basis points from 7.65
percent to 7.95 percent.
The Bank's cost of interest-bearing liabilities decreased 4 basis
points from 5.01 percent to 4.97 percent for the six months ended June 30, 1996
to June 30, 1997, and declined further to 4.95 percent at June 30, 1997. Since
December 1994 the Bank's cost of interest-bearing liabilities has increased 83
basis points from 4.12 percent to 4.95 percent.
As a result the Bank's interest rate spread increased 14 basis points
from 2.96 percent to 3.10 percent for the six months ended June 30, 1996 to June
30, 1997 and to 3.01 percent at June 30, 1997. Since December 1994 the Bank's
interest rate spread has declined 52 basis points from 3.53 percent to 3.01
percent, primarily because the market rate for deposits has increased faster
than that of loans due to increasing competition for investor funds from other
local institutions and non-bank institutions.
- --------------------------------------------------------------------------------
7
<PAGE>
Exhibit 8 reflects the changes in interest income and expense due to
rate and volume changes.
LENDING ACTIVITIES
General
The principal lending activity of the Bank is the origination of
conventional loans for the purpose of constructing, purchasing or refinancing
owner-occupied 1-4 family residential properties in its primary market area. The
Bank also originates home equity loans, commercial real estate, construction
loans, various consumer loans and, to a lesser extent, and multi-family
residential and commercial loans. Less than 4 percent of Mooresville Savings'
loan portfolio, before net items, is not secured by real estate. As of June 30,
1997 the Bank had 23 loan relationships with individual borrowers in excess of
$200,000, totaling approximately $7.6 million or 7.5 percent of the Bank's total
loan portfolio. The principal balance of five individual loans exceeds $350,000
with the largest single loan balance in excess of $495,000. The majority of
these loans are secured by residential real estate in the Bank's market area.
Composition of Loan Portfolio
As of June 30, 1997 the Bank's net loan portfolio totaled $100.5
million or 88 percent of total assets and nearly 80 percent of the Bank's loan
portfolio was comprised of 1-4 family residential mortgage loans, approximately
6 percent were home equity loans, less than 6 percent were residential
construction loans, less than 3 percent were commercial real estate loans, less
than 4 percent were consumer installment loans, and less than 1 percent were
multi-family residential mortgage loans. The bank retains all its loans in
portfolio. As of June 30, 1997 32 percent of the Bank's 1-4 family residential
mortgage loans were adjustable rate loans.
Exhibit 9 details loans held in portfolio by the Bank for the
appropriate dates. Exhibit 10 presents the Loan Portfolio Maturity Schedule of
the Bank as of June 30, 1997.
One-to-Four Family Residential Real Estate Loans
The primary emphasis of the Bank's lending activity is the
origination of loans secured by first mortgages on owner-occupied, 1-4 family
residential properties. At June 30, 1997 approximately 80 percent of the Bank's
real estate loan portfolio consisted of one-to-four family residential real
estate loans, primarily located in the Bank's market area. Of such loan amounts,
32 percent had adjustable interest rates.
The Bank originates loans with the intention that they will not be
sold in the secondary market. As of June 30, 1997 the Bank had $27.4 million in
adjustable rate nonconforming mortgage loans and $61.5 million in fixed rate
nonconforming mortgage loans, including approximately $5 million of
non-residential real estate loans. Although
- --------------------------------------------------------------------------------
8
<PAGE>
management believes that many of these loans could be saleable in the secondary
market, some of the loans could be sold only after incurring certain costs
and/or discounting the purchase price.
The Bank's lending policies generally limit the maximum loan-to-value
ratio on mortgage loans secured by owner-occupied properties to 95 percent of
the value of the property. When the Bank makes a loan in excess of 80 percent of
the value of the property, private mortgage insurance is generally required for
at least the amount of the loan in excess of 80 percent of the value.
The Bank offers adjustable rate loans as a means of hedging interest
rate risk. The Bank offers a maximum term of 30 years on fixed rate loans, but
also offers shorter maturity loans as a customer service.
The interest rates on adjustable rate loans are generally adjustable
every year and are tied to the one-year United States Treasury bill rate with
rate caps limiting the amount of annual and cumulative changes in the loan rate.
Commercial Real Estate Loans
The Bank has a portfolio of approximately $2.8 million of
non-residential real estate loans, primarily to local churches and businesses.
These loans generally do no exceed 80 percent of the appraised value of the real
estate securing the loans and generally have terms up to 15 years. The loans
generally use the same index and rate change limitations as are used in
one-to-four family residential lending.
The Bank generally requires title insurance in connection with its
non-residential real estate loans as well as fire and extended coverage casualty
insurance (and, if appropriate, flood insurance) be maintained in an amount at
least equal to the loan amount or the replacement cost of the improvements on
the property securing the loans, whichever is greater.
Multi-Family Residential
The Bank has a portfolio of $870 thousand in loans to multi-family
housing, all secured by property in its immediate market area. These loans
generally do no exceed 80 percent of the appraised value of the real estate
securing the loans and generally have terms up to 30 years. The loans generally
use the same index and rate change limitations as are used in one-to-four family
residential lending.
The Bank generally requires title insurance in connection with its
multi-family residential loans as well as fire and extended coverage casualty
insurance (and, if appropriate, flood insurance) be maintained in an amount at
least equal to the loan amount or the replacement cost of the improvements on
the property securing the loans, whichever is greater.
- --------------------------------------------------------------------------------
9
<PAGE>
Construction Loans
The Bank originates construction loans to build single and
multi-family residential and commercial properties in the Bank's immediate
market area. Construction loans for one-to-four family real estate to be
occupied by the borrower generally have a maximum loan-to-value ratio of 85
percent of the property. Other construction loans are generally limited to 80
percent of the value of the property.
Some of these loans are made to persons who are constructing
properties for the purpose of occupying them; others are made to builders who
are constructing properties for sale. Loans made to builders are generally "pure
construction" loans which require the payment of interest during the
construction period of generally one year or less and the payment of the
principal in full at the end of the construction period. Loans made to
individual property owners are both pure construction loans and
"construction-permanent" loans which generally provide for the payment of
interest only during a construction period, after which the loans convert to a
permanent loan at fixed or adjustable interest rates having terms similar to
one-to-four family residential loans.
At June 30, 1997 approximately 6 percent of the Bank's net loans or
$5.7 million was invested in construction lending.
Home Equity Loans
The Bank originates home equity loans secured by properties on which
it retains a home mortgage up to 90 percent of the market value of the
residence. The loans are 15 year maturities requiring monthly payments equal to
1 1/2 percent of the outstanding balance and are indexed monthly to prime rate
plus 150 basis points. At June 30, 1997 the Bank had approximately $6.0 million
in home equity line of credit loans representing approximately 6 percent of its
net lending portfolio.
Consumer Loans
Mooresville Savings offers various consumer loans, including home
improvement, automobile, and draft secured loans. The Bank has a small portfolio
of unsecured consumer loans. At June 30, 1997 approximately 3 percent, or $3.4
million, of the Bank's net lending portfolio was invested in consumer loans.
Automobile loans generally have terms not exceeding 48 months and
have fixed interest rates. Home improvement loans are generally secured by a
subordinate lien on the improved property.
The Bank originates loans to consumer secured by deposits. Such loans
are charged an interest rate 200 basis points above the corresponding deposit
maturity rate and are scheduled to mature commensurate with the maturity of the
underlying security.
- --------------------------------------------------------------------------------
10
<PAGE>
Underwriting
The Bank has ongoing reviews of the loan portfolio and in particular
conducts quarterly reviews to determine the adequacy of the specific and general
loan provision. This review takes into consideration trends in delinquency,
current economic conditions and competitive aspects of the industry.
The Bank's underwriting for real estate reflect: the capacity of the
borrower or income from the underlying property to adequately service the debt;
the value of the mortgaged property; the overall credit worthiness of the
borrower; the level of equity invested in the property; any secondary sources of
repayment; and, any additional collateral or credit enhancements (such as
guarantees, mortgage insurance or take-out commitments).
The Bank originates loans with the intention that they will not be
sold in the secondary market. As of June 30, 1997 the Bank had $27.4 million in
adjustable rate nonconforming mortgage loans and $61.5 million in fixed rate
nonconforming mortgage loans. Although management believes that many of these
loans could be saleable in the secondary market, some of the loans could be sold
only after incurring certain costs and/or discounting the purchase price.
All mortgage loans are approved by the Loan Committee. All consumer
loans in excess of $10,000 are approved by the President.
Originations, Purchases, and Sales
As a portfolio lender the Bank generally retains all its originated
loans and therefore is not in the business of purchasing or selling loans. Total
loan originations have increased from $15.4 million for the nine months ended
December 31, 1994 to $26.6 million for the twelve months ended June 30, 1997
Exhibit 11 provides a schedule of loan originations, purchases, sales and
repayments.
Delinquencies and Non-Performing Assets
Exhibit 12 presents the non-performing assets of the bank for the
periods ending June 30, 1997 and June 30, 1996 and December 31, 1994, 1995, and
1996 as well as the Bank's aggregate carrying value of assets listed as
substandard, doubtful, loss or "special mention" as of June 30, 1997. Exhibit 13
illustrates the Bank's historical charge-offs and recoveries and Exhibit 14
illustrates the Bank's historical Distribution of Loan Loss Allowances.
Management reviews the Bank's loans on a regular basis. When a
borrower fails to make a required payment on a loan and does not cure the
delinquency promptly, the loan is classified as delinquent. In this event, the
normal procedure is to make contact with the borrower at prescribed intervals in
an effort to bring the loan to current status
- --------------------------------------------------------------------------------
11
<PAGE>
and late charges are assessed as permitted by law. If a delinquency is not cured
the Bank normally commences foreclosure proceedings. If the loan is not
reinstated within the time permitted, or the property is not redeemed prior to
sale, the property may be sold at a foreclosure sale. Any property acquired as a
result of foreclosure or by deed in lieu of foreclosure is classified as real
estate owned until such time as it is sold or otherwise disposed of the by the
Bank to recover its investment.
At June 30, 1997 the Bank had no real estate owned. Real estate owned
is initially recorded at the lower of cost or fair value minus cost or fair
value at the date of foreclosure, establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at lower of cost or fair valueless selling costs. Costs
related to the development and improvement of real estate owned are capitalized
and costs relating to holding the property are charged to expenses. Accrual on
interest of delinquent loans is suspended when, in management's judgment, doubt
exists as to the collectability of additional interest. Interest on loans placed
on nonaccrual status and generally charged off.
The Bank's non-performing assets decreased from $1.20 million at June
30, 1996 to $1.10 million or 0.96 percent of assets at June 30, 1997. At June
30, 1997 the Bank had total assets of $1.1 million listed substandard and $1.3
million as "special mention".
At June 30, 1997 the Bank's allowance for loan losses was $617
thousand or approximately 56 percent of non-performing assets. At December 31,
1996 the Bank's allowance for loan losses was only $388 thousand or
approximately 31 percent of non-performing assets.
INVESTMENT ACTIVITIES
Exhibit 15 presents the composition of the Bank's securities
portfolio and Exhibit 16 summarizes the maturity schedule and yield analysis of
those securities as of June 30, 1997. The Bank's investment portfolio of
approximately $10.032 million consisted of U.S. Government and agency
securities, mortgage-backed securities, municipal bonds, interest-earning
deposits in other financial institutions, and stock of the Federal Home Loan
Mortgage Corporation and Federal Home Loan Bank of Atlanta.
Exhibit 16 presents the maturity schedule of the Bank's investment
portfolio. Substantially, all of the investment portfolio, except for municipal
bonds, matures in five years or less and consist of approximately $2.8 million
of U.S. government and agency securities, $2.4 million of interest-bearing
deposits, $2.3 million of FHLB bonds, and $1.8 million of municipal bonds.
As a member of the FHLB of Atlanta, the Bank is required to maintain
an investment in stock of the FHLB equal to the greater of 1 percent of the
Bank's outstanding home loans or 5 percent of the outstanding advances. At June
30, 1997 the Bank held $930 thousand of stock in the FHLB of Atlanta.
- --------------------------------------------------------------------------------
12
<PAGE>
SOURCES OF FUNDS
Deposits
Exhibit 17 presents a summary flow of deposits at the Bank for the
periods ending June 30, 1997 and for the periods ending December 1996, 1995 and
1994. Exhibit 18 presents the composition and average rate paid of the Bank's
deposits by type of account for the same periods. Exhibit 19 shows composition
and average rate paid information for the Bank's certificates of deposit as of
June 30, 1997.
The Bank attracts short term and intermediate term deposits from the
Bank's primary market area. The Bank offers a variety of deposit accounts
including passbook and savings accounts, money market accounts, and certificates
of deposits ranging in maturity from three months to five years. The Bank does
not solicit or accept brokered deposits.
At June 30, 1997 approximately 75 percent of the Bank's deposits
consisted of certificates of deposit, 12 percent of the Bank's deposits
consisted of passbook and statement savings accounts, 12 percent consisted of
interest-bearing transaction accounts and less than 2 percent consists do
non-interest-bearing transaction accounts. Approximately 14 percent of the
Bank's deposits consisted of Jumbo ($100,000 or more) certificates of deposit.
The Bank's deposit base has increased from $85.1 million at December
31, 1994 to $95.9 million at June 30, 1997.
Borrowed Funds
The Bank is a member of the FHLB of Atlanta with borrowing privileges
from that institution. In recent years the Bank has availed itself of those
privilege from time to time. At June 30, 1997 the Bank had outstanding
borrowings of $1 million from the FHLB.
SUBSIDIARIES
The Bank does not currently have any active service corporations.
- --------------------------------------------------------------------------------
13
<PAGE>
PROPERTY AND EQUIPMENT
The Bank currently operates out of a single office, which is owned by
the Bank and located in downtown Mooresville.
<TABLE>
<CAPTION>
Property and Equipment
- ------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Net Book
Value Market Value Square Feet Year in Place
- ------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Mooresville $125,620 $1,138,310 16,644 1964
- ------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Cornelius $174,680 $1,085,530 2,000 1985
- ------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Huntersville $137,625 $288,090 2,000 1982
- ------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Furniture, Fixture $106,303 $1,000,000 NA NA
& Equipment (est.)
- ------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Total $544,228 $3,511,930 NA NA
- ------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
</TABLE>
MANAGEMENT
Officers and Directors
Directors
The Bank has a six member Board of Directors which includes one
inside director (CEO George Brawley). The Board has extensive and valuable
business experience and relationships in the community. Individual members of
the Board and their vitaes are:
. George W. Brawley, Jr., 64; Mr. Brawley is President of Mooresville
Savings, having served in this capacity since 1973. He joined the
institution in 1957. He has been a Director of the Bank since 1968.
. Dr. Calvin E. Tyner, 73; Mr. Tyner has been a director since 1963
and has served as Chairman of the Board since 1990. He is a retired
veterinarian.
. Donald R. Belk, 65; Mr. Belk has been a director since 1974. He is
President of E.F. Belk & Son Electrical Contractors, Inc.
. Claude U. Voils, 68; Mr. Voils has been a member of the board since
1970. He is a retired chemist from National Starch, Inc.
. Jack G. Lawler, 69; Mr. Lawler has been a director since 1994. Mr.
Lawler, retired, was president of Taltronics Corp.
- --------------------------------------------------------------------------------
14
<PAGE>
. Willis L. Barnette, 68; Mr. Barnette has been a director since
August 1996. He is the President of Custom Products, Inc.
Officers
In addition to CEO Brawley, senior management is made up of:
. Dale W. Brawley, 40; Executive Vice President and Treasurer. Mr.
Brawley oversees the Bank's lending and investments and is
responsible for day-to-day operations. He has been associated with
the Bank since 1980 and has held his current position since 1989.
. Billy R. Williams, 37; Comptroller and Secretary. Mr. Williams is
responsible for financial analysis and controls in the Bank and has
been associated with the institution since 1986, holding his
current position since 1990.
. D. Glenn Jones, 43; Vice President. Mr. Jones serves as the chief
lending officer of the Bank and has been associated with the Bank
since 1986. Prior to assuming his current position in 1993 he
served as a branch manager and loan officer.
. Richard E. Woods, 47; Vice President. Mr. Woods serves as the
Bank's chief compliance officer and has been associated with the
Bank since 1980. He has held his current position for 13 years.
Employees
The Bank has 28 full time employees and 3 part-time employees,
including management with extensive tenure and an annual payroll of
approximately $951 thousand.
- --------------------------------------------------------------------------------
15
<PAGE>
Section II
MARKET AREA ANALYSIS
Primary Market Area
The Bank's primary market area is comprised of a fifteen mile radius
emanating from its office in Mooresville in the southeast corner of Iredell
County in west central North Carolina. Mooresville is located less than 30 miles
north of Charlotte, approximately 15 miles south of Statesville and
approximately 90 miles southwest of Winston-Salem. The area is distinguished by
its proximity to Charlotte and its amenities, including Charlotte/Douglas
International Airport, less than 40 minutes from Mooresville and by
Mooresville's close proximity to Lake Norman, the largest lake in the state, and
its recreational opportunities. Transportation in the area is excellent.
Mooresville is located within 15 miles of three interstate highways and has rail
service. Mooresville is historically a working class mill town surrounded by
rural agriculture development. However, with the growth of Charlotte and
increased use of Lake Norman, the area has been transformed into an upscale
bedroom community of Charlotte. There are now over 450,000 people living within
a 25 mile radius of Mooresville, which such radius does not include the city of
Charlotte. These factors contributed to one recent survey's ranking of the
Mooresville area as the fifth best submarket for new business in the country.
Mooresville also has one of the few independent school districts in the state,
permitting local control and superior funding of elementary and secondary
schools which have made the community attractive to young families.
Mooresville's location in the southeast corner of Iredell County and
its two branch offices in neighboring Mecklenburg County provide it close
proximity and market access to at least four counties. Most of the bank's loans
and deposits are based in southeastern Iredell County, however, such that
Iredell County demographic and economic statistics are the most accurate
reflection of the Bank's marketplace. Comparable data on Mooresville is not
regularly produced.
Market Area Economy
The market economy is dominated by textile mills, NASCAR facilities,
and public or quasi-public employers such as the government, schools, and
hospitals.
- --------------------------------------------------------------------------------
16
<PAGE>
<TABLE>
<CAPTION>
Employment By Industry
Iredell County
June 1996
<S> <C>
Manufacturing 36%
Retail Trade 20%
Services 17%
Government 12%
Construction 5%
Wholesale Trade 4%
Transportation/Communication/Utilities 3%
Finance, Ins, Real Estate 2%
Agriculture 1%
Mining less than 1%
</TABLE>
The largest employers in the county, the number of employers, their
industry and their location are referenced below:
<TABLE>
<CAPTION>
Major Employers in Iredell County (1996)
Employer Employees Industry Location
- -------- --------- -------- --------
<S> <C> <C> <C>
Iredell Memorial 1100 Hospital Statesville
Iredell Statesville Schools 1700 Schools Iredell County
Burlington Industries 755 Textiles Mooresville
ASMO of NC, Inc. 800 Electric Statesville
Draymore Manufacturing 850 Textiles Mooresville
Matsushita Compressor Co. 640 Manufacturing Mooresville
Clark-Hurth Components 600 Manufacturing Statesville
Bienfancy Paper Products 586 Manufacturing Statesville
Mooresville Graded School District 438 Schools Mooresville
Lake Norman Regional Medical Center 400 Health Care Mooresville
</TABLE>
Source: Economic Development Office
Employment in Mooresville and surrounding communities is strong.
Iredell County unemployment rates are historically below that of the national
average and, in recent years, have also been lower than North Carolina rates.
- --------------------------------------------------------------------------------
17
<PAGE>
<TABLE>
<CAPTION>
Unemployment
- ------------------------- -------------- -------------- --------------- ---------------- ----------------- -------------------
1992 1993 1994 1995 1996 Latest
- ------------------------- -------------- -------------- --------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. 7.5% 6.9% 6.1% 5.6% 5.4% 5.0%
- ------------------------- -------------- -------------- --------------- ---------------- ----------------- -------------------
North Carolina 5.9% 4.9% 4.4% 4.3% 4.3% 3.6%
- ------------------------- -------------- -------------- --------------- ---------------- ----------------- -------------------
Iredell County 5.3% 3.6% 3.0% 3.4% 3.4% 3.1%
- ------------------------- -------------- -------------- --------------- ---------------- ----------------- -------------------
Mooresville NA 4.0% 3.4% 3.9% NA NA
- ------------------------- -------------- -------------- --------------- ---------------- ----------------- -------------------
</TABLE>
Income and Income Trends
Mooresville can be characterized as a burgeoning bedroom community. Historically
a working mill town, Mooresville is now the center of middle income and upscale
residential development. Local population and employment growth exceed state and
national averages. Per capita and household income for the Mooresville area
exceed state and national averages and are expected to continue to grow at a
healthier pace.
<TABLE>
<CAPTION>
Median Household Income Data
- ------------------------- ------------------- ------------------ -------------------- --------------------
Median Median Median Estimated
Household Household Household Growth
Income Income Income Median
(1989) (1993) (1997) Household
Income to
2002
- ------------------------- ------------------- ------------------ -------------------- --------------------
<S> <C> <C> <C> <C>
U.S. $30,056 $32,859 $36,961 13.7%
- ------------------------- ------------------- ------------------ -------------------- --------------------
North Carolina $26,647 $29,014 $35,818 21.7%
- ------------------------- ------------------- ------------------ -------------------- --------------------
Iredell County $28,067 $30,987 $36,554
- ------------------------- ------------------- ------------------ -------------------- --------------------
Mooresville $23,292 $36,544 $42,402 26.6%
- ------------------------- ------------------- ------------------ -------------------- --------------------
</TABLE>
<TABLE>
<CAPTION>
Household Income Distribution
- ------------------------- --------------- ------------------- ----------------------- -----------------------
Poverty Household Household Household
Rate Income less than Income less than Income greater than
(1989) $25,000 $25,000 $100,000
(Prcnt) (Prcnt) (Prcnt)
(1997) (1997)
- ------------------------- --------------- ------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
U.S. 13.1% 41.8 32.1 8.0
- ------------------------- --------------- ------------------- ----------------------- -----------------------
North Carolina 13.0% 46.8 32.6 6.3
- ------------------------- --------------- ------------------- ----------------------- -----------------------
Iredell County 9.4% 44.3
- ------------------------- --------------- ------------------- ----------------------- -----------------------
Mooresville 5.3% 49.8 24.3 8.3
- ------------------------- --------------- ------------------- ----------------------- -----------------------
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
<TABLE>
<CAPTION>
Income Data
- ------------------------------ ---------------------------- ----------------------------- -------------------------------------
Per Capita Income (1989) Per Capita Income (1993) Per Capita Income (1997)
- ------------------------------ ---------------------------- ----------------------------- -------------------------------------
<S> <C> <C> <C>
U.S. $14,420 $16,173 $18,100
North Carolina $12,885 $14,405 $17,515
Iredell County $13,000 $14,623
Mooresville $15,841 $16,848 $20,014
- ------------------------------ ---------------------------- ----------------------------- -------------------------------------
</TABLE>
Population Base and Growth
Iredell County had a population of 103,462 in 1995 in 46,620
households and the city of Mooresville's population was 34,620 with an estimated
13,345 households. County population growth outpaced both the national and state
averages from 1990 to 1995 increasing a total of 11.3 percent, but the
population of Mooresville increased nearly twice as much, 20.2 percent, during
the same period. County population is expected to continue twice as fast as the
national average and local growth is expected to far exceed national and county
growth through the rest of the decade.
<TABLE>
<CAPTION>
Population
- ------------------------- ---------------------- ------------------ ------------------ ------------------- -------------------
Projected
Population Population Population
Population Population Growth 1990-95 1995 Growth to
1980 (,000) l990 (,000) (,000s) 2000
- ------------------------- ---------------------- ------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
U.S. 226,542.2 248,709.9 5.6% 262,755.3 4.5%
- ------------------------- ---------------------- ------------------ ------------------ ------------------- -------------------
North Carolina 5,880.1 6,628.7 8.6% 7,195.238 8.1%
- ------------------------- ---------------------- ------------------ ------------------ ------------------- -------------------
Iredell County 82.538 92.931 11.3% 103.462 8.9%
- ------------------------- ---------------------- ------------------ ------------------ ------------------- -------------------
Mooresville 23.052 28.791 20.2% 34.620 22.5%
- ------------------------- ---------------------- ------------------ ------------------ ------------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
Households and Projected Growth
- ------------------------- ----------------------- ----------------------------- ---------------------------------------------
Total Number Total Number of
of Households Households Projected Growth in Number
(1995) (,000) (1990) (,000) of Households to 2000
- ------------------------- ----------------------- ----------------------------- ---------------------------------------------
<S> <C> <C> <C>
U.S. 97,061 91,947 6.5%
- ------------------------- ----------------------- ----------------------------- ---------------------------------------------
North Carolina 2,730 2517 10.0%
- ------------------------- ----------------------- ----------------------------- ---------------------------------------------
Iredell County 46.620 35.573 11.1%
- ------------------------- ----------------------- ----------------------------- ---------------------------------------------
Mooresville 13.345 11.102 24.4%
- ------------------------- ----------------------- ----------------------------- ---------------------------------------------
</TABLE>
Mooresville has a sizable elderly population. Over 13.7 percent of
its residents are over 65, compared to state and national averages of
approximately 12.6 percent. The
- --------------------------------------------------------------------------------
19
<PAGE>
median age of the community is 36.3 compared to a national average of 34.8 and a
statewide average of 35.3.
Iredell County residents do not have the same level of higher
education as the state and national averages. Data is unavailable for the
Mooresville area, but it is believed that the educational levels of the
Mooresville area are comparable to the state average.
<TABLE>
<CAPTION>
Demographic Data
- ---------------------------- ------------------------------ --------------------- --------------------- -------------
Population over 65 Median Age High School BA
- ---------------------------- ------------------------------ --------------------- --------------------- -------------
<S> <C> <C> <C> <C>
U.S. 12.7% 34.8 75.2% 20.3%
- ---------------------------- ------------------------------ --------------------- --------------------- -------------
North Carolina 12.5% 35.3 70.0% 17.4%
- ---------------------------- ------------------------------ --------------------- --------------------- -------------
Iredell County 13.6% 36.1 66.5% 11.8%
- ---------------------------- ------------------------------ --------------------- --------------------- -------------
Mooresville 13.7% 36.3
- ---------------------------- ------------------------------ --------------------- --------------------- -------------
</TABLE>
The housing stock in Mooresville is characterized by older smaller
homes in town and newer upscale sub-divisions near Lake Norman. Housing values
in Iredell County are slightly below the state average. Though official data for
Mooresville is unavailable it is believed that median home values in the area
are comparable or exceed state averages. Owner-occupancy is generally higher and
vacancies lower in Iredell County than the state and nation in general.
<TABLE>
<CAPTION>
Home Ownership
- -------------------------- ------------------ --------------------- ------------------ ------------------- -------------------
Median Prcnt Homes Vacant
Home Owner Units (as
Value Occupied Homes w/ Home percent
(1990) (1990) Mortgages Elsewhere total units)
- -------------------------- ------------------ --------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
US $79,100 64.2% 65.2% 9.8% 10.1%
- -------------------------- ------------------ --------------------- ------------------ ------------------- -------------------
North Carolina $65,800 68.0% 44.6% 10.1% 10.7%
- -------------------------- ------------------ --------------------- ------------------ ------------------- -------------------
Iredell County $63,300 75.1% 10.4% 9.2%
- -------------------------- ------------------ --------------------- ------------------ ------------------- -------------------
Mooresville $63,300 74.0%
- -------------------------- ------------------ --------------------- ------------------ ------------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
Housing Stock
- ---------------------------- -------------------- ------------------------- -------------------------- -----------------------
Total Detached Homes Prcnt Units Prcnt Units
Housing as a Prcnt of Constructed Constructed
Units Total prior to 1939 1980-90
- ---------------------------- -------------------- ------------------------- -------------------------- -----------------------
<S> <C> <C> <C> <C>
United States 91,947,410 59.0% 18.4% 20.7%
- ---------------------------- -------------------- ------------------------- -------------------------- -----------------------
North Carolina 2,517,026 64.9% 9.9% 28.6%
- ---------------------------- -------------------- ------------------------- -------------------------- -----------------------
Iredell County 39,191 70.0% 11.9% 26.9%
- ---------------------------- -------------------- ------------------------- -------------------------- -----------------------
Mooresville 10,033 70.1% 12.0% 29.1%
- ---------------------------- -------------------- ------------------------- -------------------------- -----------------------
</TABLE>
Residential housing construction in the Mooresville area has been
booming throughout the 1990s. Residential housing construction increased 155
percent in Iredell County area since 1991, more than double the state average
and more than triple the national average.
- --------------------------------------------------------------------------------
20
<PAGE>
<TABLE>
<CAPTION>
Residential Housing Construction (# of units)
- ----------------------- ------------- ----------------- ---------------- ---------------- ---------------- --------------- ---------
Growth
1991 1992 1993 1994 1995 1996 (91-96)
- ----------------------- ------------- ----------------- ---------------- ---------------- ---------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
United States 920,420 1,083,156 1,151,847 1,299,078 1,285,650 1,353,176 47.0%
- ----------------------- ------------- ----------------- ---------------- ---------------- ---------------- --------------- ---------
North Carolina 38,443 48,158 53,281 62,859 61,339 65,210 69.6%
- ----------------------- ------------- ----------------- ---------------- ---------------- ---------------- --------------- ---------
Iredell County 672 690 855 968 1,160 1,711 154.6%
- ----------------------- ------------- ----------------- ---------------- ---------------- ---------------- --------------- ---------
</TABLE>
Competition
As larger institutions compete for market share to achieve economies
of scale, the market environment for the Bank's products and services is
expected to become increasingly competitive. Smaller institutions, such as
Mooresville, will be forced to either compete with larger institutions on
pricing or to identify and operate niches that will allow operating margins to
be maintained at profitable levels.
<TABLE>
<CAPTION>
County and State Deposit Share Analysis
- -------------------------------------------- --------------- ---------------- --------------- ---------------- ---------------
1992 1993 1994 1995 1996
- -------------------------------------------- --------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Iredell County
- -------------------------------------------- --------------- ---------------- --------------- ---------------- ---------------
Deposits (,000,000) $1,013 $1,005 $1,021 $1,056 $1,105
- -------------------------------------------- --------------- ---------------- --------------- ---------------- ---------------
Banks 18 18 18 13 13
- -------------------------------------------- --------------- ---------------- --------------- ---------------- ---------------
Branches 40 38 38 37 38
- -------------------------------------------- --------------- ---------------- --------------- ---------------- ---------------
Deposits/Branch $25,330 $26,450 $26,865 $28,539 $29,076
- -------------------------------------------- --------------- ---------------- --------------- ---------------- ---------------
Mooresville Market Share 7.2% 7.2% 7.0% 7.2% 7.2%
- -------------------------------------------- --------------- ---------------- --------------- ---------------- ---------------
</TABLE>
The Bank faces strong competition for deposits, especially
transaction accounts in Mooresville and surrounding county. There are eight
depository institutions with 16 branches located in the city of Mooresville
alone, in which Mooresville Savings consistently has approximately 22 percent of
the deposit market. There are over $1.1 billion of deposits in Iredell County
spread over 38 branch offices, giving the Bank a 7.2 percent share of the
county's deposit market. In addition to competition from depository institutions
the Bank faces significant competition for funds from the local State Employees
Credit Union and the brokerage firms of Edward D. Jones and Howard Financial,
also located in Mooresville. The Bank also faces significant local and regional
competition for mortgage originations from depository institutions and mortgage
brokers.
The aggregate deposit base in Mooresville is increasing approximately
5.1 percent annually, principally due to economic growth in the region.
Mooresville Savings has not maintained its market share, however, primarily due
to increased disintermediation in recent months.
- --------------------------------------------------------------------------------
21
<PAGE>
Most of the Bank's local competition for deposits comes from much
larger institutions whose primary presence is outside of Mooresville and Iredell
County. The average retail branch in Mooresville controls less than $23 million
of deposits, slightly more than the county average, but well short of the $79
million held at Mooresville Savings' home location.
<TABLE>
<CAPTION>
Depository Institutions, Branches and Deposits in Mooresville (,000)
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Growth
1992 1993 1994 1995 1996 1992-96
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Branch Banking and Trust $44,564 $42,154 -5.41%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Bank of Iredell $18,623 $22,702 $27,147 NA
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Central Carolina Bank $4,857 $6,116 25.92%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Citizens Savings Bank $53,794 $53,585 $50,782 NA
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
First Union $50,021 $42,077 $41,538 $47,743 $52,728 1.33%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Lincoln Bank $29,728 $35,010 $39,522 $44,852 $53,572 15.86%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Mooresville Savings $72,774 $71,864 $71,313 $75,567 $79,705 2.30%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Nations Bank $51,534 $58,257 $59,315 $65,863 $68,021 7.19%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Security Bank & Trust $2,682 $2,783 $2,440 NA
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Southtrust Bank $16,048 $12,219 $12,181 $22,264 $27,785 14.71%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
United Carolina $24,868 $30,529 22.76%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Total Branches 13 12 12 14 16 5.33%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Total Banks 8 8 8 8 8 0.00%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Total Deposits $295,204 $298,497 $304,238 $330,578 $360,610 5.13%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Deposits/Branch $22,708 $24,875 $25,353 $23,613 $22,538 -0.19%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
Mooresville Market Share 24.65% 24.08% 23.44% 22.86% 22.10% -2.69%
- --------------------------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
22
<PAGE>
Recent Interest Rate Trends
Interest rates fell through much of mid and late year 1995 before
longer term yields began to increase in the spring of 1996. Short-term rates
have remained stable, from an historical perspective, for nearly two years.
Intermediate and longer-term rates rose moderately through early 1997 and appear
to have stabilized or retrenched marginally in the past several months. It is
believed that the Federal Reserve is generally comfortable with the recent
tightening of interest rates, leveling off of the yield curve, and the stable
growth of GDP, and it is anticipated that the Fed will not undertake to achieve
a material change in interest rates in the near future.
<TABLE>
<CAPTION>
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
3 Mo. T-bills 3 Yr. T-notes Prime Rate FHFB Mortgages Discount Rate
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 4.29 6.27 7.15 7.49 3.60
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
1995 5.51 6.25 8.83 7.87 5.21
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
January 1996 5.02 5.20 8.25 7.32 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
February 1996 4.87 5.14 8.25 7.20 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
March 1996 4.96 5.79 8.25 7.49 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
April 1996 4.99 6.11 8.25 7.76 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
May 1996 5.00 6.24 8.25 7.80 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
June 1996 5.11 6.35 8.25 8.05 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
July 1996 5.17 6.45 8.25 8.01 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
August 1996 5.09 6.21 8.25 8.08 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
September 1996 5.15 6.41 8.25 7.98 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
October 1996 5.01 6.08 8.25 7.95 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
November 1996 5.03 5.82 8.25 7.80 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
December 1996 4.87 5.91 8.25 7.79 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
January 1997 5.05 6.16 8.25 7.81 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
February 1997 5.00 6.03 8.25 7.78 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
March 1997 5.14 6.38 8.50 7.88 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
April 1997 5.17 6.61 8.50 8.03 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
May 1997 5.13 6.42 8.50 8.01 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
June 1997 4.92 6.24 8.50 7.84 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
July 1997 5.19 6.00 8.00 7.54 5.00
- ------------------------------- ---------------- ------------------ -------------- --------------------- --------------------
</TABLE>
- --------------------------------------------------------------------------------
23
<PAGE>
SECTION III
PUBLICLY-HELD THRIFT INSTITUTION COMPARISONS
In determining the fair market value of the Bank's common stock it is
necessary to compare the financial, operating, and other characteristics of the
Bank to comparable publicly traded thrift institutions. This section compares
Mooresville Savings with three select groups; the universe of publicly traded
thrifts (excluding mutual holding companies), a smaller select group of publicly
traded thrifts (the "Comparative Group"), and recently converted thrifts. While
the prices of comparable institutions are useful in determining the pro forma
market value of the Bank, considerable adjustments may be required in the
pricing of Mooresville Savings' to-be-issued common stock due to differences in
such factors including, but not limited to, size, market area, financial
strength, operating strategy, liquidity and stock market environment. The
selection of the Comparative Group is equal in importance to the subsequent
adjustments that will be made to the Bank's pro forma market value. The
selection criteria used and the companies selected are discussed below.
SELECTION CRITERIA
The most general relevant comparables for the Bank are thrift
institutions listed on the New York Stock Exchange (NYSE), the American Stock
Exchange (AMEX) as well as those traded on the national over-the-counter
(NASDAQ) markets. Selection of the Comparative Group is limited to these thrifts
because the existence of an active and regular trading market is imperative if
the common stock is to be used as a basis for comparison. The reliability of
share price data of thinly traded stocks is sometimes difficult to assess due to
infrequent trades or widely varying transaction prices.
Average Pricing Ratios by Stock Exchange
Table III.1 presents a summary of the average and median pricing for
all thrifts listed in Exhibits 20-A and 20-B. The thrifts in Table III.1 are
categorized by trading exchange and trading prices for all thrifts listed in the
table or Exhibit 20 are as of September 1, 1997.
- --------------------------------------------------------------------------------
24
<PAGE>
Table III.1
Pricing Ratios by Trading Exchange
(Prices as of September 1, 1997)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Price Divided By
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings Book Value Tang BV Assets
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
All Public Thrifts (407)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 29.3 152 158 17.6
- ----------------------------------------------------------------------------------------------------------------------------------
Median 23.3 137 142 15.3
- ----------------------------------------------------------------------------------------------------------------------------------
AMEX (26)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 27.5 135 151 16.9
- ----------------------------------------------------------------------------------------------------------------------------------
Median 24.1 125 129 14.8
- ----------------------------------------------------------------------------------------------------------------------------------
NASDAQ (368)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 29.6 151 156 17.8
- ----------------------------------------------------------------------------------------------------------------------------------
Median 23.3 137 142 15.4
- ----------------------------------------------------------------------------------------------------------------------------------
NYSE (13)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 24.7 196 215 13.7
- ----------------------------------------------------------------------------------------------------------------------------------
Median 19.4 187 194 10.4
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank will apply to have the common stock of Coddle Creek
Financial Corp. listed on the Nasdaq National Market System if it is determined
that the common stock is eligible for such quotation. In the event the common
stock does not qualify for quotation on the Nasdaq National Market System the
Bank intends to list the common stock over-the-counter through the National
Daily Quotation System "Pink Sheets" and request Trident Securities to match buy
and sell orders for the common stock. Because price quotations on the Pink
Sheets may not be updated or available on a timely basis and because it is
anticipated that very few shares of the common stock of the Company will be
available for sale it is anticipated that the liquidity of this issue will be
very limited which such liquidity could be reflected in the trading price of the
Stock.
Since approximately 90 percent of all public thrifts are NASDAQ
listed, NASDAQ pricing ratios are generally comparable to all public thrift
averages. The largest contrast in pricing ratios is between NASDAQ and NYSE,
which such disparities reflect the different characteristics of the thrifts in
each exchange. NYSE thrifts are generally significantly larger than NASDAQ
thrifts, but are not as well as capitalized. Accordingly, the price-to-assets
ratio of the NYSE thrifts is lower and the price-to-book value ratios are higher
than NASDAQ thrifts.
- --------------------------------------------------------------------------------
25
<PAGE>
Average Pricing Ratios By Geographic Region
Further consideration must be given to geographic location given that
the operating and competitive environment and equity market valuation for
institutions varies from state to state or region to region as a result of
different economic, legal and regulatory factors. Table III.2 summarizes the
average and median pricing ratios for publicly traded thrifts in the various
regions of the country as of September 1, 1997.
Table III.2
Pricing Ratios by Geographical Region
(Prices as of September 1, 1997)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Price Divided By
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings Book Value Tang BV Assets
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
All Public Thrifts (407)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 29.3 152 158 17.6
- ----------------------------------------------------------------------------------------------------------------------------------
Median 23.3 137 142 15.3
- ----------------------------------------------------------------------------------------------------------------------------------
Southeast (61)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 31.2 170 178 22.9
- ----------------------------------------------------------------------------------------------------------------------------------
Median 27.3 146 146 17.7
- ----------------------------------------------------------------------------------------------------------------------------------
Mid-Atlantic (88)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 28.7 157 168 16.1
- ----------------------------------------------------------------------------------------------------------------------------------
Median 22.9 147 151 14.1
- ----------------------------------------------------------------------------------------------------------------------------------
Midwest (155)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 31.7 136 139 17.7
- ----------------------------------------------------------------------------------------------------------------------------------
Median 24.0 120 121 16.1
- ----------------------------------------------------------------------------------------------------------------------------------
Northeast (46)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 18.0 166 173 14.5
- ----------------------------------------------------------------------------------------------------------------------------------
Median 15.2 160 166 13.0
- ----------------------------------------------------------------------------------------------------------------------------------
Southwest (13)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 29.4 134 140 16.9
- ----------------------------------------------------------------------------------------------------------------------------------
Median 25.7 127 127 17.1
- ----------------------------------------------------------------------------------------------------------------------------------
Western (44)
- ----------------------------------------------------------------------------------------------------------------------------------
Average 33.6 163 170 13.6
- ----------------------------------------------------------------------------------------------------------------------------------
Median 28.1 152 160 13.1
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As illustrated in Table III.2, Southeast thrifts as a region exhibit
some of the highest pricing ratios in the country. Only western thrifts
exhibited higher average and median price-to-earnings ratios. The region had the
highest price-to-book value, price-to-tangible-book value and price-to-assets
ratios in the country, though the median ratios were slightly lower.
- --------------------------------------------------------------------------------
26
<PAGE>
SELECTION PROCEDURE
From the universe of publicly traded thrifts a more select group of
comparable companies was chosen based on further criterion. In screening to
develop the appropriate comparative group the first criterion tested were asset
size and market value. Only firms with assets under $200 million and a market
value below $80 million were considered. Asset and market size were determined
to be important because they reflect not only the earnings capacity of the
institution, but also its limited liquidity.
Also considered of principal importance in selecting a comparative
group were key financial condition and financial performance ratios; primarily
the capital to asset, return on average asset, and return on average equity
ratios. After consideration of conversion proceeds and pro forma earnings
Mooresville Savings will have exceptionally strong capital ratios, average
return on average assets, but a low return on equity. Only those institutions
with capital/asset ratios in excess of 14 percent, with return on assets in
excess of 0.50 and less than 1.50 percent and return on average equity ratios
less than 8 percent were considered further.
Mooresville Savings Bank, SSB serves a southeastern rural/suburban
market and its limited market value and liquidity will make it most attractive
to stockholders in the Bank's general geographic region. Consequently, the
Comparative Group was further narrowed down by eliminating first those
institutions outside of Mooresville Savings' broad geographic region. As a
result, only four thrifts (three in Ohio and one in Indiana) are outside of the
southeast region were considered.
A final consideration for inclusion in the Comparative Group was the
composition of an institution's lending portfolio. Mooresville Savings is a
traditional one-to-four family portfolio lender. The thrifts chosen for the
Comparative Group are also primarily traditional portfolio lenders with low
concentrations of non-mortgage lending.
As previously stated the Comparable Group was selected only from
publicly traded (NASDAQ, NYSE, AMEX) companies because these companies have
established trading markets which, for larger or more frequently traded thrifts,
are presumed to be accurate reflections of the Bank's market value.
Institutions whose market prices are believed to be affected by
proposed mergers or acquisition were not considered as part of the Comparative
Group because these institution's prices tend to be distorted by speculative
considerations and therefore, are unreliable indicators of the market's
valuation.
The selection criterion discussed above were employed in identifying
thrifts, which, by virtue of location, size and operating characteristics and
financial condition and performance are deemed to be most comparable in nature
to the Bank. These thrifts, their location, asset size, and other summary data
are presented in Exhibit 21 and detailed information on the Comparative Group is
presented in Exhibits 21 through 30.
- --------------------------------------------------------------------------------
27
<PAGE>
Few companies are directly comparable on all factors, but in the
aggregate the Comparative Group has financial figures very similar to
Mooresville Savings. The average asset size of the Comparative Group is $106
million, the average capital-to-asset ratio is 26.1 percent, the average market
capitalization was $31 million, and the average ROAA and ROAE were 1.00 percent
and 3.88 percent respectively.
REVIEW OF COMPARATIVE GROUP
Bedford Bancshares, Inc., Bedford, Virginia is the holding company
for Bedford Federal Savings Bank with three area offices and 36 employees. As of
the most recently available date, Bedford Bancshares had $135 million in assets
and a market capitalization of $28 million. Bedford Bancshares is well
capitalized with a capital/asset ratio of 14.1 percent has strong core earnings
yielding an ROAA of 1.00 percent. Because its capital level is lower and its
earnings higher than the Bank its return on average equity of 6.97 percent is
also higher than the Bank and highest in the Comparative Group. Bedford
Bancshares is generally a traditional thrift lender with excellent credit
quality and title and credit life insurance operations. It has exhibited
consistent loan, asset, and deposit growth since its conversion in August 1994.
Classic Bancshares, Inc. Ashland, Kentucky, is the holding company
for Classic Bank and operates three full-service offices with $130 million in
assets. Classic is well capitalized with a capital-asset ratio of 14.9 percent.
For the latest reported four quarters Classic's return on average assets was
0.49 percent and its return on average equity was 2.74 percent. Classic is
primarily a real estate portfolio lender with similar loan distributions, loan
quality and reserve levels to the Bank. It's non-performing assets-to-total
asset ratio was 0.94 percent at June 1997 and its reserves-to-NPA ratio was 65
percent. Classic had an interest-earning asset-to-interest bearing liability
ratio of 111 percent and a net interest margin of 3.75 percent at June 1997,
also similar to the Bank's financial condition. Classic converted to stock form
in December 1995 and has exhibited considerable growth since that time. Classic
has a market capitalization of $18 million.
FFD Financial Corporation, Dover, Ohio, is the holding company for
First Federal Savings Bank of Dover. FFD is a unit bank with $85 million in
assets. FFD's capital ratio of 24.7 percent is similar to the proforma ratio of
the Bank. Likewise, FFD's return on average assets and return on average equity
of 0.77 percent and 3.22 percent are similar to the Bank's. FFD is a traditional
thrift portfolio lender with outstanding credit quality. Like the Bank FFD has
seen its loans and assets increase faster than its deposit base. FFD converted
in April 1996 and has a market capitalization of $21 million.
First Lancaster Bancshares, Inc. Lancaster, Kentucky, is the holding
company for First Lancaster Federal Savings Bank, a unit bank with only $40
million in total assets. First Lancaster is highly capitalized with a capital to
asset ratio of 34.2 percent. As a result, despite its relatively high return on
average assets of 1.13 percent its return on average equity is only 3.53
percent. Unlike the Bank First Lancaster is heavily invested, but its loan
portfolio is concentrated in real estate loans. First Lancaster's ratio of non
performing assets to total assets was 0.75 percent and its ratio of reserves to
non-performing assets was only 32 percent. First Lancaster has exhibited
significant asset
- --------------------------------------------------------------------------------
28
<PAGE>
growth, but has suffered deposit decay over the past year, primarily because it
converted in July 1996. First Lancaster has a market capitalization of $15
million.
Green Street Financial Corp., Fayetteville, North Carolina is the
holding company for Home Federal Savings of Fayetteville and operates three
offices with total assets of $175 million and 31 employees. Green Street is
extremely well-capitalized with a capital-to-asset ratio of 36.3 percent. As a
result of its high capital level Green Street's return on average equity is only
3.88 percent despite its 1.37 percent return on average assets. Green Street is
almost exclusively a residential real estate lender with excellent credit
quality. Green Street reported a one year interest-rate gap of negative 17.53
percent. Unlike the Bank, Green Street has exhibited asset and loan decay as
well as deposit decay over the past year. Green Street converted in April 1996
and has a market capitalization of $79 million.
Harrodsburg First Financial Bancorp, Inc., Harrodsburg, Kentucky, is
the holding company for First Federal Savings Bank of Harrodsburg which operates
two local offices with 15 full time employees. As of the most recently available
date, Harrodsburg had $109 million in assets and a market capitalization of $31
million. Harrodsburg is well capitalized with a capital/asset ratio of 26.9
percent. It's 1.03 percent ROAA yielded a 3.80 percent return on average equity.
Harrodsburg is traditional thrift lender with only 2 percent non-mortgage loan
balances. Harrodsburg has exhibited flat growth. Harrodsburg converted in
October 1995.
Kentucky First Bancorp, Inc., Cynthiana, Kentucky is the holding
company for First Federal Savings Bank and operates two local offices with 22
employees. As of the most recently available date Kentucky First had $89 million
in assets and a market capitalization of $16 million. Kentucky First has a
strong capital base equal to 16 percent of assets which generates a 0.87 percent
ROAA and a modest ROAE of 4.48 percent. Kentucky First is a traditional thrift
lender with a non-mortgage lending portfolio equal to less than 4 percent of
total assets. Kentucky first has displayed modest growth since its 1995.
Kentucky First is one of only three institutions in the Comparative Group traded
AMEX.
Marion Capital Holdings, Inc. , Marion, Indiana is the holding
company for First Federal Savings Bank which operates two full-service offices
with $86 million in assets and 31 employees. Marion is highly capitalized with a
capital-to-asset ratio of 22 percent. Combined with a healthy 1.40 percent
return on average assets Marion has a 6.10 percent return on average equity, the
second highest in the Comparative Group. Marion is almost exclusively a
residential and construction real estate lender with a non-performing asset to
total asset ratio of 0.81 percent, similar to the Bank. and a positive one year
interest rate gap of 8.06 percent. As with the Bank, Marion's loans are
increasing both faster than its assets and deposits. Marion converted to stock
form in 1993 and has a market capitalization of $41 million.
Peoples Financial Corporation, Massillon, Ohio, is the holding
company for Peoples Federal Savings and Loan Association with two full service
offices and $86 million in assets. Peoples has a capital-to-asset ratio of 27
percent, a return on average
- --------------------------------------------------------------------------------
29
<PAGE>
assets of 0.59 percent and a return on average equity of 2.31 percent. Peoples
is exclusively a real estate portfolio lender with outstanding credit quality
and has a net interest margin of 3.53 percent. Peoples converted to stock form
in September 1996 and has experienced asset growth since that time but
significant loan and deposit decay. It has a market capitalization of $25
million.
Scotland Bancorp, Inc. Laurinburg, North Carolina is the holding
company for Scotland Savings Bank and operates three full-service branches with
$69 million in assets. Scotland has the highest capital-to-asset ratio in the
Comparative Group at 37 percent. As a result, despite its healthy 1.41 percent
return on average assets, its return on average equity is still only 3.89
percent. Scotland makes more commercial loans than any bank in the Comparative
Group, but they still represent less than 4 percent of its total assets. As a
result, its is still primarily a portfolio residential real estate lender and
has excellent credit quality. Scotland's footings have been relatively constant
for the past year. Scotland converted to stock form in April 1996 and has a
market capitalization of $35 million. It is one of only three banks in the
Comparative Group traded AMEX.
South Carolina Community Bancshares, Winnsboro, South Carolina is the
holding company for Community Federal Savings & Loan Association operating one
local office. As of the latest available date South Carolina Community had total
assets of $46 million and a market capitalization of $15 million. South Carolina
Community is highly capitalized with a capital to asset ratio of 26 percent
yielding a 0.83 percent ROAA and a 3.00 percent ROAE. It is a traditional
portfolio thrift lender with a negative one year gap of approximately 35 percent
and less than 1 percent of its assets invested in non-mortgage loans. South
Carolina Community has exhibited low asset growth, modest deposit growth.
Stone Street Bancorp, Inc., Mocksville, North Carolina is the holding
company for Mocksville Savings Bank which operates two full service offices with
$106 million of assets and a capital-to-asset ratio of 29 percent. Stone Street
has a 1.44 percent return on average asset ratio, the highest in the Comparative
Group, but only a 4.05 percent return on average equity. Stone Street is a
portfolio lender with less than 1 percent of its loans in non real estate
lending and it has outstanding loan quality. As the Bank, Stone Street's loans
are increasing faster than its assets and deposits. Stone Street has the highest
reported one year interest rate gap in the Comparative Group at negative 26.86
percent. Stone Street converted to stock form in April 1996 and has a market
capitalization of $40 million. It is one of only three institutions in the
Comparative Group that is traded AMEX.
Westwood Homestead Financial, Cincinnati, Ohio is the holding company
for Westwood Homestead Savings Bank which operates two full service offices with
$135 million in assets. Westwood is highly capitalized with a capital-to-assets
ratio of 29 percent. With a return on average assets of 0.69 percent its return
on average equity is only 2.45 percent. Westwood is exclusively a real estate
lender with excellent credit quality and a one year interest rate gap of
negative 9.35 percent. Westwood has had substantial asset and loan growth since
its conversion in September 1996, with marginal deposit decay. Westwood has a
market capitalization of $43 million.
- --------------------------------------------------------------------------------
30
<PAGE>
COMPARATIVE GROUP COMPOSITE PERFORMANCE
Nine of the Comparative Group companies are located in the southeast.
Four are located in Kentucky, three each in North Carolina and Ohio, and one
each in Virginia, Indiana and South Carolina. Generally, these thrifts operate
in suburban to rural moderate growth areas. All of the thrifts converted since
1994 and two since September 1996
Exhibits 22 and 23 present summary ratios detailing the financial
performance and capital condition, respectively, of the Comparative Group, North
Carolina thrifts, Southeastern thrifts and Mooresville Savings.
All of the comparative group thrifts are highly capitalized
institutions with capital to asset ratios ranging from 14.2 percent for Bedford
Bancshares to 37.0 percent for Scotland Bancorp with an average ratio of 26.1
percent. Each of the 13 thrifts in the comparative group generate a healthy
return on average assets, ranging from a low of 0.49 percent for Peoples
Financial Corporation to a high of 1.44 percent for Stone Street Bancorp with an
average of 1.00 percent. Because of the high capital levels the average return
on average equity for the Comparative Group is only 3.88 percent, ranging from a
low of 2.31 percent for Peoples Financial Corporation to a high of 6.97 percent
for Bedford. On a pro forma basis Mooresville Savings has a capital to asset
ratio of 24.1 percent, return on average assets of 0.75 percent and return on
average equity of 2.92 percent, both slightly below the Comparative Group
averages and medians.
The Comparative Group is generally small in asset size and market
value. Six of the institutions have asset bases below $100 million and only
Green Street Financial, with $174 million and Marion Capital with $173 million
in assets, are larger than $150 million. First Lancaster Banchares, with $40
million in assets and South Carolina Community with only $46 million in assets
are the only two in the Comparative Group with assets below $50 million. The
average total asset size for the Comparative Group is $106 million. Green Street
is the only institution in the Comparative Group with over $50 million in market
capitalization. The smallest market capitalized thrift is First Lancaster with
only $15.0 million. The average market capitalization for the Comparative Group
is $31.4 million. On a pro forma basis Mooresville Savings had approximately
$134 total assets at June 30, 1997.
Exhibit 24 presents the loan portfolio composition of the Comparative
Group. The Comparative Group is composed of primarily thrift lenders
concentrating in real estate mortgage lending. The average volume of loan
originations for the Comparative Group is $28.9 million, marginally above the
Bank's volume of $26.6 million which, in turn, is marginally above the
Comparative Group median of $24.9 million. Substantially, all of the
institutions are exclusively portfolio lenders. On average 61 percent of the
Comparative Group's regulatory assets and 82 percent of their lending portfolio
are invested in 1-4 family mortgages compared to 70 and 80 percent respectively
for Mooresville Savings. Only two of the Comparative Group companies have
non-mortgage
- --------------------------------------------------------------------------------
31
<PAGE>
loan portfolios exceeding 5 percent of assets and the average ratio of
non-mortgage loans to assets is 3 percent compared to less than one percent for
Mooresville Savings.
Exhibit 25 presents additional balance sheet composition data for the
Comparative Group and Mooresville Savings. The average loan to deposit ratio of
the Comparative Group is 112 percent, only slightly higher than Mooresville
Savings' 105 percent ratio. If depositors convert deposits to shares in the
conversion, however, the Bank's loan to deposit ratio will increase closer to
the Comparative Group's. The average loan-to-asset ratio of the Comparative
Group is 74 percent, less then the Bank's ratio of 88 percent, but as the
conversion inflates assets the Bank's ratio will trend towards the Comparative
Group's Mooresville Savings' deposit to asset ratio is approximately 84 percent
compared to the Comparative Group average of 73 percent. On most other key
balance sheet ratios, such as cash and securities, mortgage-backed securities,
REO, capitalized servicing and intangibles the composite balance sheet of the
Comparative Group is similar to Mooresville Savings'.
Exhibit 26 illustrates the recent growth of assets, loans and
deposits of the Comparative Group and Mooresville Savings. Mooresville Savings
has exhibited 3.8 percent asset, 2.7 percent deposit and 7.2 percent loan
growth. The average annualized asset growth of the Comparative Group is 13.4
percent (though the median is 5.3 percent) which partly reflects an increase due
to conversion assets, but loan growth has averaged only 1.2 percent and deposits
have increased at an average annual rate of 6.4 percent (thought the median was
negative 0.3 percent).
Exhibit 27 addresses some of the risk ratios of the Comparative Group
and Mooresville Savings. The reserves to non-performing asset ratio of the
Comparative Group is 157 percent compared to only 56 percent for the Bank. The
asset quality of the Comparative Group is generally superior with an average NPA
+ 90 days/asset ratio of 0.45 percent. Mooresville Savings non-performing asset
to total asset ratio is 1.03 percent. The Bank's one year cumulative interest
rate GAP is negative 46 percent compared to a negative 13 percent for the
Comparative Group.
Exhibit 28 presents yield-cost spread analysis for the Comparative
Group and Mooresville Savings. Mooresville Savings has a higher yield on earning
assets, 7.95 percent, than the Comparative Group average of 7.65 percent and a
lower cost of interest-bearing liabilities, 4.95 percent versus 5.01 percent for
the Comparative Group, resulting in a spread of 3.01 percent for the Bank
against 2.75 percent for the Comparative Group. Mooresville Savings' ratio of
interest earning assets to interest bearing liabilities is 114 percent compared
to 126 percent for the Comparative Group. The Bank's ratio will increase as a
result of the conversion, however. The Bank's net interest margin of 3.77
percent, marginally less than the Comparative group's average of 4.01 percent.
Exhibit 29 presents some of the capital issues of the Comparative
Group. On average 1.02 percent of the Comparative Group's total common shares
trade each week representing a trading volume equal to about 75 percent of the
all public thrift average of 1.27 percent. The Comparative Group has
institutional ownership of 6.6 percent and
- --------------------------------------------------------------------------------
32
<PAGE>
insider ownership of 9.6 percent. The average current dividend yield is
approximately 2.6 percent.
PERFORMANCE OF RECENTLY CONVERTED THRIFTS
An important factor bearing on the likely reception of Mooresville
Savings' initial stock offering is the market reception of recently converted
institutions. Exhibit 31-A shows the original offering price and pro forma
pricing ratios of all thrifts which converted from mutual-to-stock form since
January 1, 1996. The average and median amount of gross proceeds were $42 and
$21 million. The average offering price to pro forma book value was 72 percent,
the average price to pro forma earnings ratio was 21.3, and the price to assets
ratio was 17.0 percent. These figures represent pro forma pricing ratios upon
conversion, which generally reflect offerings completed at the "super max" or 32
percent above the midpoint. There are a number of thrifts currently in the
marketing stage or pending regulatory approval with price to book value and
price to earnings ratios below the averages referenced above.
Thrift conversions in the past year have appreciated an average 31.7
percent on the first day of trading, effectively eliminating much or all of any
"new issue discount" immediately. However, these thrifts tended to stabilize for
a period of three months or more thereafter, as average three-month appreciation
has only been 41.3 percent.
- --------------------------------------------------------------------------------
33
<PAGE>
Section IV
MARKET VALUE ADJUSTMENTS
INTRODUCTION
In order to determine the estimated pro forma market value of the
Bank, certain adjustments are required to reflect the differences between the
Bank and the public thrift Comparative Group. The market value adjustments made
are based upon certain financial and other criterion, some of which were
discussed in the previous chapter and include, among other factors; financial
condition and performance, earnings quality and predictability, management,
market area, expected dividend payments, and the liquidity and marketability of
the to-be-issued common stock.
FINANCIAL CONDITION
The Bank and its Comparative Group are both characterized by similar
levels of excess capital. The Bank intends to leverage some of its additional
capital towards modest growth and exercise cash and special cash dividends and
stock buy-backs, where appropriate, to reduce its capital to asset ratio to more
manageable levels. However, it is expected that the Bank will remain
overcapitalized for some time to come. The average capital to asset ratio of the
Comparative Group is 26.1 percent compared to a pro forma capital to asset ratio
of approximately 25.5 percent for the Bank. In light of the similar capital
ratios to the Comparative Group, no adjustment was made for this factor.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Average Equity/Assets
- -----------------------------------------------------------------------------------
<S> <C>
Comparative Group 26.1%
- -----------------------------------------------------------------------------------
North Carolina Thrifts 22.8%
- -----------------------------------------------------------------------------------
Industry 12.4%
- -----------------------------------------------------------------------------------
Mooresville Savings Pro Forma 25.5%
- -----------------------------------------------------------------------------------
</TABLE>
ASSET QUALITY
In general the loan quality of all the Comparative Group is excellent
relative to the national thrift industry, reflecting the traditional nature of
the chosen thrifts. Mooresville Savings' non-performing asset to total asset
ratio of 0.96 percent is more than two times the Comparative Group average of
0.45 percent and nearly 4 times the Comparative Group median of 0.27 percent.
The Bank's reserves to non performing and 90 day delinquent loan ratio is 56.2
percent, roughly one-third the Comparative Group average of 157 percent and the
Comparative Group median of 144 percent. In consideration of these issues a
downward adjustment has been made to the Bank's pro forma market value.
- --------------------------------------------------------------------------------
34
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Average NPA/Assets Reserves/NPA
- -----------------------------------------------------------------------------------
<S> <C> <C>
Comparative Group 0.45% 157.5%
- -----------------------------------------------------------------------------------
Industry 0.82% 133.4%
- -----------------------------------------------------------------------------------
North Carolina Thrifts 0.60% 117.2%
- -----------------------------------------------------------------------------------
Mooresville Savings 0.96% 56.2%
- -----------------------------------------------------------------------------------
</TABLE>
PROFITABILITY LEVELS
Mooresville Savings pro forma return on average assets is 0.75
percent, 25 percent below the latest return on average assets of the Comparative
Group. Though Mooresville has a higher interest rate spread than the Comparative
Group, this advantage is offset by the Comparative Group's lower ratio of
non-interest expense and higher interest-earning-assets-to-interest-bearing
liabilities ratio. The Bank, as was the entire industry, was paid a significant
FDIC assessment in September, 1996. This assessment is the primary factor in
reduced income for the Bank, the Comparative Group and the industry at large.
Aside from this non-recurring expense neither the Bank nor the Comparative Group
experienced any other significant non-recurring income factors that would
distort its reported income. As a result of these consideration we have made no
adjustment in the Bank's valuation for this factor.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Average Spread IEA/IBL IntExp/Assets ROAA*
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Comparative Group 2.75% 136% 2.00% 1.00%
- -----------------------------------------------------------------------------------
Industry 2.96% 114% 2.34% 0.64%
- -----------------------------------------------------------------------------------
North Carolina Thrifts 2.82% 129% 2.08% 0.79%
- -----------------------------------------------------------------------------------
Mooresville Savings (*Pro Forma) 3.01% 114% 2.52% 0.75%
- -----------------------------------------------------------------------------------
</TABLE>
RETURN ON AVERAGE EQUITY
The Bank's pro forma return on average assets is lower and its
capital to assets level comparable to the Comparative Group. The compounded
result of these two ratios is a return on average equity below the Comparative
Group average of 3.97 percent and below the industry average of 8.36. Return on
equity is a key determinant of shareholder value. As a result, we have assigned
a modest discount for this factor.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Average ROAE
- -----------------------------------------------------------------------------------
<S> <C>
Comparative Group 3.88%
- -----------------------------------------------------------------------------------
Industry 4.02%
- -----------------------------------------------------------------------------------
North Carolina Thrifts 3.89%
- -----------------------------------------------------------------------------------
Mooresville Savings Pro Forma 2.92%
- -----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
35
<PAGE>
GROWTH AND PREDICTABILITY OF EARNINGS
The Bank has exhibited moderate loan growth, but modest asset and
deposit growth over the past year. On a composite basis the Comparative Group
has exhibited higher asset growth, but lower loan growth than the Bank. Deposit
growth for the Comparative Group is mixed.
The Bank has an extremely high negative interest rate gap of
approximately 54.7 percent. Of 173 public thrifts which reported interest rate
gap information last quarter the highest gap was negative 41.76 for First
Savings Bancorp. Only three of the 173 institutions reported interest rate gaps
in excess of negative 40 percent. The median reported gap was negative 5.56
percent. The average gap for the Comparative Group was negative 11.4 percent.
Moreover, the Bank has not established a regular source of non-interest income
to stabilize its net income. Average non-interest income as a percent of assets
is approximately 0.05 percent for the Bank compared to an average of 0.14
percent for the Comparative Group.
The earnings of financial institutions are largely a function of
changes in non-interest income and expenses and the relative sensitivity of the
institution's assets and liabilities. As result of these factors sustained and
predictable growth in the Bank's earnings are not assured and, given the high
interest sensitivity of its lending portfolio, we have assigned a significant
downward adjustment due to these factors.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NonIntInc/ Asset Loan Deposit
Average GAP Assets Growth Growth Growth
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Comparative Group -11.4% 0.14% 8.9% 3.9% 1.9%
- ----------------------------------------------------------------------------------------------------------------------
Industry -6.3% 0.49% 11.9% 7.5% 9.0%
- ----------------------------------------------------------------------------------------------------------------------
North Carolina Thrifts -11.4% 0.23% 8.9% 3.9% 2.8%
- ----------------------------------------------------------------------------------------------------------------------
Mooresville Savings -54.7% 0.05% 3.75% 7.2% 2.7%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSIT COMPOSITION
Approximately 14 percent of the Bank's deposit base (and over 18
percent of its certificates of deposit) is comprised of jumbo ($100,000 or more)
certificates of deposit. The highest ratio of deposits to jumbo deposits in the
Comparative Group is 23 percent and the average ratio for the Comparative Group
is 10.8 percent. Jumbo deposits are generally considered to be more interest
sensitive than other deposits. As a result, it would generally be expected that
a significant amount of such jumbo deposits could be withdrawn from Mooresville
Savings if higher rates were available elsewhere, or alternatively, if interest
rates increase these deposits would be most sensitive to market changes. In
conjunction with the Bank's general sensitivity to interest rates and its
locally competitive deposit market the Bank's deposit composition makes it
susceptible to market changes. As a result, we have assigned a modest discount
for this factor.
- --------------------------------------------------------------------------------
36
<PAGE>
MANAGEMENT
The Bank is managed by George Brawley Sr. who has served as Chief
Executive Officer of the Bank since 1973 and has been with the Bank since 1957.
Mr. Brawley has at least four other senior officers at the bank with extensive
experience and tenure with the institution. While Management has considerable
depth and a clear line of succession, its breadth, particularly in commercial
lending and secondary marketing is limited. Accordingly, we have not adjusted
market value for this factor.
DIVIDEND PAYMENTS
The Bank has declared its intention to pay a cash dividend between 2
and 4 percent which is consistent with the Comparative Group. The payment of a
cash dividend in the future will be dependent upon such factors as earnings
performance, capital position, growth, and regulatory limitations. All of the
Comparative Group institutions pay cash dividends with an average yield of 2.59
percent. As a result, we believe no adjustment for this factor is warranted.
LIQUIDITY OF THE ISSUE
The Comparative Group contains only companies that are listed by the
AMSE or NASDAQ and trade in the OTC market. The average market capitalization of
the Comparative Group is over $31 million, the median is approximately $28
million, and only four of the Comparative Group have a market capitalization in
excess of $35 million.
The trading volume of the Comparative Group is roughly
three-quarter's of the industry average. The average ratio of shares traded to
shares outstanding over a weekly period was 1.02 percent for the Comparative
Group and 1.27 percent for the industry average. The actual number, and market
value, of shares traded is considerably below the industry average due to the
smaller market capitalization of the Comparative Group. As a result, the overall
liquidity of the Comparative Group, and prospectively of Mooresville Savings, is
quite low.
The Bank will apply to have the common stock of Coddle Creek
Financial Corp. listed on the Nasdaq National Market System if it is determined
that the common stock is eligible for such quotation. In the event the common
stock does not qualify for quotation on the Nasdaq National Market system the
Bank intends to list the common stock over-the-counter through the National
Daily Quotation System "Pink Sheets" and request Trident Securities to match buy
and sell orders for the common stock. Because price quotations on the Pink
Sheets may not be updated or available on a timely basis and because it is
anticipated that very few shares of the common stock of the Company will be
available for sale it is anticipated that the liquidity of this issue will be
very limited which such liquidity could be reflected in the trading price of the
Stock. In addition, the offering price of the stock of $50 reduces the number of
shares outstanding and raises the
- --------------------------------------------------------------------------------
37
<PAGE>
cost of standard lot sizes. As a result, of these factors it is anticipated
that the stock will lack consistent liquidity and a discount is assigned for
this factor.
MARKETING OF THE ISSUE
The Bank's stock will be offered through a subscription and community
offering by Trident Securities, Inc. The overall interest in thrift
subscriptions has been varied over recent periods. In response to higher market
interest rates and higher thrift appraisals usually strong demand for thrift
conversion stock waned in the latter part of 1994 and several institutions, were
forced to pare back their proposed initial public offerings. The market revived
in 1995 and has remained moderately strong through 1996 and the first half of
1997 despite an increase in pricing ratios. There have not been any standard
conversions since July 10, 1997. However, there are a number of conversions in
the "pipeline."
The board of Directors and executive officers of the Bank are
purchasing approximately 9 percent of the newly-issued stock, consistent with
the average insider ownership of the Comparative Group.
As seen in Table IV.1 below the equity bull market continued on a
torrid pace through the first half of 1997. The DJIA increased over 27 percent
from the new year to July 31, 1997, but lost 7.3 percent in a bearish August
market. The S & P 500 exhibited similar first half growth and a slightly less
bearish August.
Thrift equities rose faster than the market in general and maintained
more of their gains in the bear market. Overall thrifts have appreciated 37
percent for the year despite a 3 percent decline in the previous month.
Since OTC thrifts comprise the vast majority of public thrifts their
aggregate appreciation was similar to the market. Southeastern thrifts
appreciated with the overall thrift market through July, but avoided the August
bear market, actually appreciating by 3 percent. Smaller thrifts appreciated
less than the thrift market in general, but showed the most appreciation in the
August bear market.
Table IV.1
SNL THRIFT INDICES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Percent Change Since
- ---------------------------------------------------------------------------------------------------------------------------------
29-Aug-1997 31-July-1997 31-Dec-1996 30-Dec-1995 30-Dec-1994 Dec-1996 Aug-1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
All Publicly Traded 664.6 684.5 483.6 376.5 244.7 37.4 -2.9
- ---------------------------------------------------------------------------------------------------------------------------------
SAIF 609.2 608.2 555.0 356.8 228.0 9.8 0.2
- ---------------------------------------------------------------------------------------------------------------------------------
AMEX 200.9 197.0 192.7 137.7 105.1 4.3 2.0
- ---------------------------------------------------------------------------------------------------------------------------------
NYSE 410.2 421.4 277.3 257.6 158.5 47.9 -2.7
- ---------------------------------------------------------------------------------------------------------------------------------
OTC 755.6 779.9 569.7 449.5 296.8 32.6 -3.1
- ---------------------------------------------------------------------------------------------------------------------------------
SE 628.7 608.6 447.2 367.2 230.1 40.6 3.3
- ---------------------------------------------------------------------------------------------------------------------------------
Assets less than $250 m 750.5 721.9 586.6 538.4 394.9 27.9 4.0
- ---------------------------------------------------------------------------------------------------------------------------------
DJIA 7622.4 8222.6 6448.3 5117 3834 18.2 -7.3
- ---------------------------------------------------------------------------------------------------------------------------------
S & P 899.5 954.3 740.7 615.9 459.3 21.4 -5.7
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
38
<PAGE>
In order to assure successful reception of an initial public offering
it is necessary to offer the new purchaser a substantial new issue discount to
offset the many uncertainties faced by the investor as to the liquidity and
future performance of the "untested" company. Despite the rising market the
prices of thrifts which converted over the past twelve months exhibited marginal
appreciation after the first day of trading through the first three months of
public exposure. In general, 1997 has been a bull market for equities and thrift
equities specifically.
However, the extended bull market has resulted in historically high
valuations for the industry; there have been no new conversions for nearly two
months; and, in stark contrast, to the rest of the year, August was a bear
market in both the general and thrift equity markets. As a result, there is room
for plenty of disparate views on the likely reception of new offerings in the
upcoming market. In light of the conflicting signs of a long-term bull market
contrasted by short term questions we have not made an adjustment for market
conditions except for a new issue discount.
MARKET AREA
Mooresville Savings' primary market consists primarily of
suburban/rural Iredell County which is becoming an attractive and relatively
upscale bedroom community to Charlotte. The local economy is quite strong.
Though the Bank operates in a very healthy demographic market, that market has
attracted significant competition and more sophisticated customers that have
forced it to be very price competitive and thus diminishes or offsets much of
the advantage the Bank enjoys from its prime market demographics.
Accordingly no adjustment was made for this factor.
SUMMARY OF DISCOUNTS
The table below summarizes the discounts applied to Mooresville
Savings vis-a-vis the Comparative Group. We have made no adjustments to the
Comparative Group based on the similarity of Financial Condition, Profitability,
Management Quality, Dividend Payments, and Market Area. However, it was
determined that the Return on Average Equity and Deposit Composition of
Mooresville Savings were each slightly unfavorable relative to the Comparative
Group, requiring modest discounts for each factor. A marginal discount was
applied for the prospective Liquidity of the issue, in part due to its size and
its trading price of $50. We have determined that the trend and risk of
Mooresville Savings' income, as discussed in Growth and Predictability of
Earning and Asset Quality above, constituted a significant negative for the
institution, requiring a discount from the Comparative Group. Finally, we
applied a "new issue" discount.
- --------------------------------------------------------------------------------
39
<PAGE>
Summary of Discounts
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Marginal
Premium No Adjustment Discount Discount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Condition X
- --------------------------------------------------------------------------------------------------------------------------
Asset Quality X
- --------------------------------------------------------------------------------------------------------------------------
Profitability Levels X
- --------------------------------------------------------------------------------------------------------------------------
Return on Equity X
- --------------------------------------------------------------------------------------------------------------------------
Growth, Predictability X
- --------------------------------------------------------------------------------------------------------------------------
Deposit Composition X
- --------------------------------------------------------------------------------------------------------------------------
Management X
- --------------------------------------------------------------------------------------------------------------------------
Dividend Payments X
- --------------------------------------------------------------------------------------------------------------------------
Liquidity of Issue X
- --------------------------------------------------------------------------------------------------------------------------
Marketing of Issue X
- --------------------------------------------------------------------------------------------------------------------------
Market Area X
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
40
<PAGE>
SECTION V
VALUATION METHODS
VALUATION METHOD
Traditional guidelines identify three appropriate valuation methods
to use in determining the pro forma market valuation of a converting thrift;
price\earnings, price\assets and price\book value. The preferred method of
valuation is a price\earnings approach.
The true financial value of any financial asset is derived from the
earnings generated from that asset. As a result, the price\earnings method has
become accepted as the preferred and most reliable valuation method for on-going
concerns. However, given the historic volatility of interest income in financial
institutions the price\book value approach carries considerably more weight in
this industry then it does in most other industries. Finally, the franchise
value of many institutions is reflected in their deposit base and accordingly
the price\asset ratio also has added significance in considering pricing for
this industry.
Exhibit 30 presents the relevant pricing parameters for the
Comparative Group.
PRICE TO EARNINGS METHOD
The price\earnings approach is the standard method of stock valuation
and assumes that the value of a company's stock is a function of the discounted
value of its future earnings stream. The trailing twelve months reported net
income after taxes for Mooresville Savings was $579 thousand as of June 30, 1997
The subject's earnings base is then multiplied by a price\earnings
ratio to determine the subject valuation. In determining the appropriate
price\earnings ratio we reviewed the ratios of all publicly traded thrift
institutions and those of the Comparative Group in particular. The
price\reported earnings ratios of the Comparative Group ranged from a low of
13.8 for FFD Financial to a high of 39.8 for South Carolina Community. The
average ratio was 25.7 and the median was 25.7. The average price\earnings ratio
for all publicly traded thrifts was 29.3 and the median was 23.3.
The price-to-earnings ratios of most thrifts are inflated for the
twelve months ended June 30, 1997 due to the FDIC's special assessment of
September 1997 by which the Bank was assessed $520,000 in pre-tax fees. Since
all institutions shared this assessment, which was allocated according to
deposit, relative comparisons are still valid. With the exception of the FDIC
assessment few of the Comparative Group institutions experienced any other
substantial non-recurring expenses or income which would effect their earnings
and thus their price-to-earnings ratio.
- --------------------------------------------------------------------------------
41
<PAGE>
Based on the above analysis we have determined that the appropriate
price\earnings ratio for Mooresville Savings is 23.1 which, when multiplied by
the Bank's pro forma earnings (adjusted to reflect earnings on net conversion
proceeds) of $995,797 yields a pro forma market valuation of $23 million at the
midpoint. The price\earnings multiplies range from a low of 21.0 at the minimum
of the offering range to 26.8 at the maximum and 18.2 at the super maximum of
the offering range.
PRICE TO BOOK VALUE METHOD
Historically, the financial markets have placed significant weight on
price\book value methods for valuing financial institutions. As thrifts
diversify it is becoming more apparent that the real earnings power of each
bank's book value (return on equity) can vary significantly depending on the
risk and return of these particular assets, thereby shifting emphasis away from
the price\book value method towards more traditional price\earnings methods. As
a consequence, our valuation has been heavily weighted towards the latter
valuation method. Nevertheless, this valuation approach retains significance for
this industry.
The basis of the price\book value approach is the subject's current
GAAP or tangible book value. At June 30, 1997 the Bank's GAAP book value was
$14.691 million.
The subject's book value is then multiplied by a price\book value
ratio in order to arrive at the subject valuation. In determining the
appropriate price\book value ratio we reviewed the ratios of all publicly traded
thrift institutions and those of Comparative Group in particular. The price\GAAP
book value ratios of the Comparative Group ranged from a low of 95.0 percent for
Classic Bancshares to a high of 135.9 percent for Bedford Bancshares. The median
ratio was 109.4 percent and the average ratio was 114.6 percent. The average
price\book value ratio for all publicly traded thrifts was 152 percent and the
median ratio was 137 percent.
Based on the above analysis we have determined that the appropriate
price\book value ratio for Mooresville Savings is 67.5 percent, which generally
reflects the Bank's high capitalization, lower return to capital and a "new
issue" discount. Based on adjustments to historical book value for proceeds,
expenses, and incentive plans, which would increase the Bank's pro forma book
value to $34,087,200 at the midpoint, we have determined that the pro forma
market value of Mooresville Savings based on the price\earnings approach is $23
million.
The price\book value multiplies range from 62.8 percent at the
minimum of the offering range to 71.4 percent at the maximum and 75.2 percent at
the super maximum of the offering range.
- --------------------------------------------------------------------------------
42
<PAGE>
PRICE TO ASSETS METHOD
The price to assets ratio of the Comparative Group range from 14.1
percent for Classic Bancshares to 49.8 percent for Scotland Bancorp. The average
price\asset ratio of the Comparative Group is 30.4 percent and the median ratio
is 29.7 percent. The average price\asset ratio for all publicly traded thrifts
is 17.6 and the median pricing ratio is 15.3. While thrift pricing methodology
gives significantly more weight to the price\asset ratio than do other
industries neither the market nor this valuation give it significant weighting
relative to their pricing methodologies.
We have used a price\asset ratio of 17.2 percent to develop the pro
forma market value of the Bank. At the minimum of the offering range the price
to asset ratio is 15.0 percent, at the maximum it is 19.4 percent and at the
super maximum it is 21.7 percent.
VALUATION CONCLUSION
Exhibit 34 provides a summary of the valuation premium or discount
for each of the valuation ranges when compared to the Comparative Group on each
of the valuation approaches. Despite the negative trend to and considerable risk
inherent in the Bank's earnings stream the price to earnings multiple for
Mooresville Savings at the midpoint value indicates a discount of only 10.3
percent to the average and 10.1 percent to the median of the Comparative Group.
At the super maximum the pro forma price to earnings ratio of Mooresville
Savings represents a premium of 4.2 to 4.5 percent to the Comparative Group. The
proforma price-to-earnings ratio of the Bank at the supermaximum, 26.8, is
significantly higher than the average ratio posted by recent conversions of 21.3
or the median of 19.1
At the midpoint value, the price to book value ratio of 67.5 percent
for Mooresville Savings represents a discount of 47 percent relative to the
average and 49 percent to the median ratio of the Comparative Group. The price
to book value discount for Mooresville Savings relative to the Comparative Group
decreases to 41 percent at the super maximum. The pro forma price-to-book value
ratio of the Bank at the supermaximum, 75.2 percent, is considerably above the
average ratio of 71.7 percent and the median ratio of 72.0 percent posted by
recent conversions.
The price to assets ratio at the midpoint represents a discount of 43
percent to the Comparative Group average and 46 percent to the Comparative Group
median. These discounts reduce to 28 and 27 percent respectively at the super
maximum.
It is therefore our opinion that as of September 2, 1997 the
estimated pro forma market value of Mooresville Savings' to-be-issued common
stock was $23,000,000. This
- --------------------------------------------------------------------------------
43
<PAGE>
represents 460,000 shares of common stock at $50.00 per share. The resultant
valuation range is $19,550,000 to $30,417,500.
- --------------------------------------------------------------------------------
44
<PAGE>
Exhibit 1
Market Area Map
<PAGE>
Mooresville Savings Bank
Mooresville, North Carolina
[MAP APPEARS HERE]
<PAGE>
Exhibit 2
Audited Financial Statements
(incorporated by reference)
<PAGE>
Exhibit 3
SELECTED FINANCIAL CONSOLIDATED CONDITION
AND OPERATIONS DATA
<TABLE>
<CAPTION>
At or for the Six Months At or for the Year
Ended June 30, At or for the Year Ended December 31, Ended March 31,
------------------------ -------------------------------------- ------------------
1997 1996 1996 1995 1994 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial condition data:
Total assets $114,162 $109,427 $112,552 $108,033 $ 99,966 $ 98,869 $100,048
Investments 10,032 11,750 10,889 13,903 14,220 16,585 16,760
Loans receivable, net 100,506 94,134 97,951 90,555 82,453 79,031 80,189
Deposits 95,872 92,949 93,785 92,103 85,105 84,863 87,222
Retained earnings 14,691 14,039 14,412 13,726 12,883 12,208 11,414
Operating data:
Interest income $ 4,433 $ 4,257 $ 8,679 $ 7,946 $ 5,544 $ 7,386 $ 8,135
Interest expense 2,366 2,310 4,658 4,416 2,607 3,804 4,614
-------- -------- -------- -------- -------- -------- --------
Net interest income 2,067 1,947 4,021 3,530 2,937 3,582 3,521
Provision for loan losses 230 -- -- 12 18 103 126
-------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses 1,837 1,947 4,021 3,518 2,919 3,479 3,395
Non-interest income 87 104 200 190 149 233 238
Non-interest expense 1,428 1,365 3,146 2,624 2,032 2,578 2,160
-------- -------- -------- -------- -------- -------- --------
Income before income taxes 496 686 1,075 1,084 1,036 1,134 1,473
Income tax expense 209 257 354 304 361 418 542
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect of a
change in accounting principle 287 429 721 780 675 716 931
Cumulative effect on prior years of
changing to a different method of
accounting for income taxes -- -- -- -- -- 78 --
-------- -------- -------- -------- -------- -------- --------
Net income $ 287 $ 429 $ 721 $ 780 $ 675 $ 794 $ 931
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 4
SELECTED CONSOLIDATED FINANCIAL RATIOS
AND OTHER DATA
<TABLE>
<CAPTION>
At or for the Six Months
Ended June 30, At or for the Year Ended December 31,
-------------- --------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Other selected data:
Number of outstanding loans 2,497 2,480 2,476 2,432 2,281
Number of deposit accounts 7,728 7,783 7,752 7,730 7,248
Number of full-service offices open 3 3 3 3 3
Return on average assets 0.51% 0.79% 0.66% 0.75% 0.68%
Return on average equity 3.99% 6.25% 5.37% 6.05% 5.55%
Average equity to average assets 12.76% 12.62% 12.27% 12.37% 12.21%
Interest rate spread 3.10% 2.96% 3.08% 2.85% 3.53%
Net yield on average interest-
earning assets 3.77% 3.64% 3.74% 3.49% 4.05%
Average interest-earning assets
to average interest-bearing liabilities 115.25% 115.93% 115.21% 114.59% 114.44%
Ratio of non-interest expense to
average total assets 2.53% 2.51% 2.88% 2.52% 2.04%
Nonperforming assets to total assets 0.96% 1.09% 1.11% 1.11% 1.18%
Nonperforming loans to total loans 1.05% 1.21% 1.23% 1.25% 1.37%
Allowance for loan losses to total loans 0.61% 0.42% 0.40% 0.44% 0.48%
Allowance for loan losses to
nonperforming loans 56.24% 32.72% 31.11% 32.95% 33.67%
Provision for loan losses to total
loans receivable, net 0.46% 0.00% 0.00% 0.01% 0.03%
Net charge-offs to average loans outstanding 0.00% 0.00% 0.01% 0.01% 0.01%
Retained earnings to total assets 12.87% 12.83% 12.80% 12.71% 12.89%
<CAPTION>
At or for the Year
Ended March 31,
---------------
1994 1993
---- ----
<S> <C> <C>
Other selected data:
Number of outstanding loans 2,259 2,479
Number of deposit accounts 7,599 7,831
Number of full-service offices open 3 3
Return on average assets 0.80% 0.92%
Return on average equity 6.72% 8.50%
Average equity to average assets 11.88% 10.87%
Interest rate spread 3.25% 3.09%
Net yield on average interest-
earning assets 4.16% 3.61%
Average interest-earning assets
to average interest-bearing liabilities 111.90% 110.82%
Ratio of non-interest expense to
average total assets 2.59% 2.14%
Nonperforming assets to total assets 2.33% 2.56%
Nonperforming loans to total loans 2.80% 3.12%
Allowance for loan losses to total loans 0.49% 0.36%
Allowance for loan losses to
nonperforming loans 16.75% 11.22%
Provision for loan losses to total
loans receivable, net 0.13% 0.16%
Net charge-offs to average loans outstanding 0.01% 0.07%
Retained earnings to total assets 12.35% 11.41%
</TABLE>
<PAGE>
EXHIBIT 5
INTEREST RATE SENSITIVITY GAP
<TABLE>
<CAPTION>
Terms to Repricing at June 30, 1997
--------------------------------------------------------------------
More Than More Than
1 Year 1 Year to 3 Years to More Than
or Less 3 Years 5 Years 5 Years Total
------- ---------- ---------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable:
Adjustable rate residential 1-4 family $ 21 $ 65 $ 494 $ 26,802 $ 27,382
Fixed rate residential 1-4 family 55 616 1,131 59,735 61,537
Other real estate loans - adjustable 5,684 -- -- -- 5,684
Other real estate loans - fixed 209 323 535 825 1,892
Construction 304 2 -- 2,143 2,449
Other loans 857 621 604 97 2,179
-------- -------- -------- -------- --------
Total loans 7,130 1,627 2,764 89,602 101,123
Interest-bearing deposits 2,348 -- -- -- 2,348
Investments 2,206 2,587 933 1,028 6,754
FHLB stock -- -- -- 930 930
-------- -------- -------- -------- --------
Total interest-earning assets $ 11,684 $ 4,214 $ 3,697 $ 91,560 $111,155
======== ======== ======== ======== ========
INTEREST-BEARING LIABILITIES:
Deposits:
Certificates of deposit $ 47,806 $ 20,717 $ 3,271 $ -- $ 71,794
Money market deposit accounts 4,485 -- -- -- 4,485
NOW accounts 5,842 -- -- -- 5,842
Passbook savings 11,564 -- -- -- 11,564
Noninterest-bearing 1,782 -- -- -- 1,782
-------- -------- -------- -------- --------
Total deposits 71,479 20,717 3,271 -- 95,467
-------- -------- -------- -------- --------
Advances from FHLB 1,000 -- -- -- 1,000
-------- -------- -------- -------- --------
Total interest-bearing liabilities $ 72,479 $ 20,717 $ 3,271 $ -- $ 96,467
======== ======== ======== ======== ========
INTEREST SENSITIVITY GAP PER PERIOD $(60,795) $(16,503) $ 426 $ 91,560 $ 14,688
CUMULATIVE INTEREST SENSITIVITY GAP (60,795) (77,298) (76,872) 14,688 14,688
CUMULATIVE GAP AS A PERCENTAGE OF TOTAL
INTEREST-EARNING ASSETS -54.69% -69.54% -69.16% 13.21% 13.21%
CUMULATIVE INTEREST-EARNING ASSETS AS A
PERCENTAGE OF INTEREST-BEARING LIABILITIES 16.12% 17.06% 20.31% 115.23% 115.23%
</TABLE>
<PAGE>
EXHIBIT 6
INTEREST SENSITIVITY OF PORTFOLIO MARKET VALUE
AND NET INTEREST INCOME
The following table presents information regarding possible changes in the
Bank's NPV as of June 30, 1997, based on information provided by the Bank and
calculated on Sheshunoffs' interest rate risk model.
<TABLE>
<CAPTION>
Change in Net Portfolio Value
Interest Rates --------------------------------------------------
in Basis Points
(Rate Shock)
---------------
Amount $ Change % Change
------ -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Up 200 $15,477 $(4,583) (22.85)%
Up 150 16,566 (3,494) (17.42)
Up 100 17,707 (2,353) (11.73)
Up 50 18,900 (1,160) (5.78)
Static 20,060 -- --
Down 50 21,065 1,005 5.01
Down 100 21,600 1,540 7.68
Down 150 21,878 1,818 9.06
Down 200 22,020 1,960 9.77
</TABLE>
<PAGE>
EXHIBIT 6
(continued)
INTEREST SENSITIVITY OF PORTFOLIO MARKET VALUE
AND NET INTEREST INCOME
The following table presents the predicted effects, based on Sheshunoffs'
interest rate risk model, on the Bank's net interest income as of June 30, 1997
of instantaneous and permanent 100 to 200 basis point changes in market interest
rates.
<TABLE>
<CAPTION>
Change in Net Interest Income
Interest Rates -------------------------------------------------
in Basis Points
(Rate Shock)
---------------
Amount $ Change % Change
------ -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Up 200 $684,941 $(51,563) (7.00)%
Up 150 697,988 (38,516) (5.23)
Up 100 710,992 (25,512) (3.46)
Up 50 723,844 (12,660) (1.72)
Static 736,504 -- --
Down 50 754,008 17,504 2.38
Down 100 769,348 32,844 4.46
Down 150 782,791 46,287 6.28
7.97
Down 200 795,186 58,682
</TABLE>
<PAGE>
EXHIBIT 7
YIELD AND COST SPREAD ANALYSIS
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
--------------------------------------------------------------
At
June 30,
1997 1997 1996
-------- ------------------------------ -----------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/
Rate/(6)/ Balance Interest Rate/(4)/ Balance Interest Rate/(4)/
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest-bearing deposits 4.20% $ 2,308 $ 52 4.51% $ 2,074 $ 49 4.73%
Investments/(1)/ 6.26% 8,108 251 6.19% 11,573 319 5.51%
Loans receivable, net/(5)/ 6.18% 99,380 4,130 8.31% 90,213 3,889 6.34%
Total interest-earning assets 7.95% 109,795 $ 4,433 8.07% 106,860 $ 4,257 7.97%
Non-interest-earning assets 3,092 1,939
Total $112,688 $108,799
-------- --------
Liabilities and retained earnings:
Interest-bearing liabilities:
NOW & Money Market accounts 1.85% $ 1,239 $ 104 1.85% $ 11,429 $ 123 2.15%
Passbook accounts 3.04% 1,365 177 3.11% 11,531 166 2.88%
Certificates of deposit 5.72% 70,993 2,027 5.71% 69,050 2,016 5.84%
Total deposits 4.84% 90,597 2,308 4.93% 92,010 2,305 5.01%
FHLB advances 5.82% 1,667 58 6.96% 166 5 6.02%
Total interest-bearing liabilities 4.95% 56,284 $ 2,366 4.97% 92,176 $ 2,310 5.01%
Non-interest-bearing liabilities 3,222 2,694
Equity 14,402 13,729
Total $112,888 $108,799
-------- --------
Net interest income and interest 3.01% $ 2,067 3.10% $ 1,947 2.96%
rate spread /(2)/ ======== ========
Net yield on interest-earning assets/(3)/ 3.77% 3.77% 3.64%
Ratio of interest-earning assets to
interest-bearing liabilities 115.25% 115.93%
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------
1996 1995
------------------------------ ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest-bearing deposits $ 1,900 $ 88 4.63% $ 2,773 $ 158 5.70%
Investments/(1)/ 10,141 628 6.19% 11,871 670 5.64%
Loans receivable, net/(5)/ 95,453 7,963 8.34% 86,446 7,118 8.23%
Total interest-earning assets 107,494 $ 8,679 8.07% 101,090 $ 7,946 7.66%
Non-interest-earning assets 1,901 3,079
Total $109,395 $104,169
-------- --------
Liabilities and retained earnings:
Interest-bearing liabilities:
NOW & Money Market accounts $ 11,113 $ 220 1.96% $ 11,611 $ 278 2.39%
Passbook accounts 11,480 322 2.60% 11,006 365 3.32%
Certificates of deposit 69,877 4,082 5.84% 65,602 3,773 5.75%
Total deposits 92,470 4,624 5.00% 68,219 4,416 5.00%
FHLB advances 833 34 4.08% -- -- --%
Total interest-bearing liabilities 93,303 $ 4,658 4.99% $ 88,219 $ 4,416 5.01%
Non-interest-bearing liabilities 3,503 3,065
Equity 13,422 12,885
Total $110,228 $104,169
-------- --------
Net interest income and interest $ 4,021 3.08% $ 3,500 2.85%
rate spread /(2)/ ======== ========
Net yield on interest-earning assets(3) 3.74% 3.49%
Ratio of interest-earning assets to
interest-bearing liabilities 115.21% 114.59%
<CAPTION>
For the Nine Months Ended December 31,
--------------------------------------
1994
--------------------------------------
Average
Average Yield/
Balance Interest Rate/(4)/
------- -------- --------
<S> <C> <C> <C>
Assets:
Interest earning assets:
Interest-bearing deposits $ 2,990 $ 107 4.77%
Investments/(1)/ 12,339 476 5.14%
Loans receivable, net/(5)/ 81,309 4,961 8.14%
Total interest-earning assets 96,638 $ 5,544 7.65%
Non-interest-earning assets 3,004 --------
Total $ 99,642
--------
Liabilities and retained earnings:
Interest-bearing liabilities:
NOW & Money Market accounts $ 13,424 $ 225 2.23%
Passbook accounts 11,221 287 3.17%
Certificates of deposit 59,802 2,115 4.72%
Total deposits 64,447 2,607 4.12%
FHLB advances -- -- --%
Total interest-bearing liabilities 64,447 $ 2,607 4.12%
Non-interest-bearing liabilities 3,023
Equity 12,172
Total $ 99,642
--------
Net interest income and interest $ 2,937 3.53%
rate spread /(2)/ ========
Net yield on interest-earning assets/(3)/ 4.05%
Ratio of interest-earning assets to
interest-bearing liabilities 114.44%
</TABLE>
- ----------------------------------
/(1)/ Includes investment securities and FHLB of Atlanta common stock.
/(2)/ Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
/(3)/ Net yield on interest-earning assets represents net interest income
divided by average interest-earning assets.
/(4)/ Average yield/rate for the six months ended June 30, 1997 and 1996, and
the nine months ended December 31, 1994 have been annualized.
/(5)/ Loans placed on nonperforming status have been included in the
computation of average balances.
/(6)/ The weighted average rate represents the coupon associated with each
asset and liability, weighted by the principle balance associated with
each asset and liability.
<PAGE>
EXHIBIT 8
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1997 vs. 1996 1996 vs. 1995
-------------------------------------- ---------------------------------------
Increase (Decrease) Attributable to Increase (Decrease) Attributable to
-------------------------------------- ---------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income on:
Interest-earning deposits
in other banks $ 6 $ (3) $ -- $ 3 $ (50) $ (30) $ 10 $ (70)
Investments (95) 39 (12) (68) (98) 65 (9) (42)
Loans receivable 257 (14) (2) 241 741 95 9 845
------ ------ ----- ------ ------ ------ ------ ------
Total interest income on
interest-earning assets 168 22 (14) 176 593 130 10 733
------ ------ ----- ------ ------ ------ ------ ------
Interest expense on:
NOW and Money Market accounts (2) (17) -- (19) (12) (48) 2 (58)
Passbook accounts (2) 13 -- 11 16 (57) (2) (43)
Certificates of Deposit 57 (45) (1) 11 246 59 4 309
FHLB advances 45 1 7 53 -- -- 34 34
------ ------ ----- ------ ------ ------ ------ ------
Total interest expense on
interest-bearing liabilities 98 (48) 6 56 250 (46) 38 242
------ ------ ----- ------ ------ ------ ------ ------
Increase (decrease) in net
interest income $ 70 $ 70 $ 20 $ 120 $ 343 $ 176 $ (28) $ 491
====== ====== ===== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995 vs.
Nine Months Ended December 31, 1994
------------------------------------------------------
Increase (Decrease) Attributable to
------------------------------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
Interest income on:
Interest-earning deposits
in other banks $ (8) $ 64 $ (5) $ 51
Investments (18) 220 (8) 194
Loans receivable 314 1,728 115 2,157
------ ------ ------ -----
Total interest income on
interest-earning assets 288 2,012 102 2,402
------ ------ ------ -----
Interest expense on:
NOW and Money Market accounts (30) 96 (13) 53
Passbook accounts (5) 106 (2) 99
Certificates of Deposit 205 1,324 128 1,657
FHLB advances -- -- -- --
------ ------ ------ -----
Total interest expense on
interest-bearing liabilities 170 1,526 113 1,809
------ ------ ------ -----
Increase (decrease) in net interest income $ 118 $ 486 $ (11) $ 593
====== ====== ====== =======
</TABLE>
<PAGE>
EXHIBIT 9
LOAN PORTOFLIO COMPOSITION
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
At June 30, 1997 1996 1995 1994
---------------- ------------------ ---------------- ----------------
% of % of % of % of
Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to-four family residential $ 88,920 88.47% $ 88,052 89.89% $ 80,737 89.16% $ 76,892 93.26%
Multi-family residential 870 0.87% 761 0.78% 748 0.82% 643 0.78%
Construction 5,710 5.68% 4,086 4.17% 8,673 9.58% 5,052 6.13%
Equity line 6,031 6.00% 4,947 5.05% 2,891 3.19% 207 0.25%
-------- ------- -------- ------- -------- ------- -------- -------
Total real estate loans 101,531 101.02% 97,846 99.89% 93,049 102.75% 82,794 100.42%
-------- ------- -------- ------- -------- ------- -------- -------
Consumer loans:
Installment loan 2,447 2.43% 2,397 2.45% 2,403 2.66% 2,396 2.91%
Other consumer and commercial 959 0.95% 941 0.96% 907 1.00% 625 0.76%
-------- ------- -------- ------- -------- ------- -------- -------
Total consumer loans 3,406 3.38% 3,338 3.41% 3,310 3.66% 3,021 3.67%
-------- ------- -------- ------- -------- ------- -------- -------
Total gross loans 104,917 104.40% 101,184 103.30% 96,359 106.41% 85,815 104.09%
-------- ------- -------- ------- -------- ------- -------- -------
Less:
Construction loans in process 3,261 3.24% 2,321 2.37% 4,930 5.44% 2,580 3.14%
Deferred loan fees 553 0.55% 524 0.53% 478 0.53% 386 0.47%
Allowance for loan losses 617 0.61% 388 0.40% 396 0.44% 396 0.48%
-------- ------- -------- ------- -------- ------- -------- -------
Total reductions 4,431 4.40% 3,233 3.30% 5,804 6.41% 3,362 4.09%
-------- ------- -------- ------- -------- ------- -------- -------
Total loans receivable, net $100,506 100.00% $ 97,951 100.00% $ 90,555 100.00% $ 82,453 100.00%
======== ======= ======== ======= ======== ======= ======== =======
</TABLE>
<PAGE>
EXHIBIT 10
LOAN PORTFOLIO MATURITY SCHEDULE
<TABLE>
<CAPTION>
At June 30, 1997
----------------------------------------------------------
More Than
1 Year 1 Year to Greater Than
or Less 5 Years 5 Years Total
------- --------- ------------ -----
(In Thousands)
TOTAL LOANS:
- -----------
<S> <C> <C> <C> <C>
Real estate loans:
Adjustable rate residential 1-4 family $ 21 $ 526 $ 26,801 $ 27,348
Fixed rate residential 1-4 family 55 1,227 59,736 61,018
Residential multi-family - fixed -- -- 870 870
Equity line 6,031 -- -- 6,031
Construction 304 2 2,144 2,450
Commercial - adjustable 57 237 38 332
Other loans 648 2,367 59 3,074
Less:
Allowance for loan losses (617) -- -- (617)
------- ------- -------- --------
Totals $ 6,499 $ 4,359 $ 89,648 $100,506
======= ======= ======== ========
</TABLE>
The following table sets forth the dollar amount at June 30, 1997 of all
loans maturing or repricing on or after June 30, 1998 which have fixed or
adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Adjustable
Rates Rates
----- -----
(In Thousands)
<S> <C> <C>
Real estate loans 1-4 family $60,963 $27,327
Other loans 3,524 2,193
------- -------
$64,487 $29,520
======= =======
</TABLE>
<PAGE>
EXHIBIT 11
LOAN ORIGINATIONS, PURCHASES, SALES AND REPAYMENTS
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended
June 30, Year Ended December 31, December 31,
----------------------- ------------------------- -------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans receivable, net, beginning of period $ 97,951 $ 90,555 $ 90,555 $ 82,453 $ 79,031
-------- -------- -------- -------- --------
Loan originations:
Residential 1-4 family 6,745 6,856 13,392 12,604 7,502
Residential multi-family 125 20 40 128 105
Nonresidential real estate 297 28 168 169 539
Residential construction 3,834 3,628 6,356 7,965 4,912
Equity line 2,030 1,797 3,661 4,051 642
Consumer 1,068 1,050 2,294 2,237 1,729
-------- -------- -------- -------- --------
Total loan originations 14,099 13,379 25,911 27,154 15,429
-------- -------- -------- -------- --------
Loans purchased -- -- -- -- --
Loan sales -- -- -- -- --
Principal repayments (11,394) (9,862) (18,657) (19,179) (12,101)
Other changes, net (150) 71 142 127 94
-------- -------- -------- -------- --------
Increase in loans receivable 2,555 3,588 7,396 8,102 3,422
-------- -------- -------- -------- --------
Loans receivable, net, end of period $100,506 $ 94,143 $ 97,951 $ 90,555 $ 82,453
======== ======== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 12
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
At June 30, At December 31,
--------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 793 $ 958 $ 1,104 $ 518 $ 560
Accruing loans past due 90 days or more 304 243 143 684 616
Foreclosed real estate -- -- -- -- --
--------- ---------- ---------- ---------- ----------
Total nonperforming assets $ 1,097 $ 1,201 $ 1,247 $ 1,202 $ 1,176
========= ========== ========== ========== ==========
Nonperforming loans to total gross loans 1.05% 1.21% 1.23% 1.25% 1.37%
========= ========== ========== ========== ==========
Nonperforming assets to total assets 0.96% 1.09% 1.11% 1.11% 1.18%
========= ========== ========== ========== ==========
Total assets $114,162 $109,699 $112,552 $108,033 $ 99,966
Total gross loans $104,937 $ 99,042 $101,184 $ 96,359 $ 85,815
</TABLE>
The following table sets forth at June 30, 1997, the Bank's aggregate
carrying value of the assets classified as substandard, doubtful, loss or
"special mention:
<TABLE>
<CAPTION>
Special Mention List Substandard Doubtful Loss
------------------------- ----------------------- -------------------------- -----------------------
Number Amount Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4
family 29 $1,258 15 $ 891 -- $ -- -- $ --
Residential
multi-family -- -- -- -- -- -- -- --
Construction -- -- -- -- -- -- -- --
Equity line 3 23 1 11 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total real
estate loans 32 1,281 16 902 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Consumer loans:
Installment loan -- -- 1 23 -- -- -- --
Other consumer
and commercial 5 20 7 171 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total
consumer
loans 5 20 8 194 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total 37 $1,301 24 $1,096 -- $ -- -- $ --
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 13
CHARGE-OFFS AND RECOVERIES
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended
June 30, Year Ended December 31, December 31,
---------------- ----------------------- -----------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 388 $ 396 $ 396 $ 396 $ 385
-------- -------- -------- --------- ---------
Charge-offs:
Residential 1-4 family -- 8 13 -- --
Other 2 -- -- 13 10
-------- -------- -------- --------- ---------
Total loans charged off 2 8 13 13 10
-------- -------- -------- --------- ---------
Recoveries:
Residential 1-4 family -- -- -- 1 --
Other 1 5 5 -- 3
-------- -------- -------- --------- ---------
Net charge-offs 1 3 8 12 7
-------- -------- -------- --------- ---------
Provision for loan losses 230 -- -- 12 18
-------- -------- -------- --------- ---------
Balance, end of period $ 617 $ 393 $ 388 $ 396 $ 396
======== ======== ======== ========= =========
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.00% 0.00% 0.01% 0.01% 0.01%
======== ======== ======== ========= =========
</TABLE>
<PAGE>
EXHIBIT 14
DISTRIBUTION OF LOAN LOSSES
<TABLE>
<CAPTION>
At June 30, 1997
-----------------------------------------
Percent of Amount
Allowance of Loans
Amount of to Total to Gross
Allowance Allowance Loans
--------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Real estate loans:
Residential 1-4 family $ 241 39.06% 84.74%
Residential multi-family -- --% 0.83%
Construction -- --% 5.44%
Equity line 32 5.19% 5.75%
--------- ------ ------
Total real estate loans 273 44.25% 96.76%
--------- ------ ------
Consumer loans:
Installment loan 23 3.73% 2.33%
Other consumer and commercial 7 1.13% 0.91%
--------- ------ ------
Total consumer loans 30 4.86% 3.24%
--------- ------ ------
Unallocated 314 50.89% --%
--------- ------ ------
Total allowance for loan losses $ 617 100.00% 100.00%
========= ====== ======
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- ------------------------------- -------------------------------
Percent of Amount Percent of Amount Percent of Amount
Allowance of Loans Allowance of Loans Allowance of Loans
Amount of to Total to Gross Amount of to Total to Gross Amount of to Total to Gross
Allowance Allowance Loans Allowance Allowance Loans Allowance Allowance Loans
--------- ---------- -------- --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $ 258 66.49% 87.02% $ 356 89.90% 83.79% $ 335 84.60% 91.70%
Residential multi-family -- --% 0.75% -- --% 0.78% -- --% --%
Construction -- --% 4.04% -- --% 9.00% -- --% 5.04%
Equity line 19 4.90% 4.89% 13 3.28% 3.00% -- --% --%
--------- ------ ------ --------- ------ ------ --------- ------ ------
Total real estate loans 277 71.39% 96.70% 369 93.18% 96.57% 335 84.60% 96.74%
--------- ------ ------ --------- ------ ------ --------- ------ ------
Consumer loans:
Installment loan 27 6.96% 2.37% 15 3.79% 2.49% 15 3.79% 2.83%
Other consumer and commercial 4 1.03% 0.93% 4 1.01% 0.94% -- --% 0.43%
--------- ------ ------ --------- ------ ------ --------- ------ ------
Total consumer loans 31 7.99% 3.30% 19 4.80% 3.43% 15 3.79% 3.26%
--------- ------ ------ --------- ------ ------ --------- ------ ------
Unallocated 80 20.62% -- 8 2.02% --% 46 11.61% --
--------- ------ ------ --------- ------ ------ --------- ------ ------
Total allowance for loan losses $ 388 100.00% 100.00% $ 396 100.00% 100.00% $ 396 100.00% 100.00%
========= ====== ====== ========= ====== ====== ========= ====== ======
</TABLE>
<PAGE>
EXHIBIT 15
COMPOSITION OF SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
At December 31,
---------------------------------
At June 30, 1997 1996 1995 1994
---------------- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agencies $ 2,345 $ 2,859 $ 3,512 $ --
FHLB bonds 1,101 1,100 -- --
--------- --------- --------- --------
Total securities available for sale 3,446 3,959 3,512 --
--------- --------- --------- --------
Securities held to maturity:
U.S. government and agencies 500 1,600 4,201 6,207
FHLB bonds 1,225 625 1,025 2,850
Municipal bonds 1,473 1,473 1,474 2,018
Other 10 10 10 10
--------- --------- --------- --------
Total securities held to maturity 3,208 3,708 6,710 11,085
--------- --------- --------- --------
Total investment securities 6,654 7,667 10,222 11,085
Interest-bearing deposits 2,348 2,253 2,657 2,111
Federal Home Loan Bank stock 930 869 824 824
Certificates of deposit 100 100 200 200
--------- --------- --------- --------
Total investments $ 10,032 $ 10,889 $ 13,903 $ 14,220
========= ========= ========= ========
</TABLE>
<PAGE>
EXHIBIT 16
MATURITY SCHEDULE AND YIELD ANALYSIS, SECURITIES
<TABLE>
<CAPTION>
After One Year After Five Years
One Year or Less Through Five Years Through Ten Years
---------------------- --------------------- -----------------------
Weighted Weighted Weighted
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 and agencies $ 606 6.62% $ 1,539 7.24% $ -- --%
FHLB bonds -- -- 1,101 5.88 -- --
Securities held to maturity:
U.S. government and agencies 400 6.03 100 6.38 -- --
FHLB bonds 700 6.61 525 6.19 -- --
Municipal bonds 200 5.00 255 5.12 1,018 4.62
Other -- -- -- -- -- --
Other:
Interest-earning deposits 2,348 4.20 -- -- -- --
Federal Home Loan Bank stock -- -- -- -- -- --
Certificates of deposit 100 6.10 -- -- -- --
------- ----- ------- ----- ------- -----
Total $ 4,554 5.24% $ 3,520 6.48% $ 1,016 4.62%
======= ===== ======= ===== ======= =====
<CAPTION>
After Ten Years Total
----------------------- -----------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agencies $ -- --% $ 2,345 7.03%
FHLB bonds -- -- 1,101 5.88
Securities held to maturity:
U.S. government and agencies -- -- 500 6.10
FHLB bonds -- -- 1,225 6.43
Municipal bonds -- 1,473 4.76
Other 10 4.80 10 4.80
Other:
Interest-earning deposits -- -- 2,348 4.20
Federal Home Loan Bank stock 930 7.02 930 7.02
Certificates of deposit -- -- 100 6.10
------- ----- ------- -----
Total $ 940 7.00% $10,032 5.78%
======= ===== ======= =====
</TABLE>
<PAGE>
EXHIBIT 17
FLOW OF DEPOSITS
<TABLE>
<CAPTION>
At or for the Six Months At or for the Year At or for the Nine Months
Ended June 30, Ended December 31, Ended December 31,
------------------------ ------------------- -------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total deposits at beginning of period $93,785 $92,103 $92,103 $85,105 $84,863
Net increase (decrease) before interest
credited (279) (1,464) (2,976) 2,582 (2,365)
Interest credited 2,366 2,310 4,658 4,416 2,607
------- ------- ------- ------- -------
Total deposits at end of period $95,872 $92,949 $93,785 $92,103 $85,105
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Exhibit 18
Composition and Average Rate Paid for Deposits
<TABLE>
<CAPTION>
At June 30, 1997
---------------------------
Weighted
Average % of
Amount Rate Deposits
------ ------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Demand accounts:
Passbook savings $11,564 3.04% 12.06%
NOW accounts 5,842 1.10% 6.09%
Money market deposit accounts 4,485 2.82% 4.68%
Non-interest bearing accounts 1,782 --% 1.86%
------- ----- -------
Total demand deposits 23,673 2.28% 24.69%
------- ----- -------
Certificates of deposit 71,794 5.72% 74.89%
------- ----- -------
Accrued interest 405 0.42%
------- ------
Total deposits $95,872 4.84% 100.00%
======= ====== =======
<CAPTION>
At December 31,
----------------------------------------------------------------------------------
1996 1995 1994
-------------------------- ------------------------- ---------------------------
Weighted Weighted Weighted
Average % of Average % of Average % of
Amount Rate Deposits Amount Rate Deposits Amount Rate Deposits
------ ------- -------- ------ ------- -------- ------ ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand accounts:
Passbook savings $11,487 3.00% 12.24% $11,226 3.50% 12.19% $11,597 3.50% 13.63%
NOW accounts 5,644 1.08% 6.02% 7,359 2.40% 7.99% 5,736 2.25% 6.74%
Money market deposit accounts 4,180 2.91% 4.46% 4,826 3.00% 6.24% 6,243 3.00% 7.34%
Non-interest bearing accounts 1,319 --% 1.41% 943 --% 1.02% 870 --% 1.02%
------- ---- ------ ------- ---- ------- ------- ---- -------
Total demand deposits 22,630 2.33% 24.13% 24,353 2.94% 26.44% 24,446 2.96% 28.73%
------- ---- ------ ------- ---- ------- ------- ---- -------
Certificates of deposit 70,742 5.78% 75.43% 67,365 5.80% 73.14% 60,357 4.94% 70.92%
------- ---- ------ ------- ---- ------ ------- ---- -------
Accrued interest 413 0.44% 385 0.42% 302 0.36%
------- ------ ------- ------ ------- ------
Total deposits $93,785 4.92% 100.00% $92,103 5.03% 100.00% $85,105 4.35% 100.00%
======= ===== ======= ======= ===== ======= ======= ===== =======
</TABLE>
<PAGE>
EXHIBIT 19
Composition and Average Rate Paid for Certificates of Deposit
The following table presents the maturities by 200 point basis rate paid on
all certificates of deposit as of June 30, 1997.
<TABLE>
<CAPTION>
Amount Due During the Year Ending June 30,
--------------------------------------------------------
1998 1999 2000 2001 2002 Total
---- ---- ---- ---- ---- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificates of deposit
2.00% to 3.99% $ 130 $ 140 $ -- $ -- $ -- $ 270
4.00% to 5.99% 41,122 6,221 991 1,722 911 50,967
6.00% to 7.99% 5,927 2,384 10,657 638 -- 19,606
8.00% to 9.99% 574 324 -- -- -- 898
10.00% to 11.99% 53 -- -- -- -- 53
-------- -------- --------- -------- -------- --------
Total $ 47,806 $ 9,069 $ 11,648 $ 2,360 $ 911 $ 71,794
======== ======== ========= ======== ======== ========
</TABLE>
As of June 30, 1997, the aggregate amount of time certificates of deposit
in amounts greater than or equal to $100,000 outstanding was approximately $13.1
million, representing 18.16% of all certificates of deposit on such date.
Management believes that most of these deposits are held by long-time, local
customers of the Bank. Some of these deposits were deposits of state and local
governments which are subject to rebidding from time to time and to
securitization requirements. The following table presents the maturity of these
time certificates of deposit at such date.
<TABLE>
<CAPTION>
At
June 30, 1997
-------------
(In Thousands)
<S> <C>
3 Months or less $ 2,202
Over 3 months through 6 months 2,442
Over 6 months through 12 months 3,891
Over 12 months 4,548
-------
Total $13,083
=======
</TABLE>
20
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Tangible
Total Total Total Equity/ Equity/
Assets Deposits Equity Assets Tang Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%) (%)
- ------ ----------- ----- -------- ------ ------ ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AABC Access Anytime Bancorp, Inc. NM 08/08/86 104,653 95,772 7,796 7.45 7.45
AADV Advantage Bancorp, Inc. WI 03/23/92 1,019,510 655,916 93,947 9.21 8.67
ABBK Abington Bancorp, Inc. MA 06/10/86 501,256 310,624 34,680 6.92 6.27
ABCL Alliance Bancorp, Inc. IL 07/07/92 1,404,263 1,020,923 125,094 8.91 8.81
ABCW Anchor BanCorp Wisconsin, Inc. WI 07/16/92 1,925,866 1,326,325 119,847 6.22 6.11
AFBC Advance Financial Bancorp WV 01/02/97 103,578 79,308 15,998 15.45 15.45
AFCB Affiliated Community Bancorp, Inc. MA 10/19/95 1,090,431 676,447 106,625 9.78 9.73
AFED AFSALA Bancorp, Inc. NY 10/01/96 159,181 135,247 21,444 13.47 13.47
AFFFZ America First Financial Fund 1987-A LP CA NA 2,190,646 1,888,965 184,910 8.44 8.35
AHCI Ambanc Holding Co., Inc. NY 12/27/95 484,979 326,139 62,754 12.94 12.94
AHM Ahmanson & Company (H.F.) CA 10/25/72 47,532,068 32,741,870 2,463,416 5.18 4.60
ALBC Albion Banc Corp. NY 07/26/93 68,628 52,322 5,991 8.73 8.73
ALBK ALBANK Financial Corporation NY 04/01/92 3,602,227 2,986,514 331,506 9.20 8.14
AMFC AMB Financial Corp. IN 04/01/96 94,179 65,483 14,087 14.96 14.96
ANA Acadiana Bancshares, Inc. LA 07/16/96 267,000 189,482 46,388 17.37 17.37
ANBK American National Bancorp, Inc. MD 10/31/95 505,318 329,516 45,315 8.97 8.97
ANDB Andover Bancorp, Inc. MA 05/08/86 1,250,943 920,191 100,829 8.06 8.06
ASBI Ameriana Bancorp IN 03/02/87 397,730 326,768 43,572 10.96 10.95
ASBP ASB Financial Corp. OH 05/11/95 112,264 89,752 17,465 15.56 15.56
ASFC Astoria Financial Corporation NY 11/18/93 7,664,495 4,545,241 599,767 7.83 6.66
ATSB AmTrust Capital Corp. IN 03/28/95 71,031 51,082 7,222 10.17 10.07
AVND Avondale Financial Corp. IL 04/07/95 607,273 382,119 55,398 9.12 9.12
BANC BankAtlantic Bancorp, Inc. FL 11/29/83 2,730,474 1,768,087 153,575 5.62 4.67
BDJI First Federal Bancorporation MN 04/04/95 110,589 82,347 12,019 10.87 10.87
BFD BostonFed Bancorp, Inc. MA 10/24/95 975,922 581,752 85,743 8.79 8.52
BFFC Big Foot Financial Corporation IL 12/20/96 212,245 125,158 36,047 16.98 16.98
BFSB Bedford Bancshares, Inc. VA 08/22/94 135,455 100,047 19,183 14.16 14.16
BKC American Bank of Connecticut CT 12/01/81 605,857 447,601 50,201 8.29 7.98
BKCO Bankers Corp. NJ 03/16/90 2,566,835 1,656,927 203,536 7.93 7.82
BKCT Bancorp Connecticut, Inc. CT 07/03/86 428,362 311,824 43,886 10.25 10.25
BKUNA BankUnited Financial Corporation FL 12/11/85 1,807,192 1,100,923 101,415 5.61 4.94
BNKU Bank United Corporation TX 08/09/96 11,439,050 5,249,888 582,676 5.09 4.97
BPLS Bank Plus Corporation CA NA 3,534,002 2,701,677 179,068 5.07 5.06
BSBC Branford Savings Bank CT 11/04/86 186,555 163,392 17,313 9.28 9.28
BVCC Bay View Capital Corporation CA 05/09/86 3,096,213 1,578,206 196,196 6.34 5.37
BWFC Bank West Financial Corporation MI 03/30/95 155,675 102,862 22,592 14.51 14.51
BYFC Broadway Financial Corporation CA 01/09/96 122,245 107,550 13,144 10.75 10.75
CAFI Camco Financial Corporation OH NA 489,833 371,032 46,858 9.57 8.89
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 242,518 171,039 21,340 8.80 8.80
CASB Cascade Financial Corporation WA 09/16/92 368,126 244,795 22,557 6.13 6.13
CASH First Midwest Financial, Inc. IA 09/20/93 374,824 240,051 42,713 11.40 10.23
CATB Catskill Financial Corporation NY 04/18/96 284,238 199,256 71,169 25.04 25.04
CBCI Calumet Bancorp, Inc. IL 02/20/92 496,561 354,118 76,972 15.50 15.50
CBES CBES Bancorp, Inc. MO 09/30/96 95,219 70,989 17,510 18.39 18.39
CBK Citizens First Financial Corp. IL 05/01/96 271,573 198,043 38,239 14.08 14.08
CBNH Community Bankshares, Inc. NH 05/08/86 615,874 428,560 43,093 7.00 7.00
CBSA Coastal Bancorp, Inc. TX NA 2,964,082 1,364,759 98,694 3.33 2.78
CBSB Charter Financial, Inc. IL 12/29/95 393,268 274,184 56,901 14.47 13.02
CCFH CCF Holding Company GA 07/12/95 100,801 78,042 11,779 11.69 11.69
<CAPTION>
Risk-Based NPAs + Loans
Capital/ 90+ Pst Due/ Return on Return on
Risk-Weightd Assets Avg Assets Avg Equity
Ticker Institution State IPO Date Assets (%) (%) (%) (%)
- ------ ----------- ----- -------- ---------- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
AABC Access Anytime Bancorp, Inc. NM 08/08/86 16.07 1.60 (0.50) (8.90)
AADV Advantage Bancorp, Inc. WI 03/23/92 13.68 0.44 0.41 4.49
ABBK Abington Bancorp, Inc. MA 06/10/86 12.63 0.20 0.82 12.05
ABCL Alliance Bancorp, Inc. IL 07/07/92 14.58 0.15 0.52 5.82
ABCW Anchor BanCorp Wisconsin, Inc. WI 07/16/92 9.27 0.92 0.75 11.76
AFBC Advance Financial Bancorp WV 01/02/97 25.46 0.37 0.38 4.15
AFCB Affiliated Community Bancorp, Inc. MA 10/19/95 17.93 0.39 0.96 9.78
AFED AFSALA Bancorp, Inc. NY 10/01/96 31.57 0.45 NA NA
AFFFZ America First Financial Fund 1987-A LP CA NA 15.94 0.40 1.49 19.35
AHCI Ambanc Holding Co., Inc. NY 12/27/95 22.62 0.63 (0.58) (4.29)
AHM Ahmanson & Company (H.F.) CA 10/25/72 8.90 1.90 0.47 9.25
ALBC Albion Banc Corp. NY 07/26/93 NA 0.72 0.11 1.14
ALBK ALBANK Financial Corporation NY 04/01/92 11.63 0.91 0.85 9.17
AMFC AMB Financial Corp. IN 04/01/96 23.47 0.81 0.73 4.15
ANA Acadiana Bancshares, Inc. LA 07/16/96 25.93 0.52 0.59 3.44
ANBK American National Bancorp, Inc. MD 10/31/95 NA 0.74 0.28 2.88
ANDB Andover Bancorp, Inc. MA 05/08/86 13.76 1.01 1.10 13.91
ASBI Ameriana Bancorp IN 03/02/87 18.78 0.40 0.61 5.54
ASBP ASB Financial Corp. OH 05/11/95 26.05 1.02 0.59 3.10
ASFC Astoria Financial Corporation NY 11/18/93 15.44 0.51 0.56 7.06
ATSB AmTrust Capital Corp. IN 03/28/95 15.72 2.84 0.29 2.93
AVND Avondale Financial Corp. IL 04/07/95 14.97 3.18 (0.48) (4.97)
BANC BankAtlantic Bancorp, Inc. FL 11/29/83 10.03 0.97 0.87 14.78
BDJI First Federal Bancorporation MN 04/04/95 18.36 0.27 0.30 2.57
BFD BostonFed Bancorp, Inc. MA 10/24/95 NA 0.52 0.51 5.00
BFFC Big Foot Financial Corporation IL 12/20/96 34.98 0.09 NA NA
BFSB Bedford Bancshares, Inc. VA 08/22/94 22.13 0.60 1.00 6.97
BKC American Bank of Connecticut CT 12/01/81 NA 1.81 1.28 15.10
BKCO Bankers Corp. NJ 03/16/90 18.38 1.14 1.09 13.73
BKCT Bancorp Connecticut, Inc. CT 07/03/86 15.03 1.19 1.32 12.80
BKUNA BankUnited Financial Corporation FL 12/11/85 13.63 0.60 0.44 6.09
BNKU Bank United Corporation TX 08/09/96 13.45 0.66 0.46 8.48
BPLS Bank Plus Corporation CA NA 10.50 2.88 (0.26) (5.34)
BSBC Branford Savings Bank CT 11/04/86 16.28 1.42 1.18 12.82
BVCC Bay View Capital Corporation CA 05/09/86 9.01 NA 0.39 6.31
BWFC Bank West Financial Corporation MI 03/30/95 23.09 0.28 0.64 3.89
BYFC Broadway Financial Corporation CA 01/09/96 14.05 2.06 (0.11) (0.95)
CAFI Camco Financial Corporation OH NA 16.47 0.49 0.80 8.56
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 15.98 0.31 0.67 7.41
CASB Cascade Financial Corporation WA 09/16/92 9.69 0.39 0.35 5.65
CASH First Midwest Financial, Inc. IA 09/20/93 14.07 0.85 0.73 6.42
CATB Catskill Financial Corporation NY 04/18/96 60.11 0.47 1.44 5.20
CBCI Calumet Bancorp, Inc. IL 02/20/92 14.27 1.16 1.15 7.24
CBES CBES Bancorp, Inc. MO 09/30/96 NA 0.77 0.77 5.62
CBK Citizens First Financial Corp. IL 05/01/96 18.07 0.59 0.30 1.98
CBNH Community Bankshares, Inc. NH 05/08/86 9.90 0.49 0.97 13.30
CBSA Coastal Bancorp, Inc. TX NA 11.25 0.58 0.25 7.61
CBSB Charter Financial, Inc. IL 12/29/95 20.58 0.56 1.13 7.62
CCFH CCF Holding Company GA 07/12/95 NA 0.18 0.05 0.34
<CAPTION>
One Year
Cum Gap/
Assets
Ticker Institution State IPO Date (%)
- ------ ----------- ----- -------- ---
<S> <C> <C> <C> <C>
AABC Access Anytime Bancorp, Inc. NM 08/08/86 NA
AADV Advantage Bancorp, Inc. WI 03/23/92 NA
ABBK Abington Bancorp, Inc. MA 06/10/86 (28.59)
ABCL Alliance Bancorp, Inc. IL 07/07/92 (6.61)
ABCW Anchor BanCorp Wisconsin, Inc. WI 07/16/92 (3.59)
AFBC Advance Financial Bancorp WV 01/02/97 NA
AFCB Affiliated Community Bancorp, Inc. MA 10/19/95 NA
AFED AFSALA Bancorp, Inc. NY 10/01/96 NA
AFFFZ America First Financial Fund 1987-A LP CA NA NA
AHCI Ambanc Holding Co., Inc. NY 12/27/95 NA
AHM Ahmanson & Company (H.F.) CA 10/25/72 7.73
ALBC Albion Banc Corp. NY 07/26/93 NA
ALBK ALBANK Financial Corporation NY 04/01/92 6.17
AMFC AMB Financial Corp. IN 04/01/96 NA
ANA Acadiana Bancshares, Inc. LA 07/16/96 NA
ANBK American National Bancorp, Inc. MD 10/31/95 NA
ANDB Andover Bancorp, Inc. MA 05/08/86 NA
ASBI Ameriana Bancorp IN 03/02/87 NA
ASBP ASB Financial Corp. OH 05/11/95 NA
ASFC Astoria Financial Corporation NY 11/18/93 11.39
ATSB AmTrust Capital Corp. IN 03/28/95 NA
AVND Avondale Financial Corp. IL 04/07/95 NA
BANC BankAtlantic Bancorp, Inc. FL 11/29/83 (11.62)
BDJI First Federal Bancorporation MN 04/04/95 0.44
BFD BostonFed Bancorp, Inc. MA 10/24/95 9.00
BFFC Big Foot Financial Corporation IL 12/20/96 NA
BFSB Bedford Bancshares, Inc. VA 08/22/94 NA
BKC American Bank of Connecticut CT 12/01/81 (18.96)
BKCO Bankers Corp. NJ 03/16/90 (10.93)
BKCT Bancorp Connecticut, Inc. CT 07/03/86 (4.71)
BKUNA BankUnited Financial Corporation FL 12/11/85 (13.09)
BNKU Bank United Corporation TX 08/09/96 NA
BPLS Bank Plus Corporation CA NA 32.34
BSBC Branford Savings Bank CT 11/04/86 8.57
BVCC Bay View Capital Corporation CA 05/09/86 1.33
BWFC Bank West Financial Corporation MI 03/30/95 NA
BYFC Broadway Financial Corporation CA 01/09/96 NA
CAFI Camco Financial Corporation OH NA NA
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 NA
CASB Cascade Financial Corporation WA 09/16/92 (27.44)
CASH First Midwest Financial, Inc. IA 09/20/93 NA
CATB Catskill Financial Corporation NY 04/18/96 3.45
CBCI Calumet Bancorp, Inc. IL 02/20/92 NA
CBES CBES Bancorp, Inc. MO 09/30/96 NA
CBK Citizens First Financial Corp. IL 05/01/96 NA
CBNH Community Bankshares, Inc. NH 05/08/86 (0.84)
CBSA Coastal Bancorp, Inc. TX NA NA
CBSB Charter Financial, Inc. IL 12/29/95 NA
CCFH CCF Holding Company GA 07/12/95 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Tangible
Total Total Total Equity/ Equity/
Assets Deposits Equity Assets Tang Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%) (%)
- ------ ----------- ----- -------- ------ ------ ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEBK Central Co-operative Bank MA 10/24/86 344,420 266,431 34,189 9.93 8.98
CENB Century Bancorp, Inc. NC 12/23/96 99,948 69,489 29,920 29.94 29.94
CENF CENFED Financial Corporation CA 10/25/91 2,295,523 1,544,168 119,445 5.20 5.19
CFB Commercial Federal Corporation NE 12/31/84 7,096,665 4,378,919 426,106 6.00 5.36
CFBC Community First Banking Company GA 07/01/97 450,650 361,598 69,389 15.40 15.22
CFCP Coastal Financial Corporation SC 09/26/90 502,761 331,996 31,024 6.17 6.17
CFFC Community Financial Corporation VA 03/30/88 175,414 117,248 24,050 13.71 13.71
CFNC Carolina Fincorp, Inc. NC 11/25/96 108,680 81,355 25,760 23.70 23.70
CFSB CFSB Bancorp, Inc. MI 06/22/90 845,438 560,353 64,446 7.62 7.62
CFTP Community Federal Bancorp, Inc. MS 03/26/96 209,035 132,932 57,386 27.45 27.45
CFX CFX Corporation NH 02/12/87 1,859,030 1,258,360 138,325 7.44 6.99
CIBI Community Investors Bancorp, Inc. OH 02/07/95 97,446 72,015 11,221 11.52 11.52
CKFB CKF Bancorp, Inc. KY 01/04/95 60,812 42,213 14,572 23.96 23.96
CLAS Classic Bancshares, Inc. KY 12/29/95 130,525 99,108 19,409 14.87 12.87
CMRN Cameron Financial Corporation MO 04/03/95 208,105 124,818 45,136 21.69 21.69
CMSB Commonwealth Bancorp, Inc. PA 06/17/96 2,288,986 1,518,915 220,405 9.63 7.69
CMSV Community Savings, FA (MHC) FL 10/24/94 699,787 540,533 78,678 11.24 11.24
CNIT CENIT Bancorp, Inc. VA 08/06/92 709,550 510,618 51,356 7.24 6.69
CNSB CNS Bancorp, Inc. MO 06/12/96 98,351 73,274 24,531 24.94 24.94
CNY Carver Bancorp, Inc. NY 10/25/94 413,777 269,541 34,542 8.35 8.04
COFI Charter One Financial, Inc. OH 01/22/88 14,564,703 7,777,575 976,617 6.71 6.31
COOP Cooperative Bankshares, Inc. NC 08/21/91 352,438 283,005 26,901 7.63 7.63
CRZY Crazy Woman Creek Bancorp, Incorporated WY 03/29/96 54,275 28,658 14,013 25.82 25.82
CSA Coast Savings Financial, Inc. CA 12/23/85 9,102,743 6,412,740 447,955 4.92 4.86
CSBF CSB Financial Group, Inc. IL 10/09/95 48,844 36,295 12,230 25.04 23.99
CTZN CitFed Bancorp, Inc. OH 01/23/92 3,097,515 1,725,779 197,237 6.37 5.77
CVAL Chester Valley Bancorp Inc. PA 03/27/87 323,673 260,762 27,065 8.36 8.36
DCBI Delphos Citizens Bancorp, Inc. OH 11/21/96 107,166 75,930 30,436 28.40 28.40
DIBK Dime Financial Corporation CT 07/09/86 873,878 755,843 69,571 7.96 7.72
DIME Dime Community Bancorp, Inc. NY 06/26/96 1,315,026 963,395 190,889 14.52 12.76
DME Dime Bancorp, Incorporated NY 08/19/86 20,087,176 13,335,199 1,059,288 5.27 5.04
DNFC D & N Financial Corporation MI 02/13/85 1,608,837 1,020,312 89,727 5.58 5.52
DSL Downey Financial Corp. CA 01/01/71 5,885,670 4,631,112 407,965 6.93 6.84
EBSI Eagle Bancshares, Inc. GA 04/01/86 848,490 579,113 70,450 8.30 8.30
EFBC Empire Federal Bancorp, Inc. MT 01/27/97 108,566 65,707 40,565 37.36 37.36
EFBI Enterprise Federal Bancorp, Inc. OH 10/17/94 264,266 145,878 31,595 11.96 11.95
EGFC Eagle Financial Corp. CT 02/03/87 2,013,359 1,385,431 138,245 6.87 5.44
EGLB Eagle BancGroup, Inc. IL 07/01/96 174,310 131,382 20,662 11.85 11.85
EIRE Emerald Isle Bancorp, Inc. MA 09/08/86 425,014 362,247 30,069 7.07 7.07
EMLD Emerald Financial Corporation OH NA 603,080 522,119 45,714 7.58 7.47
EQSB Equitable Federal Savings Bank MD 09/10/93 308,197 245,423 15,534 5.04 5.04
ESBK Elmira Savings Bank, FSB NY 03/01/85 227,828 207,386 14,344 6.30 6.05
ESX Essex Bancorp, Inc. VA 07/18/90 190,085 146,003 15,517 8.16 8.07
ETFS East Texas Financial Services, Inc. TX 01/10/95 112,697 89,301 20,471 18.16 18.16
FAB FirstFed America Bancorp, Inc. MA 01/15/97 1,020,876 726,197 124,176 12.16 12.16
FBBC First Bell Bancorp, Inc. PA 06/29/95 714,366 510,228 70,174 9.82 9.82
FBCI Fidelity Bancorp, Inc. IL 12/15/93 489,843 335,347 50,881 10.39 10.37
FBCV 1ST Bancorp IN 04/07/87 270,490 144,316 22,333 8.26 8.10
FBER 1st Bergen Bancorp NJ 04/01/96 284,765 214,282 40,404 14.19 14.19
<CAPTION>
Risk-Based NPAs + Loans One Year
Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Risk-Weightd Assets Avg Assets Avg Equity Assets
Ticker Institution State IPO Date Assets (%) (%) (%) (%) (%)
- ------ ----------- ----- -------- ---------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEBK Central Co-operative Bank MA 10/24/86 NA 0.85 0.88 8.71 NA
CENB Century Bancorp, Inc. NC 12/23/96 43.09 0.39 NA NA (23.34)
CENF CENFED Financial Corporation CA 10/25/91 9.92 1.28 0.51 10.05 13.90
CFB Commercial Federal Corporation NE 12/31/84 12.79 0.89 0.65 11.04 (9.37)
CFBC Community First Banking Company GA 07/01/97 16.31 2.02 0.07 0.99 NA
CFCP Coastal Financial Corporation SC 09/26/90 9.80 0.21 0.94 15.35 NA
CFFC Community Financial Corporation VA 03/30/88 16.84 0.39 1.01 7.32 NA
CFNC Carolina Fincorp, Inc. NC 11/25/96 29.76 0.28 NA NA (18.37)
CFSB CFSB Bancorp, Inc. MI 06/22/90 12.24 0.17 0.85 10.98 NA
CFTP Community Federal Bancorp, Inc. MS 03/26/96 57.73 0.30 1.33 4.10 NA
CFX CFX Corporation NH 02/12/87 12.04 0.72 0.90 10.69 (8.69)
CIBI Community Investors Bancorp, Inc. OH 02/07/95 19.82 0.72 0.67 5.50 NA
CKFB CKF Bancorp, Inc. KY 01/04/95 36.34 1.26 1.80 7.25 NA
CLAS Classic Bancshares, Inc. KY 12/29/95 23.02 0.94 NA NA NA
CMRN Cameron Financial Corporation MO 04/03/95 25.03 0.73 1.06 4.41 (1.92)
CMSB Commonwealth Bancorp, Inc. PA 06/17/96 13.26 0.50 0.55 5.31 (9.23)
CMSV Community Savings, FA (MHC) FL 10/24/94 23.29 0.55 0.56 4.87 (0.47)
CNIT CENIT Bancorp, Inc. VA 08/06/92 NA 0.51 0.55 7.66 NA
CNSB CNS Bancorp, Inc. MO 06/12/96 40.47 0.53 0.42 1.70 4.07
CNY Carver Bancorp, Inc. NY 10/25/94 15.52 1.37 (0.44) (4.98) NA
COFI Charter One Financial, Inc. OH 01/22/88 9.82 0.27 0.99 14.60 (3.24)
COOP Cooperative Bankshares, Inc. NC 08/21/91 14.12 0.46 (0.79) (9.92) (3.12)
CRZY Crazy Woman Creek Bancorp, Incorporated WY 03/29/96 46.87 0.39 1.06 3.69 NA
CSA Coast Savings Financial, Inc. CA 12/23/85 8.81 1.40 0.21 4.29 3.43
CSBF CSB Financial Group, Inc. IL 10/09/95 54.18 0.56 0.31 1.21 NA
CTZN CitFed Bancorp, Inc. OH 01/23/92 12.25 0.41 0.59 9.11 (7.14)
CVAL Chester Valley Bancorp Inc. PA 03/27/87 13.64 0.23 0.65 7.32 (9.56)
DCBI Delphos Citizens Bancorp, Inc. OH 11/21/96 42.19 0.35 NA NA NA
DIBK Dime Financial Corporation CT 07/09/86 19.30 0.40 1.92 23.45 (6.43)
DIME Dime Community Bancorp, Inc. NY 06/26/96 18.73 0.73 1.00 5.94 (15.47)
DME Dime Bancorp, Incorporated NY 08/19/86 11.05 1.57 0.55 10.56 (2.00)
DNFC D & N Financial Corporation MI 02/13/85 8.39 0.34 0.61 10.75 (13.60)
DSL Downey Financial Corp. CA 01/01/71 11.11 0.95 0.44 5.81 1.95
EBSI Eagle Bancshares, Inc. GA 04/01/86 9.33 1.07 0.49 5.55 NA
EFBC Empire Federal Bancorp, Inc. MT 01/27/97 65.93 0.06 NA NA NA
EFBI Enterprise Federal Bancorp, Inc. OH 10/17/94 19.95 0.03 0.73 5.60 NA
EGFC Eagle Financial Corp. CT 02/03/87 16.80 0.52 0.08 1.05 NA
EGLB Eagle BancGroup, Inc. IL 07/01/96 16.67 1.48 (0.08) (0.67) 0.61
EIRE Emerald Isle Bancorp, Inc. MA 09/08/86 11.03 0.40 0.85 12.31 (9.93)
EMLD Emerald Financial Corporation OH NA 11.86 0.24 0.72 9.39 NA
EQSB Equitable Federal Savings Bank MD 09/10/93 10.85 0.49 0.46 9.13 NA
ESBK Elmira Savings Bank, FSB NY 03/01/85 9.19 0.66 0.36 5.70 27.30
ESX Essex Bancorp, Inc. VA 07/18/90 13.32 2.63 (0.02) (0.43) NA
ETFS East Texas Financial Services, Inc. TX 01/10/95 40.44 0.17 0.31 1.66 (13.02)
FAB FirstFed America Bancorp, Inc. MA 01/15/97 18.48 0.40 (0.20) (2.45) NA
FBBC First Bell Bancorp, Inc. PA 06/29/95 21.63 0.07 1.06 7.70 (40.85)
FBCI Fidelity Bancorp, Inc. IL 12/15/93 18.12 0.80 0.55 5.27 NA
FBCV 1ST Bancorp IN 04/07/87 15.53 0.94 0.31 3.79 NA
FBER 1st Bergen Bancorp NJ 04/01/96 28.14 0.83 0.45 2.72 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Tangible
Total Total Total Equity/ Equity/
Assets Deposits Equity Assets Tang Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%) (%)
- ------ ----------- ----- -------- ------ ------ ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FBHC Fort Bend Holding Corp. TX 06/30/93 318,668 268,578 19,216 6.03 5.64
FBNW FirstBank Corporation ID 07/02/97 154,143 112,178 11,277 7.32 7.32
FBSI First Bancshares, Inc. MO 12/22/93 163,973 117,685 22,207 13.54 13.53
FCB Falmouth Co-Operative Bank MA 03/28/96 93,838 70,256 22,410 23.88 23.88
FCBF FCB Financial Corp. WI 09/24/93 526,203 317,629 76,556 14.55 14.55
FCME First Coastal Corporation ME NA 152,386 117,443 14,065 9.23 9.23
FDEF First Defiance Financial Corp. OH 10/02/95 552,225 383,393 117,742 21.32 21.32
FED FirstFed Financial Corp. CA 12/16/83 4,193,203 1,960,394 202,456 4.83 4.78
FESX First Essex Bancorp, Inc. MA 08/04/87 1,245,415 728,943 86,845 6.97 6.11
FFBA First Colorado Bancorp, Inc. CO 01/02/96 1,510,376 1,145,562 195,216 12.92 12.77
FFBH First Federal Bancshares of Arkansas, Inc. AR 05/03/96 535,204 444,151 80,119 14.97 14.97
FFBI First Financial Bancorp, Inc. IL 10/04/93 84,531 68,529 7,315 8.65 8.65
FFBS FFBS BanCorp, Inc. MS 07/01/93 130,762 103,798 25,142 19.23 19.23
FFBZ First Federal Bancorp, Inc. OH 07/13/92 201,262 129,074 15,192 7.55 7.54
FFCH First Financial Holdings Inc. SC 11/10/83 1,667,178 1,069,217 101,879 6.11 6.11
FFDB FirstFed Bancorp, Incorporated AL 11/19/91 176,528 156,122 16,621 9.42 8.65
FFDF FFD Financial Corporation OH 04/03/96 85,286 54,669 21,102 24.74 24.74
FFED Fidelity Federal Bancorp IN 08/31/87 250,285 185,803 12,865 5.14 5.14
FFES First Federal Savings & Loan of East Hartford CT 06/23/87 983,594 579,373 63,235 6.43 6.43
FFFC FFVA Financial Corporation VA 10/12/94 558,886 409,700 73,647 13.18 12.94
FFFD North Central Bancshares, Inc. IA 03/21/96 212,869 136,258 48,257 22.67 22.67
FFFG F.F.O. Financial Group, Inc. FL 10/13/88 323,020 281,349 21,738 6.73 6.73
FFFL Fidelity Bankshares Inc. (MHC) FL 01/07/94 999,289 779,558 83,679 8.37 8.32
FFHC First Financial Corporation WI 12/24/80 5,931,501 4,517,674 422,725 7.13 6.95
FFHH FSF Financial Corp. MN 10/07/94 378,233 206,993 42,933 11.35 11.35
FFHS First Franklin Corporation OH 01/26/88 226,944 199,464 20,469 9.02 8.97
FFIC Flushing Financial Corporation NY 11/21/95 860,031 590,463 133,089 15.47 15.47
FFKY First Federal Financial Corporation of Kentucky KY 07/15/87 377,380 281,342 51,716 13.70 13.01
FFLC FFLC Bancorp, Inc. FL 01/04/94 387,097 301,855 52,186 13.48 13.48
FFOH Fidelity Financial of Ohio, Inc. OH 03/04/96 524,743 430,487 67,905 12.94 11.60
FFPB First Palm Beach Bancorp, Inc. FL 09/29/93 1,666,396 1,227,277 109,495 6.57 6.42
FFSL First Independence Corporation KS 10/08/93 110,876 74,275 11,567 10.43 10.43
FFSW FirstFederal Financial Services Corp OH 03/31/87 1,088,132 662,680 87,906 8.08 7.21
FFSX First Federal Savings Bank of Siouxland (MHC) IA 07/13/92 468,568 326,734 38,865 8.29 8.23
FFWC FFW Corporation IN 04/05/93 180,056 116,118 17,141 9.52 8.66
FFWD Wood Bancorp, Inc. OH 08/31/93 163,918 120,546 20,166 12.30 12.30
FFYF FFY Financial Corp. OH 06/28/93 599,249 450,224 82,174 13.71 13.71
FGHC First Georgia Holding, Inc. GA 02/11/87 156,383 126,214 12,849 8.22 7.59
FIBC Financial Bancorp, Inc. NY 08/17/94 282,485 209,378 26,440 9.36 9.32
FISB First Indiana Corporation IN 08/02/83 1,520,762 1,093,848 145,432 9.56 9.46
FKFS First Keystone Financial, Inc. PA 01/26/95 320,797 228,747 23,440 7.31 7.31
FKKY Frankfort First Bancorp, Inc. KY 07/10/95 132,451 85,957 22,758 17.18 17.18
FLAG FLAG Financial Corporation GA 12/11/86 221,926 180,391 21,267 9.58 9.58
FLFC First Liberty Financial Corp. GA 12/06/83 1,288,919 952,425 95,028 7.37 6.69
FLGS Flagstar Bancorp, Inc. MI NA 1,596,289 904,310 115,360 7.23 NA
FLKY First Lancaster Bancshares, Inc. KY 07/01/96 40,448 21,964 13,850 34.24 34.24
FMBD First Mutual Bancorp, Inc. IL 07/05/95 417,695 329,551 53,641 12.84 10.04
FMCO FMS Financial Corp. NJ 12/14/88 554,925 475,092 36,384 6.56 6.45
FMSB First Mutual Savings Bank WA 12/17/85 432,034 344,648 29,491 6.83 6.83
<CAPTION>
Risk-Based NPAs + Loans One Year
Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Risk-Weightd Assets Avg Assets Avg Equity Assets
Ticker Institution State IPO Date Assets (%) (%) (%) (%) (%)
- ------ ----------- ----- -------- ---------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FBHC Fort Bend Holding Corp. TX 06/30/93 13.02 0.37 0.31 4.93 NA
FBNW FirstBank Corporation ID 07/02/97 12.31 2.07 0.50 5.81 NA
FBSI First Bancshares, Inc. MO 12/22/93 NA 0.56 0.91 6.24 NA
FCB Falmouth Co-Operative Bank MA 03/28/96 43.15 0.07 0.83 3.41 (23.57)
FCBF FCB Financial Corp. WI 09/24/93 18.83 0.15 0.79 4.69 NA
FCME First Coastal Corporation ME NA 15.06 2.01 4.21 54.71 NA
FDEF First Defiance Financial Corp. OH 10/02/95 22.39 0.45 0.74 3.34 NA
FED FirstFed Financial Corp. CA 12/16/83 10.48 1.39 0.29 6.24 5.60
FESX First Essex Bancorp, Inc. MA 08/04/87 10.44 0.56 0.98 13.28 (12.44)
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NA 0.23 0.89 6.34 (24.76)
FFBH First Federal Bancshares of Arkansas, Inc. AR 05/03/96 22.40 0.19 0.77 4.85 NA
FFBI First Financial Bancorp, Inc. IL 10/04/93 14.50 0.40 (0.38) (4.72) 8.84
FFBS FFBS BanCorp, Inc. MS 07/01/93 29.07 NA 1.15 5.94 NA
FFBZ First Federal Bancorp, Inc. OH 07/13/92 10.44 0.53 0.73 9.61 NA
FFCH First Financial Holdings Inc. SC 11/10/83 10.08 1.66 0.57 9.34 (11.74)
FFDB FirstFed Bancorp, Incorporated AL 11/19/91 14.88 0.84 0.62 6.27 NA
FFDF FFD Financial Corporation OH 04/03/96 33.56 0.00 0.77 3.22 NA
FFED Fidelity Federal Bancorp IN 08/31/87 7.75 0.16 0.16 2.98 3.74
FFES First Federal Savings & Loan of East Hartford CT 06/23/87 21.27 0.37 0.43 6.79 1.16
FFFC FFVA Financial Corporation VA 10/12/94 19.58 0.18 1.11 7.89 (0.58)
FFFD North Central Bancshares, Inc. IA 03/21/96 31.05 0.12 NA NA NA
FFFG F.F.O. Financial Group, Inc. FL 10/13/88 11.40 3.28 0.75 11.46 NA
FFFL Fidelity Bankshares Inc. (MHC) FL 01/07/94 15.90 0.34 0.38 4.13 (0.98)
FFHC First Financial Corporation WI 12/24/80 13.40 0.26 0.96 13.29 0.80
FFHH FSF Financial Corp. MN 10/07/94 19.67 0.03 0.66 5.24 5.93
FFHS First Franklin Corporation OH 01/26/88 13.74 0.52 0.19 2.13 (1.04)
FFIC Flushing Financial Corporation NY 11/21/95 25.32 0.29 0.93 5.58 NA
FFKY First Federal Financial Corporation of Kentucky KY 07/15/87 19.16 0.64 1.30 9.47 NA
FFLC FFLC Bancorp, Inc. FL 01/04/94 22.50 0.19 0.70 4.56 NA
FFOH Fidelity Financial of Ohio, Inc. OH 03/04/96 18.68 0.08 0.65 4.55 NA
FFPB First Palm Beach Bancorp, Inc. FL 09/29/93 14.05 0.73 (0.03) (0.41) (23.86)
FFSL First Independence Corporation KS 10/08/93 18.18 0.87 0.43 3.87 (9.45)
FFSW FirstFederal Financial Services Corp OH 03/31/87 15.48 0.38 1.02 13.05 (1.59)
FFSX First Federal Savings Bank of Siouxland (MHC) IA 07/13/92 16.25 0.11 0.43 5.20 NA
FFWC FFW Corporation IN 04/05/93 12.11 0.16 0.85 8.41 NA
FFWD Wood Bancorp, Inc. OH 08/31/93 14.67 0.24 1.07 8.25 NA
FFYF FFY Financial Corp. OH 06/28/93 16.27 0.67 0.90 5.73 (7.93)
FGHC First Georgia Holding, Inc. GA 02/11/87 9.55 3.10 0.66 7.97 (2.56)
FIBC Financial Bancorp, Inc. NY 08/17/94 17.84 1.81 0.57 5.77 NA
FISB First Indiana Corporation IN 08/02/83 11.34 1.50 0.84 8.86 0.20
FKFS First Keystone Financial, Inc. PA 01/26/95 15.86 1.60 0.55 7.40 NA
FKKY Frankfort First Bancorp, Inc. KY 07/10/95 50.66 0.09 (0.28) (1.11) NA
FLAG FLAG Financial Corporation GA 12/11/86 13.05 4.27 (0.03) (0.31) NA
FLFC First Liberty Financial Corp. GA 12/06/83 9.10 0.81 0.87 11.84 NA
FLGS Flagstar Bancorp, Inc. MI NA NA 3.41 NA NA NA
FLKY First Lancaster Bancshares, Inc. KY 07/01/96 NA 0.75 1.13 3.53 NA
FMBD First Mutual Bancorp, Inc. IL 07/05/95 18.95 0.18 0.10 0.59 (20.35)
FMCO FMS Financial Corp. NJ 12/14/88 15.26 1.06 0.70 10.75 NA
FMSB First Mutual Savings Bank WA 12/17/85 10.68 0.01 1.02 15.33 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Tangible
Total Total Total Equity/ Equity/
Assets Deposits Equity Assets Tang Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%) (%)
- ------ ----------- ----- -------- ------ ------ ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FNGB First Northern Capital Corporation WI 12/29/83 637,725 477,889 71,889 11.27 11.27
FOBC Fed One Bancorp, Inc. WV 01/19/95 356,718 256,024 39,472 11.07 10.61
FRC First Republic Bancorp Inc. CA NA 2,238,033 1,404,592 160,556 7.17 7.17
FSBI Fidelity Bancorp, Inc. PA 06/24/88 363,302 238,636 24,537 6.75 6.75
FSFC First Southeast Financial Corporation SC 10/08/93 334,751 282,800 34,239 10.23 10.23
FSLA First Savings Bank (MHC) NJ 07/10/92 1,032,809 815,166 97,281 9.42 8.49
FSNJ Bayonne Bancshares, Inc. NJ 08/22/97 577,004 444,139 48,079 8.33 8.33
FSPG First Home Bancorp, Inc. NJ 04/20/87 522,396 309,039 34,802 6.66 6.56
FSPT FirstSpartan Financial Corp. SC 07/09/97 388,311 338,174 45,846 11.81 11.81
FSTC First Citizens Corporation GA 03/01/86 338,857 280,573 32,978 9.73 7.73
FTF Texarkana First Financial Corporation AR 07/07/95 171,358 140,132 26,907 15.70 15.70
FTFC First Federal Capital Corp. WI 11/02/89 1,571,981 1,079,923 101,243 6.44 6.08
FTNB Fulton Bancorp, Inc. MO 10/18/96 99,464 67,096 24,875 25.01 25.01
FTSB Fort Thomas Financial Corporation KY 06/28/95 96,940 70,379 15,553 16.04 16.04
FWWB First Savings Bank of Washington Bancorp, Inc. WA 11/01/95 1,074,166 551,589 152,907 14.23 13.29
GAF GA Financial, Inc. PA 03/26/96 749,748 458,727 113,792 15.18 15.04
GBCI Glacier Bancorp, Inc. MT 03/30/84 567,610 329,992 55,284 9.74 9.51
GDVS Greater Delaware Valley Savings Bank (MHC) PA 03/03/95 244,384 188,084 28,267 11.57 11.57
GDW Golden West Financial Corporation CA 05/29/59 39,095,082 24,036,660 2,490,890 6.37 6.37
GFCO Glenway Financial Corp. OH 11/30/90 287,088 226,853 27,238 9.49 9.37
GFED Guaranty Federal Savings Bank (MHC) MO 04/10/95 199,554 151,246 27,490 13.78 13.78
GFSB GFS Bancorp, Inc. IA 01/06/94 92,063 59,551 10,537 11.45 11.45
GOSB GSB Financial Corporation NY 07/09/97 154,649 96,511 12,545 8.11 8.11
GPT GreenPoint Financial Corporation NY 01/28/94 13,300,046 11,176,922 1,371,116 10.31 6.07
GRTR Greater New York Savings Bank (The) NY 06/17/87 2,579,098 1,643,100 216,758 8.40 8.40
GSB Golden State Bancorp, Inc. CA 10/01/83 16,218,259 9,356,909 1,012,074 6.24 5.66
GSBC Great Southern Bancorp, Inc. MO 12/14/89 707,841 459,236 60,348 8.53 8.53
GSFC Green Street Financial Corp. NC 04/04/96 174,605 108,430 63,299 36.25 36.25
GSLA GS Financial Corp. LA 04/01/97 123,245 57,702 56,244 45.64 45.64
GTFN Great Financial Corporation KY 03/31/94 3,046,227 1,893,545 281,284 9.23 8.88
GTPS Great American Bancorp, Inc. IL 06/30/95 136,977 106,367 29,363 21.44 21.44
GUPB GFSB Bancorp, Inc. NM 06/30/95 86,911 55,285 14,166 16.30 16.30
GWBC Gateway Bancorp, Inc. KY 01/18/95 63,828 46,318 17,262 27.04 27.04
HALL Hallmark Capital Corp. WI 01/03/94 409,820 281,512 29,672 7.24 7.24
HARB Harbor Florida Bancorp, Inc. FL 01/06/94 1,116,718 904,904 93,706 8.39 8.14
HARL Harleysville Savings Bank PA 08/04/87 336,666 272,883 21,991 6.53 6.53
HARS Harris Savings Bank (MHC) PA 01/25/94 2,044,294 1,162,559 163,763 8.01 7.08
HAVN Haven Bancorp, Inc. NY 09/23/93 1,781,545 1,236,274 105,933 5.95 5.93
HBBI Home Building Bancorp, Inc. IN 02/08/95 45,064 35,212 5,774 12.81 12.81
HBEI Home Bancorp of Elgin, Inc. IL 09/27/96 352,577 249,086 94,122 26.70 26.70
HBFW Home Bancorp IN 03/30/95 334,862 287,705 44,491 13.29 13.29
HBNK Highland Federal Bank, a Federal Savings Bank CA NA 504,381 367,557 37,696 7.47 7.47
HBS Haywood Bancshares, Inc. NC 12/18/87 150,416 116,800 20,959 13.93 13.50
HCBB HCB Bancshares, Inc. AR 05/07/97 180,417 154,786 13,992 7.76 7.01
HCFC Home City Financial Corporation OH 12/30/96 68,235 49,795 14,061 20.61 20.61
HEMT HF Bancorp, Inc. CA 06/30/95 984,749 839,655 81,027 8.23 NA
HFFB Harrodsburg First Financial Bancorp, Inc. KY 10/04/95 108,950 78,405 29,334 26.92 26.92
HFFC HF Financial Corp. SD 04/08/92 561,664 418,186 52,974 9.43 9.43
HFGI Harrington Financial Group, Inc. IN NA 446,797 136,175 24,994 5.59 5.59
<CAPTION>
Risk-Based NPAs + Loans One Year
Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Risk-Weightd Assets Avg Assets Avg Equity Assets
Ticker Institution State IPO Date Assets (%) (%) (%) (%) (%)
- ------ ----------- ----- -------- ---------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FNGB First Northern Capital Corporation WI 12/29/83 16.38 0.06 0.63 5.46 12.87
FOBC Fed One Bancorp, Inc. WV 01/19/95 23.50 0.40 0.68 5.87 1.73
FRC First Republic Bancorp Inc. CA NA 10.88 1.19 0.70 11.13 9.76
FSBI Fidelity Bancorp, Inc. PA 06/24/88 17.89 0.44 0.52 7.58 NA
FSFC First Southeast Financial Corporation SC 10/08/93 19.97 0.11 0.01 0.09 NA
FSLA First Savings Bank (MHC) NJ 07/10/92 20.45 0.68 0.58 6.20 (17.62)
FSNJ Bayonne Bancshares, Inc. NJ 08/22/97 24.06 1.04 (0.52) (6.56) NA
FSPG First Home Bancorp, Inc. NJ 04/20/87 15.78 0.64 0.89 13.59 (6.37)
FSPT FirstSpartan Financial Corp. SC 07/09/97 19.59 NA NA NA NA
FSTC First Citizens Corporation GA 03/01/86 10.57 NA 1.92 20.21 NA
FTF Texarkana First Financial Corporation AR 07/07/95 25.50 0.46 1.40 8.49 (7.32)
FTFC First Federal Capital Corp. WI 11/02/89 NA NA 0.78 12.12 NA
FTNB Fulton Bancorp, Inc. MO 10/18/96 28.15 0.81 NA NA NA
FTSB Fort Thomas Financial Corporation KY 06/28/95 23.15 1.48 0.54 2.99 NA
FWWB First Savings Bank of Washington Bancorp, Inc. WA 11/01/95 23.59 0.30 1.06 6.89 NA
GAF GA Financial, Inc. PA 03/26/96 36.54 0.12 1.00 5.20 (13.41)
GBCI Glacier Bancorp, Inc. MT 03/30/84 15.82 0.27 1.38 14.50 NA
GDVS Greater Delaware Valley Savings Bank (MHC) PA 03/03/95 25.54 2.79 0.32 2.73 (10.14)
GDW Golden West Financial Corporation CA 05/29/59 10.42 1.31 1.02 16.35 8.68
GFCO Glenway Financial Corp. OH 11/30/90 13.01 0.31 0.43 4.47 NA
GFED Guaranty Federal Savings Bank (MHC) MO 04/10/95 22.07 0.50 0.60 4.30 NA
GFSB GFS Bancorp, Inc. IA 01/06/94 NA NA 0.99 8.51 NA
GOSB GSB Financial Corporation NY 07/09/97 NA NA NA NA NA
GPT GreenPoint Financial Corporation NY 01/28/94 13.92 2.89 1.07 9.97 (0.54)
GRTR Greater New York Savings Bank (The) NY 06/17/87 NA NA 0.76 9.34 NA
GSB Golden State Bancorp, Inc. CA 10/01/83 10.02 1.46 0.33 5.14 NA
GSBC Great Southern Bancorp, Inc. MO 12/14/89 10.37 1.91 1.36 15.02 NA
GSFC Green Street Financial Corp. NC 04/04/96 85.59 0.16 1.37 3.88 (17.53)
GSLA GS Financial Corp. LA 04/01/97 107.61 0.11 NA NA (13.50)
GTFN Great Financial Corporation KY 03/31/94 16.74 3.06 0.76 7.88 NA
GTPS Great American Bancorp, Inc. IL 06/30/95 NA 0.23 0.26 1.10 NA
GUPB GFSB Bancorp, Inc. NM 06/30/95 NA 0.18 0.75 3.84 NA
GWBC Gateway Bancorp, Inc. KY 01/18/95 79.78 0.90 0.80 3.11 NA
HALL Hallmark Capital Corp. WI 01/03/94 NA 0.16 0.48 6.83 (4.32)
HARB Harbor Florida Bancorp, Inc. FL 01/06/94 13.51 0.46 0.95 11.58 NA
HARL Harleysville Savings Bank PA 08/04/87 12.64 0.03 0.75 11.71 (16.96)
HARS Harris Savings Bank (MHC) PA 01/25/94 12.92 0.65 0.50 5.81 (5.14)
HAVN Haven Bancorp, Inc. NY 09/23/93 13.53 0.74 0.57 9.31 NA
HBBI Home Building Bancorp, Inc. IN 02/08/95 20.58 0.38 0.20 NA NA
HBEI Home Bancorp of Elgin, Inc. IL 09/27/96 38.87 0.41 0.50 1.96 NA
HBFW Home Bancorp IN 03/30/95 21.40 0.05 0.56 3.96 (41.60)
HBNK Highland Federal Bank, a Federal Savings Bank CA NA 10.28 3.09 0.46 6.32 NA
HBS Haywood Bancshares, Inc. NC 12/18/87 26.32 1.97 0.81 5.43 NA
HCBB HCB Bancshares, Inc. AR 05/07/97 NA NA NA NA NA
HCFC Home City Financial Corporation OH 12/30/96 28.14 0.62 NA NA NA
HEMT HF Bancorp, Inc. CA 06/30/95 15.67 NA (0.28) (3.10) NA
HFFB Harrodsburg First Financial Bancorp, Inc. KY 10/04/95 42.62 0.47 1.03 3.80 NA
HFFC HF Financial Corp. SD 04/08/92 11.64 0.33 0.66 7.17 NA
HFGI Harrington Financial Group, Inc. IN NA 30.93 0.25 0.39 8.34 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Tangible Risk-Based
Total Total Total Equity/ Equity/ Capital/
Assets Deposits Equity Assets Tang Assets Risk-Weightd
Ticker Institution State IPO Date ($000) ($000) ($000) (%) (%) Assets (%)
- ------ ----------- ----- -------- ------ ------ ------ --- --- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HFNC HFNC Financial Corp. NC 12/29/95 895,394 443,840 161,060 17.99 17.99 35.44
HFSA Hardin Bancorp, Inc. MO 09/29/95 108,018 74,166 13,476 12.48 12.48 27.07
HHFC Harvest Home Financial Corporation OH 10/10/94 87,596 57,072 10,349 11.81 11.81 NA
HIFS Hingham Institution for Savings MA 12/20/88 217,586 158,115 20,358 9.36 9.36 14.62
HMCI HomeCorp, Inc. IL 06/22/90 331,608 304,671 21,689 6.54 6.54 7.54
HMLK Hemlock Federal Financial Corporation IL 04/02/97 164,913 129,456 30,244 18.34 18.34 38.03
HMNF HMN Financial, Inc. MN 06/30/94 566,865 365,386 81,798 14.43 14.43 24.44
HOMF Home Federal Bancorp IN 01/23/88 682,796 527,788 57,917 8.48 8.24 11.37
HPBC Home Port Bancorp, Inc. MA 08/25/88 198,748 131,137 20,980 10.56 10.56 16.94
HRBF Harbor Federal Bancorp, Inc. MD 08/12/94 216,370 170,580 27,899 12.89 12.89 25.10
HRZB Horizon Financial Corp. WA 08/01/86 518,661 428,471 80,911 15.60 15.60 29.44
HTHR Hawthorne Financial Corporation CA NA 863,096 754,390 51,264 5.94 5.94 10.41
HVFD Haverfield Corporation OH 03/19/85 346,157 271,049 29,577 8.54 8.54 10.08
HWEN Home Financial Bancorp IN 07/02/96 42,508 26,157 7,197 16.93 16.93 24.07
HZFS Horizon Financial Services Corporation IA 06/30/94 85,969 57,641 8,413 9.79 9.79 13.86
IBSF IBS Financial Corp. NJ 10/13/94 733,344 564,962 127,618 17.40 17.40 62.42
IFSB Independence Federal Savings Bank DC 06/06/85 258,460 198,836 17,791 6.88 6.14 14.65
INBI Industrial Bancorp OH 08/01/95 346,596 264,791 61,352 17.70 17.70 30.58
INCB Indiana Community Bank, SB IN 12/15/94 91,329 79,413 11,312 12.39 12.39 18.18
IPSW Ipswich Savings Bank MA 05/26/93 189,379 152,796 10,818 5.71 5.71 11.31
ISBF ISB Financial Corporation LA 04/07/95 947,107 776,590 114,029 12.04 10.43 19.06
ITLA ITLA Capital Corporation CA 10/24/95 850,201 689,021 93,434 10.99 10.95 12.20
IWBK InterWest Bancorp, Inc. WA NA 1,832,582 1,173,989 124,200 6.78 6.64 13.00
JOAC Joachim Bancorp, Inc. MO 12/28/95 34,938 24,606 9,838 28.16 28.16 45.70
JSB JSB Financial, Inc. NY 06/27/90 1,531,115 1,132,634 349,870 22.85 22.85 NA
JSBA Jefferson Savings Bancorp, Inc. MO 04/08/93 1,292,021 1,076,094 110,306 8.54 6.75 12.74
JXSB Jacksonville Savings Bank (MHC) IL 04/21/95 162,746 142,569 17,079 10.49 10.49 14.50
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 226,182 185,605 33,745 14.92 14.92 NA
KFBI Klamath First Bancorp, Inc. OR 10/05/95 727,903 416,205 142,281 19.55 19.55 34.94
KNK Kankakee Bancorp, Inc. IL 01/06/93 341,678 277,940 37,893 11.09 10.49 15.25
KSAV KS Bancorp, Inc. NC 12/30/93 106,121 83,837 14,352 13.52 13.52 NA
KSBK KSB Bancorp, Inc. ME 06/24/93 145,888 104,727 10,470 7.18 6.81 NA
KYF Kentucky First Bancorp, Inc. KY 08/29/95 88,959 55,443 14,727 16.55 16.55 27.07
LARK Landmark Bancshares, Inc. KS 03/28/94 228,100 143,413 31,455 13.79 13.79 25.76
LARL Laurel Capital Group, Inc. PA 02/20/87 211,987 175,019 21,262 10.03 10.03 19.35
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 299,989 225,146 39,820 13.27 12.39 26.66
LFCO Life Financial Corp. CA NA 195,290 136,519 41,745 21.38 21.38 9.96
LFED Leeds Federal Savings Bank (MHC) MD 05/02/94 281,899 230,081 45,623 16.18 16.18 35.08
LIFB Life Bancorp, Inc. VA 10/11/94 1,488,257 738,427 156,983 10.55 10.28 20.94
LISB Long Island Bancorp, Inc. NY 04/18/94 5,908,737 3,706,260 531,381 8.99 8.91 14.46
LOGN Logansport Financial Corp. IN 06/14/95 83,152 60,400 15,960 19.19 19.19 35.37
LONF London Financial Corporation OH 04/01/96 38,240 29,587 7,519 19.66 19.66 29.15
LSBI LSB Financial Corp. IN 02/03/95 194,117 130,793 17,184 8.85 8.85 10.59
LSBX Lawrence Savings Bank MA 05/02/86 366,318 249,541 31,828 8.69 8.69 16.45
LVSB Lakeview Financial Corp. NJ 12/22/93 481,646 373,514 45,837 9.52 7.76 NA
LXMO Lexington B&L Financial Corp. MO 06/06/96 59,236 42,085 16,775 28.32 28.32 44.78
MAFB MAF Bancorp, Inc. IL 01/12/90 3,321,464 2,301,664 258,384 7.78 6.87 13.84
MARN Marion Capital Holdings, Inc. IN 03/18/93 173,304 121,770 39,066 22.54 22.54 31.00
MASB MASSBANK Corp. MA 05/28/86 905,417 798,504 96,311 10.64 10.64 34.59
<CAPTION>
NPAs + Loans One Year
90+ Pst Due/ Return on Return on Cum Gap/
Assets Avg Assets Avg Equity Assets
Ticker Institution State IPO Date (%) (%) (%) (%)
- ------ ----------- ----- -------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
HFNC HFNC Financial Corp. NC 12/29/95 0.87 0.86 3.46 NA
HFSA Hardin Bancorp, Inc. MO 09/29/95 0.09 0.53 3.49 3.50
HHFC Harvest Home Financial Corporation OH 10/10/94 0.11 0.30 2.31 NA
HIFS Hingham Institution for Savings MA 12/20/88 0.41 1.22 12.54 (21.17)
HMCI HomeCorp, Inc. IL 06/22/90 3.35 0.13 2.16 0.48
HMLK Hemlock Federal Financial Corporation IL 04/02/97 0.00 NA NA NA
HMNF HMN Financial, Inc. MN 06/30/94 0.08 0.71 4.77 (17.01)
HOMF Home Federal Bancorp IN 01/23/88 0.46 1.05 12.62 (9.69)
HPBC Home Port Bancorp, Inc. MA 08/25/88 0.08 1.70 15.87 (15.37)
HRBF Harbor Federal Bancorp, Inc. MD 08/12/94 0.05 0.46 3.53 NA
HRZB Horizon Financial Corp. WA 08/01/86 0.00 1.57 9.98 (33.45)
HTHR Hawthorne Financial Corporation CA NA 7.17 0.45 8.34 (11.61)
HVFD Haverfield Corporation OH 03/19/85 1.04 0.57 6.68 (5.27)
HWEN Home Financial Bancorp IN 07/02/96 1.74 0.62 4.75 2.42
HZFS Horizon Financial Services Corporation IA 06/30/94 1.22 0.35 3.31 NA
IBSF IBS Financial Corp. NJ 10/13/94 0.08 0.49 2.62 (19.14)
IFSB Independence Federal Savings Bank DC 06/06/85 2.02 0.33 4.90 NA
INBI Industrial Bancorp OH 08/01/95 0.30 0.73 3.92 NA
INCB Indiana Community Bank, SB IN 12/15/94 NA 0.17 1.29 NA
IPSW Ipswich Savings Bank MA 05/26/93 1.52 1.23 20.50 (9.39)
ISBF ISB Financial Corporation LA 04/07/95 NA 0.62 4.57 NA
ITLA ITLA Capital Corporation CA 10/24/95 1.47 1.48 12.72 6.72
IWBK InterWest Bancorp, Inc. WA NA 0.64 0.84 12.54 NA
JOAC Joachim Bancorp, Inc. MO 12/28/95 0.20 0.46 1.55 NA
JSB JSB Financial, Inc. NY 06/27/90 NA 1.80 8.20 NA
JSBA Jefferson Savings Bancorp, Inc. MO 04/08/93 0.46 0.38 4.81 NA
JXSB Jacksonville Savings Bank (MHC) IL 04/21/95 NA 0.30 2.70 NA
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 0.78 1.02 6.40 NA
KFBI Klamath First Bancorp, Inc. OR 10/05/95 0.08 0.81 3.65 NA
KNK Kankakee Bancorp, Inc. IL 01/06/93 0.94 0.66 6.34 18.38
KSAV KS Bancorp, Inc. NC 12/30/93 0.35 0.96 6.89 NA
KSBK KSB Bancorp, Inc. ME 06/24/93 1.78 0.98 13.80 (19.61)
KYF Kentucky First Bancorp, Inc. KY 08/29/95 0.07 0.87 4.48 NA
LARK Landmark Bancshares, Inc. KS 03/28/94 0.31 0.88 5.95 (3.50)
LARL Laurel Capital Group, Inc. PA 02/20/87 0.43 1.13 10.82 NA
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 1.04 0.27 1.94 NA
LFCO Life Financial Corp. CA NA 1.92 NA NA NA
LFED Leeds Federal Savings Bank (MHC) MD 05/02/94 0.02 0.80 4.92 NA
LIFB Life Bancorp, Inc. VA 10/11/94 0.39 0.71 6.65 1.56
LISB Long Island Bancorp, Inc. NY 04/18/94 1.03 0.62 6.59 3.51
LOGN Logansport Financial Corp. IN 06/14/95 0.61 1.18 5.74 NA
LONF London Financial Corporation OH 04/01/96 0.80 0.66 3.17 NA
LSBI LSB Financial Corp. IN 02/03/95 1.17 0.77 8.34 (7.52)
LSBX Lawrence Savings Bank MA 05/02/86 0.30 1.75 20.96 NA
LVSB Lakeview Financial Corp. NJ 12/22/93 0.98 1.37 13.65 NA
LXMO Lexington B&L Financial Corp. MO 06/06/96 0.48 1.02 3.45 NA
MAFB MAF Bancorp, Inc. IL 01/12/90 0.45 0.88 11.26 4.25
MARN Marion Capital Holdings, Inc. IN 03/18/93 0.81 1.40 6.10 8.06
MASB MASSBANK Corp. MA 05/28/86 0.16 1.10 10.75 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Tangible Risk-Based
Total Total Total Equity/ Equity/ Capital/
Assets Deposits Equity Assets Tang Assets Risk-Weightd
Ticker Institution State IPO Date ($000) ($000) ($000) (%) (%) Assets (%)
- ------ ----------- ----- -------- ------ ------ ------ --- --- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MBB MSB Bancorp, Inc. NY 09/03/92 813,902 720,741 72,601 8.92 5.36 12.37
MBBC Monterey Bay Bancorp, Inc. CA 02/15/95 412,810 318,522 46,782 11.33 10.54 18.12
MBLF MBLA Financial Corp. MO 06/24/93 234,824 101,959 28,536 12.15 12.15 30.90
MBSP Mitchell Bancorp, Inc. NC 07/12/96 33,038 17,672 14,325 43.36 43.36 56.93
MCBN Mid-Coast Bancorp, Inc. ME 11/02/89 59,739 42,391 5,140 8.60 8.60 13.84
MCBS Mid Continent Bancshares Inc. KS 06/27/94 408,590 247,010 38,359 9.39 9.39 22.32
MDBK Medford Savings Bank MA 03/18/86 1,072,557 824,611 96,458 8.99 8.43 14.89
MECH Mechanics Savings Bank CT 06/26/96 823,575 659,636 84,279 10.23 10.23 17.44
MERI Meritrust Federal Savings Bank LA NA 228,485 206,303 18,746 8.20 8.20 18.23
METF Metropolitan Financial Corp. OH NA 821,280 664,564 32,492 3.96 3.59 7.69
MFBC MFB Corp. IN 03/25/94 248,241 167,517 33,891 13.65 13.65 27.47
MFCX Marshalltown Financial Corporation IA 03/31/94 127,528 106,406 20,074 15.74 15.74 33.13
MFFC Milton Federal Financial Corporation OH 10/07/94 199,886 138,683 26,264 13.14 13.14 24.41
MFLR Mayflower Co-operative Bank MA 12/23/87 124,688 100,918 11,759 9.43 9.28 15.64
MFSL Maryland Federal Bancorp, Inc. MD 06/02/87 1,157,445 807,362 97,006 8.38 8.29 14.53
MGNL Magna Bancorp, Inc. MS 03/13/91 1,353,242 915,395 138,370 10.23 9.98 15.66
MIFC Mid-Iowa Financial Corp. IA 10/14/92 125,541 81,573 11,740 9.35 9.34 18.50
MIVI Mississippi View Holding Company MN 03/24/95 69,775 55,352 13,171 18.88 18.88 31.60
MLBC ML Bancorp, Inc. PA 08/11/94 2,071,285 903,607 144,531 6.98 6.87 13.07
MONT Montgomery Financial Corp. IN 07/01/97 93,627 72,666 9,204 9.83 9.83 15.56
MRKF Market Financial Corporation OH 03/27/97 56,578 35,918 19,804 35.00 35.00 NA
MSBF MSB Financial, Inc. MI 02/06/95 74,698 41,707 12,690 16.99 16.99 20.24
MSBK Mutual Savings Bank, FSB MI 07/17/92 673,398 404,687 40,887 6.07 6.07 15.62
MWBI Midwest Bancshares, Inc. IA 11/12/92 146,542 106,786 10,123 6.91 6.91 13.38
MWBX MetroWest Bank MA 10/10/86 566,517 469,389 42,191 7.45 7.45 9.57
MWFD Midwest Federal Financial Corp. WI 07/08/92 207,050 159,691 18,248 8.81 8.52 9.29
NASB North American Savings Bank, FSB MO 09/27/85 689,246 496,200 54,952 7.97 7.73 12.05
NBN Northeast Bancorp ME 08/19/87 247,525 154,672 19,197 7.76 6.88 11.38
NBSI North Bancshares, Inc. IL 12/21/93 119,586 71,633 16,904 14.14 14.14 31.95
NEIB Northeast Indiana Bancorp, Inc. IN 06/28/95 176,309 87,723 26,774 15.19 15.19 20.66
NHTB New Hampshire Thrift Bancshares, Inc. NH 05/22/86 315,280 263,847 24,120 7.65 6.59 NA
NMSB NewMil Bancorp, Inc. CT 02/01/86 323,061 275,392 31,719 9.82 9.82 18.57
NSBC NewSouth Bancorp, Inc. NC 04/08/97 254,863 231,781 19,155 7.52 7.52 11.85
NSLB NS&L Bancorp, Inc. MO 06/08/95 59,711 44,018 11,679 19.56 19.56 34.93
NSSB Norwich Financial Corp. CT 11/14/86 712,699 606,092 79,579 11.17 10.19 13.09
NSSY Norwalk Savings Society CT 06/16/94 663,668 430,104 51,910 7.82 7.59 13.90
NTMG Nutmeg Federal Savings & Loan Association CT NA 93,645 76,775 5,781 6.17 6.17 9.74
NWEQ Northwest Equity Corporation WI 10/11/94 96,891 63,213 11,093 11.45 11.45 12.91
NWSB Northwest Savings Bank (MHC) PA 11/07/94 2,091,363 1,640,815 198,494 9.49 8.99 17.29
NYB New York Bancorp Inc. NY 01/28/88 3,283,653 1,690,993 166,872 5.08 5.08 9.96
OCFC Ocean Financial Corp. NJ 07/03/96 1,448,122 960,804 235,394 16.26 16.26 29.86
OCN Ocwen Financial Corporation FL NA 2,786,879 2,198,603 243,864 8.75 8.39 9.13
OFCP Ottawa Financial Corporation MI 08/19/94 861,334 636,221 75,197 8.73 7.13 10.53
OHSL OHSL Financial Corp. OH 02/10/93 230,035 174,472 25,367 11.03 11.03 18.78
PALM Palfed, Inc. SC 12/15/85 664,863 562,232 54,773 8.24 8.24 9.90
PAMM PacificAmerica Money Center, Inc. CA 06/25/96 136,110 87,123 29,355 21.57 21.57 NA
PBCI Pamrapo Bancorp, Inc. NJ 11/14/89 370,987 302,350 47,255 12.74 12.65 25.93
PBCT People's Bank (MHC) CT 07/06/88 7,870,000 5,591,500 667,500 8.48 8.47 10.20
PBKB People's Bancshares, Inc. MA 10/30/86 585,678 335,568 33,470 5.71 5.51 14.40
<CAPTION>
NPAs + Loans One Year
90+ Pst Due/ Return on Return on Cum Gap/
Assets Avg Assets Avg Equity Assets
Ticker Institution State IPO Date (%) (%) (%) (%)
- ------ ----------- ----- -------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
MBB MSB Bancorp, Inc. NY 09/03/92 0.71 0.27 3.19 NA
MBBC Monterey Bay Bancorp, Inc. CA 02/15/95 0.33 0.24 2.05 NA
MBLF MBLA Financial Corp. MO 06/24/93 0.25 0.66 5.10 7.07
MBSP Mitchell Bancorp, Inc. NC 07/12/96 2.03 1.37 3.21 NA
MCBN Mid-Coast Bancorp, Inc. ME 11/02/89 0.73 0.43 4.89 NA
MCBS Mid Continent Bancshares Inc. KS 06/27/94 0.15 1.03 9.74 NA
MDBK Medford Savings Bank MA 03/18/86 0.37 1.08 12.09 (12.27)
MECH Mechanics Savings Bank CT 06/26/96 1.13 1.95 19.70 (9.08)
MERI Meritrust Federal Savings Bank LA NA 0.37 0.68 8.69 0.82
METF Metropolitan Financial Corp. OH NA 0.53 0.33 8.41 NA
MFBC MFB Corp. IN 03/25/94 0.08 0.57 3.71 NA
MFCX Marshalltown Financial Corporation IA 03/31/94 0.00 0.33 2.14 (11.55)
MFFC Milton Federal Financial Corporation OH 10/07/94 0.32 0.50 3.14 NA
MFLR Mayflower Co-operative Bank MA 12/23/87 1.03 1.00 10.41 (24.12)
MFSL Maryland Federal Bancorp, Inc. MD 06/02/87 0.47 0.62 7.48 NA
MGNL Magna Bancorp, Inc. MS 03/13/91 2.92 1.40 14.27 (4.52)
MIFC Mid-Iowa Financial Corp. IA 10/14/92 0.02 1.00 10.89 (7.59)
MIVI Mississippi View Holding Company MN 03/24/95 0.33 0.70 3.95 NA
MLBC ML Bancorp, Inc. PA 08/11/94 0.46 0.74 10.14 (24.24)
MONT Montgomery Financial Corp. IN 07/01/97 NA 0.31 3.11 NA
MRKF Market Financial Corporation OH 03/27/97 0.75 NA NA NA
MSBF MSB Financial, Inc. MI 02/06/95 0.66 1.20 6.45 NA
MSBK Mutual Savings Bank, FSB MI 07/17/92 0.11 0.11 1.90 (30.96)
MWBI Midwest Bancshares, Inc. IA 11/12/92 0.77 0.45 6.56 (6.60)
MWBX MetroWest Bank MA 10/10/86 0.91 1.38 17.90 (3.92)
MWFD Midwest Federal Financial Corp. WI 07/08/92 0.12 1.14 13.21 NA
NASB North American Savings Bank, FSB MO 09/27/85 3.34 1.22 16.90 NA
NBN Northeast Bancorp ME 08/19/87 1.37 0.52 6.44 NA
NBSI North Bancshares, Inc. IL 12/21/93 0.00 0.49 3.26 NA
NEIB Northeast Indiana Bancorp, Inc. IN 06/28/95 0.40 1.03 6.35 NA
NHTB New Hampshire Thrift Bancshares, Inc. NH 05/22/86 0.70 0.40 5.42 NA
NMSB NewMil Bancorp, Inc. CT 02/01/86 1.11 0.84 8.02 NA
NSBC NewSouth Bancorp, Inc. NC 04/08/97 0.54 NA NA 4.55
NSLB NS&L Bancorp, Inc. MO 06/08/95 0.03 0.49 2.39 NA
NSSB Norwich Financial Corp. CT 11/14/86 1.29 1.11 10.15 NA
NSSY Norwalk Savings Society CT 06/16/94 NA 0.89 11.42 2.56
NTMG Nutmeg Federal Savings & Loan Association CT NA NA 0.31 5.02 NA
NWEQ Northwest Equity Corporation WI 10/11/94 1.26 0.78 6.50 5.94
NWSB Northwest Savings Bank (MHC) PA 11/07/94 0.72 0.70 7.12 (5.22)
NYB New York Bancorp Inc. NY 01/28/88 1.22 1.40 26.81 (11.13)
OCFC Ocean Financial Corp. NJ 07/03/96 0.55 0.04 0.23 NA
OCN Ocwen Financial Corporation FL NA NA 2.96 35.60 11.89
OFCP Ottawa Financial Corporation MI 08/19/94 0.32 0.48 5.22 NA
OHSL OHSL Financial Corp. OH 02/10/93 0.14 0.60 5.27 NA
PALM Palfed, Inc. SC 12/15/85 2.12 0.11 1.31 NA
PAMM PacificAmerica Money Center, Inc. CA 06/25/96 4.97 NA NA NA
PBCI Pamrapo Bancorp, Inc. NJ 11/14/89 2.77 0.90 6.27 NA
PBCT People's Bank (MHC) CT 07/06/88 0.90 1.14 13.83 NA
PBKB People's Bancshares, Inc. MA 10/30/86 0.82 0.85 14.72 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Tangible
Total Total Total Equity/ Equity/
Assets Deposits Equity Assets Tang Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%) (%)
- ------ ----------- ----- -------- ------ ------ ------- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PCBC Perry County Financial Corporation MO 02/13/95 81,105 60,692 15,570 19.20 19.20
PCCI Pacific Crest Capital, Inc. CA NA 371,126 304,954 26,288 7.08 7.08
PDB Piedmont Bancorp, Inc. NC 12/08/95 122,761 84,860 20,416 16.63 16.63
PEEK Peekskill Financial Corporation NY 12/29/95 182,560 132,418 46,966 25.73 25.73
PERM Permanent Bancorp, Inc. IN 04/04/94 433,239 283,737 39,696 9.16 9.04
PERT Perpetual Bank (MHC) SC 10/26/93 256,211 193,079 30,302 11.83 11.83
PETE Primary Bank NH 10/14/93 431,683 311,571 29,936 6.93 6.93
PFDC Peoples Bancorp IN 07/07/87 287,564 239,766 43,723 15.20 15.20
PFED Park Bancorp, Inc. IL 08/12/96 175,569 128,020 39,553 22.53 22.53
PFFB PFF Bancorp, Inc. CA 03/29/96 2,631,413 1,723,741 271,617 10.32 10.22
PFFC Peoples Financial Corporation OH 09/13/96 86,486 61,775 23,534 27.21 27.21
PFNC Progress Financial Corporation PA 07/18/83 418,658 301,909 22,031 5.26 4.68
PFSB PennFed Financial Services, Inc. NJ 07/15/94 1,321,751 918,160 97,270 7.36 6.23
PFSL Pocahontas Federal Savings & Loan Assoc. (MHC) AR 04/05/94 378,700 141,062 24,088 6.36 6.36
PHBK Peoples Heritage Financial Group, Inc. ME 12/04/86 5,591,180 4,213,956 431,722 7.72 6.59
PHFC Pittsburgh Home Financial Corp. PA 04/01/96 256,265 138,770 27,986 10.92 10.81
PHSB Peoples Home Savings Bank (MHC) PA 07/10/97 214,759 180,844 17,270 8.04 8.04
PKPS Poughkeepsie Financial Corp. NY 11/19/85 880,196 599,879 73,631 8.37 8.37
PLSK Pulaski Savings Bank (MHC) NJ 04/03/97 177,348 149,445 21,119 11.91 11.91
PMFI Perpetual Midwest Financial, Inc. IA 03/31/94 397,229 305,165 33,890 8.53 8.53
POBS Portsmouth Bank Shares, Inc. NH 02/09/88 259,453 189,869 67,291 25.94 25.94
PRBC Prestige Bancorp, Inc. PA 06/27/96 135,721 88,896 15,109 11.13 11.13
PROV Provident Financial Holdings, Inc. CA 06/28/96 615,500 508,758 85,447 13.88 13.88
PSBK Progressive Bank, Inc. NY 08/01/84 878,823 797,897 75,142 8.55 7.71
PSFC Peoples-Sidney Financial Corporation OH 04/28/97 93,734 81,383 9,516 10.15 10.15
PSFI PS Financial, Inc. IL 11/27/96 82,662 42,025 31,980 38.69 38.69
PTRS Potters Financial Corporation OH 12/31/93 121,189 99,417 10,698 8.83 8.83
PULB Pulaski Bank, A Savings Bank (MHC) MO 05/11/94 180,232 150,091 23,506 13.04 13.04
PULS Pulse Bancorp, Inc. NJ 09/18/86 520,203 413,003 41,865 8.05 8.05
PVFC PVF Capital Corp. OH 12/30/92 356,251 273,553 25,019 7.02 7.02
PVSA Parkvale Financial Corporation PA 07/16/87 991,239 881,244 75,183 7.58 7.53
PWBC PennFirst Bancorp, Inc. PA 06/13/90 816,954 391,066 66,006 8.08 7.59
PWBK Pennwood Bancorp, Inc. PA 07/15/96 49,981 35,819 8,726 17.46 17.46
QCBC Quaker City Bancorp, Inc. CA 12/30/93 801,402 553,186 70,243 8.77 8.76
QCFB QCF Bancorp, Inc. MN 04/03/95 149,637 104,946 27,070 18.09 18.09
QCSB Queens County Bancorp, Inc. NY 11/23/93 1,466,906 1,031,119 173,887 11.85 11.85
RARB Raritan Bancorp, Inc. NJ 03/01/87 379,428 333,823 30,096 7.93 7.81
RCSB RCSB Financial, Inc. NY 04/29/86 4,104,367 2,342,879 312,577 7.62 7.45
REDF RedFed Bancorp Inc. CA 04/08/94 912,237 804,470 77,140 8.46 8.42
RELI Reliance Bancshares, Inc. WI 04/19/96 47,009 17,596 22,966 48.85 NA
RELY Reliance Bancorp, Inc. NY 03/31/94 1,976,764 1,436,037 162,670 8.23 6.07
RIVR River Valley Bancorp IN 12/20/96 140,442 116,020 17,404 12.39 12.23
ROSE TR Financial Corp. NY 06/29/93 3,551,783 2,397,143 220,350 6.20 6.20
RSLN Roslyn Bancorp, Inc. NY 01/13/97 3,159,301 1,771,208 636,423 20.14 20.06
RVSB Riverview Savings Bank (MHC) WA NA 229,652 168,622 25,811 11.24 10.36
SBFL Savings Bank of the Finger Lakes (MHC) NY 11/11/94 216,700 174,416 20,767 9.58 9.58
SCBS Southern Community Bancshares, Inc. AL 12/23/96 70,370 55,021 15,005 21.32 21.32
SCCB South Carolina Community Bancshares, Inc. SC 07/07/94 46,412 34,040 12,048 25.96 25.96
SECP Security Capital Corporation WI 01/03/94 3,673,401 2,353,167 594,981 16.20 16.20
<CAPTION>
Risk-Based NPAs + Loans One Year
Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Risk-Weightd Assets Avg Assets Avg Equity Assets
Ticker Institution State IPO Date Assets (%) (%) (%) (%) (%)
- ------ ----------- ----- -------- ---------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PCBC Perry County Financial Corporation MO 02/13/95 72.46 0.00 0.93 4.97 NA
PCCI Pacific Crest Capital, Inc. CA NA 10.13 1.29 1.06 13.40 (33.14)
PDB Piedmont Bancorp, Inc. NC 12/08/95 27.66 0.91 (0.43) (2.06) (2.20)
PEEK Peekskill Financial Corporation NY 12/29/95 95.57 1.22 0.98 3.57 NA
PERM Permanent Bancorp, Inc. IN 04/04/94 19.43 1.09 0.34 3.62 (12.71)
PERT Perpetual Bank (MHC) SC 10/26/93 18.08 NA 0.79 6.47 NA
PETE Primary Bank NH 10/14/93 NA 0.82 0.61 9.36 (7.90)
PFDC Peoples Bancorp IN 07/07/87 26.16 0.36 1.12 7.29 NA
PFED Park Bancorp, Inc. IL 08/12/96 47.21 0.21 0.87 4.01 NA
PFFB PFF Bancorp, Inc. CA 03/29/96 15.05 1.76 0.16 1.43 NA
PFFC Peoples Financial Corporation OH 09/13/96 44.76 0.00 0.59 2.31 NA
PFNC Progress Financial Corporation PA 07/18/83 9.48 1.46 0.54 10.31 NA
PFSB PennFed Financial Services, Inc. NJ 07/15/94 11.90 0.59 0.58 7.42 (7.44)
PFSL Pocahontas Federal Savings & Loan Assoc. (MHC) AR 04/05/94 15.48 0.15 0.60 9.76 NA
PHBK Peoples Heritage Financial Group, Inc. ME 12/04/86 13.10 0.91 1.29 15.97 NA
PHFC Pittsburgh Home Financial Corp. PA 04/01/96 22.92 1.60 0.62 4.71 NA
PHSB Peoples Home Savings Bank (MHC) PA 07/10/97 NA NA 0.35 4.37 NA
PKPS Poughkeepsie Financial Corp. NY 11/19/85 10.70 4.28 0.34 4.14 (3.58)
PLSK Pulaski Savings Bank (MHC) NJ 04/03/97 28.06 0.65 0.25 3.13 NA
PMFI Perpetual Midwest Financial, Inc. IA 03/31/94 11.69 0.40 0.12 1.38 NA
POBS Portsmouth Bank Shares, Inc. NH 02/09/88 NA 0.50 2.31 9.38 17.95
PRBC Prestige Bancorp, Inc. PA 06/27/96 24.04 0.30 0.37 2.83 (19.60)
PROV Provident Financial Holdings, Inc. CA 06/28/96 NA NA 0.32 2.26 NA
PSBK Progressive Bank, Inc. NY 08/01/84 13.53 0.85 0.99 12.02 (4.86)
PSFC Peoples-Sidney Financial Corporation OH 04/28/97 15.48 1.00 NA NA 21.31
PSFI PS Financial, Inc. IL 11/27/96 107.24 0.79 NA NA NA
PTRS Potters Financial Corporation OH 12/31/93 17.88 0.50 0.48 5.38 NA
PULB Pulaski Bank, A Savings Bank (MHC) MO 05/11/94 29.57 NA 0.67 5.21 NA
PULS Pulse Bancorp, Inc. NJ 09/18/86 26.78 0.69 0.72 9.26 NA
PVFC PVF Capital Corp. OH 12/30/92 9.52 1.20 1.05 15.56 NA
PVSA Parkvale Financial Corporation PA 07/16/87 13.39 0.27 0.73 10.15 (4.44)
PWBC PennFirst Bancorp, Inc. PA 06/13/90 19.60 0.65 0.46 6.15 (13.52)
PWBK Pennwood Bancorp, Inc. PA 07/15/96 33.30 0.98 0.69 3.54 NA
QCBC Quaker City Bancorp, Inc. CA 12/30/93 11.42 1.31 0.37 4.11 NA
QCFB QCF Bancorp, Inc. MN 04/03/95 26.00 0.40 1.36 7.17 NA
QCSB Queens County Bancorp, Inc. NY 11/23/93 16.46 0.68 1.63 11.29 (1.96)
RARB Raritan Bancorp, Inc. NJ 03/01/87 12.80 0.29 0.97 12.44 (12.91)
RCSB RCSB Financial, Inc. NY 04/29/86 10.52 0.76 0.96 12.07 (10.07)
REDF RedFed Bancorp Inc. CA 04/08/94 10.74 2.19 0.25 3.12 NA
RELI Reliance Bancshares, Inc. WI 04/19/96 NA NA 1.30 2.36 NA
RELY Reliance Bancorp, Inc. NY 03/31/94 14.48 0.79 0.58 7.10 NA
RIVR River Valley Bancorp IN 12/20/96 30.13 0.49 NA NA NA
ROSE TR Financial Corp. NY 06/29/93 17.08 0.46 0.98 15.84 (18.40)
RSLN Roslyn Bancorp, Inc. NY 01/13/97 33.30 0.27 NA NA NA
RVSB Riverview Savings Bank (MHC) WA NA 21.08 0.14 0.95 8.67 NA
SBFL Savings Bank of the Finger Lakes (MHC) NY 11/11/94 23.55 0.69 0.13 1.29 NA
SCBS Southern Community Bancshares, Inc. AL 12/23/96 NA 2.48 0.55 3.18 NA
SCCB South Carolina Community Bancshares, Inc. SC 07/07/94 47.90 1.78 0.83 3.00 NA
SECP Security Capital Corporation WI 01/03/94 17.95 0.12 1.26 7.89 (8.32)
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Tangible
Total Total Total Equity/ Equity/
Assets Deposits Equity Assets Tang Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%) (%)
- ------ ----------- ----- -------- ------ ------ ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SFED SFS Bancorp, Inc. NY 06/30/95 172,849 148,001 21,554 12.47 12.47
SFFC StateFed Financial Corporation IA 01/05/94 85,679 50,346 15,233 17.78 17.78
SFIN Statewide Financial Corp. NJ 10/02/95 673,214 448,470 65,480 9.73 9.71
SFNB Security First Network Bank GA NA 78,653 44,112 27,657 35.16 34.83
SFSB SuburbFed Financial Corp. IL 03/04/92 426,705 317,959 27,662 6.48 6.46
SFSL Security First Corp. OH 01/22/88 653,226 464,976 61,541 9.42 9.28
SGVB SGV Bancorp, Inc. CA 06/29/95 409,340 288,339 29,903 7.31 7.19
SHEN First Shenango Bancorp, Inc. PA 04/06/93 411,417 268,249 45,067 10.95 10.95
SISB SIS Bancorp, Inc. MA 02/08/95 1,434,545 1,015,404 103,273 7.20 7.20
SKAN Skaneateles Bancorp Inc. NY 06/02/86 247,697 208,362 16,961 6.85 6.65
SKBO First Carnegie Deposit (MHC) PA 04/04/97 NA NA NA NA NA
SMBC Southern Missouri Bancorp, Inc. MO 04/13/94 165,688 124,309 25,958 15.67 15.67
SMFC Sho-Me Financial Corp. MO 07/01/94 328,803 199,775 29,698 9.03 9.03
SOBI Sobieski Bancorp, Inc. IN 03/31/95 79,080 58,996 12,181 15.40 15.40
SOPN First Savings Bancorp, Inc. NC 01/06/94 294,217 204,317 67,195 22.84 22.84
SOSA Somerset Savings Bank MA 07/09/86 514,502 452,011 32,569 6.33 6.33
SPBC St. Paul Bancorp, Inc. IL 05/18/87 4,611,394 3,295,211 396,763 8.60 8.58
SRN Southern Banc Company, Inc. (The) AL 10/05/95 104,978 86,570 17,735 16.89 16.75
SSB Scotland Bancorp, Inc. NC 04/01/96 69,479 42,451 25,730 37.03 37.03
SSFC South Street Financial Corp. NC 10/03/96 241,744 142,252 61,035 25.25 25.25
SSM Stone Street Bancorp, Inc. NC 04/01/96 106,115 66,774 30,618 28.85 28.85
STFR St. Francis Capital Corporation WI 06/21/93 1,645,539 1,054,604 129,682 7.88 7.03
STND Standard Financial, Inc. IL 08/01/94 2,574,675 1,834,879 277,314 10.77 10.76
STSA Sterling Financial Corporation WA NA 1,686,395 963,898 93,480 5.54 5.04
SVRN Sovereign Bancorp, Inc. PA 08/12/86 10,898,572 5,856,717 534,037 4.90 3.95
SWBI Southwest Bancshares, Inc. IL 06/24/92 378,325 278,345 41,599 11.00 11.00
SWCB Sandwich Co-operative Bank MA 07/25/86 501,894 401,781 39,894 7.95 7.63
SZB SouthFirst Bancshares, Inc. AL 02/14/95 97,283 62,542 13,616 14.00 14.00
TBK Tolland Bank CT 12/19/86 238,227 213,585 16,543 6.94 6.76
THR Three Rivers Financial Corp. MI 08/24/95 91,165 59,997 12,540 13.76 13.71
THRD TF Financial Corporation PA 07/13/94 640,746 460,847 71,227 11.12 9.89
TPNZ Tappan Zee Financial, Inc. NY 10/05/95 124,150 100,866 21,126 17.02 17.02
TRIC Tri-County Bancorp, Inc. WY 09/30/93 89,457 46,842 13,702 15.32 15.32
TSBS Peoples Bancorp, Inc. (MHC) NJ 08/03/95 631,000 487,855 106,513 16.88 15.71
TSH Teche Holding Co. LA 04/19/95 406,253 278,546 53,384 13.14 13.14
TWIN Twin City Bancorp, Inc. TN 01/04/95 107,345 90,387 13,800 12.86 12.86
UBMT United Financial Corporation MT 09/23/86 105,600 74,059 24,592 23.29 23.29
UFRM United Federal Savings Bank NC NA 275,530 244,779 20,589 7.47 7.47
USAB USABancshares, Inc. PA NA 48,303 38,565 5,196 10.76 10.58
VABF Virginia Beach Federal Financial Corporation VA 11/01/80 617,818 386,750 42,306 6.85 6.85
VFFC Virginia First Financial Corporation VA 01/01/78 817,313 595,126 65,891 8.06 7.80
WAMU Washington Mutual Inc. WA 03/11/83 48,763,153 23,983,043 2,556,310 5.24 5.00
WAYN Wayne Savings & Loan Co. (MHC) OH 06/25/93 254,230 212,808 23,505 9.25 9.25
WBST Webster Financial Corporation CT 12/12/86 5,943,766 4,006,688 298,538 5.02 4.32
WCBI Westco Bancorp, Inc. IL 06/26/92 311,613 256,129 47,498 15.24 15.24
WCFB Webster City Federal Savings Bank (MHC) IA 08/15/94 94,699 71,402 22,113 23.35 23.35
WEFC Wells Financial Corp. MN 04/11/95 202,035 143,701 28,674 14.19 14.19
WEHO Westwood Homestead Financial Corporation OH 09/30/96 134,655 82,532 39,598 29.41 29.41
WES Westcorp, Inc. CA 05/01/86 3,678,193 1,997,051 332,869 9.05 9.03
<CAPTION>
Risk-Based NPAs + Loans One Year
Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Risk-Weightd Assets Avg Assets Avg Equity Assets
Ticker Institution State IPO Date Assets (%) (%) (%) (%) (%)
- ------ ----------- ----- -------- ---------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SFED SFS Bancorp, Inc. NY 06/30/95 23.42 0.73 0.44 3.48 NA
SFFC StateFed Financial Corporation IA 01/05/94 NA NA 1.13 6.11 NA
SFIN Statewide Financial Corp. NJ 10/02/95 23.67 0.43 NA NA NA
SFNB Security First Network Bank GA NA NA NA (28.09) (68.24) NA
SFSB SuburbFed Financial Corp. IL 03/04/92 13.21 0.48 0.39 5.87 NA
SFSL Security First Corp. OH 01/22/88 10.34 0.28 1.07 11.51 NA
SGVB SGV Bancorp, Inc. CA 06/29/95 13.81 NA 0.20 2.38 NA
SHEN First Shenango Bancorp, Inc. PA 04/06/93 16.91 0.54 0.89 7.84 NA
SISB SIS Bancorp, Inc. MA 02/08/95 11.88 0.47 1.39 19.13 1.59
SKAN Skaneateles Bancorp Inc. NY 06/02/86 10.05 1.90 0.70 10.40 9.05
SKBO First Carnegie Deposit (MHC) PA 04/04/97 NA NA 0.86 7.38 NA
SMBC Southern Missouri Bancorp, Inc. MO 04/13/94 24.20 1.10 0.71 4.42 NA
SMFC Sho-Me Financial Corp. MO 07/01/94 13.80 0.14 1.04 10.48 NA
SOBI Sobieski Bancorp, Inc. IN 03/31/95 28.36 0.25 0.28 1.63 NA
SOPN First Savings Bancorp, Inc. NC 01/06/94 51.68 0.08 1.42 5.83 (41.76)
SOSA Somerset Savings Bank MA 07/09/86 8.96 6.28 0.80 13.73 1.33
SPBC St. Paul Bancorp, Inc. IL 05/18/87 15.74 0.32 0.72 8.13 (3.09)
SRN Southern Banc Company, Inc. (The) AL 10/05/95 NA 0.00 0.14 0.77 NA
SSB Scotland Bancorp, Inc. NC 04/01/96 57.62 0.00 1.41 3.89 NA
SSFC South Street Financial Corp. NC 10/03/96 73.02 0.27 0.90 4.40 NA
SSM Stone Street Bancorp, Inc. NC 04/01/96 46.01 0.27 1.44 4.05 (26.86)
STFR St. Francis Capital Corporation WI 06/21/93 11.29 0.19 0.65 7.38 (10.68)
STND Standard Financial, Inc. IL 08/01/94 18.57 0.22 0.50 4.50 (16.08)
STSA Sterling Financial Corporation WA NA 13.13 0.61 0.22 3.95 (6.13)
SVRN Sovereign Bancorp, Inc. PA 08/12/86 10.31 0.57 0.51 10.06 (9.31)
SWBI Southwest Bancshares, Inc. IL 06/24/92 16.56 0.30 0.74 6.94 (24.33)
SWCB Sandwich Co-operative Bank MA 07/25/86 13.23 0.83 0.96 11.95 NA
SZB SouthFirst Bancshares, Inc. AL 02/14/95 21.47 0.75 (0.03) (0.20) NA
TBK Tolland Bank CT 12/19/86 11.86 2.13 0.76 11.27 14.27
THR Three Rivers Financial Corp. MI 08/24/95 21.81 1.21 0.57 3.91 NA
THRD TF Financial Corporation PA 07/13/94 20.11 0.33 0.54 4.77 NA
TPNZ Tappan Zee Financial, Inc. NY 10/05/95 36.45 1.73 0.72 4.06 NA
TRIC Tri-County Bancorp, Inc. WY 09/30/93 34.57 0.00 0.80 5.36 NA
TSBS Peoples Bancorp, Inc. (MHC) NJ 08/03/95 26.77 0.73 NA NA NA
TSH Teche Holding Co. LA 04/19/95 20.75 0.27 0.70 5.06 NA
TWIN Twin City Bancorp, Inc. TN 01/04/95 21.54 0.16 0.53 4.19 NA
UBMT United Financial Corporation MT 09/23/86 NA NA 1.07 4.58 NA
UFRM United Federal Savings Bank NC NA 10.40 0.58 0.22 2.92 6.08
USAB USABancshares, Inc. PA NA 25.60 0.67 0.86 4.44 NA
VABF Virginia Beach Federal Financial Corporation VA 11/01/80 11.46 1.26 0.21 3.16 NA
VFFC Virginia First Financial Corporation VA 01/01/78 10.52 2.29 1.38 16.99 7.62
WAMU Washington Mutual Inc. WA 03/11/83 NA 0.81 0.35 6.27 (1.87)
WAYN Wayne Savings & Loan Co. (MHC) OH 06/25/93 17.28 0.73 0.31 3.39 NA
WBST Webster Financial Corporation CT 12/12/86 12.46 0.85 0.42 7.85 (1.06)
WCBI Westco Bancorp, Inc. IL 06/26/92 27.46 0.60 1.13 7.30 NA
WCFB Webster City Federal Savings Bank (MHC) IA 08/15/94 52.59 0.26 1.07 4.62 NA
WEFC Wells Financial Corp. MN 04/11/95 18.52 0.28 NA NA NA
WEHO Westwood Homestead Financial Corporation OH 09/30/96 40.27 0.06 0.69 2.45 (9.35)
WES Westcorp, Inc. CA 05/01/86 7.93 0.74 0.88 9.12 0.93
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Tangible Risk-Based
Total Total Total Equity/ Equity/ Capital/
Assets Deposits Equity Assets Tang Assets Risk-Weightd
Ticker Institution State IPO Date ($000) ($000) ($000) (%) (%) Assets (%)
- ------ ----------- ----- -------- ------ ------ ------ --- --- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WFI Winton Financial Corp. OH 08/04/88 317,392 234,140 22,557 7.11 6.97 10.61
WFSG Wilshire Financial Services Group Inc. OR 12/19/96 1,196,092 445,333 68,927 5.76 5.76 NA
WFSL Washington Federal, Inc. WA 11/17/82 5,760,385 2,869,890 696,013 12.08 11.15 18.62
WHGB WHG Bancshares Corporation MD 04/01/96 100,235 73,432 20,704 20.66 20.66 31.76
WOFC Western Ohio Financial Corporation OH 07/29/94 396,492 240,083 54,677 13.79 12.98 23.31
WRNB Warren Bancorp, Inc. MA 07/09/86 358,021 314,300 37,118 10.37 10.37 13.36
WSB Washington Savings Bank, FSB MD NA 258,330 225,218 21,453 8.30 8.30 19.10
WSFS WSFS Financial Corporation DE 11/26/86 1,508,540 755,463 78,511 5.20 5.16 9.87
WSTR WesterFed Financial Corporation MT 01/10/94 955,639 630,869 104,259 10.91 8.92 13.75
WVFC WVS Financial Corporation PA 11/29/93 294,693 170,879 32,889 11.16 11.16 24.52
WWFC Westwood Financial Corporation NJ 06/07/96 111,394 90,852 10,167 9.13 8.21 18.68
WYNE Wayne Bancorp, Inc. NJ 06/27/96 261,027 184,960 34,857 13.35 13.35 22.14
YFCB Yonkers Financial Corporation NY 04/18/96 288,089 204,156 42,914 14.90 14.90 34.17
YFED York Financial Corp. PA 02/01/84 1,162,393 993,106 100,083 8.61 8.61 11.14
First Citizens Financial Corporation MD 12/17/86 691,754 543,856 44,126 6.38 6.38 9.70
Average: 1,317,358 854,782 102,405 12.35 12.06 21.29
Median: 354,414 268,414 38,066 9.88 9.82 16.74
<CAPTION>
NPAs + Loans One Year
90+ Pst Due/ Return on Return on Cum Gap/
Assets Avg Assets Avg Equity Assets
Ticker Institution State IPO Date (%) (%) (%) (%)
- ------ ----------- ----- -------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
WFI Winton Financial Corp. OH 08/04/88 0.35 0.76 10.56 NA
WFSG Wilshire Financial Services Group Inc. OR 12/19/96 NA NA NA NA
WFSL Washington Federal, Inc. WA 11/17/82 0.73 1.67 14.35 NA
WHGB WHG Bancshares Corporation MD 04/01/96 0.15 0.52 2.25 NA
WOFC Western Ohio Financial Corporation OH 07/29/94 NA 0.32 2.25 NA
WRNB Warren Bancorp, Inc. MA 07/09/86 1.15 2.15 22.15 (6.21)
WSB Washington Savings Bank, FSB MD NA NA 0.50 5.89 NA
WSFS WSFS Financial Corporation DE 11/26/86 1.70 1.33 23.39 2.21
WSTR WesterFed Financial Corporation MT 01/10/94 0.25 0.65 5.15 NA
WVFC WVS Financial Corporation PA 11/29/93 0.30 1.06 8.63 NA
WWFC Westwood Financial Corporation NJ 06/07/96 0.13 0.49 5.12 NA
WYNE Wayne Bancorp, Inc. NJ 06/27/96 0.91 0.43 2.90 (16.88)
YFCB Yonkers Financial Corporation NY 04/18/96 0.57 0.86 5.07 (14.92)
YFED York Financial Corp. PA 02/01/84 2.39 0.61 7.46 (6.47)
First Citizens Financial Corporation MD 12/17/86 0.92 0.52 8.59 (8.87)
Average: 0.82 0.64 6.74 (5.98)
Median: 0.56 0.69 5.88 (5.27)
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/ Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
AABC Access Anytime Bancorp, Inc. NASDAQ 8.20 6.875 NM 105.28 105.28
AADV Advantage Bancorp, Inc. NASDAQ 136.63 42.250 34.63 145.49 155.62
ABBK Abington Bancorp, Inc. NASDAQ 56.13 30.500 15.17 162.84 180.79
ABCL Alliance Bancorp, Inc. NASDAQ 166.36 31.125 29.36 133.01 134.68
ABCW Anchor BanCorp Wisconsin, Inc. NASDAQ 237.53 26.250 17.74 198.11 201.92
AFBC Advance Financial Bancorp NASDAQ 17.62 16.250 NA 110.17 110.17
AFCB Affiliated Community Bancorp, Inc. NASDAQ 169.83 26.250 17.50 156.72 157.66
AFED AFSALA Bancorp, Inc. NASDAQ 23.37 16.063 NA 100.90 100.90
AFFFZ America First Financial Fund 1987-A LP NASDAQ 236.67 39.375 8.45 135.92 137.63
AHCI Ambanc Holding Co., Inc. NASDAQ 64.71 15.500 NM 108.47 108.47
AHM Ahmanson & Company (H.F.) NYSE 4,939.80 50.750 28.67 249.39 292.68
ALBC Albion Banc Corp. NASDAQ 5.81 23.250 86.11 97.04 97.04
ALBK ALBANK Financial Corporation NASDAQ 494.11 38.500 18.25 148.94 170.43
AMFC AMB Financial Corp. NASDAQ 13.98 14.500 21.64 99.18 99.18
ANA Acadiana Bancshares, Inc. AMSE 58.57 21.500 NA 126.62 126.62
ANBK American National Bancorp, Inc. NASDAQ 71.13 19.688 51.81 150.52 150.52
ANDB Andover Bancorp, Inc. NASDAQ 157.03 30.500 11.82 155.77 155.77
ASBI Ameriana Bancorp NASDAQ 63.80 19.750 26.69 146.40 146.51
ASBP ASB Financial Corp. NASDAQ 22.59 13.125 31.25 129.31 129.31
ASFC Astoria Financial Corporation NASDAQ 1,002.40 48.125 25.20 168.33 200.44
ATSB AmTrust Capital Corp. NASDAQ 6.84 13.000 29.55 94.75 95.80
AVND Avondale Financial Corp. NASDAQ 49.80 14.250 NM 89.91 89.91
BANC BankAtlantic Bancorp, Inc. NASDAQ 286.80 12.500 15.82 183.02 222.82
BDJI First Federal Bancorporation NASDAQ 14.33 21.000 36.21 119.25 119.25
BFD BostonFed Bancorp, Inc. AMSE 106.64 18.875 24.84 122.80 127.02
BFFC Big Foot Financial Corporation NASDAQ 43.03 17.125 NA 119.34 119.34
BFSB Bedford Bancshares, Inc. NASDAQ 27.56 24.125 19.94 135.92 135.92
BKC American Bank of Connecticut AMSE 86.75 37.625 12.26 172.83 180.02
BKCO Bankers Corp. NASDAQ 350.18 28.250 13.58 172.05 174.60
BKCT Bancorp Connecticut, Inc. NASDAQ 77.91 30.750 15.61 177.44 177.44
BKUNA BankUnited Financial Corporation NASDAQ 106.43 12.000 44.44 158.10 195.12
BNKU Bank United Corporation NASDAQ 1,141.39 36.125 NA 195.91 200.81
BPLS Bank Plus Corporation NASDAQ 209.98 10.875 NM 117.31 117.57
BSBC Branford Savings Bank NASDAQ 32.39 4.938 15.93 187.05 187.05
BVCC Bay View Capital Corporation NASDAQ 335.84 25.875 27.53 171.13 203.90
BWFC Bank West Financial Corporation NASDAQ 29.92 17.063 32.81 132.48 132.48
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
AABC Access Anytime Bancorp, Inc. NASDAQ 7.84 0.00 3.37 1,193,076
AADV Advantage Bancorp, Inc. NASDAQ 13.40 0.95 0.57 3,233,747
ABBK Abington Bancorp, Inc. NASDAQ 11.27 1.31 1.42 1,851,538
ABCL Alliance Bancorp, Inc. NASDAQ 11.85 2.12 0.86 5,344,900
ABCW Anchor BanCorp Wisconsin, Inc. NASDAQ 12.33 1.22 0.84 9,048,734
AFBC Advance Financial Bancorp NASDAQ 17.01 1.97 0.37 1,084,450
AFCB Affiliated Community Bancorp, Inc. NASDAQ 15.56 1.83 1.27 6,465,334
AFED AFSALA Bancorp, Inc. NASDAQ 14.68 1.00 3.09 1,454,750
AFFFZ America First Financial Fund 1987-A LP NASDAQ 10.80 4.06 1.80 6,010,589
AHCI Ambanc Holding Co., Inc. NASDAQ 14.04 1.29 3.55 4,392,023
AHM Ahmanson & Company (H.F.) NYSE 10.39 1.73 2.37 97,335,863
ALBC Albion Banc Corp. NASDAQ 8.47 1.38 0.03 250,051
ALBK ALBANK Financial Corporation NASDAQ 13.71 1.87 1.52 12,824,856
AMFC AMB Financial Corp. NASDAQ 14.84 1.66 0.02 963,798
ANA Acadiana Bancshares, Inc. AMSE 21.99 1.67 0.52 2,731,250
ANBK American National Bancorp, Inc. NASDAQ 14.08 0.61 1.00 3,613,011
ANDB Andover Bancorp, Inc. NASDAQ 12.55 2.23 2.43 5,148,458
ASBI Ameriana Bancorp NASDAQ 16.04 3.24 0.46 3,230,246
ASBP ASB Financial Corp. NASDAQ 20.13 3.05 2.11 1,721,412
ASFC Astoria Financial Corporation NASDAQ 13.17 1.25 2.05 20,978,152
ATSB AmTrust Capital Corp. NASDAQ 9.64 1.54 1.85 526,479
AVND Avondale Financial Corp. NASDAQ 8.20 0.00 1.24 3,494,545
BANC BankAtlantic Bancorp, Inc. NASDAQ 10.29 0.93 1.53 22,472,788
BDJI First Federal Bancorporation NASDAQ 12.96 0.00 0.18 682,566
BFD BostonFed Bancorp, Inc. AMSE 11.50 1.48 1.71 5,947,302
BFFC Big Foot Financial Corporation NASDAQ 20.27 0.00 0.86 2,512,750
BFSB Bedford Bancshares, Inc. NASDAQ 20.35 2.32 0.26 1,142,425
BKC American Bank of Connecticut AMSE 14.32 3.83 0.17 2,305,700
BKCO Bankers Corp. NASDAQ 13.64 2.27 1.32 12,391,848
BKCT Bancorp Connecticut, Inc. NASDAQ 18.19 3.25 0.57 2,533,716
BKUNA BankUnited Financial Corporation NASDAQ 5.89 0.00 3.59 8,869,041
BNKU Bank United Corporation NASDAQ 9.98 1.55 2.01 31,595,596
BPLS Bank Plus Corporation NASDAQ 5.94 0.00 4.34 19,308,340
BSBC Branford Savings Bank NASDAQ 17.36 1.62 2.64 6,559,397
BVCC Bay View Capital Corporation NASDAQ 10.85 1.24 4.57 12,979,260
BWFC Bank West Financial Corporation NASDAQ 19.22 1.64 2.36 1,753,475
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
BYFC Broadway Financial Corporation NASDAQ 9.19 11.000 NM 75.09 75.09
CAFI Camco Financial Corporation NASDAQ 57.15 17.781 16.77 121.95 132.20
CAPS Capital Savings Bancorp, Inc. NASDAQ 29.80 15.750 19.44 139.63 139.63
CASB Cascade Financial Corporation NASDAQ 34.06 13.250 31.55 150.91 150.91
CASH First Midwest Financial, Inc. NASDAQ 49.72 18.188 18.95 116.44 131.42
CATB Catskill Financial Corporation NASDAQ 80.21 16.375 19.97 108.59 108.59
CBCI Calumet Bancorp, Inc. NASDAQ 89.71 42.500 17.93 116.53 116.53
CBES CBES Bancorp, Inc. NASDAQ 18.06 17.625 NA 103.19 103.19
CBK Citizens First Financial Corp. AMSE 37.98 16.000 57.14 99.13 99.13
CBNH Community Bankshares, Inc. NASDAQ 104.22 41.875 19.39 241.77 241.77
CBSA Coastal Bancorp, Inc. NASDAQ 146.66 29.500 20.92 150.28 180.76
CBSB Charter Financial, Inc. NASDAQ 83.51 20.125 19.35 146.79 165.91
CCFH CCF Holding Company NASDAQ 13.94 17.000 NM 118.38 118.38
CEBK Central Co-operative Bank NASDAQ 38.32 19.500 13.36 112.07 125.24
CENB Century Bancorp, Inc. NASDAQ 32.38 79.500 NA 108.24 108.24
CENF CENFED Financial Corporation NASDAQ 189.04 33.000 17.19 158.27 158.58
CFB Commercial Federal Corporation NYSE 906.58 42.063 20.93 212.76 239.95
CFBC Community First Banking Company NASDAQ 75.22 33.875 NA 108.40 109.91
CFCP Coastal Financial Corporation NASDAQ 109.06 23.500 25.82 351.27 351.27
CFFC Community Financial Corporation NASDAQ 27.74 21.750 16.48 115.32 115.32
CFNC Carolina Fincorp, Inc. NASDAQ 32.17 17.375 NA 126.46 126.46
CFSB CFSB Bancorp, Inc. NASDAQ 132.51 26.000 20.16 205.53 205.53
CFTP Community Federal Bancorp, Inc. NASDAQ 83.32 18.000 28.57 128.94 128.94
CFX CFX Corporation AMSE 266.16 20.250 17.92 192.49 205.79
CIBI Community Investors Bancorp, Inc. NASDAQ 14.87 16.000 24.24 133.78 133.78
CKFB CKF Bancorp, Inc. NASDAQ 18.05 19.000 15.57 111.96 111.96
CLAS Classic Bancshares, Inc. NASDAQ 18.43 14.125 25.68 94.99 112.37
CMRN Cameron Financial Corporation NASDAQ 45.64 17.375 21.99 101.14 101.14
CMSB Commonwealth Bancorp, Inc. NASDAQ 294.90 17.250 23.96 133.82 171.13
CMSV Community Savings, FA (MHC) NASDAQ 159.07 31.250 42.81 195.92 195.92
CNIT CENIT Bancorp, Inc. NASDAQ 87.20 52.750 23.87 169.51 184.57
CNSB CNS Bancorp, Inc. NASDAQ 27.69 16.750 62.04 112.87 112.87
CNY Carver Bancorp, Inc. AMSE 28.64 12.375 NM 82.89 86.42
COFI Charter One Financial, Inc. NASDAQ 2,511.36 54.375 18.75 257.09 274.62
COOP Cooperative Bankshares, Inc. NASDAQ 40.28 27.000 NM 149.75 149.75
CRZY Crazy Woman Creek Bancorp, Incorporated NASDAQ 13.73 14.375 25.22 97.92 97.92
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
BYFC Broadway Financial Corporation NASDAQ 7.52 1.82 0.54 835,188
CAFI Camco Financial Corporation NASDAQ 11.67 2.78 0.26 3,214,194
CAPS Capital Savings Bancorp, Inc. NASDAQ 12.29 1.52 0.60 1,891,800
CASB Cascade Financial Corporation NASDAQ 9.25 0.00 0.10 2,570,516
CASH First Midwest Financial, Inc. NASDAQ 13.27 1.98 0.84 2,733,940
CATB Catskill Financial Corporation NASDAQ 27.19 1.71 1.17 4,719,774
CBCI Calumet Bancorp, Inc. NASDAQ 18.07 0.00 0.56 2,110,797
CBES CBES Bancorp, Inc. NASDAQ 18.97 2.27 1.61 1,024,958
CBK Citizens First Financial Corp. AMSE 15.28 0.00 0.67 2,594,194
CBNH Community Bankshares, Inc. NASDAQ 16.92 1.53 1.33 2,488,737
CBSA Coastal Bancorp, Inc. NASDAQ 4.95 1.63 2.18 4,971,532
CBSB Charter Financial, Inc. NASDAQ 21.24 1.59 0.75 4,149,758
CCFH CCF Holding Company NASDAQ 13.83 3.24 0.15 820,120
CEBK Central Co-operative Bank NASDAQ 11.13 1.64 1.46 1,965,000
CENB Century Bancorp, Inc. NASDAQ 32.40 2.52 0.88 407,330
CENF CENFED Financial Corporation NASDAQ 8.24 1.09 2.52 5,728,602
CFB Commercial Federal Corporation NYSE 12.77 0.67 1.06 21,552,837
CFBC Community First Banking Company NASDAQ 16.69 0.00 2.86 2,220,477
CFCP Coastal Financial Corporation NASDAQ 21.69 1.53 0.27 4,640,751
CFFC Community Financial Corporation NASDAQ 15.81 2.57 0.18 1,275,373
CFNC Carolina Fincorp, Inc. NASDAQ 28.85 1.38 0.74 1,851,500
CFSB CFSB Bancorp, Inc. NASDAQ 15.67 2.31 0.77 5,095,932
CFTP Community Federal Bancorp, Inc. NASDAQ 39.86 1.67 1.12 4,628,750
CFX CFX Corporation AMSE 14.32 4.35 1.28 13,143,623
CIBI Community Investors Bancorp, Inc. NASDAQ 16.11 2.00 3.58 929,371
CKFB CKF Bancorp, Inc. NASDAQ 28.91 2.63 0.10 925,275
CLAS Classic Bancshares, Inc. NASDAQ 14.12 1.98 0.58 1,304,950
CMRN Cameron Financial Corporation NASDAQ 21.93 1.61 0.90 2,626,696
CMSB Commonwealth Bancorp, Inc. NASDAQ 12.88 1.62 3.56 17,095,715
CMSV Community Savings, FA (MHC) NASDAQ 22.73 2.88 1.46 5,090,120
CNIT CENIT Bancorp, Inc. NASDAQ 12.27 1.90 3.42 1,650,208
CNSB CNS Bancorp, Inc. NASDAQ 28.15 1.43 0.96 1,653,125
CNY Carver Bancorp, Inc. AMSE 6.92 1.62 1.44 2,314,275
COFI Charter One Financial, Inc. NASDAQ 17.24 1.84 2.87 46,185,966
COOP Cooperative Bankshares, Inc. NASDAQ 11.43 0.00 0.49 1,491,698
CRZY Crazy Woman Creek Bancorp, Incorporated NASDAQ 25.29 2.78 1.55 954,845
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/ Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
CSA Coast Savings Financial, Inc. NYSE 857.50 46.063 50.62 191.45 193.95
CSBF CSB Financial Group, Inc. NASDAQ 11.07 11.750 69.12 90.45 95.76
CTZN CitFed Bancorp, Inc. NASDAQ 380.09 44.000 23.40 192.73 214.01
CVAL Chester Valley Bancorp Inc. NASDAQ 49.41 24.000 25.81 182.51 182.51
DCBI Delphos Citizens Bancorp, Inc. NASDAQ 32.62 16.000 NA 107.17 107.17
DIBK Dime Financial Corporation NASDAQ 145.56 28.250 10.24 208.95 215.98
DIME Dime Community Bancorp, Inc. NASDAQ 256.95 19.625 20.88 134.60 156.25
DME Dime Bancorp, Incorporated NYSE 2,009.56 19.375 19.00 189.76 198.92
DNFC D & N Financial Corporation NASDAQ 152.57 18.625 17.57 171.82 173.74
DSL Downey Financial Corp. NYSE 591.48 22.125 26.34 144.99 147.01
EBSI Eagle Bancshares, Inc. NASDAQ 95.51 16.875 NA 135.54 135.54
EFBC Empire Federal Bancorp, Inc. NASDAQ 40.18 15.500 NA 99.04 99.04
EFBI Enterprise Federal Bancorp, Inc. NASDAQ 40.02 20.000 21.74 126.66 126.74
EGFC Eagle Financial Corp. NASDAQ 213.96 34.000 69.39 154.41 197.79
EGLB Eagle BancGroup, Inc. NASDAQ 20.42 16.500 NM 98.86 98.86
EIRE Emerald Isle Bancorp, Inc. NASDAQ 48.89 21.750 14.40 162.43 162.43
EMLD Emerald Financial Corporation NASDAQ 73.44 14.500 17.90 160.58 163.10
EQSB Equitable Federal Savings Bank NASDAQ 22.85 37.938 18.42 147.05 147.05
ESBK Elmira Savings Bank, FSB NASDAQ 16.56 23.438 20.56 113.12 117.96
ESX Essex Bancorp, Inc. AMSE 1.98 1.875 NM 382.65 604.84
ETFS East Texas Financial Services, Inc. NASDAQ 19.22 18.750 48.08 93.89 93.89
FAB FirstFed America Bancorp, Inc. AMSE 174.69 20.063 NA 130.70 130.70
FBBC First Bell Bancorp, Inc. NASDAQ 104.17 16.000 15.84 148.42 148.42
FBCI Fidelity Bancorp, Inc. NASDAQ 59.33 21.250 22.14 116.63 116.89
FBCV 1ST Bancorp NASDAQ 24.95 35.750 30.56 111.72 114.04
FBER 1st Bergen Bancorp NASDAQ 53.26 17.750 42.26 131.77 131.77
FBHC Fort Bend Holding Corp. NASDAQ 28.33 34.250 47.57 147.44 158.27
FBNW FirstBank Corporation NASDAQ 34.72 17.500 NA NA NA
FBSI First Bancshares, Inc. NASDAQ 26.57 24.250 19.56 119.63 119.81
FCB Falmouth Co-Operative Bank AMSE 24.73 17.000 32.69 110.39 110.39
FCBF FCB Financial Corp. NASDAQ 108.96 26.750 29.72 142.29 142.29
FCME First Coastal Corporation NASDAQ 14.78 10.875 2.41 105.07 105.07
FDEF First Defiance Financial Corp. NASDAQ 137.78 14.750 34.30 117.06 117.06
FED FirstFed Financial Corp. NYSE 357.10 33.750 30.41 176.33 178.29
FESX First Essex Bancorp, Inc. NASDAQ 125.69 16.750 11.55 144.77 166.67
FFBA First Colorado Bancorp, Inc. NASDAQ 314.71 19.000 23.46 161.15 163.37
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
CSA Coast Savings Financial, Inc. NYSE 9.42 0.00 1.59 18,615,847
CSBF CSB Financial Group, Inc. NASDAQ 22.66 0.00 0.50 941,850
CTZN CitFed Bancorp, Inc. NASDAQ 12.27 0.82 0.73 8,638,486
CVAL Chester Valley Bancorp Inc. NASDAQ 15.27 1.83 0.05 2,058,870
DCBI Delphos Citizens Bancorp, Inc. NASDAQ 30.44 0.00 1.45 2,038,719
DIBK Dime Financial Corporation NASDAQ 16.64 1.42 1.39 5,147,387
DIME Dime Community Bancorp, Inc. NASDAQ 19.54 0.92 2.86 13,092,750
DME Dime Bancorp, Incorporated NYSE 10.00 0.83 2.05 103,719,000
DNFC D & N Financial Corporation NASDAQ 9.48 1.07 1.75 8,191,415
DSL Downey Financial Corp. NYSE 10.05 1.45 0.67 26,733,496
EBSI Eagle Bancshares, Inc. NASDAQ 11.26 3.56 1.72 5,659,694
EFBC Empire Federal Bancorp, Inc. NASDAQ 37.01 1.94 1.98 2,592,100
EFBI Enterprise Federal Bancorp, Inc. NASDAQ 15.14 5.00 1.25 2,000,828
EGFC Eagle Financial Corp. NASDAQ 10.60 2.94 1.60 6,279,005
EGLB Eagle BancGroup, Inc. NASDAQ 11.72 0.00 2.22 1,237,705
EIRE Emerald Isle Bancorp, Inc. NASDAQ 11.49 1.29 1.30 2,245,660
EMLD Emerald Financial Corporation NASDAQ 12.17 1.66 0.81 5,061,600
EQSB Equitable Federal Savings Bank NASDAQ 7.41 0.00 0.55 602,200
ESBK Elmira Savings Bank, FSB NASDAQ 7.27 2.73 3.49 706,361
ESX Essex Bancorp, Inc. AMSE 1.04 0.00 0.71 1,057,193
ETFS East Texas Financial Services, Inc. NASDAQ 17.06 1.07 0.02 1,025,321
FAB FirstFed America Bancorp, Inc. AMSE 17.11 0.00 0.70 8,707,152
FBBC First Bell Bancorp, Inc. NASDAQ 14.58 2.50 1.26 6,510,625
FBCI Fidelity Bancorp, Inc. NASDAQ 12.11 1.51 0.90 2,791,978
FBCV 1ST Bancorp NASDAQ 9.22 1.12 0.49 697,897
FBER 1st Bergen Bancorp NASDAQ 18.70 1.13 3.22 3,000,300
FBHC Fort Bend Holding Corp. NASDAQ 8.89 1.17 2.68 827,215
FBNW FirstBank Corporation NASDAQ NA 0.00 4.38 NA
FBSI First Bancshares, Inc. NASDAQ 16.20 0.82 0.36 1,095,554
FCB Falmouth Co-Operative Bank AMSE 26.35 1.18 0.62 1,454,750
FCBF FCB Financial Corp. NASDAQ 20.71 2.99 1.76 4,073,147
FCME First Coastal Corporation NASDAQ 9.70 0.00 2.94 1,359,194
FDEF First Defiance Financial Corp. NASDAQ 24.95 2.17 1.25 9,341,000
FED FirstFed Financial Corp. NYSE 8.51 0.00 0.73 10,575,374
FESX First Essex Bancorp, Inc. NASDAQ 10.09 2.87 1.73 7,503,729
FFBA First Colorado Bancorp, Inc. NASDAQ 20.83 2.32 1.20 16,561,425
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
FFBH First Federal Bancshares of Arkansas, Inc. NASDAQ 102.82 21.000 24.14 128.36 128.36
FFBI First Financial Bancorp, Inc. NASDAQ 7.84 18.875 NM 107.12 107.12
FFBS FFBS BanCorp, Inc. NASDAQ 35.82 23.000 23.71 135.53 135.53
FFBZ First Federal Bancorp, Inc. NASDAQ 29.08 18.500 23.13 209.99 210.23
FFCH First Financial Holdings Inc. NASDAQ 209.77 33.000 22.92 205.86 205.86
FFDB FirstFed Bancorp, Incorporated NASDAQ 19.03 16.531 19.22 114.16 125.23
FFDF FFD Financial Corporation NASDAQ 21.46 14.750 13.79 101.65 101.65
FFED Fidelity Federal Bancorp NASDAQ 23.01 9.250 231.25 178.92 178.92
FFES First Federal Savings & Loan of East Hartford NASDAQ 86.97 32.500 21.81 137.54 137.54
FFFC FFVA Financial Corporation NASDAQ 132.51 29.313 23.26 168.37 172.02
FFFD North Central Bancshares, Inc. NASDAQ 54.16 16.625 17.14 112.26 112.26
FFFG F.F.O. Financial Group, Inc. NASDAQ 51.21 6.063 22.46 235.91 235.91
FFFL Fidelity Bankshares Inc. (MHC) NASDAQ 181.13 26.750 53.50 216.42 218.01
FFHC First Financial Corporation NASDAQ 1,167.75 32.250 22.09 276.35 283.64
FFHH FSF Financial Corp. NASDAQ 53.83 17.750 21.91 110.66 110.66
FFHS First Franklin Corporation NASDAQ 23.54 19.750 56.43 115.03 115.77
FFIC Flushing Financial Corporation NASDAQ 159.57 20.000 20.83 119.90 119.90
FFKY First Federal Financial Corporation of Kentucky NASDAQ 89.66 21.500 18.86 173.39 184.23
FFLC FFLC Bancorp, Inc. NASDAQ 70.69 30.500 29.90 135.44 135.44
FFOH Fidelity Financial of Ohio, Inc. NASDAQ 85.09 15.250 29.33 125.31 141.99
FFPB First Palm Beach Bancorp, Inc. NASDAQ 176.08 35.000 NM 160.85 164.86
FFSL First Independence Corporation NASDAQ 12.89 13.000 28.89 112.07 112.07
FFSW FirstFederal Financial Services Corp NASDAQ 184.69 40.250 25.80 313.96 371.65
FFSX First Federal Savings Bank of Siouxland (MHC) NASDAQ 82.02 29.000 42.03 211.06 212.92
FFWC FFW Corporation NASDAQ 20.80 29.250 15.39 121.32 134.61
FFWD Wood Bancorp, Inc. NASDAQ 35.22 16.625 22.47 174.63 174.63
FFYF FFY Financial Corp. NASDAQ 111.62 27.125 22.79 136.79 136.79
FGHC First Georgia Holding, Inc. NASDAQ 23.66 7.750 25.83 184.09 200.78
FIBC Financial Bancorp, Inc. NASDAQ 34.23 19.875 21.84 129.48 130.16
FISB First Indiana Corporation NASDAQ 216.51 20.500 NA 148.87 150.74
FKFS First Keystone Financial, Inc. NASDAQ 34.07 27.750 19.27 145.36 145.36
FKKY Frankfort First Bancorp, Inc. NASDAQ 35.67 10.875 NM 156.70 156.70
FLAG FLAG Financial Corporation NASDAQ 30.05 14.750 NM 141.28 141.28
FLFC First Liberty Financial Corp. NASDAQ 173.81 22.500 17.18 182.93 202.89
FLGS Flagstar Bancorp, Inc. NASDAQ 264.86 19.375 NA 229.56 NA
FLKY First Lancaster Bancshares, Inc. NASDAQ 15.04 15.688 31.38 108.64 108.64
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
FFBH First Federal Bancshares of Arkansas, Inc. NASDAQ 19.21 1.14 0.93 4,896,063
FFBI First Financial Bancorp, Inc. NASDAQ 9.27 0.00 0.05 415,195
FFBS FFBS BanCorp, Inc. NASDAQ 27.39 2.17 0.05 1,557,445
FFBZ First Federal Bancorp, Inc. NASDAQ 14.45 1.30 0.09 1,571,716
FFCH First Financial Holdings Inc. NASDAQ 12.58 2.18 1.00 6,356,788
FFDB FirstFed Bancorp, Incorporated NASDAQ 10.75 3.02 0.00 1,147,848
FFDF FFD Financial Corporation NASDAQ 25.16 2.03 1.16 1,454,750
FFED Fidelity Federal Bancorp NASDAQ 9.20 4.32 0.54 2,490,110
FFES First Federal Savings & Loan of East Hartford NASDAQ 8.84 1.85 0.89 2,676,062
FFFC FFVA Financial Corporation NASDAQ 23.71 1.64 1.63 4,520,552
FFFD North Central Bancshares, Inc. NASDAQ 25.44 1.50 1.63 3,257,983
FFFG F.F.O. Financial Group, Inc. NASDAQ 15.85 0.00 0.59 8,446,266
FFFL Fidelity Bankshares Inc. (MHC) NASDAQ 18.12 3.36 1.09 6,770,654
FFHC First Financial Corporation NASDAQ 19.69 1.86 1.20 36,209,366
FFHH FSF Financial Corp. NASDAQ 14.23 2.82 0.49 3,032,810
FFHS First Franklin Corporation NASDAQ 10.37 1.62 0.06 1,192,029
FFIC Flushing Financial Corporation NASDAQ 18.55 1.20 0.66 7,978,740
FFKY First Federal Financial Corporation of Kentucky NASDAQ 23.76 2.60 0.07 4,170,003
FFLC FFLC Bancorp, Inc. NASDAQ 18.26 1.57 0.71 2,317,635
FFOH Fidelity Financial of Ohio, Inc. NASDAQ 16.21 1.84 0.11 5,579,419
FFPB First Palm Beach Bancorp, Inc. NASDAQ 10.57 1.71 3.32 5,030,846
FFSL First Independence Corporation NASDAQ 11.69 1.92 0.88 996,833
FFSW FirstFederal Financial Services Corp NASDAQ 16.97 1.09 0.74 4,588,459
FFSX First Federal Savings Bank of Siouxland (MHC) NASDAQ 17.50 1.66 0.05 2,828,269
FFWC FFW Corporation NASDAQ 11.55 2.46 0.09 711,234
FFWD Wood Bancorp, Inc. NASDAQ 21.49 2.41 0.43 2,118,538
FFYF FFY Financial Corp. NASDAQ 18.76 2.58 0.91 4,144,840
FGHC First Georgia Holding, Inc. NASDAQ 15.13 0.69 0.20 3,052,319
FIBC Financial Bancorp, Inc. NASDAQ 12.12 2.01 2.05 1,722,031
FISB First Indiana Corporation NASDAQ 14.24 2.34 0.32 10,561,326
FKFS First Keystone Financial, Inc. NASDAQ 10.62 0.72 4.49 1,227,875
FKKY Frankfort First Bancorp, Inc. NASDAQ 26.93 3.31 1.45 3,279,952
FLAG FLAG Financial Corporation NASDAQ 13.54 2.31 0.73 2,036,990
FLFC First Liberty Financial Corp. NASDAQ 13.48 1.78 0.19 7,724,780
FLGS Flagstar Bancorp, Inc. NASDAQ 16.59 0.00 2.38 13,670,000
FLKY First Lancaster Bancshares, Inc. NASDAQ 37.19 3.19 0.65 958,812
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
FMBD First Mutual Bancorp, Inc. NASDAQ 52.60 15.000 125.00 89.66 118.39
FMCO FMS Financial Corp. NASDAQ 60.28 25.250 16.61 165.68 168.67
FMSB First Mutual Savings Bank NASDAQ 56.74 21.000 14.09 192.48 192.48
FNGB First Northern Capital Corporation NASDAQ 112.63 12.750 30.36 156.63 156.63
FOBC Fed One Bancorp, Inc. NASDAQ 47.48 20.000 21.05 115.94 121.58
FRC First Republic Bancorp Inc. NYSE 229.00 23.625 15.54 142.66 142.75
FSBI Fidelity Bancorp, Inc. NASDAQ 32.93 21.250 20.05 134.24 134.24
FSFC First Southeast Financial Corporation NASDAQ 64.73 14.750 27.83 189.10 189.10
FSLA First Savings Bank (MHC) NASDAQ 217.00 29.875 38.30 223.11 250.21
FSNJ Bayonne Bancshares, Inc. NASDAQ 106.80 11.875 NA NA NA
FSPG First Home Bancorp, Inc. NASDAQ 54.51 20.125 12.42 156.61 159.22
FSPT FirstSpartan Financial Corp. NASDAQ 156.72 35.375 NA NA NA
FSTC First Citizens Corporation NASDAQ 58.85 32.000 11.35 177.88 228.73
FTF Texarkana First Financial Corporation AMSE 40.06 22.375 16.33 148.87 148.87
FTFC First Federal Capital Corp. NASDAQ 224.38 24.500 20.94 221.12 235.12
FTNB Fulton Bancorp, Inc. NASDAQ 36.10 21.000 NA 145.13 145.13
FTSB Fort Thomas Financial Corporation NASDAQ 17.02 12.000 37.50 115.38 115.38
FWWB First Savings Bank of Washington Bancorp, Inc. NASDAQ 259.66 24.750 23.80 157.84 170.93
GAF GA Financial, Inc. AMSE 149.72 18.750 23.44 131.58 132.98
GBCI Glacier Bancorp, Inc. NASDAQ 120.91 17.750 16.14 218.60 224.40
GDVS Greater Delaware Valley Savings Bank (MHC) NASDAQ 67.90 20.750 90.22 240.16 240.16
GDW Golden West Financial Corporation NYSE 4,670.32 82.313 12.42 187.50 187.50
GFCO Glenway Financial Corp. NASDAQ 28.50 25.000 23.58 104.65 106.07
GFED Guaranty Federal Savings Bank (MHC) NASDAQ 59.38 19.000 51.35 215.91 215.91
GFSB GFS Bancorp, Inc. NASDAQ 14.08 14.250 16.76 133.68 133.68
GOSB GSB Financial Corporation NASDAQ 32.32 14.375 NA NA NA
GPT GreenPoint Financial Corporation NYSE 2,666.48 61.563 18.11 179.64 319.48
GRTR Greater New York Savings Bank (The) NASDAQ 314.64 22.938 27.31 195.38 195.38
GSB Golden State Bancorp, Inc. NYSE 1,453.81 28.875 46.57 184.74 207.88
GSBC Great Southern Bancorp, Inc. NASDAQ 137.79 17.000 15.45 228.19 228.19
GSFC Green Street Financial Corp. NASDAQ 78.98 18.375 31.14 124.75 124.75
GSLA GS Financial Corp. NASDAQ 54.16 15.750 NA 96.27 96.27
GTFN Great Financial Corporation NASDAQ 460.72 33.375 21.39 163.60 170.80
GTPS Great American Bancorp, Inc. NASDAQ 31.68 18.000 94.74 98.04 98.04
GUPB GFSB Bancorp, Inc. NASDAQ 15.08 18.750 27.99 111.08 111.08
GWBC Gateway Bancorp, Inc. NASDAQ 18.96 17.625 NA 109.81 109.81
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
FMBD First Mutual Bancorp, Inc. NASDAQ 12.59 2.13 0.79 3,506,670
FMCO FMS Financial Corp. NASDAQ 10.86 1.11 0.05 2,387,519
FMSB First Mutual Savings Bank NASDAQ 13.13 0.95 0.53 2,702,023
FNGB First Northern Capital Corporation NASDAQ 17.66 2.51 0.64 8,834,070
FOBC Fed One Bancorp, Inc. NASDAQ 13.31 2.90 0.27 2,373,107
FRC First Republic Bancorp Inc. NYSE 10.23 0.00 1.12 9,692,934
FSBI Fidelity Bancorp, Inc. NASDAQ 9.07 1.69 0.25 1,549,846
FSFC First Southeast Financial Corporation NASDAQ 19.34 1.63 1.09 4,388,231
FSLA First Savings Bank (MHC) NASDAQ 21.01 1.61 0.14 7,263,541
FSNJ Bayonne Bancshares, Inc. NASDAQ NA 1.43 8.53 NA
FSPG First Home Bancorp, Inc. NASDAQ 10.43 1.99 0.08 2,708,426
FSPT FirstSpartan Financial Corp. NASDAQ NA 0.00 4.36 NA
FSTC First Citizens Corporation NASDAQ 17.31 1.37 1.10 1,833,005
FTF Texarkana First Financial Corporation AMSE 23.38 2.50 0.47 1,790,305
FTFC First Federal Capital Corp. NASDAQ 14.25 1.96 0.25 9,140,865
FTNB Fulton Bancorp, Inc. NASDAQ 36.30 0.95 0.59 1,719,250
FTSB Fort Thomas Financial Corporation NASDAQ 18.51 2.08 0.62 1,495,086
FWWB First Savings Bank of Washington Bancorp, Inc. NASDAQ 24.24 1.13 1.45 10,518,682
GAF GA Financial, Inc. AMSE 19.97 2.56 0.52 7,984,900
GBCI Glacier Bancorp, Inc. NASDAQ 21.30 2.70 0.21 6,811,517
GDVS Greater Delaware Valley Savings Bank (MHC) NASDAQ 27.79 1.73 1.36 3,272,500
GDW Golden West Financial Corporation NYSE 11.95 0.53 1.31 56,738,514
GFCO Glenway Financial Corp. NASDAQ 9.93 3.20 0.29 1,139,997
GFED Guaranty Federal Savings Bank (MHC) NASDAQ 29.75 2.32 0.50 3,125,000
GFSB GFS Bancorp, Inc. NASDAQ 15.30 1.82 0.11 988,242
GOSB GSB Financial Corporation NASDAQ NA 0.00 5.37 NA
GPT GreenPoint Financial Corporation NYSE 20.85 1.62 1.31 45,044,385
GRTR Greater New York Savings Bank (The) NASDAQ 12.20 0.87 1.62 13,716,985
GSB Golden State Bancorp, Inc. NYSE 8.96 0.00 1.59 50,348,509
GSBC Great Southern Bancorp, Inc. NASDAQ 19.47 2.35 0.38 8,105,121
GSFC Green Street Financial Corp. NASDAQ 45.23 2.39 1.18 4,298,125
GSLA GS Financial Corp. NASDAQ 43.94 1.78 2.09 3,438,500
GTFN Great Financial Corporation NASDAQ 15.11 1.80 0.67 13,790,702
GTPS Great American Bancorp, Inc. NASDAQ 23.13 2.22 1.28 1,759,976
GUPB GFSB Bancorp, Inc. NASDAQ 18.10 2.13 0.08 839,208
GWBC Gateway Bancorp, Inc. NASDAQ 29.71 2.27 0.07 1,075,754
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
HALL Hallmark Capital Corp. NASDAQ 32.11 22.250 16.73 108.22 108.22
HARB Harbor Florida Bancorp, Inc. NASDAQ 275.85 55.500 27.21 294.43 304.44
HARL Harleysville Savings Bank NASDAQ 42.96 26.000 18.31 195.34 195.34
HARS Harris Savings Bank (MHC) NASDAQ 426.47 38.000 47.50 260.45 297.81
HAVN Haven Bancorp, Inc. NASDAQ 166.02 37.875 18.75 156.51 157.09
HBBI Home Building Bancorp, Inc. NASDAQ 6.39 20.500 60.29 101.69 101.69
HBEI Home Bancorp of Elgin, Inc. NASDAQ 119.98 17.500 NA 127.46 127.46
HBFW Home Bancorp NASDAQ 55.55 22.000 28.95 124.86 124.86
HBNK Highland Federal Bank, a Federal Savings Bank NASDAQ 67.28 29.250 31.12 178.46 178.46
HBS Haywood Bancshares, Inc. AMSE 23.76 19.000 21.35 113.37 117.57
HCBB HCB Bancshares, Inc. NASDAQ 36.37 13.750 NA NA NA
HCFC Home City Financial Corporation NASDAQ 14.76 15.500 NA 96.57 96.57
HEMT HF Bancorp, Inc. NASDAQ 93.44 14.875 NM 115.31 NA
HFFB Harrodsburg First Financial Bancorp, Inc. NASDAQ 30.88 15.250 25.85 97.26 97.26
HFFC HF Financial Corp. NASDAQ 65.55 22.000 18.49 123.73 123.73
HFGI Harrington Financial Group, Inc. NASDAQ 39.08 12.000 19.67 156.45 156.45
HFNC HFNC Financial Corp. NASDAQ 277.23 16.125 35.05 172.09 172.09
HFSA Hardin Bancorp, Inc. NASDAQ 14.18 16.500 27.50 105.23 105.23
HHFC Harvest Home Financial Corporation NASDAQ 10.75 11.750 45.19 103.89 103.89
HIFS Hingham Institution for Savings NASDAQ 31.61 24.250 13.04 155.25 155.25
HMCI HomeCorp, Inc. NASDAQ 25.82 15.250 66.30 119.05 119.05
HMLK Hemlock Federal Financial Corporation NASDAQ 31.92 15.375 NA 105.53 105.53
HMNF HMN Financial, Inc. NASDAQ 103.19 24.500 24.50 126.16 126.16
HOMF Home Federal Bancorp NASDAQ 101.89 30.000 15.31 175.95 181.60
HPBC Home Port Bancorp, Inc. NASDAQ 41.21 22.375 12.93 196.44 196.44
HRBF Harbor Federal Bancorp, Inc. NASDAQ 33.45 19.750 32.92 119.84 119.84
HRZB Horizon Financial Corp. NASDAQ 111.25 15.000 14.02 137.49 137.49
HTHR Hawthorne Financial Corporation NASDAQ 53.48 17.625 NM 134.85 134.85
HVFD Haverfield Corporation NASDAQ 51.30 26.750 26.23 172.47 172.47
HWEN Home Financial Bancorp NASDAQ 7.40 15.750 29.72 102.74 102.74
HZFS Horizon Financial Services Corporation NASDAQ 8.03 18.875 27.76 95.47 95.47
IBSF IBS Financial Corp. NASDAQ 188.62 17.125 50.37 147.76 147.76
IFSB Independence Federal Savings Bank NASDAQ 16.69 13.031 19.74 93.82 106.12
INBI Industrial Bancorp NASDAQ 77.83 14.750 31.38 126.83 126.83
INCB Indiana Community Bank, SB NASDAQ 14.52 15.750 105.00 128.36 128.36
IPSW Ipswich Savings Bank NASDAQ 30.89 13.000 16.05 285.09 285.09
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
HALL Hallmark Capital Corp. NASDAQ 7.83 0.00 1.09 1,442,950
HARB Harbor Florida Bancorp, Inc. NASDAQ 24.70 2.52 0.84 4,970,240
HARL Harleysville Savings Bank NASDAQ 12.76 1.54 0.07 1,652,436
HARS Harris Savings Bank (MHC) NASDAQ 20.86 1.53 1.10 11,222,800
HAVN Haven Bancorp, Inc. NASDAQ 9.31 1.58 2.76 4,377,382
HBBI Home Building Bancorp, Inc. NASDAQ 14.18 1.46 0.11 311,660
HBEI Home Bancorp of Elgin, Inc. NASDAQ 34.03 2.29 1.22 6,855,799
HBFW Home Bancorp NASDAQ 16.59 0.91 0.40 2,524,779
HBNK Highland Federal Bank, a Federal Savings Bank NASDAQ 13.34 0.00 1.90 2,300,137
HBS Haywood Bancshares, Inc. AMSE 15.79 2.95 0.14 1,250,356
HCBB HCB Bancshares, Inc. NASDAQ NA 0.00 2.42 NA
HCFC Home City Financial Corporation NASDAQ 21.63 2.06 0.74 952,200
HEMT HF Bancorp, Inc. NASDAQ 9.49 0.00 0.64 6,281,875
HFFB Harrodsburg First Financial Bancorp, Inc. NASDAQ 28.34 2.62 0.26 2,024,756
HFFC HF Financial Corp. NASDAQ 11.67 1.91 0.45 2,979,421
HFGI Harrington Financial Group, Inc. NASDAQ 8.75 1.00 2.98 3,256,738
HFNC HFNC Financial Corp. NASDAQ 30.96 1.74 0.85 17,192,500
HFSA Hardin Bancorp, Inc. NASDAQ 13.13 2.91 0.27 859,360
HHFC Harvest Home Financial Corporation NASDAQ 12.27 3.40 0.08 914,857
HIFS Hingham Institution for Savings NASDAQ 14.53 1.98 0.76 1,303,500
HMCI HomeCorp, Inc. NASDAQ 7.79 0.00 0.29 1,693,052
HMLK Hemlock Federal Financial Corporation NASDAQ 19.36 1.56 2.10 2,076,325
HMNF HMN Financial, Inc. NASDAQ 18.20 0.00 0.27 4,211,836
HOMF Home Federal Bancorp NASDAQ 14.92 1.67 1.30 3,396,329
HPBC Home Port Bancorp, Inc. NASDAQ 20.74 3.58 2.32 1,841,890
HRBF Harbor Federal Bancorp, Inc. NASDAQ 15.46 2.03 0.83 1,693,420
HRZB Horizon Financial Corp. NASDAQ 21.45 2.67 0.92 7,416,797
HTHR Hawthorne Financial Corporation NASDAQ 6.20 0.00 2.95 3,034,507
HVFD Haverfield Corporation NASDAQ 14.73 2.09 2.54 1,906,349
HWEN Home Financial Bancorp NASDAQ 17.40 1.27 1.69 469,526
HZFS Horizon Financial Services Corporation NASDAQ 9.34 1.70 0.00 425,540
IBSF IBS Financial Corp. NASDAQ 25.71 2.34 1.25 11,011,897
IFSB Independence Federal Savings Bank NASDAQ 6.46 1.69 1.41 1,281,083
INBI Industrial Bancorp NASDAQ 22.46 3.25 1.55 5,276,775
INCB Indiana Community Bank, SB NASDAQ 15.90 2.29 0.19 922,039
IPSW Ipswich Savings Bank NASDAQ 16.31 0.92 2.93 2,376,176
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
ISBF ISB Financial Corporation NASDAQ 175.11 25.375 30.95 144.09 169.39
ITLA ITLA Capital Corporation NASDAQ 139.26 17.750 12.50 148.91 149.54
IWBK InterWest Bancorp, Inc. NASDAQ 317.42 39.500 21.94 255.50 261.07
JOAC Joachim Bancorp, Inc. NASDAQ 10.48 14.500 65.91 106.46 106.46
JSB JSB Financial, Inc. NYSE 447.42 45.313 16.97 127.50 127.50
JSBA Jefferson Savings Bancorp, Inc. NASDAQ 163.92 32.750 34.84 136.69 176.17
JXSB Jacksonville Savings Bank (MHC) NASDAQ 27.35 21.500 63.24 160.21 160.21
JXVL Jacksonville Bancorp, Inc. NASDAQ 41.31 16.750 21.75 123.62 123.62
KFBI Klamath First Bancorp, Inc. NASDAQ 196.61 19.625 33.84 126.04 126.04
KNK Kankakee Bancorp, Inc. AMSE 41.33 29.000 18.95 109.06 116.05
KSAV KS Bancorp, Inc. NASDAQ 16.38 18.500 17.96 114.13 114.20
KSBK KSB Bancorp, Inc. NASDAQ 17.33 14.000 12.17 165.48 175.00
KYF Kentucky First Bancorp, Inc. AMSE 16.49 12.500 20.83 112.01 112.01
LARK Landmark Bancshares, Inc. NASDAQ 41.48 24.250 22.88 131.87 131.87
LARL Laurel Capital Group, Inc. NASDAQ 32.46 22.500 15.20 152.65 152.65
LFBI Little Falls Bancorp, Inc. NASDAQ 46.65 17.375 56.05 119.75 129.66
LFCO Life Financial Corp. NASDAQ 104.66 17.125 NA 250.73 250.73
LFED Leeds Federal Savings Bank (MHC) NASDAQ 90.69 26.250 38.04 198.71 198.71
LIFB Life Bancorp, Inc. NASDAQ 238.79 24.250 23.10 152.13 156.65
LISB Long Island Bancorp, Inc. NASDAQ 955.74 39.875 27.31 179.86 181.66
LOGN Logansport Financial Corp. NASDAQ 18.28 14.500 19.86 114.53 114.53
LONF London Financial Corporation NASDAQ 7.65 15.000 28.85 102.74 102.74
LSBI LSB Financial Corp. NASDAQ 18.96 20.688 12.93 104.48 104.48
LSBX Lawrence Savings Bank NASDAQ 48.72 11.375 8.36 152.68 152.68
LVSB Lakeview Financial Corp. NASDAQ 73.13 32.250 12.85 161.98 202.58
LXMO Lexington B&L Financial Corp. NASDAQ 18.22 16.000 28.07 108.62 108.62
MAFB MAF Bancorp, Inc. NASDAQ 473.54 30.750 17.67 183.14 209.61
MARN Marion Capital Holdings, Inc. NASDAQ 40.67 23.000 17.69 104.12 104.12
MASB MASSBANK Corp. NASDAQ 137.65 51.250 14.40 142.68 142.68
MBB MSB Bancorp, Inc. AMSE 66.13 23.250 59.62 109.93 223.99
MBBC Monterey Bay Bancorp, Inc. NASDAQ 53.91 16.625 55.42 107.54 116.67
MBLF MBLA Financial Corp. NASDAQ 30.84 23.750 22.84 108.05 108.05
MBSP Mitchell Bancorp, Inc. NASDAQ 15.48 16.625 NA 108.02 108.02
MCBN Mid-Coast Bancorp, Inc. NASDAQ 5.93 25.500 23.61 115.38 115.38
MCBS Mid Continent Bancshares Inc. NASDAQ 58.26 29.750 15.82 149.27 149.27
MDBK Medford Savings Bank NASDAQ 143.05 31.500 13.40 148.31 159.17
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
ISBF ISB Financial Corporation NASDAQ 18.49 1.58 1.63 6,900,710
ITLA ITLA Capital Corporation NASDAQ 16.36 0.00 1.08 7,836,318
IWBK InterWest Bancorp, Inc. NASDAQ 17.32 1.52 0.46 8,035,973
JOAC Joachim Bancorp, Inc. NASDAQ 29.98 3.45 0.54 722,415
JSB JSB Financial, Inc. NYSE 29.14 3.09 0.39 9,844,660
JSBA Jefferson Savings Bancorp, Inc. NASDAQ 12.69 1.22 0.90 5,005,204
JXSB Jacksonville Savings Bank (MHC) NASDAQ 16.81 1.86 0.32 1,272,300
JXVL Jacksonville Bancorp, Inc. NASDAQ 18.44 2.99 1.27 2,490,068
KFBI Klamath First Bancorp, Inc. NASDAQ 27.01 1.53 3.15 10,018,502
KNK Kankakee Bancorp, Inc. AMSE 12.10 1.66 0.65 1,425,168
KSAV KS Bancorp, Inc. NASDAQ 15.43 3.24 0.00 885,356
KSBK KSB Bancorp, Inc. NASDAQ 11.88 0.57 0.15 1,238,115
KYF Kentucky First Bancorp, Inc. AMSE 18.54 4.00 0.72 1,319,194
LARK Landmark Bancshares, Inc. NASDAQ 18.19 1.65 0.56 1,710,666
LARL Laurel Capital Group, Inc. NASDAQ 15.31 2.31 0.28 1,442,829
LFBI Little Falls Bancorp, Inc. NASDAQ 15.90 1.15 1.65 2,745,180
LFCO Life Financial Corp. NASDAQ 53.59 0.00 1.89 6,111,716
LFED Leeds Federal Savings Bank (MHC) NASDAQ 32.17 2.90 0.26 3,454,736
LIFB Life Bancorp, Inc. NASDAQ 16.04 1.98 2.44 9,846,881
LISB Long Island Bancorp, Inc. NASDAQ 16.17 1.50 3.82 23,968,303
LOGN Logansport Financial Corp. NASDAQ 21.98 2.76 0.48 1,260,401
LONF London Financial Corporation NASDAQ 20.21 1.60 0.33 515,160
LSBI LSB Financial Corp. NASDAQ 9.93 1.64 0.51 931,944
LSBX Lawrence Savings Bank NASDAQ 13.27 0.00 3.64 4,274,500
LVSB Lakeview Financial Corp. NASDAQ 15.42 0.78 1.53 2,302,465
LXMO Lexington B&L Financial Corp. NASDAQ 30.75 1.88 3.73 1,138,500
MAFB MAF Bancorp, Inc. NASDAQ 14.25 0.91 1.28 15,392,517
MARN Marion Capital Holdings, Inc. NASDAQ 23.47 3.83 1.05 1,768,099
MASB MASSBANK Corp. NASDAQ 15.18 2.50 0.60 2,681,164
MBB MSB Bancorp, Inc. AMSE 8.12 2.58 1.28 2,844,153
MBBC Monterey Bay Bancorp, Inc. NASDAQ 13.06 0.60 0.59 3,242,408
MBLF MBLA Financial Corp. NASDAQ 13.13 1.68 0.47 1,298,412
MBSP Mitchell Bancorp, Inc. NASDAQ 46.84 2.41 0.20 930,902
MCBN Mid-Coast Bancorp, Inc. NASDAQ 9.93 2.04 2.36 232,583
MCBS Mid Continent Bancshares Inc. NASDAQ 14.26 1.34 0.24 1,958,250
MDBK Medford Savings Bank NASDAQ 13.34 2.29 1.38 4,541,148
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
MECH Mechanics Savings Bank NASDAQ 119.03 22.500 7.98 141.24 141.24
MERI Meritrust Federal Savings Bank NASDAQ 31.77 41.031 21.60 169.48 169.48
METF Metropolitan Financial Corp. NASDAQ 63.90 18.125 26.27 196.58 217.33
MFBC MFB Corp. NASDAQ 39.72 23.500 30.92 117.21 117.21
MFCX Marshalltown Financial Corporation NASDAQ 23.64 16.750 57.76 117.79 117.79
MFFC Milton Federal Financial Corporation NASDAQ 31.69 13.750 32.74 112.15 112.15
MFLR Mayflower Co-operative Bank NASDAQ 15.58 17.500 12.59 128.02 130.21
MFSL Maryland Federal Bancorp, Inc. NASDAQ 138.03 43.000 19.91 142.29 144.10
MGNL Magna Bancorp, Inc. NASDAQ 349.01 25.375 18.94 252.24 259.19
MIFC Mid-Iowa Financial Corp. NASDAQ 15.51 9.250 NA 132.14 132.33
MIVI Mississippi View Holding Company NASDAQ 12.69 15.500 25.83 96.33 96.33
MLBC ML Bancorp, Inc. NASDAQ 216.61 20.500 16.27 149.85 152.53
MONT Montgomery Financial Corp. NASDAQ 19.74 11.938 NA NA NA
MRKF Market Financial Corporation NASDAQ 18.95 14.188 NA 95.67 95.67
MSBF MSB Financial, Inc. NASDAQ 16.54 13.250 19.78 130.29 130.29
MSBK Mutual Savings Bank, FSB NASDAQ 44.88 10.500 58.33 109.72 109.72
MWBI Midwest Bancshares, Inc. NASDAQ 12.25 36.000 21.30 123.88 123.88
MWBX MetroWest Bank NASDAQ 87.20 6.250 12.25 206.95 206.95
MWFD Midwest Federal Financial Corp. NASDAQ 33.77 20.750 15.96 185.10 191.95
NASB North American Savings Bank, FSB NASDAQ 109.58 49.000 12.10 193.14 199.84
NBN Northeast Bancorp AMSE 18.74 14.500 20.14 107.49 124.36
NBSI North Bancshares, Inc. NASDAQ 21.62 22.000 38.60 129.72 129.72
NEIB Northeast Indiana Bancorp, Inc. NASDAQ 29.53 16.750 16.75 110.27 110.27
NHTB New Hampshire Thrift Bancshares, Inc. NASDAQ 38.19 18.500 35.58 157.05 184.45
NMSB NewMil Bancorp, Inc. NASDAQ 49.36 12.875 21.11 155.68 155.68
NSBC NewSouth Bancorp, Inc. NASDAQ 81.47 28.000 NA NA NA
NSLB NS&L Bancorp, Inc. NASDAQ 13.07 18.469 41.98 111.87 111.87
NSSB Norwich Financial Corp. NASDAQ 150.21 27.750 20.11 188.78 209.12
NSSY Norwalk Savings Society NASDAQ 84.05 34.875 15.03 161.91 167.35
NTMG Nutmeg Federal Savings & Loan Association NASDAQ 7.94 10.750 48.86 139.25 139.25
NWEQ Northwest Equity Corporation NASDAQ 13.84 16.500 17.93 115.95 115.95
NWSB Northwest Savings Bank (MHC) NASDAQ 514.27 22.000 37.29 259.13 275.34
NYB New York Bancorp Inc. NYSE 658.53 30.500 16.40 394.57 394.57
OCFC Ocean Financial Corp. NASDAQ 274.91 33.625 NA 122.94 122.94
OCN Ocwen Financial Corporation NASDAQ 1,144.02 42.688 16.29 469.10 491.23
OFCP Ottawa Financial Corporation NASDAQ 124.67 25.375 31.33 165.74 206.47
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
MECH Mechanics Savings Bank NASDAQ 14.45 0.00 5.22 5,290,000
MERI Meritrust Federal Savings Bank NASDAQ 13.90 1.71 0.36 774,176
METF Metropolitan Financial Corp. NASDAQ 7.78 0.00 0.29 3,525,635
MFBC MFB Corp. NASDAQ 16.00 1.36 1.15 1,690,217
MFCX Marshalltown Financial Corporation NASDAQ 18.54 0.00 0.12 1,411,475
MFFC Milton Federal Financial Corporation NASDAQ 15.89 4.36 0.35 2,309,836
MFLR Mayflower Co-operative Bank NASDAQ 12.40 3.89 2.96 890,400
MFSL Maryland Federal Bancorp, Inc. NASDAQ 11.93 1.86 1.22 3,210,017
MGNL Magna Bancorp, Inc. NASDAQ 25.79 2.36 0.47 13,754,266
MIFC Mid-Iowa Financial Corp. NASDAQ 12.35 0.86 0.43 1,676,488
MIVI Mississippi View Holding Company NASDAQ 18.19 1.03 0.61 818,743
MLBC ML Bancorp, Inc. NASDAQ 10.46 1.95 1.54 10,566,365
MONT Montgomery Financial Corp. NASDAQ NA 0.00 4.21 NA
MRKF Market Financial Corporation NASDAQ 33.50 1.97 0.96 1,335,725
MSBF MSB Financial, Inc. NASDAQ 22.15 2.11 0.50 1,248,622
MSBK Mutual Savings Bank, FSB NASDAQ 6.66 0.00 3.51 4,274,154
MWBI Midwest Bancshares, Inc. NASDAQ 8.56 1.67 0.89 348,339
MWBX MetroWest Bank NASDAQ 15.39 1.92 1.17 13,952,735
MWFD Midwest Federal Financial Corp. NASDAQ 16.31 1.64 0.17 1,627,674
NASB North American Savings Bank, FSB NASDAQ 14.83 1.63 0.02 2,228,993
NBN Northeast Bancorp AMSE 7.47 2.21 0.06 1,274,749
NBSI North Bancshares, Inc. NASDAQ 18.33 2.18 1.38 996,585
NEIB Northeast Indiana Bancorp, Inc. NASDAQ 16.75 1.91 0.12 1,762,727
NHTB New Hampshire Thrift Bancshares, Inc. NASDAQ 12.02 2.70 1.01 2,047,857
NMSB NewMil Bancorp, Inc. NASDAQ 15.28 1.86 1.31 3,834,000
NSBC NewSouth Bancorp, Inc. NASDAQ NA 1.43 2.00 NA
NSLB NS&L Bancorp, Inc. NASDAQ 21.88 2.71 0.84 707,482
NSSB Norwich Financial Corp. NASDAQ 21.08 2.02 3.33 5,413,041
NSSY Norwalk Savings Society NASDAQ 12.66 1.15 3.23 2,410,118
NTMG Nutmeg Federal Savings & Loan Association NASDAQ 7.75 0.00 0.21 738,427
NWEQ Northwest Equity Corporation NASDAQ 14.28 3.15 0.15 838,754
NWSB Northwest Savings Bank (MHC) NASDAQ 24.59 1.45 0.65 23,376,000
NYB New York Bancorp Inc. NYSE 20.05 1.97 0.40 21,591,247
OCFC Ocean Financial Corp. NASDAQ 19.98 2.38 1.90 8,606,168
OCN Ocwen Financial Corporation NASDAQ 41.05 0.00 2.61 26,799,511
OFCP Ottawa Financial Corporation NASDAQ 14.47 1.58 0.92 4,910,853
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
OHSL OHSL Financial Corp. NASDAQ 27.81 23.250 21.73 109.62 109.62
PALM Palfed, Inc. NASDAQ 87.85 16.625 151.14 160.32 160.32
PAMM PacificAmerica Money Center, Inc. NASDAQ 89.29 23.500 9.92 304.01 304.01
PBCI Pamrapo Bancorp, Inc. NASDAQ 58.99 20.750 19.04 124.85 125.83
PBCT People's Bank (MHC) NASDAQ 1,713.34 28.063 20.34 256.75 256.99
PBHC Oswego City Savings Bank (MHC) NASDAQ 36.66 19.125 23.32 163.74 196.76
PBKB People's Bancshares, Inc. NASDAQ 54.40 16.750 13.19 179.91 186.94
PCBC Perry County Financial Corporation NASDAQ 17.70 21.375 22.27 113.64 113.64
PCCI Pacific Crest Capital, Inc. NASDAQ 44.08 15.000 13.89 167.60 167.60
PDB Piedmont Bancorp, Inc. AMSE 29.23 10.625 NM 143.19 143.19
PEEK Peekskill Financial Corporation NASDAQ 52.29 16.375 29.24 111.32 111.32
PERM Permanent Bancorp, Inc. NASDAQ 47.79 22.750 33.96 115.25 116.97
PERT Perpetual Bank (MHC) NASDAQ 61.12 40.625 34.43 201.71 201.71
PETE Primary Bank NASDAQ 53.39 25.563 21.30 178.39 178.64
PFDC Peoples Bancorp NASDAQ 53.44 23.500 17.03 122.20 122.20
PFED Park Bancorp, Inc. NASDAQ 39.81 16.375 NA 100.65 100.65
PFFB PFF Bancorp, Inc. NASDAQ 344.64 19.250 83.70 132.67 134.05
PFFC Peoples Financial Corporation NASDAQ 25.28 17.250 NA 109.32 109.32
PFNC Progress Financial Corporation NASDAQ 59.07 14.750 30.10 265.77 301.02
PFSB PennFed Financial Services, Inc. NASDAQ 138.64 28.750 19.97 131.70 157.45
PFSL Pocahontas Federal Savings & Loan Assoc. (MHC) NASDAQ 44.08 27.000 19.85 182.93 182.93
PHBK Peoples Heritage Financial Group, Inc. NASDAQ 1,022.78 37.250 15.33 236.21 280.29
PHFC Pittsburgh Home Financial Corp. NASDAQ 38.40 19.500 27.08 137.23 138.79
PHSB Peoples Home Savings Bank (MHC) NASDAQ 38.40 16.000 NA NA NA
PKPS Poughkeepsie Financial Corp. NASDAQ 91.31 7.250 32.95 123.93 123.93
PLSK Pulaski Savings Bank (MHC) NASDAQ 34.41 16.625 NA 162.99 162.99
PMFI Perpetual Midwest Financial, Inc. NASDAQ 40.48 21.500 89.58 119.44 119.44
POBS Portsmouth Bank Shares, Inc. NASDAQ 107.81 18.250 17.89 160.23 160.23
PRBC Prestige Bancorp, Inc. NASDAQ 15.67 17.125 33.58 103.73 103.73
PROV Provident Financial Holdings, Inc. NASDAQ 94.71 19.250 46.95 110.82 110.82
PSBK Progressive Bank, Inc. NASDAQ 125.61 32.875 14.42 167.13 187.11
PSFC Peoples-Sidney Financial Corporation NASDAQ 28.57 16.000 NA NA NA
PSFI PS Financial, Inc. NASDAQ 32.19 14.750 NA 100.61 100.61
PTRS Potters Financial Corporation NASDAQ 11.79 24.000 20.87 109.24 109.24
PULB Pulaski Bank, A Savings Bank (MHC) NASDAQ 51.83 24.750 42.67 220.39 220.39
PULS Pulse Bancorp, Inc. NASDAQ 63.15 20.500 17.52 150.40 150.40
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
OHSL OHSL Financial Corp. NASDAQ 12.09 3.78 0.11 1,195,950
PALM Palfed, Inc. NASDAQ 13.21 0.72 0.96 5,284,113
PAMM PacificAmerica Money Center, Inc. NASDAQ 65.60 0.00 4.96 3,799,386
PBCI Pamrapo Bancorp, Inc. NASDAQ 15.90 4.82 0.94 2,842,924
PBCT People's Bank (MHC) NASDAQ 21.77 2.42 0.88 61,053,172
PBHC Oswego City Savings Bank (MHC) NASDAQ 19.20 1.46 1.00 1,916,666
PBKB People's Bancshares, Inc. NASDAQ 10.28 2.63 1.54 3,595,000
PCBC Perry County Financial Corporation NASDAQ 21.82 1.87 0.13 827,897
PCCI Pacific Crest Capital, Inc. NASDAQ 11.88 0.00 1.35 2,938,449
PDB Piedmont Bancorp, Inc. AMSE 23.81 3.76 0.55 2,750,800
PEEK Peekskill Financial Corporation NASDAQ 28.64 2.20 1.20 3,193,121
PERM Permanent Bancorp, Inc. NASDAQ 10.56 1.76 0.47 2,010,506
PERT Perpetual Bank (MHC) NASDAQ 23.86 3.45 0.80 1,504,601
PETE Primary Bank NASDAQ 12.37 0.00 1.07 2,088,567
PFDC Peoples Bancorp NASDAQ 18.58 2.55 0.20 2,274,028
PFED Park Bancorp, Inc. NASDAQ 22.68 0.00 0.96 2,431,441
PFFB PFF Bancorp, Inc. NASDAQ 13.69 0.00 3.09 18,715,625
PFFC Peoples Financial Corporation NASDAQ 29.74 2.90 2.06 1,491,012
PFNC Progress Financial Corporation NASDAQ 14.11 0.78 1.63 4,004,889
PFSB PennFed Financial Services, Inc. NASDAQ 10.49 0.97 2.50 4,822,124
PFSL Pocahontas Federal Savings & Loan Assoc. (MHC) NASDAQ 11.64 3.33 0.33 1,632,424
PHBK Peoples Heritage Financial Group, Inc. NASDAQ 18.24 2.04 1.06 27,370,677
PHFC Pittsburgh Home Financial Corp. NASDAQ 14.99 1.23 0.84 1,969,369
PHSB Peoples Home Savings Bank (MHC) NASDAQ NA 0.00 2.74 NA
PKPS Poughkeepsie Financial Corp. NASDAQ 10.37 1.38 2.02 12,594,725
PLSK Pulaski Savings Bank (MHC) NASDAQ 19.40 1.80 0.90 2,070,000
PMFI Perpetual Midwest Financial, Inc. NASDAQ 10.19 1.40 1.02 1,882,575
POBS Portsmouth Bank Shares, Inc. NASDAQ 41.55 0.00 0.94 5,907,242
PRBC Prestige Bancorp, Inc. NASDAQ 11.54 0.70 1.34 914,873
PROV Provident Financial Holdings, Inc. NASDAQ 15.39 0.00 2.95 4,920,215
PSBK Progressive Bank, Inc. NASDAQ 14.29 2.07 0.40 3,820,934
PSFC Peoples-Sidney Financial Corporation NASDAQ NA 1.25 0.60 NA
PSFI PS Financial, Inc. NASDAQ 38.94 2.17 1.24 2,182,125
PTRS Potters Financial Corporation NASDAQ 9.64 1.50 1.28 486,830
PULB Pulaski Bank, A Savings Bank (MHC) NASDAQ 28.76 4.04 0.25 2,094,000
PULS Pulse Bancorp, Inc. NASDAQ 12.10 3.41 0.20 3,070,548
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
PVFC PVF Capital Corp. NASDAQ 54.63 21.375 16.07 218.34 218.34
PVSA Parkvale Financial Corporation NASDAQ 118.61 29.250 17.62 157.77 158.97
PWBC PennFirst Bancorp, Inc. NASDAQ 82.90 15.625 22.01 125.60 134.35
PWBK Pennwood Bancorp, Inc. NASDAQ 9.71 16.750 NA 111.30 111.30
QCBC Quaker City Bancorp, Inc. NASDAQ 96.41 20.500 33.61 137.22 137.31
QCFB QCF Bancorp, Inc. NASDAQ 37.08 26.000 17.81 136.99 136.99
QCSB Queens County Bancorp, Inc. NASDAQ 547.10 53.875 26.03 271.68 271.68
RARB Raritan Bancorp, Inc. NASDAQ 53.66 22.250 15.78 178.29 181.19
RCSB RCSB Financial, Inc. NASDAQ 718.13 48.875 19.63 228.17 233.85
REDF RedFed Bancorp Inc. NASDAQ 124.65 17.375 157.95 161.63 162.23
RELI Reliance Bancshares, Inc. NASDAQ 21.18 8.375 33.50 92.24 92.24
RELY Reliance Bancorp, Inc. NASDAQ 270.43 30.813 25.47 166.20 230.64
RIVR River Valley Bancorp NASDAQ 19.64 16.500 NA 112.86 114.58
ROSE TR Financial Corp. NASDAQ 486.30 27.625 15.10 205.39 205.39
RSLN Roslyn Bancorp, Inc. NASDAQ 992.87 22.750 NA 156.04 156.79
RVSB Riverview Savings Bank (MHC) NASDAQ 65.30 27.000 30.68 253.05 277.21
SBFL Savings Bank of the Finger Lakes (MHC) NASDAQ 41.06 23.000 153.33 197.76 197.76
SCBS Southern Community Bancshares, Inc. NASDAQ 18.06 15.875 NA 120.36 120.36
SCCB South Carolina Community Bancshares, Inc. NASDAQ 15.14 21.500 39.81 125.66 125.66
SECP Security Capital Corporation NASDAQ 953.06 103.500 21.65 170.20 170.20
SFED SFS Bancorp, Inc. NASDAQ 23.70 19.250 30.08 110.38 110.38
SFFC StateFed Financial Corporation NASDAQ 17.24 22.000 18.33 113.17 113.17
SFIN Statewide Financial Corp. NASDAQ 88.32 18.750 22.59 134.89 135.18
SFNB Security First Network Bank NASDAQ 112.06 13.000 NA 430.46 437.71
SFSB SuburbFed Financial Corp. NASDAQ 34.71 27.500 23.71 125.46 125.92
SFSL Security First Corp. NASDAQ 138.37 18.250 22.53 224.75 228.41
SGVB SGV Bancorp, Inc. NASDAQ 35.43 15.125 47.27 118.44 120.42
SHEN First Shenango Bancorp, Inc. NASDAQ 56.98 27.500 NA 126.44 126.44
SISB SIS Bancorp, Inc. NASDAQ 163.12 29.250 8.81 159.75 159.75
SKAN Skaneateles Bancorp Inc. NASDAQ 21.71 22.750 12.93 127.88 131.96
SKBO First Carnegie Deposit (MHC) NASDAQ 35.65 15.500 NA 147.34 147.34
SMBC Southern Missouri Bancorp, Inc. NASDAQ 28.25 17.250 23.96 108.83 108.83
SMFC Sho-Me Financial Corp. NASDAQ 56.95 38.000 18.63 175.76 175.76
SOBI Sobieski Bancorp, Inc. NASDAQ 12.74 16.438 51.37 95.35 95.35
SOPN First Savings Bancorp, Inc. NASDAQ 75.88 20.625 21.05 112.95 112.95
SOSA Somerset Savings Bank NASDAQ 61.41 3.688 14.75 188.16 188.16
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
PVFC PVF Capital Corp. NASDAQ 15.33 0.00 0.45 2,555,672
PVSA Parkvale Financial Corporation NASDAQ 11.97 1.78 0.72 4,055,142
PWBC PennFirst Bancorp, Inc. NASDAQ 10.15 2.09 0.15 5,305,561
PWBK Pennwood Bancorp, Inc. NASDAQ 19.42 1.91 0.99 579,622
QCBC Quaker City Bancorp, Inc. NASDAQ 12.03 0.00 0.69 4,703,102
QCFB QCF Bancorp, Inc. NASDAQ 24.78 0.00 0.05 1,426,200
QCSB Queens County Bancorp, Inc. NASDAQ 37.39 1.86 0.94 10,180,765
RARB Raritan Bancorp, Inc. NASDAQ 14.14 2.16 0.22 2,411,873
RCSB RCSB Financial, Inc. NASDAQ 17.38 1.23 2.61 14,590,975
REDF RedFed Bancorp Inc. NASDAQ 13.66 0.00 1.08 7,174,149
RELI Reliance Bancshares, Inc. NASDAQ 45.05 0.00 3.20 2,528,499
RELY Reliance Bancorp, Inc. NASDAQ 13.68 2.08 1.46 8,776,337
RIVR River Valley Bancorp NASDAQ 13.98 0.97 1.07 1,190,250
ROSE TR Financial Corp. NASDAQ 13.63 2.17 2.74 17,519,296
RSLN Roslyn Bancorp, Inc. NASDAQ 31.43 1.05 3.12 43,642,459
RVSB Riverview Savings Bank (MHC) NASDAQ 28.43 0.89 0.36 2,418,501
SBFL Savings Bank of the Finger Lakes (MHC) NASDAQ 18.95 1.74 0.20 1,785,000
SCBS Southern Community Bancshares, Inc. NASDAQ 25.66 1.89 0.70 1,137,350
SCCB South Carolina Community Bancshares, Inc. NASDAQ 32.62 2.79 2.76 704,233
SECP Security Capital Corporation NASDAQ 25.94 1.16 1.01 9,208,332
SFED SFS Bancorp, Inc. NASDAQ 13.77 1.45 1.23 1,235,997
SFFC StateFed Financial Corporation NASDAQ 20.12 1.82 0.36 783,724
SFIN Statewide Financial Corp. NASDAQ 13.12 2.35 1.01 4,710,398
SFNB Security First Network Bank NASDAQ 142.47 0.00 8.23 8,619,873
SFSB SuburbFed Financial Corp. NASDAQ 8.13 1.16 0.26 1,261,758
SFSL Security First Corp. NASDAQ 21.16 1.75 0.53 7,574,474
SGVB SGV Bancorp, Inc. NASDAQ 8.65 0.00 1.09 2,342,176
SHEN First Shenango Bancorp, Inc. NASDAQ 13.85 2.18 0.33 2,072,157
SISB SIS Bancorp, Inc. NASDAQ 11.37 1.91 2.47 5,576,842
SKAN Skaneateles Bancorp Inc. NASDAQ 8.75 1.76 1.81 953,225
SKBO First Carnegie Deposit (MHC) NASDAQ 24.23 1.94 1.14 2,300,000
SMBC Southern Missouri Bancorp, Inc. NASDAQ 17.05 0.00 1.33 1,637,913
SMFC Sho-Me Financial Corp. NASDAQ 17.32 0.00 4.56 1,498,636
SOBI Sobieski Bancorp, Inc. NASDAQ 15.58 1.95 0.31 774,770
SOPN First Savings Bancorp, Inc. NASDAQ 25.79 3.88 0.42 3,679,185
SOSA Somerset Savings Bank NASDAQ 11.94 0.00 5.68 16,651,602
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
SPBC St. Paul Bancorp, Inc. NASDAQ 785.97 23.125 25.98 198.16 198.67
SRN Southern Banc Company, Inc. (The) AMSE 19.07 15.500 67.39 107.49 108.62
SSB Scotland Bancorp, Inc. AMSE 34.57 18.063 31.69 134.30 134.30
SSFC South Street Financial Corp. NASDAQ 84.31 18.750 NA 127.64 127.64
SSM Stone Street Bancorp, Inc. AMSE 40.33 21.250 25.30 131.74 131.74
STFR St. Francis Capital Corporation NASDAQ 182.95 34.500 19.60 142.68 161.44
STND Standard Financial, Inc. NASDAQ 413.37 25.500 33.55 149.04 149.30
STSA Sterling Financial Corporation NASDAQ 102.98 18.500 88.10 152.01 174.36
SVRN Sovereign Bancorp, Inc. NASDAQ 1,022.34 15.500 NA 226.28 300.39
SWBI Southwest Bancshares, Inc. NASDAQ 53.67 20.250 20.05 129.15 129.15
SWCB Sandwich Co-operative Bank NASDAQ 61.29 32.000 14.04 153.62 160.48
SZB SouthFirst Bancshares, Inc. AMSE 13.77 16.250 NM 101.18 101.18
TBK Tolland Bank AMSE 26.72 17.125 16.00 161.56 166.26
THR Three Rivers Financial Corp. AMSE 12.97 15.750 24.23 103.41 103.82
THRD TF Financial Corporation NASDAQ 78.60 19.250 22.92 102.07 116.38
TPNZ Tappan Zee Financial, Inc. NASDAQ 25.82 17.250 28.75 122.25 122.25
TRIC Tri-County Bancorp, Inc. NASDAQ 13.85 22.750 20.50 101.07 101.07
TSBS Peoples Bancorp, Inc. (MHC) NASDAQ 258.69 28.625 33.28 242.79 264.56
TSH Teche Holding Co. AMSE 62.73 18.250 21.99 117.51 117.51
TWIN Twin City Bancorp, Inc. NASDAQ 17.07 20.000 29.41 123.69 123.69
UBMT United Financial Corporation NASDAQ 28.75 23.500 25.27 116.92 116.92
UFRM United Federal Savings Bank NASDAQ 36.89 12.000 63.16 179.10 179.10
USAB USABancshares, Inc. NASDAQ 5.97 8.125 30.09 126.16 128.56
VABF Virginia Beach Federal Financial Corporation NASDAQ 67.80 13.625 52.40 160.29 160.29
VFFC Virginia First Financial Corporation NASDAQ 138.66 23.875 27.44 210.35 217.84
WAMU Washington Mutual Inc. NASDAQ 15,089.29 59.875 51.62 290.66 306.27
WAYN Wayne Savings & Loan Co. (MHC) NASDAQ 47.21 21.000 61.76 200.96 200.96
WBST Webster Financial Corporation NASDAQ 717.05 52.875 26.98 212.26 248.47
WCBI Westco Bancorp, Inc. NASDAQ 63.77 25.750 20.28 134.25 134.25
WCFB Webster City Federal Savings Bank (MHC) NASDAQ 37.28 17.750 NA 168.41 168.41
WEFC Wells Financial Corp. NASDAQ 32.33 16.500 22.30 112.78 112.78
WEHO Westwood Homestead Financial Corporation NASDAQ 43.33 15.500 NA 109.39 109.39
WES Westcorp, Inc. NYSE 564.84 21.563 19.43 169.65 170.06
WFI Winton Financial Corp. AMSE 31.78 16.000 13.91 140.85 143.88
WFSG Wilshire Financial Services Group Inc. NASDAQ 128.69 17.000 NA 186.61 186.61
WFSL Washington Federal, Inc. NASDAQ 1,293.52 27.250 13.90 185.88 203.51
<CAPTION>
Current
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
SPBC St. Paul Bancorp, Inc. NASDAQ 17.04 1.73 1.55 33,988,070
SRN Southern Banc Company, Inc. (The) AMSE 18.17 2.26 0.21 1,230,313
SSB Scotland Bancorp, Inc. AMSE 49.75 1.66 1.84 1,913,600
SSFC South Street Financial Corp. NASDAQ 34.88 2.13 0.68 4,496,500
SSM Stone Street Bancorp, Inc. AMSE 38.01 2.12 0.34 1,898,052
STFR St. Francis Capital Corporation NASDAQ 11.13 1.39 1.62 5,307,977
STND Standard Financial, Inc. NASDAQ 16.06 1.57 0.71 16,210,435
STSA Sterling Financial Corporation NASDAQ 6.11 0.00 3.62 5,566,652
SVRN Sovereign Bancorp, Inc. NASDAQ 9.96 0.52 2.58 70,010,461
SWBI Southwest Bancshares, Inc. NASDAQ 14.20 3.75 0.18 2,652,332
SWCB Sandwich Co-operative Bank NASDAQ 12.21 3.75 1.21 1,915,213
SZB SouthFirst Bancshares, Inc. AMSE 14.16 3.08 0.18 847,600
TBK Tolland Bank AMSE 11.21 1.17 1.15 1,560,000
THR Three Rivers Financial Corp. AMSE 14.23 2.54 0.31 823,540
THRD TF Financial Corporation NASDAQ 12.27 2.08 0.94 4,083,100
TPNZ Tappan Zee Financial, Inc. NASDAQ 20.80 1.62 0.27 1,497,062
TRIC Tri-County Bancorp, Inc. NASDAQ 15.48 2.64 0.18 608,749
TSBS Peoples Bancorp, Inc. (MHC) NASDAQ 41.00 1.22 2.43 9,037,160
TSH Teche Holding Co. AMSE 15.44 2.74 0.32 3,437,530
TWIN Twin City Bancorp, Inc. NASDAQ 15.90 3.20 1.36 853,484
UBMT United Financial Corporation NASDAQ 27.22 4.17 1.16 1,223,312
UFRM United Federal Savings Bank NASDAQ 13.39 2.00 0.18 3,074,314
USAB USABancshares, Inc. NASDAQ 12.35 0.00 1.35 734,261
VABF Virginia Beach Federal Financial Corporation NASDAQ 10.97 1.47 1.55 4,975,991
VFFC Virginia First Financial Corporation NASDAQ 16.96 0.42 0.27 5,804,661
WAMU Washington Mutual Inc. NASDAQ 15.52 1.80 4.41 126,357,466
WAYN Wayne Savings & Loan Co. (MHC) NASDAQ 18.57 2.95 0.13 2,247,993
WBST Webster Financial Corporation NASDAQ 10.66 1.51 2.55 11,985,306
WCBI Westco Bancorp, Inc. NASDAQ 20.46 2.33 0.99 2,476,353
WCFB Webster City Federal Savings Bank (MHC) NASDAQ 39.36 4.51 0.20 2,100,000
WEFC Wells Financial Corp. NASDAQ 16.00 2.91 2.86 1,959,360
WEHO Westwood Homestead Financial Corporation NASDAQ 32.18 1.81 0.45 2,795,475
WES Westcorp, Inc. NYSE 15.36 1.86 0.33 26,195,099
WFI Winton Financial Corp. AMSE 10.01 2.88 0.23 1,986,152
WFSG Wilshire Financial Services Group Inc. NASDAQ 10.76 0.00 1.13 7,570,000
WFSL Washington Federal, Inc. NASDAQ 22.45 3.38 1.37 47,462,067
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
WHGB WHG Bancshares Corporation NASDAQ 23.03 15.750 45.00 111.23 111.23
WOFC Western Ohio Financial Corporation NASDAQ 55.55 23.750 44.81 101.58 108.94
WRNB Warren Bancorp, Inc. NASDAQ 66.28 17.500 9.07 178.21 178.21
WSB Washington Savings Bank, FSB AMSE 28.67 6.750 24.11 133.66 133.66
WSFS WSFS Financial Corporation NASDAQ 187.87 15.125 10.96 239.32 241.23
WSTR WesterFed Financial Corporation NASDAQ 118.95 21.375 22.27 114.06 142.60
WVFC WVS Financial Corporation NASDAQ 47.18 27.000 15.98 143.46 143.46
WWFC Westwood Financial Corporation NASDAQ 15.65 24.250 31.09 153.87 172.72
WYNE Wayne Bancorp, Inc. NASDAQ 50.61 23.875 45.05 145.23 145.23
YFCB Yonkers Financial Corporation NASDAQ 52.49 17.375 22.28 122.88 122.88
YFED York Financial Corp. NASDAQ 166.45 23.750 23.99 166.32 166.32
Average: 207.34 22.709 29.30 151.83 158.13
Median: 53.91 20.000 23.32 137.36 142.14
<CAPTION>
Price/ Dividend Weekly Vol/
Assets Yield Mo Avg Shares
Ticker Institution Exchange (%) (%) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C>
WHGB WHG Bancshares Corporation NASDAQ 22.97 1.27 0.17 1,462,107
WOFC Western Ohio Financial Corporation NASDAQ 14.01 4.21 1.50 2,338,890
WRNB Warren Bancorp, Inc. NASDAQ 18.48 2.97 1.19 3,781,287
WSB Washington Savings Bank, FSB AMSE 11.10 1.48 0.63 4,247,406
WSFS WSFS Financial Corporation NASDAQ 12.45 0.00 1.95 12,421,439
WSTR WesterFed Financial Corporation NASDAQ 12.45 2.06 1.10 5,564,904
WVFC WVS Financial Corporation NASDAQ 16.01 2.96 1.18 1,747,280
WWFC Westwood Financial Corporation NASDAQ 14.05 0.82 1.41 645,241
WYNE Wayne Bancorp, Inc. NASDAQ 19.39 0.84 6.16 2,119,814
YFCB Yonkers Financial Corporation NASDAQ 18.31 1.38 1.73 3,035,750
YFED York Financial Corp. NASDAQ 14.32 2.53 0.79 7,008,347
Average: 17.63 1.69 1.27 6,467,454
Median: 15.34 1.69 0.96 2,664,197
</TABLE>
<PAGE>
EXHIBIT 21
COMPARATIVE GROUP
GENERAL DATA
<TABLE>
<CAPTION>
Number Equity/
of FTE Assets Deposits Assets Holding
Ticker Institution City State Offices Employees ($000) ($000) (%) Company
- ------ ----------- ---- ----- ------- --------- ------ ------ --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. Bedford VA 3 36 135,455 100,047 14.16 Y
CLAS Classic Bancshares, Inc. Ashland KY 3 NA 130,525 99,108 14.87 Y
FFDF FFD Financial Corporation Dover OH 1 16 85,286 54,669 24.74 Y
FLKY First Lancaster Bancshares, Inc. Lancaster KY 1 8 40,448 21,964 34.24 Y
GSFC Green Street Financial Corp. Fayetteville NC 3 31 174,605 108,430 36.25 Y
HFFB Harrodsburg First Financial Bancorp, Inc. Harrodsburg KY 2 15 108,950 78,405 26.92 Y
KYF Kentucky First Bancorp, Inc. Cynthiana KY 2 22 88,959 55,443 16.55 Y
MARN Marion Capital Holdings, Inc. Marion IN 2 31 173,304 121,770 22.54 Y
PFFC Peoples Financial Corporation Massillon OH 2 19 86,486 61,775 27.21 Y
SSB Scotland Bancorp, Inc. Laurinburg NC 2 14 69,479 42,451 37.03 Y
SCCB South Carolina Community Bancshares, Inc. Winnsboro SC 3 9 46,412 34,040 25.96 Y
SSM Stone Street Bancorp, Inc. Mocksville NC 2 18 106,115 66,774 28.85 Y
WEHO Westwood Homestead Financial Corporation Cincinnati OH 2 19 134,655 82,532 29.41 Y
Y
Comp Group Average 2 20 106,206 71,339 26.06 Y
Comp Group Median 2 19 106,115 66,774 26.92 Y
North Carolina Median 4 33 150,416 108,430 22.82 Y
North Carolina Average 5 48 219,212 148,270 22.07 Y
Southeast Region Average 11 192 521,615 369,890 14.36 Y
All Publicly Traded Thrifts Average 17 308 1,313,455 851,984 12.38 Y
Mooresville Savings 3 29 114,162 95,872
Mooresville Savings Pro Forma 25.52
</TABLE>
<PAGE>
EXHIBIT 22
COMPARATIVE GROUP
FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
Core Earnings Net Interest
------------- Income/ Noninterest Noninterest
Return on Return on Return on Return on Avg Assets Income/ Expense/
Avg Assets Avg Equity Avg Assets Avg Equity (%) Avg Assets Avg Assets
Ticker Institution (%) (%) (%) (%) LTM (%) (%)
- ------ ----------- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 1.00 6.97 1.28 8.52 3.85 0.52 2.28
CLAS Classic Bancshares, Inc. 0.49 2.74 NA 4.89 NA NA NA
FFDF FFD Financial Corporation 0.77 3.22 1.07 4.14 3.32 0.06 1.76
FLKY First Lancaster Bancshares, Inc. 1.13 3.53 1.39 4.15 4.44 0.00 2.27
GSFC Green Street Financial Corp. 1.37 3.88 1.66 4.85 4.33 0.05 1.76
HFFB Harrodsburg First Financial Bancorp, Inc. 1.03 3.80 1.35 5.23 3.58 0.09 1.58
KYF Kentucky First Bancorp, Inc. 0.87 4.48 1.13 7.19 3.50 0.18 2.01
MARN Marion Capital Holdings, Inc. 1.40 6.10 1.67 7.53 4.02 0.21 2.00
PFFC Peoples Financial Corporation 0.59 2.31 0.90 3.31 3.44 0.04 2.10
SSB Scotland Bancorp, Inc. 1.41 3.89 1.71 4.00 4.57 0.10 1.98
SCCB South Carolina Community Bancshares, Inc. 0.83 3.00 1.11 4.04 4.08 0.14 2.33
SSM Stone Street Bancorp, Inc. 1.44 4.05 1.71 2.77 4.65 0.14 2.03
WEHO Westwood Homestead Financial Corporation 0.69 2.45 0.96 3.23 3.37 0.10 1.95
Comp Group Average 1.00 3.88 1.33 4.91 3.93 0.14 2.00
Comp Group Median 1.00 3.53 1.32 4.15 3.93 0.10 2.01
North Carolina Median 0.90 3.89 1.18 5.33 3.73 0.14 2.03
North Carolina Average 0.79 2.80 1.18 6.11 3.87 0.23 2.08
Southeast Region Average 0.23 4.75 0.49 7.52 3.64 0.67 3.12
All Publicly Traded Thrifts Average 0.64 6.73 0.86 9.46 3.36 0.49 2.34
Mooresville Savings 0.51 4.02 0.79 6.22 2.92 0.05 2.52
Mooresville Savings Pro Forma 0.75 2.92 1.00 3.91
</TABLE>
<PAGE>
EXHIBIT 23
COMPARATIVE GROUP
CAPITAL RATIOS
<TABLE>
<CAPTION>
Tangible Regulatory Core Cap/
Equity/ Equity/ Core Cap/ Risk-Adj
Assets Tang Assets Assets Assets
Ticker Institution (%) (%) (%) (%)
- ------ ----------- --- --- --- ---
<S> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 14.16 12.45 12.45 22.13
CLAS Classic Bancshares, Inc. 14.87 11.70 11.70 23.02
FFDF FFD Financial Corporation 24.74 15.80 15.80 33.56
FLKY First Lancaster Bancshares, Inc. 34.24 31.06 31.06 NA
GSFC Green Street Financial Corp. 36.25 36.25 36.25 85.59
HFFB Harrodsburg First Financial Bancorp, Inc. 26.92 21.10 21.10 42.62
KYF Kentucky First Bancorp, Inc. 16.55 14.74 14.74 27.07
MARN Marion Capital Holdings, Inc. 22.54 20.56 20.56 31.00
PFFC Peoples Financial Corporation 27.21 20.00 20.00 44.76
SSB Scotland Bancorp, Inc. 37.03 NA 29.27 57.62
SCCB South Carolina Community Bancshares, Inc. 25.96 23.20 23.20 47.90
SSM Stone Street Bancorp, Inc. 28.85 25.34 25.34 46.01
WEHO Westwood Homestead Financial Corporation 29.41 24.49 24.49 40.27
Comp Group Average 26.06 21.39 22.00 41.80
Comp Group Median 26.92 20.83 21.10 41.45
North Carolina Median 22.82 18.85 19.10 43.09
North Carolina Average 22.07 17.60 20.21 41.52
Southeast Region Average 13.24 12.93 10.45 20.76
All Publicly Traded Thrifts Average 12.20 11.94 10.24 20.97
Mooresville Savings 13.85 13.85 14.48 29.36
Mooresville Savings Pro Forma 24.33 24.33 24.88 50.45
</TABLE>
<PAGE>
EXHIBIT 24
COMPARATIVE GROUP
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
1-4 Family 5+ Family Total Total
First Perm Permanent Nonresidentl Construction Mortgage Commercial
Mort Loans/ Mort Loans/ Mort Loans/ Mort Loans/ Loans/ Nonmort Lns/
Ticker Institution Assets (%) Assets (%) Assets (%) Assets (%) Assets (%) Assets (%)
- ------ ----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 64 0 3 11 78 0
CLAS Classic Bancshares, Inc. 63 1 4 2 70 2
FFDF FFD Financial Corporation 71 0 3 3 77 1
FLKY First Lancaster Bancshares, Inc. 30 7 13 1 51 2
GSFC Green Street Financial Corp. 63 2 1 1 67 0
HFFB Harrodsburg First Financial Bancorp, Inc. 56 7 19 3 84 0
KYF Kentucky First Bancorp, Inc. 63 1 5 2 71 1
MARN Marion Capital Holdings, Inc. 75 1 2 7 85 0
PFFC Peoples Financial Corporation 66 4 9 0 80 0
SSB Scotland Bancorp, Inc. 74 1 1 6 82 4
SCCB South Carolina Community Bancshares, Inc. 47 0 3 8 58 0
SSM Stone Street Bancorp, Inc. 71 1 2 2 76 0
WEHO Westwood Homestead Financial Corporation 60 12 7 2 80 0
Comp Group Average 61 3 7 4 75 1
Comp Group Median 56 1 3 2 60 0
North Carolina Median 56 1 5 1 71 0
North Carolina Average 53 2 7 5 66 1
Southeast Region Average 49 2 7 6 63 3
All Publicly Traded Thrifts Average 47 4 6 4 61 2
Mooresville Savings 76 1 2 5 85 0
<CAPTION>
Total
Total Total Loan Loan Loan
Consumer Nonmortgage Originations Purchases Sales
Nonmort Lns/ Loans/ ($000) ($000) ($000)
Ticker Institution Assets (%) Assets (%) LTM Mst RctY Mst RctY
- ------ ----------- ---------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 8 8 NA NA NA
CLAS Classic Bancshares, Inc. 2 4 NA 0 0
FFDF FFD Financial Corporation 2 3 16,150 0 0
FLKY First Lancaster Bancshares, Inc. 3 5 NA NA NA
GSFC Green Street Financial Corp. 1 1 23,828 65 0
HFFB Harrodsburg First Financial Bancorp, Inc. 2 2 NA NA NA
KYF Kentucky First Bancorp, Inc. 2 3 15,357 1,654 0
MARN Marion Capital Holdings, Inc. 1 1 50,649 0 7,163
PFFC Peoples Financial Corporation 0 0 NA 0 0
SSB Scotland Bancorp, Inc. 0 4 NA 0 0
SCCB South Carolina Community Bancshares, Inc. 1 1 NA 0 0
SSM Stone Street Bancorp, Inc. 0 1 26,086 0 0
WEHO Westwood Homestead Financial Corporation 0 0 41,342 0 694
Comp Group Average 2 3 28,902 172 786
Comp Group Median 1 2 24,957 0 0
North Carolina Median 3 4 33,217 0 0
North Carolina Average 4 5 60,363 7 3,184
Southeast Region Average 6 9 169,335 88,134 52,283
All Publicly Traded Thrifts Average 6 6 320,306 53,030 66,189
Mooresville Savings 1 2 26,631 0 0
</TABLE>
<PAGE>
EXHIBIT 25
COMPARATIVE GROUP
BALANCE SHEET RATIOS
<TABLE>
<CAPTION>
Cash, Goodwill &
Loans/ Loans/ Deposits/ Borrowings/ Deposits & Other
Deposits Assets Assets Assets Invest Secs/ REO & REI Intangibles/
Ticker Institution (%) (%) (%) (%) Assets (%) Assets (%) Assets (%)
- ------ ----------- --- --- --- --- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 116.16 85.80 73.86 10.70 11.59 0.00 0.00
CLAS Classic Bancshares, Inc. 87.73 66.61 75.93 8.41 22.36 0.00 0.00
FFDF FFD Financial Corporation 97.24 62.33 64.10 10.06 17.40 0.19 0.00
FLKY First Lancaster Bancshares, Inc. 159.08 86.38 54.30 10.34 40.81 0.00 0.00
GSFC Green Street Financial Corp. 117.35 72.87 62.10 NA 29.81 0.00 0.00
HFFB Harrodsburg First Financial Bancorp, Inc. 102.71 73.91 71.96 NA 6.29 0.93 0.00
KYF Kentucky First Bancorp, Inc. 88.91 55.41 62.32 20.20 23.82 0.00 0.00
MARN Marion Capital Holdings, Inc. 123.23 86.58 70.26 4.75 11.62 0.00 0.00
PFFC Peoples Financial Corporation 84.64 60.46 71.43 NA 18.76 0.00 0.00
SSB Scotland Bancorp, Inc. 113.46 69.32 61.10 NA 13.04 0.00 0.00
SCCB South Carolina Community Bancshares, Inc. 105.88 77.65 73.34 NA 38.60 0.00 0.00
SSM Stone Street Bancorp, Inc. 129.54 81.52 62.93 NA 21.56 0.00 0.00
WEHO Westwood Homestead Financial Corporation 124.07 76.04 61.29 9.10 18.33 0.00 0.00
Comp Group Average 111.54 74.21 66.53 10.51 19.87 0.13 0.00
Comp Group Median 113.46 72.73 64.10 10.06 17.35 0.00 0.00
North Carolina Median 99.67 69.21 69.44 6.98 ERR ERR ERR
North Carolina Average 106.63 74.49 69.86 10.18 ERR ERR ERR
Southeast Region Average 99.08 72.37 73.04 13.24 24.00 0.00 0.00
All Publicly Traded Thrifts Average 94.28 67.18 71.26 16.24 28.00 0.00 0.00
Mooresville Savings 104.83 88.04 83.99 0.88 9.02 0.00 0.00
</TABLE>
<PAGE>
EXHIBIT 26
COMPARATIVE GROUP
ANNUALIZED GROWTH RATES
<TABLE>
<CAPTION>
Asset Loan Deposit
Growth Growth Growth
Rate Rate Rate
Ticker Institution (%) (%) (%)
- ------ ----------- --- --- ---
<S> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 11.23 9.01 6.29
CLAS Classic Bancshares, Inc. 89.84 (5.61) 113.51
FFDF FFD Financial Corporation 11.98 NA -18.53
FLKY First Lancaster Bancshares, Inc. 14.66 NA -17.18
GSFC Green Street Financial Corp. -2.44 (2.54) -4.99
HFFB Harrodsburg First Financial Bancorp, Inc. -0.57 0.46 0.72
KYF Kentucky First Bancorp, Inc. 3.08 6.43 7.08
MARN Marion Capital Holdings, Inc. -2.51 2.08 -3.56
PFFC Peoples Financial Corporation 10.52 (17.68) -8.54
SSB Scotland Bancorp, Inc. -1.43 (0.43) 1.87
SCCB South Carolina Community Bancshares, Inc. 5.27 NA 9.13
SSM Stone Street Bancorp, Inc. -1.74 3.00 -2.44
WEHO Westwood Homestead Financial Corporation 36.8 17.47 -0.31
Average: 13.44 1.22 6.39
Median: 5.27 1.27 -0.31
North Carolina Median 11.3 3.92 1.87
North Carolina Average 8.86 3.87 2.77
Southeast Region Average 12.14 9.69 9.96
All Publicly Traded Thrifts Average 11.87 7.54 9.00
Mooresville Savings 3.75 7.20 2.71
</TABLE>
<PAGE>
EXHIBIT 27
COMPARATIVE GROUP
ASSET AND RISK RATIOS
<TABLE>
<CAPTION>
NPAs + Loans Net Loan One Year
NPAs/ 90+ Pst Due/ Reserves/ Reserves/ Chargeoffs/ Cum Gap/
Assets Assets NPAs + 90 Loans Avg Loans Assets
Ticker Institution (%) (%) (%) (%) (%) (%)
- ------ ----------- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 0.00 0.60 79.85 0.56 0.03 NA
CLAS Classic Bancshares, Inc. 0.66 0.94 65.45 0.93 0.00 NA
FFDF FFD Financial Corporation 0.00 0.00 NM 0.27 0.01 NA
FLKY First Lancaster Bancshares, Inc. 0.45 0.75 32.89 0.29 0.00 NA
GSFC Green Street Financial Corp. 0.16 0.16 83.63 0.18 0.00 -17.53
HFFB Harrodsburg First Financial Bancorp, Inc. 0.00 0.47 59.81 0.38 0.00 NA
KYF Kentucky First Bancorp, Inc. 0.00 0.07 630.51 0.75 0.07 NA
MARN Marion Capital Holdings, Inc. 0.81 0.81 144.01 1.35 0.00 8.06
PFFC Peoples Financial Corporation 0.00 0.00 NM 0.39 0.00 NA
SSB Scotland Bancorp, Inc. 0.00 0.00 NM 0.50 0.00 NA
SCCB South Carolina Community Bancshares, Inc. 1.78 1.78 35.52 0.81 0.00 NA
SSM Stone Street Bancorp, Inc. 0.00 0.27 187.50 0.62 0.00 -26.86
WEHO Westwood Homestead Financial Corporation 0.00 0.06 255.81 0.21 0.00 -9.35
Average: 0.30 0.45 157.50 0.56 0.01 -11.42
Median: 0.00 0.27 144.01 0.50 0.00 -13.44
North Carolina Median 0.35 0.39 97.22 0.62 0.00 -10.33
North Carolina Average 0.55 0.60 117.23 0.66 0.18 -14.23
Southeast Region Average 0.87 0.99 121.25 0.87 0.18 -7.63
All Publicly Traded Thrifts Average 0.76 0.82 133.36 0.99 0.19 -6.28
Mooresville Savings 0.96 0.96 56.20 0.61 0.00 (54.69)
</TABLE>
<PAGE>
EXHIBIT 28
COMPARATIVE GROUP
YIELD-COST SPREAD ANALYSIS
<TABLE>
<CAPTION>
Interest Net Interest Earn Assets/
Interest Expense/ Income/ Int Bearing
Income/ Avg Assets Avg Assets Liabilities
Avg Assets (%) (%) (%)
Ticker Institution (%) LTM LTM LTM
- ------ ----------- --- --- --- ---
<S> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 7.70 3.85 3.85 118.64
CLAS Classic Bancshares, Inc. NA NA NA 111.39
FFDF FFD Financial Corporation 6.87 3.55 3.32 133.53
FLKY First Lancaster Bancshares, Inc. 7.99 3.55 4.44 156.26
GSFC Green Street Financial Corp. 7.38 3.05 4.33 159.18
HFFB Harrodsburg First Financial Bancorp, Inc. 7.10 3.52 3.58 144.86
KYF Kentucky First Bancorp, Inc. 7.18 3.67 3.50 117.86
MARN Marion Capital Holdings, Inc. 7.86 3.84 4.02 126.57
PFFC Peoples Financial Corporation 7.00 3.56 3.44 NA
SSB Scotland Bancorp, Inc. 7.43 2.87 4.57 NA
SCCB South Carolina Community Bancshares, Inc. 7.76 3.68 4.08 NA
SSM Stone Street Bancorp, Inc. 7.84 3.18 4.65 142.40
WEHO Westwood Homestead Financial Corporation 7.47 4.10 3.37 143.52
Average: 7.47 3.54 3.93 135.42
Median: 7.45 3.55 3.93 137.97
North Carolina Median 7.48 3.82 3.73 120.51
North Carolina Average 7.57 3.69 3.87 128.45
Southeast Region Average 7.74 4.11 3.64 116.40
All Publicly Traded Thrifts Average 7.48 4.12 3.36 113.50
Mooresville Savings 7.43 4.51 2.92 113.86
<CAPTION>
Yield on Cost of Interest Net
Int Earning Int Bearing Yield Interest
Assets Liabilities Spread Margin
(%) (%) (%) (%)
Ticker Institution LTM LTM LTM LTM
- ------ ----------- --- --- --- ---
<S> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 7.99 4.72 3.27 3.99
CLAS Classic Bancshares, Inc. 7.52 NA NA 3.75
FFDF FFD Financial Corporation 6.97 4.75 2.22 3.36
FLKY First Lancaster Bancshares, Inc. 8.11 5.31 2.80 4.51
GSFC Green Street Financial Corp. 7.43 4.84 2.59 4.36
HFFB Harrodsburg First Financial Bancorp, Inc. 7.21 NA NA 3.64
KYF Kentucky First Bancorp, Inc. 7.37 4.61 2.76 3.59
MARN Marion Capital Holdings, Inc. 8.39 5.18 3.21 4.29
PFFC Peoples Financial Corporation 7.18 NA NA 3.53
SSB Scotland Bancorp, Inc. 7.56 NA NA 4.64
SCCB South Carolina Community Bancshares, Inc. 7.90 NA NA 4.16
SSM Stone Street Bancorp, Inc. 8.20 4.89 3.31 4.87
WEHO Westwood Homestead Financial Corporation 7.57 5.75 1.82 3.41
Average: 7.65 5.01 2.75 4.01
Median: 7.56 4.87 2.78 3.99
North Carolina Median 7.69 4.87 2.64 3.77
North Carolina Average 7.78 5.00 2.82 3.98
Southeast Region Average 7.96 4.89 3.17 3.74
All Publicly Traded Thrifts Average 7.76 4.83 2.96 3.49
Mooresville Savings 7.95 4.95 3.01 3.77
</TABLE>
<PAGE>
EXHIBIT 29
COMPARATIVE GROUP
CAPITAL MARKET ISSUES
<TABLE>
<CAPTION>
Current Latest
Market Stock Weekly Volume/
Value Price Shares Outstanding
Ticker Institution IPO Date Exchange ($M) ($) (Actual)
- ------ ----------- -------- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 08/22/94 NASDAQ 27.56 24.125 0.26
CLAS Classic Bancshares, Inc. 12/29/95 NASDAQ 18.43 14.125 0.58
FFDF FFD Financial Corporation 04/03/96 NASDAQ 21.46 14.750 1.16
FLKY First Lancaster Bancshares, Inc. 07/01/96 NASDAQ 15.04 15.688 0.65
GSFC Green Street Financial Corp. 04/04/96 NASDAQ 78.98 18.375 1.18
HFFB Harrodsburg First Financial Bancorp, Inc. 10/04/95 NASDAQ 30.88 15.250 0.26
KYF Kentucky First Bancorp, Inc. 08/29/95 AMSE 16.49 12.500 0.72
MARN Marion Capital Holdings, Inc. 03/18/93 NASDAQ 40.67 23.000 1.05
PFFC Peoples Financial Corporation 09/13/96 NASDAQ 25.28 17.250 2.06
SSB Scotland Bancorp, Inc. 04/01/96 AMSE 34.57 18.063 1.84
SCCB South Carolina Community Bancshares, Inc. 07/07/94 NASDAQ 15.14 21.500 2.76
SSM Stone Street Bancorp, Inc. 04/01/96 AMSE 40.33 21.250 0.34
WEHO Westwood Homestead Financial Corporation 09/30/96 NASDAQ 43.33 15.500 0.45
Average: 31.40 17.798 1.02
Median: 27.56 17.250 0.72
North Carolina Median 36.89 18.500 0.55
North Carolina Average 59.96 22.788 0.70
Southeast Region Average 101.70 22.945 1.18
All Publicly Traded Thrifts Average 207.34 22.709 1.27
<CAPTION>
Current Dividend
Dividend Payout Insider Institut'l
Shares Yield Ratio Ownership Ownership
Ticker Institution Outstanding (%) (%) (%) (%)
- ------ ----------- ----------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 1,142,425 2.32 41.32 14.68 2.77
CLAS Classic Bancshares, Inc. 1,304,950 1.98 36.36 11.43 9.82
FFDF FFD Financial Corporation 1,454,750 2.03 14.02 5.51 4.94
FLKY First Lancaster Bancshares, Inc. 958,812 3.19 0.00 7.94 0.00
GSFC Green Street Financial Corp. 4,298,125 2.39 94.92 3.66 1.08
HFFB Harrodsburg First Financial Bancorp, Inc. 2,024,756 2.62 93.22 9.26 0.05
KYF Kentucky First Bancorp, Inc. 1,319,194 4.00 583.33 8.87 6.41
MARN Marion Capital Holdings, Inc. 1,768,099 3.83 63.08 12.35 21.45
PFFC Peoples Financial Corporation 1,491,012 2.90 NA 6.98 13.87
SSB Scotland Bancorp, Inc. 1,913,600 1.66 52.63 16.48 1.18
SCCB South Carolina Community Bancshares, Inc. 704,233 2.79 111.11 9.90 0.14
SSM Stone Street Bancorp, Inc. 1,898,052 2.12 542.26 14.57 7.65
WEHO Westwood Homestead Financial Corporation 2,795,475 1.81 NA 3.19 16.46
Average: 1,774,883 2.59 148.39 9.26 6.60
Median: 1,491,012 2.39 63.08 NA 4.94
North Carolina Median 1,905,826 2.13 102.73 13.49 4.27
North Carolina Average 3,294,301 2.24 146.43 16.36 5.56
Southeast Region Average 4,464,482 1.90 111.66 14.60 9.41
All Publicly Traded Thrifts Average 6,467,454 1.69 56.38 0.00 17.21
</TABLE>
<PAGE>
EXHIBIT 30
COMPARATIVE GROUP
CAPITAL MARKET ISSUES
<TABLE>
<CAPTION>
Price/ Price/ Price/ Tang Price/
Earnings Book Value Book Value Assets
Ticker Institution (x) (%) (%) (%)
- ------ ----------- --- --- --- ---
<S> <C> <C> <C> <C> <C>
BFSB Bedford Bancshares, Inc. 19.94 135.92 135.92 20.35
CLAS Classic Bancshares, Inc. 25.68 94.99 112.37 14.12
FFDF FFD Financial Corporation 13.79 101.65 101.65 25.16
FLKY First Lancaster Bancshares, Inc. 31.38 108.64 108.64 37.19
GSFC Green Street Financial Corp. 31.14 124.75 124.75 45.23
HFFB Harrodsburg First Financial Bancorp, Inc. 25.85 97.26 97.26 28.34
KYF Kentucky First Bancorp, Inc. 20.83 112.01 112.01 18.54
MARN Marion Capital Holdings, Inc. 17.69 104.12 104.12 23.47
PFFC Peoples Financial Corporation NA 109.32 109.32 29.74
SSB Scotland Bancorp, Inc. 31.69 134.30 134.30 49.75
SCCB South Carolina Community Bancshares, Inc. 39.81 125.66 125.66 32.62
SSM Stone Street Bancorp, Inc. 25.30 131.74 131.74 38.01
WEHO Westwood Homestead Financial Corporation NA 109.39 109.39 32.18
Average: 25.74 114.60 115.93 30.36
Median: 25.68 109.39 112.01 29.74
North Carolina Median 31.42 127.05 127.05 29.91
North Carolina Average 30.84 131.84 132.14 29.47
Southeast Region Average 31.20 170.21 178.71 22.87
All Publicly Traded Thrifts Average 29.30 151.83 158.13 17.63
</TABLE>
<PAGE>
EXHIBIT 31 - A
RECENT CONVERSIONS
PRO FORMA PRICING INFORMATION
<TABLE>
<CAPTION>
Pro Forma Pricing Ratios
---------------------------------------------
Price/ Price/ Price/ Price/
Gross Pro-Forma Pro-Forma Pro-Forma Adjusted
Proceeds Book Value Tang. Book Earnings Assets
Ticker Institution IPO Date ($000) (%) (%) (x) (%)
- ------ ----------- -------- ------ --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
FSPT FirstSpartan Financial Corp. 09-Jul-97 $88,608 73.0 73.0 26.0 19.1
GOSB GSB Financial Corporation 09-Jul-97 $22,483 73.4 73.4 23.2 18.9
FBNW FirstBank Corporation 02-Jul-97 $19,838 71.9 71.9 19.2 13.0
CFBC Community First Banking Company 01-Jul-97 $48,271 72.7 72.7 36.1 12.0
HCBB HCB Bancshares, Inc. 07-May-97 $26,450 72.0 72.0 29.0 13.4
PSFC Peoples-Sidney Financial Corporation 28-Apr-97 $17,854 71.2 71.2 11.5 17.0
NSBC NewSouth Bancorp, Inc. 08-Apr-97 $43,643 78.7 78.7 22.1 18.4
HMLK Hemlock Federal Financial Corporation 02-Apr-97 $20,763 71.6 71.6 37.5 12.4
GSLA GS Financial Corp. 01-Apr-97 $34,385 63.8 63.8 38.7 28.4
MRKF Market Financial Corporation 27-Mar-97 $13,357 71.1 71.1 26.2 22.7
EFBC Empire Federal Bancorp, Inc. 27-Jan-97 $25,921 68.1 68.1 21.5 23.0
FAB FirstFed America Bancorp, Inc. 15-Jan-97 $87,126 72.0 72.0 13.6 10.7
RSLN Roslyn Bancorp, Inc. 13-Jan-97 $423,714 72.0 72.0 9.3 21.0
AFBC Advance Financial Bancorp 02-Jan-97 $10,845 71.1 71.1 16.8 10.6
HCFC Home City Financial Corporation 30-Dec-96 $9,522 71.2 71.2 13.7 14.6
SCBS Southern Community Bancshares, Inc. 23-Dec-96 $11,374 74.4 74.4 14.5 15.0
CENB Century Bancorp, Inc. 23-Dec-96 $20,367 72.1 72.1 18.9 20.0
BFFC Big Foot Financial Corporation 20-Dec-96 $25,128 72.7 72.7 33.1 11.4
RIVR River Valley Bancorp 20-Dec-96 $11,903 73.0 73.0 15.2 12.1
PSFI PS Financial, Inc. 27-Nov-96 $21,821 71.9 71.9 17.2 29.0
CFNC Carolina Fincorp, Inc. 25-Nov-96 $18,515 77.0 77.0 17.2 16.4
DCBI Delphos Citizens Bancorp, Inc. 21-Nov-96 $20,387 72.2 72.2 14.6 18.8
FTNB Fulton Bancorp, Inc. 18-Oct-96 $17,193 72.5 72.5 14.6 16.7
SSFC South Street Financial Corp. 03-Oct-96 $44,965 76.3 76.3 26.1 21.2
AFED AFSALA Bancorp, Inc. 01-Oct-96 $14,548 71.7 71.7 13.7 9.9
WEHO Westwood Homestead Financial Corporation 30-Sep-96 $28,434 73.8 73.8 NA 22.7
CBES CBES Bancorp, Inc. 30-Sep-96 $10,250 61.1 61.1 13.2 10.6
HBEI Home Bancorp of Elgin, Inc. 27-Sep-96 $70,093 72.6 72.6 24.9 18.7
PFFC Peoples Financial Corporation 13-Sep-96 $14,910 64.3 64.3 28.6 16.0
Maximum: $423,714 78.7 78.7 38.7 29.0
Minimum: $9,522 61.1 61.1 9.3 9.9
Average: $42,161 71.7 71.7 21.3 17.0
Median: $20,763 72.0 72.0 19.1 16.7
</TABLE>
<PAGE>
EXHIBIT 31 - B
RECENT CONVERSIONS
PRICE APPRECIATION INFORMATION
<TABLE>
<CAPTION>
Change in Price from IPO to:
--------------------------------------------------------------
Offering One One One Three Current
Price Day After Week After Month After Months After Stock
Ticker Institution ($) Conversion Conversion Conversion Conversion Price
- ------ ----------- --- ---------- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
FSPT FirstSpartan Financial Corp. $20.00 83.4% 85.0% 78.1% 76.9%
GOSB GSB Financial Corporation $10.00 46.3% 47.5% 43.8% 43.8%
FBNW FirstBank Corporation $10.00 58.1% 57.5% 77.5% 75.0%
CFBC Community First Banking Company $20.00 59.4% 64.4% 71.3% 69.4%
HCBB HCB Bancshares, Inc. $10.00 26.3% 26.3% 28.8% 39.4% 37.5%
PSFC Peoples-Sidney Financial Corporation $10.00 25.6% 30.0% 32.5% 56.3% 60.0%
NSBC NewSouth Bancorp, Inc. $15.00 35.0% 44.2% 56.7% 70.0% 86.7%
HMLK Hemlock Federal Financial Corporation $10.00 28.8% 28.8% 27.5% 38.8% 53.8%
GSLA GS Financial Corp. $10.00 33.8% 35.0% 40.6% 53.8% 57.5%
MRKF Market Financial Corporation $10.00 29.4% 25.0% 26.3% 35.0% 41.9%
EFBC Empire Federal Bancorp, Inc. $10.00 32.5% 32.5% 37.5% 31.3% 55.0%
FAB FirstFed America Bancorp, Inc. $10.00 36.3% 41.3% 48.8% 37.5% 100.6%
RSLN Roslyn Bancorp, Inc. $10.00 50.0% 58.8% 60.0% 58.8% 127.5%
AFBC Advance Financial Bancorp $10.00 28.8% 28.8% 40.0% 38.8% 62.5%
HCFC Home City Financial Corporation $10.00 0.0% 26.3% 33.1% 35.0% 55.0%
SCBS Southern Community Bancshares, Inc. $10.00 30.0% 37.5% 35.0% 40.0% 58.8%
CENB Century Bancorp, Inc. $50.00 25.3% 32.0% 30.0% 36.0% 59.0%
BFFC Big Foot Financial Corporation $10.00 23.1% 26.3% 40.0% 45.0% 71.3%
RIVR River Valley Bancorp $10.00 36.9% 37.5% 48.1% 43.8% 65.0%
PSFI PS Financial, Inc. $10.00 16.4% 17.5% 21.3% 40.0% 47.5%
CFNC Carolina Fincorp, Inc. $10.00 30.0% 33.8% 36.3% 41.3% 73.8%
DCBI Delphos Citizens Bancorp, Inc. $10.00 21.3% 21.3% 20.6% 37.5% 60.0%
FTNB Fulton Bancorp, Inc. $10.00 25.0% 30.0% 47.5% 65.0% 110.0%
SSFC South Street Financial Corp. $10.00 0.0% 25.0% 23.8% 40.0% 87.5%
AFED AFSALA Bancorp, Inc. $10.00 13.8% 13.8% 21.3% 20.0% 60.6%
WEHO Westwood Homestead Financial Corporation $10.00 7.5% 5.0% 6.3% 22.5% 55.0%
CBES CBES Bancorp, Inc. $10.00 26.3% 35.0% 33.8% 42.5% 76.3%
HBEI Home Bancorp of Elgin, Inc. $10.00 18.1% 21.9% 26.3% 33.8% 75.0%
PFFC Peoples Financial Corporation $10.00 8.8% 14.4% 27.5% 30.0% 72.5%
Maximum: $50.00 83.4% 85.0% 78.1% 70.0% 127.5%
Minimum: $10.00 7.5% 5.0% 6.3% 20.0% 37.5%
Average: $12.24 31.7% 33.9% 38.6% 41.3% 68.1%
Median: $10.00 28.8% 30.0% 35.0% 39.4% 65.0%
</TABLE>
<PAGE>
Exhibit 32
----------
Pro Forma Analysis Sheet
------------------------
<TABLE>
<S> <C>
Name of Institution: Mooresville Savings/Coddle Creek Financial
Date of Letter to Association: September 2, 1997
Date of Market Prices: September 1, 1997
</TABLE>
<TABLE>
<CAPTION>
Comparable All Publicly
Companies Traded Thrifts
------------------ -----------------
Symbols Subject Mean Median Mean Median
------- ------- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Price\Earnings Multiples P\E 23.1 25.7 25.7 29.3 23.3
Price\Tangible Book Value Ratio P\BV 67.5% 114.6% 109.4% 151.8% 137.4%
Price\Assets Ratio P\A 17.2% 30.4% 29.7% 17.6% 15.3%
Valuation Parameters
- -------------------------------------------------------------
Pre-Conversion Earnings Y $579,000
Pre-Conversion Book Value B $14,691,000
Pre-Conversion Assets A $114,162,000
Reinvestment Rate R 5.42%
Estimated Conversion Expenses X $843,800
Proceeds Not Reinvested Z
Estimated ESOP Borrowings E 8.00%
Cost of ESOP Borrowings S 0.00%
Amortization of ESOP Borrowings T 10
MRP M 4.00%
MRP Vesting N 5
Tax Rate t 39.00%
<CAPTION>
Calculation of Pro Forma Value After Conversion
- -------------------------------------------------------------
<S> <C> <C> <C>
P\E (Y- RX)
V = --------------------------------------- = $23,000,000
1 - P/E (R - (PE/T*(1-t)) - M/N*(1-t))
P\B (B - X)
V = --------------------------------------- = $23,000,000
1 - (P/B (1- M - E)
P\A (A - E)
V = --------------------------------------- = $23,000,000
1 - (P/A)
<CAPTION>
Total Price
Conclusion Shares Per Share Value
- ---------------------------- ------ X --------- = -----
<S> <C> <C> <C>
Appraised Value 460,000 $50.00 $23,000,000
Range
- ----------------------------
Minimum 391,000 $50.00 $19,550,000
Maximum 529,000 $50.00 $26,450,000
Supermax 608,350 $50.00 $30,417,500
</TABLE>
<PAGE>
EXHIBIT 33
PRO FORMA EFFECT ON CONVERSION PROCEEDS
-------------------------------------------
CODDLE CREEK FINANCIAL, INC.
-------------------------------------------
<TABLE>
<CAPTION>
Minimum Midpoint Maximum Super Max
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Conversion Proceeds
- -------------------
Pro Forma Market Value $19,550,000 $23,000,000 $26,450,000 $30,417,500
Less: ESOP $1,564,000 $1,840,000 $2,116,000 $2,433,400
MRP $782,000 $920,000 $1,058,000 $1,216,700
Estimated Expenses $769,280 $843,800 $918,320 $1,004,018
------------- ------------- ------------- -------------
Net Proceeds $16,434,720 $19,396,200 $22,357,680 $25,763,382
Pro Forma Adjusted Earnings
- ---------------------------
(Twelve Months Ended 06/30/97)
Reported Earnings $579,000 $579,000 $579,000 $579,000
Earnings on Proceeds $543,365 $641,277 $739,190 $851,789
Pro Forma MRP Adjustments $95,404 $112,240 $129,076 $148,437
Pro Forma ESOP Adjustments $95,404 $112,240 $129,076 $148,437
------------- ------------- ------------- -------------
Pro Forma Earnings $931,557 $995,797 $1,060,038 $1,133,914
Pro Forma Net Worth
- -------------------
Net Worth $14,691,000 $14,691,000 $14,691,000 $14,691,000
Conversion Proceeds $16,434,720 $19,396,200 $22,357,680 $25,763,382
------------- ------------- ------------- -------------
Pro Forma Net Worth $31,125,720 $34,087,200 $37,048,680 $40,454,382
Pro Forma Total Assets
Total Assets $114,162,000 $114,162,000 $114,162,000 $114,162,000
Conversion Proceeds $16,434,720 $19,396,200 $22,357,680 $25,763,382
------------- ------------- ------------- -------------
Pro Forma Assets $130,596,720 $133,558,200 $136,519,680 $139,925,382
</TABLE>
<PAGE>
EXHIBIT 34
----------
SUMMARY OF VALUATION PREMIUM OR DISCOUNT
----------------------------------------
<TABLE>
<CAPTION>
Minimum Mooresville Savings Average Median
- -------------- ------------------- ----------- ----------
<S> <C> <C> <C>
Price/earnings 21.0 18.5% 18.3%
Price/Book Value 62.8% 50.6% 52.5%
Price Tangible Book Value 62.8% 45.2% 42.6%
Price/assets 15.0% 50.7% 49.7%
Midpoint Mooresville Savings Average Median
- -------------- ------------------- ----------- ----------
Price/earnings 23.1 10.3% 10.1%
Price/Book Value 67.5% 46.9% 48.9%
Price Tangible Book Value 67.5% 46.9% 48.9%
Price/assets 17.2% 43.3% 42.1%
Maximum Mooresville Savings Average Median
- -------------- ------------------- ----------- ----------
Price/earnings 25.0 3.1% 2.8%
Price/Book Value 71.4% 43.8% 46.0%
Price Tangible Book Value 71.4% 43.8% 46.0%
Price/assets 19.4% 36.2% 34.9%
Super maximum Mooresville Savings Average Median
- -------------- ------------------- ----------- ----------
Price/earnings 26.8 -4.2% -4.5%
Price/Book Value 75.2% 40.8% 43.1%
Price Tangible Book Value 75.2% 40.8% 43.1%
Price/assets 21.7% 28.4% 26.9%
Comparative Group Ratios
---------------------------------------
Price/earnings 25.74 25.68
Price/Book Value 127.1% 132.1%
Price Tangible Book Value 114.6% 109.4%
Price/assets 30.4% 29.7%
</TABLE>
<PAGE>
JMP FINANCIAL, INC.
-------------------
JMP Financial, Inc., is an investment banking firm founded in 1991
primarily to serve small and mid sized financial institutions in the Great Lakes
area. Prior to founding and becoming President of JMP Financial, Inc. John
Palffy was Vice President, Corporate Finance at First of Michigan Corporation
(Detroit, 1989-1991) and Vice President, Corporate Finance at Johnston, Lemon &
Co., Incorporated (Wash D.C. 1986-1989).
JMP Financial specializes in advisory services, merger and
acquisition services, and securities placement for financial institutions. JMP
Financial has diverse experience advising savings and loans, commercial banks,
mortgage banking companies, and other business interests. JMP Financial, Inc.,
or its principals, have performed appraisals for and/or served as underwriter or
placement agent for a number of thrifts in the Midwest and Mid-Atlantic,
including Century Bancorp Inc., First Savings Bank, Macomb Savings Bank,
InterFirst Bancorp, Ludington Federal Savings Bank, Heritage Bancorp, Valley
Federal Savings, Citizens Federal Savings Bank, Lenawee Federal Savings,
HomeCorp, Inc., and Prince George's Savings & Loan Association.
Mr. Palffy's work has been almost exclusively in financial
institutions since 1986. Prior to 1986 Mr. Palffy served as a senior political
appointee in the Reagan Agriculture Department, as Chief Economist to U.S.
Senator Dan Quayle, and as Walker Fellow in Economic Policy for The Heritage
Foundation.
Mr. Palffy is also an Adjunct Professor of Money and Banking at Walsh
College (Troy) and a licensed securities representative.
Mr. Palffy has completed most coursework towards a Ph.D. in Economics
from George Mason University (Fairfax, Va.), has a MBA from the University of
Michigan with a concentration in Finance, and a AB with Honors from Kenyon
College (Gambier, Ohio).
<PAGE>
Exhibit 99(c)
MOORESVILLE SAVINGS BANK, SSB
347 North Main Street
Mooresville, North Carolina 28115
(704) 664-4888
-------------------------
SUMMARY PROXY STATEMENT
-------------------------
SPECIAL MEETING OF MEMBERS TO BE HELD ON DECEMBER ____, 1997
PURPOSE OF THE SPECIAL MEETING
This Summary Proxy Statement (the "Proxy Statement") is being furnished to
you in connection with the solicitation by the Board of Directors of Mooresville
Savings Bank, SSB (the "Bank") of proxies to be voted at a special meeting of
members (the "Special Meeting") to be held at the Bank's headquarters office at
347 North Main Street, Mooresville, North Carolina on December ____, 1997 at
______ __.m., Eastern Time.
The Special Meeting will be held for the purpose of considering and voting
upon the proposed Plan of Holding Company Conversion approved by the Board of
Directors of the Bank on July 14, 1997 (the "Plan of Conversion"), which
provides for the adoption by the Bank of an amended Certificate of Incorporation
and Bylaws. If the Plan of Conversion is approved by a majority of the total
votes eligible to be cast and if certain other conditions are satisfied, the
Bank will convert from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank, and the Bank will become the wholly-owned
subsidiary of Coddle Creek Financial Corp. (the "Company"), a North Carolina
corporation formed by the Bank to own all of the stock of the Bank issued
pursuant to the Plan of Conversion (the "Conversion"). The proposed Plan of
Conversion, including the proposed forms of the Bank's amended Certificate of
Incorporation and Bylaws, is attached to this Proxy Statement as Attachment I.
For a description of the Conversion, see "THE CONVERSION."
This Proxy Statement is dated November _____, 1997, and is first being
mailed to members of the Bank, together with the Prospectus dated November
_____, 1997 (the "Prospectus"), on or about November _____, 1997.
The following information is not complete and is qualified in its entirety
by the Plan of Conversion, which is attached to this Proxy Statement, the
information contained in this Proxy Statement and the information and financial
statements and accompanying notes contained in the Prospectus which accompanies
this Proxy Statement.
Coddle Creek Financial Corp.
The Company is a North Carolina corporation recently organized by the Board
of Directors of the Bank to acquire all of the capital stock that the Bank will
issue upon its Conversion from the mutual to stock form of ownership. The
Company has not as yet engaged in any business. Upon completion of the
Conversion, its business will initially consist solely of owning the Bank,
investing the proceeds of the Conversion that are retained by the Company and
holding the indebtedness to be outstanding from the Employee Stock Ownership
Plan (the "ESOP"). The Company has received the approval of the Administrator,
Savings Institutions Division, North Carolina Department of Commerce (the
"Administrator"), and the Board of Governors of the Federal Reserve System (the
"Federal Reserve") to acquire the Bank.
<PAGE>
The executive office of the Company is located at 347 North Main Street,
Mooresville, North Carolina, and its telephone number is (704) 664-4888.
Mooresville Savings Bank, SSB
The Bank is a North Carolina-chartered mutual savings bank and has been in
operation since 1937. The Bank is a member of the Federal Home Loan Bank
("FHLB") system, and its deposits are federally insured by the Savings
Association Insurance Fund (the "SAIF") of the Federal Deposit Insurance
Corporation (the "FDIC") to the maximum amount permitted by law.
The Bank, headquartered in Mooresville, North Carolina, conducts business
through three full service offices in Mooresville, Cornelius and Huntersville,
North Carolina. The Bank's primary market area consists of the communities
within an approximately 15-mile radius of its Mooresville office, which includes
portions of Iredell, Catawba, Lincoln, Mecklenburg, Cabarrus and Rowan counties
in North Carolina. Based upon 1996 comparative data, the Bank had approximately
22% and 7.2% of the deposits in Mooresville and Iredell County, respectively.
On June 30, 1997, the Bank had total assets of $114.2 million, net loans of
$100.5 million, deposits of $95.9 million and retained earnings of $14.7
million.
The Bank is primarily engaged in the business of attracting deposits from
the general public and using such deposits to make mortgage loans secured by
one-to-four family residential real estate located in the Bank's primary market
area. The Bank also makes multi-family residential, nonresidential real estate,
construction, equity line of credit, and other secured and unsecured consumer
loans. See "BUSINESS OF THE BANK" in the Prospectus. The Bank has been and
intends to continue to be a community-oriented financial institution offering a
variety of financial services to meet the needs of the communities it serves.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Bank has fixed the close of business on
_____________, 1997 (the "Voting Record Date") as the record date for
determining the members entitled to notice of and to vote at the Special
Meeting. The Bank's depositors (including beneficial owners of Individual
Retirement Account ("IRA") accounts) and borrowers are members of the Bank
entitled to vote under its current Certificate of Incorporation and Bylaws. The
Bank's members of record as of the close of business on the Voting Record Date
who cease to be members prior to the date of the Special Meeting will not be
entitled to vote at the Special Meeting.
At the Special Meeting, each deposit account holder entitled to vote may
cast one vote for each $100 or fraction thereof of the aggregate withdrawal
value of any deposit account in the Bank as of the Voting Record Date. Each
borrower member entitled to vote may cast one vote as a borrower in addition to
the number of votes to which such member may be entitled as an owner of a
deposit account. No member, however, may cast more than 1,000 votes. A deposit
account or loan creates a single membership for voting purposes, even though
more than one person has an interest in such deposit account or is obligated on
such loan.
Beneficial owners of IRA accounts at the Bank will be considered voting
members entitled to vote on the Plan of Conversion. The legal owners of other
fiduciary accounts, rather than the beneficial owners, will be treated as the
member entitled to cast the votes for such account, unless the trust agreement
or any other agreement relating to the fiduciary's authority provides otherwise.
Twenty-five members present in person or by proxy at the Special Meeting
will constitute a quorum for the transaction of business. The affirmative vote
of at least a majority of the total outstanding votes of the Bank's' members
eligible to be cast at the Special Meeting is required for
2
<PAGE>
approval of the Plan of Conversion. As of the Voting Record Date, the Bank's
records disclose that there were _________ votes entitled to be cast at the
Special Meeting, of which _________ votes would represent a majority.
Members may vote at the Special Meeting in person or by proxy. Each proxy
solicited hereby, if properly executed, duly returned at least five days prior
to the date of 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 voting instructions are indicated on the
proxy card, the proxy will be voted FOR the Plan of Conversion. If any other
---
matters are properly presented before the Special Meeting, the proxies solicited
hereby will be voted on such matters in accordance with the best judgment of the
proxyholders named therein. Management of the Bank is not aware of any other
business to be presented at 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 Bank before or at the Special Meeting either
a written revocation of the proxy or by delivering to the Secretary of the Bank
no later than five days prior to the Special Meeting a duly executed proxy
bearing a later date, or by attending the Special Meeting and voting in person.
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. No previously
provided general proxies will be voted at the Special Meeting for approval of
the Plan of Conversion.
The Board of Directors' solicitation of proxies for the Special Meeting is
being made by means of this Proxy Statement. It may be followed by further
letters and personal calls to members by employees or agents of the Bank. All
costs of this proxy solicitation will be paid by the Bank.
The directors and executive officers of the Bank were entitled to cast
_______ votes as of the Voting Record Date for the Special Meeting.
RECOMMENDATION OF MANAGEMENT
THE BOARD OF DIRECTORS OF THE BANK RECOMMENDS THAT YOU VOTE FOR THE PLAN OF
---
CONVERSION.
FAILURE TO VOTE IN FAVOR OF THE PLAN OF CONVERSION, IN PERSON OR BY PROXY,
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PLAN OF CONVERSION. VOTING IN
-------
FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY PERSON TO SUBSCRIBE FOR
THE PURCHASE OF ANY STOCK, AND VOTING AGAINST THE PLAN OR FAILING TO VOTE WILL
NOT PRECLUDE ANY SUCH PURCHASE.
THE DIRECTORS AND CERTAIN OFFICERS OF THE BANK HAVE A PERSONAL INTEREST IN
THE APPROVAL OF THE CONVERSION TO THE EXTENT THAT THEY WILL RECEIVE CERTAIN
BENEFITS AS A RESULT OF THE CONVERSION. SEE "MANAGEMENT OF THE BANK" IN THE
PROSPECTUS.
THE BOARD OF DIRECTORS OF FIRST SAVINGS HAS ADOPTED AND THE ADMINISTRATOR
HAS APPROVED COMPLETION OF THE TRANSACTIONS DESCRIBED IN THE PLAN OF CONVERSION
SUBJECT TO APPROVAL BY THE MEMBERS OF THE BANK AND TO SATISFACTION OF CERTAIN
OTHER CONDITIONS. APPROVAL BY THE ADMINISTRATOR DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE ADMINISTRATOR.
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THE CONVERSION
General
The Bank was organized and has operated as a traditional savings and loan
association. It recognizes that the banking and financial services industries
are in the process of fundamental changes, reflecting changes in the local,
national and international economies, technological changes and changes in state
and federal laws. As a result, for several years the Bank has been studying the
environment in which it operates and its strategic options.
As a result of its study of its strategic options, the Bank adopted the
Plan. The Bank believes that converting the bank from the mutual to stock form
and organizing the Company will provide increased flexibility for the Bank and
the Company to react to changes in their operating environment, regardless of
the strategies ultimately chosen.
The existing management of the Bank and the Company believes that it will
be in the best interests of the Bank, the Company and the stockholders of the
Company for the Company to remain an independent financial institution.
Assuming the consummation of the Conversion, the Company and the Bank intend to
pursue the business strategy described in this Prospectus with the goal of
enhancing shareholder value over the long term. Neither the Company nor the
Bank has any existing plan to consider any business combination, and neither
company has any agreement or understanding with respect to any possible business
combination.
The Board of Director's adoption of the Plan is subject to approval by the
members of the Bank and receipt of required regulatory approvals. Pursuant to
the Plan, the Bank will be converted from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered stock savings bank and will become a
wholly-owned subsidiary of the Company. The Company will issue the Common Stock
to be sold in the Conversion and will use that portion of the net proceeds
thereof which it does not retain to purchase the capital stock of the Bank. By
letter dated __________, 1997, the Administrator approved the Plan, subject to
approval by the members of the Bank and satisfaction of certain other
conditions. The Special Meeting will be held on December ____, 1997 for the
purpose of considering approval of the Plan.
Consummation of the Conversion is contingent also upon receipt of the
approvals of the Federal Reserve and the Administrator for the Company to
acquire the Bank. Those approvals have been received. The Conversion cannot be
consummated until the expiration of the Bank Merger Act of 1956 waiting period
which began to run upon approval by the Federal Reserve of the Company's
application and expires ___________, 199___. Finally, consummation of the
Conversion is contingent upon receipt from the FDIC of a final non-objection
letter with respect to the transaction. The FDIC has issued a conditional
notification that it does not intend to object to the Conversion.
The following is a summary of all material provisions of the Plan. It is
qualified in its entirety by the provisions of the Plan, which contains a more
detailed description of the terms of the Conversion. The Plan is attached as
Attachment I to the Bank's Proxy Statement for the Special Meeting which has
been delivered to all members of the Bank. The Plan can also be obtained by
written request from the Bank. See "ADDITIONAL INFORMATION" in the Prospectus.
Purposes of Conversion
The Bank, as a mutual savings bank, now has no stockholders and no
authority to issue capital stock. By converting to the stock form of
organization, the Bank will be structured in the form used by most commercial
banks, other business entities and a substantial number of savings institutions.
Conversion to a North Carolina-chartered capital stock savings bank and the
formation of a Company
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offers a number of advantages which may be important to the future and
performance of the Bank, including (i) a larger capital base for the Bank's
operations, (ii) an enhanced future access to capital markets and (iii) an
opportunity for depositors of the Bank to become stockholders of the Company.
After completion of the Conversion, the unissued common and preferred stock
authorized by the Company's Articles of Incorporation will permit the Company,
subject to market conditions, to raise additional equity capital through further
sales of securities. Following the Conversion, the Company will also be able to
use stock-related incentive programs to attract, retain and provide incentives
for qualified directors and executive and other personnel of the Company and the
Bank. See "MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan" and "--
Stock Based Benefits" in the Prospectus.
Formation of the Company will provide greater flexibility than the Bank
would otherwise have to expand and diversify its business activities through
existing or newly formed subsidiaries, or through acquisitions of, or mergers
with, both mutual and stock institutions, as well as other companies. However,
there are no current plans, arrangements, understandings or agreements regarding
any such business combinations.
Effects of Conversion
General. Each person with a deposit account in the Bank has pro rata
rights, based upon the balance in his or her account, in the net worth of the
Bank upon liquidation. However, this right is tied to the depositor's account
and has no tangible market value separate from such deposit account. Further,
the Bank's depositors can realize value with respect to their interests only in
the unlikely event that the Bank is liquidated and has a positive net worth. In
such an event, the depositors of record at that time, as owners, would share pro
rata in any residual surplus after other claims, including those with respect to
the deposit accounts of depositors, are paid.
Upon the Bank's conversion to stock form, its Certificate of Incorporation
will be amended to authorize the issuance of permanent nonwithdrawable capital
stock to represent the ownership of the Bank, including its net worth. The
capital stock will be separate and apart from deposit accounts and will not be
insured by the FDIC or any other governmental entity. Certificates will be
issued to evidence ownership of the capital stock. All of the outstanding
capital stock of the Bank will be acquired by the Company, which in turn will
issue its Common Stock to purchasers in the Conversion. The stock certificates
issued by the Company will be transferable and, therefore, subject to applicable
law, the stock could be sold or traded if a purchaser is available with no
effect on any deposit account the seller may hold at the Bank.
Voting Rights. Under the Bank's current Certificate of Incorporation and
Bylaws, deposit account holders and borrowers have voting rights with respect to
certain matters relating to the Bank, including the election of directors.
After the Conversion, (i) neither deposit account holders nor borrowers will
have voting rights with respect to the Bank and will therefore not be able to
elect directors of the Bank or control its affairs; (ii) voting rights with
respect to the Bank will be vested in the Company as the sole stockholder of the
Bank; and (iii) voting rights with respect to the Company will be vested in the
Company's stockholders. Each purchaser of Common Stock will be entitled to vote
on any matters to be considered by the Company's stockholders. For a
description of the voting rights of the holders of Common Stock, see
"DESCRIPTION OF CAPITAL STOCK" in the Prospectus.
Deposit Accounts and Loans. The account balances, interest rates and other
terms of deposit accounts at the Bank and the existing deposit insurance
coverage of such accounts will not be affected by the Conversion (except to the
extent that a depositor directs the Bank to withdraw funds to pay for his or her
Common Stock). Furthermore, the Conversion will not affect any loan account,
the balances, interest rates, maturities or other terms of these accounts, or
the obligations of borrowers under their individual contractual arrangements
with the Bank.
5
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Continuity. The Bank will continue without interruption, during and after
completion of the Conversion, to provide its services to depositors and
borrowers pursuant to existing policies and will maintain its office operated by
the existing management and employees of the Bank.
Liquidation Rights. In the unlikely event of a complete liquidation of the
Bank, either before or after Conversion, account holders would have claims for
the amount of their deposit accounts, including accrued interest, and would
receive the protection of deposit insurance up to applicable limits. In
addition to deposit insurance coverage, depositor liquidation rights before and
after Conversion would be as follows:
Liquidation Rights Prior to the Conversion. Prior to the Conversion, in
the event of a complete liquidation of the Bank, each holder of a deposit
account in the Bank would receive such holder's pro rata share of any assets of
the Bank remaining after payment of claims of all creditors (including the
claims of all depositors to the withdrawal value of their accounts, including
accrued interest). Such holder's pro rata share of such remaining assets, if
any, would be in the same proportion of such assets as the value of such
holder's deposit account was to the total value of all deposit accounts in the
Bank at the time of liquidation.
Liquidation Rights After the Conversion. As required by North Carolina
conversion regulations, the Plan provides that, upon completion of the
Conversion, a memorandum account called a "Liquidation Account" will be
established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. The amount of the Liquidation Account will be equal
to the net worth of the Bank as of the date of its latest statement of financial
condition contained in the final prospectus relating to the sale of shares of
Common Stock in the Conversion. Under applicable regulations, the Bank will not
be permitted to pay dividends on, or repurchase any of, its capital stock if its
net worth would thereby be reduced below the aggregate amount then required for
the Liquidation Account. See "DIVIDEND POLICY" and SUPERVISION AND REGULATION
- -- Regulation of the Bank -- Restrictions on Dividends and Other Capital
Distributions" in the Prospectus. After the Conversion, Eligible Account
Holders and Supplemental Eligible Account Holders will be entitled, in the
event of a liquidation of the Bank, to receive liquidating distributions of any
assets remaining after payment of all creditors' claims (including the claims of
all depositors to the withdrawal values of their deposit accounts, including
accrued interest), before any distributions are made on the Bank's capital
stock, equal to their proportionate interests at that time in the Liquidation
Account.
Each Eligible Account Holder and Supplemental Eligible Account Holder will
have an initial interest ("subaccount balance") in the Liquidation Account for
each deposit account held as of December 31, 1995 (the Eligibility Record Date)
or as of ____________, 1997 (the Supplemental Eligibility Record Date),
respectively. Each initial subaccount balance will be the amount determined by
multiplying the total opening balance in the Liquidation Account by the
Qualifying Deposit (a deposit of at least $50 as of the Eligibility Record Date
or Supplemental Eligibility Record Date, as applicable) of such deposit account
divided by the total of all Qualifying Deposits on that date. If the amount in
the deposit account on any subsequent annual closing date of the Bank is less
than the balance in such deposit account on any other annual closing date or the
balance in such an account on the Eligibility Record Date or Supplemental
Eligibility Record Date, as the case may be, this interest in the Liquidation
Account will be reduced by an amount proportionate to any such reduction, and
will not thereafter be increased despite any subsequent increase in the related
deposit account. An Eligible Account Holder's or Supplemental Eligible Account
Holder's interest in the Liquidation Account will cease to exist if the deposit
account is closed. The Liquidation Account will never increase and will be
correspondingly reduced as the interests in the Liquidation Account are reduced
or cease to exist. In the event of a liquidation, 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
sole stockholder of the Bank.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with another
6
<PAGE>
FDIC-insured depository institution, whether or not the Bank is the surviving
institution, would not be viewed as a complete liquidation for purposes of
distribution of the Liquidation Account. In any such transaction, the
Liquidation Account would be assumed by the surviving institution to the full
extent authorized by regulations of the Administrator as then in effect.
Offering of Common Stock
As part of the Conversion, the Company is making the Subscription Offering
of Common Stock in the priorities and to the persons described below under "--
Subscription Offering." In addition, any shares which remain unsubscribed for
in the Subscription Offering will be offered in the Community Offering to
members of the general public, with priority being given to natural persons and
trusts of natural persons residing or located in the Local Community, including
IRAs, Keogh accounts and similar retirement accounts established for the benefit
of natural persons who are residents of the Local Community. See "-- Community
Offering." If necessary, all shares of Common Stock not purchased in the
Subscription Offering and Community Offering, if any, may be offered for sale to
the general public through a syndicate of registered broker-dealers as selected
dealers to be managed by Trident Securities. See "-- Syndicated Community
Offering." The Plan requires that the aggregate dollar amount of the Common
Stock sold equal not less than the minimum nor more than the maximum of the
Valuation Range which is established in connection with the Conversion;
provided, however, with the consent of the Administrator and the FDIC the
aggregate dollar amount of the Common Stock sold may be increased to as much as
15% above the maximum of the Valuation Range, without a resolicitation of
subscribers or any right to cancel subscriptions, in order to reflect changes in
market and financial conditions following commencement of the Subscription
Offering. See "-- Purchase Price of Common Stock and Number of Shares Offered."
If the Syndicated Community Offering is not feasible or successful and Common
Stock having an aggregate value of at least the minimum of the Valuation Range
is not subscribed for in the Subscription and Community Offerings, the Company
will consult with the Administrator to determine an appropriate alternative
method of selling all shares of Common Stock offered in the Conversion and not
subscribed for in the Offerings. The same per share price ($50.00) will be paid
by purchasers in the Subscription, Community and Syndicated Community Offerings.
The Subscription Offering will expire at the Expiration Time, which is
12:00 noon, Eastern Time, on December ____, 1997, unless, with the approval of
the Administrator, the offering period is extended by the Company and the Bank.
The Community Offering, if any, may begin at any time after the Subscription
Offering begins and will terminate at the Expiration Time or at any time
thereafter, but not later than January ____, 1998, unless extended with the
approval of the Administrator. The Syndicated Community Offering, if any, or
other sale of all shares not subscribed for in the Subscription and Community
Offerings, will be made as soon as practicable following the Expiration Time.
The sale of the Common Stock must, under the North Carolina conversion
regulations, be completed within 45 days after the Expiration Time unless such
period is extended with the approval of the Administrator. In the event such an
extension is approved, subscribers would be given the opportunity to increase
(subject to maximum purchase limitations), decrease (subject to minimum purchase
limitations) or rescind their subscriptions. In such event, substantial
additional printing, legal and accounting expenses may be incurred in completing
the Conversion.
The commencement and completion of any required Community or Syndicated
Community Offering will be subject to market conditions and other factors beyond
the Company's control. Accordingly, no assurance can be given that any required
Community or Syndicated Community Offering or other sale of Common Stock will be
commenced at any particular time or as to the length of time that will be
required to complete the sale of all shares of Common Stock offered, and
significant changes may occur in the estimated pro forma market value of the
Common Stock, together with corresponding changes in the offering price, the
number of shares being offered, and the net proceeds realized from the sale of
the Common Stock. The Plan requires that the Conversion be completed within 24
months after the date of approval of the Plan by the Bank's members.
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Subscription Offering
In accordance with North Carolina conversion regulations, non-transferable
Subscription Rights have been granted under the Plan to the following persons in
the following order of priority: (i) the Bank's Eligible Account Holders, who
are depositors as of December 31, 1995 who had aggregate deposits at the close
of business on such date of at least $50 ("Qualifying Deposits"); (ii) the ESOP;
(iii) the Bank's Supplemental Eligible Account Holders, who are depositors as of
____________, 1997 who had Qualifying Deposits on such date; (iv) the Bank's
Other Members, who are depositor and borrower members as of ____________, 1997,
the voting record date for the Special Meeting, who are not Eligible Account
Holders or Supplemental Eligible Account Holders; and (v) directors, officers
and employees of the Bank who are not Eligible Account Holders, Supplemental
Eligible Account Holders or Other Members, in the priorities and subject to the
limitations described herein. All subscriptions received will be subject to the
availability of Common Stock after satisfaction of subscriptions of all persons
having prior rights in the Subscription Offering, and to the maximum purchase
limitations and other terms and conditions set forth in the Plan and described
below.
Eligible Account Holders. Each Eligible Account Holder has been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "--Minimum and
Maximum Purchase Limitations." If Eligible Account Holders subscribe for more
shares of Common Stock than are available for purchase, the shares offered will
first be allocated among the subscribing Eligible Account Holders so as to
enable each subscribing Eligible Account Holder to the extent possible, to
purchase the number of shares necessary to make his or her total allocation of
Common Stock equal to the lesser of 100 shares of Common Stock or the number of
shares subscribed for by such Eligible Account Holder. Any shares remaining
after such allocation will be allocated among the subscribing Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that each such
Eligible Account Holder's Qualifying Deposits bears to the total of the
Qualifying Deposits of all such Eligible Account Holders.
ESOP. The ESOP has been granted, without payment therefor, Subscription
Rights to purchase a number of shares of Common Stock up to 8% of the aggregate
number of shares issued in the Conversion. The ESOP is expected to purchase 8%
of the number of shares to be issued in the Conversion. If, because of an
oversubscription for shares of Common Stock or for any other reason, the ESOP is
unable to purchase in the Conversion 8% of the total number of shares offered in
the Conversion, then the Board of Directors of the Company intends to approve
the purchase by the ESOP in the open market after the Conversion, of such shares
as are necessary for the ESOP to acquire a number of shares equal to 8% of the
shares of Common Stock issued in the Conversion.
Supplemental Eligible Account Holders. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders and the ESOP, each Supplemental Eligible Account Holder has been
granted, without payment therefor, non-transferable Subscription Rights to
purchase Common Stock up to the maximum purchase limitation described in "--
Minimum and Maximum Purchase Limitations." If Supplemental Eligible Account
Holders subscribe for more shares of Common Stock than are available for
purchase, the shares offered will first be allocated among the subscribing
Supplemental Eligible Account Holders so as to enable each subscribing
Supplemental Eligible Account Holder to the extent possible, to purchase the
number of shares necessary to make his or her total allocation of Common Stock
equal to the lesser of 100 shares of Common Stock or the number of shares
subscribed for by such Supplemental Eligible Account Holder. Any shares
remaining after such allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that each such Supplemental Eligible Account Holder's Qualifying
Deposits bears to the total of the Qualifying Deposits of all such Supplemental
Eligible Account Holders.
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Other Members. To the extent that shares remain available for purchase
after satisfaction of subscriptions of Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders, members of the Bank as of ____________,
1997 (the voting record date for the Special Meeting), other than Eligible
Account Holders and Supplemental Eligible Account Holders (Other Members) have
each been granted, without payment therefor, non-transferable Subscription
Rights to purchase Common Stock up to the maximum purchase limitation described
in "-- Minimum and Maximum Purchase Limitations." If Other Members subscribe
for more shares of Common Stock than remain available for purchase by Other
Members, shares will be allocated among the subscribing Other Members in the
proportion that the number of votes eligible to be cast by each Other Member
bears to the total number of votes eligible to be cast at the Special Meeting by
all Other Members whose subscriptions remain unsatisfied.
Employees, Officers, and Directors. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders and Other Members, the
Bank's employees, officers and directors who are not Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members have each been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "-- Minimum and
Maximum Purchase Limitations." If more shares are subscribed for by such
employees, officers and directors than are available for purchase by them, the
available shares will be allocated among subscribing employees, officers and
directors pro rata on the basis of the amount of their respective subscriptions.
Community Offering
Any shares of Common Stock which remain unsubscribed for in the
Subscription Offering may be offered by the Company to members of the general
public in the Community Offering, which may commence at any time after
commencement of the Subscription Offering, with priority given to natural
persons and trusts of natural persons residing or located in Iredell,
Mecklenburg, Lincoln, Catawba, Rowan and Cabarrus counties in North Carolina
(the Local Community), including IRA accounts, Keogh accounts and similar
retirement accounts established for the benefit of natural persons who are
residents of, the Local Community. The Community Offering may terminate at the
Expiration Time or at any time thereafter, but no later than ____________, 1998,
unless further extended with the consent of the Administrator. The opportunity
to subscribe for shares of Common Stock in the Community Offering is subject to
the right of the Bank and the Company, in their sole discretion, to accept or
reject any such orders, in whole or in part, either at the time of receipt of an
order or as soon as practicable following the termination of the Community
Offering. In the event the Bank and the Company reject any such orders after
receipt, subscribers will be promptly notified and all funds submitted with
subscriptions will be returned with interest at the Bank's passbook savings
rate.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then subscriptions of natural persons and
trusts of natural persons residing in the Local Community, including IRAs, Keogh
accounts and similar retirement accounts established for the benefit of natural
persons who are residents of the Local Community ("First Priority Community
Subscribers") will be filled in full up to applicable purchase limitations (to
the extent such subscriptions are not rejected by the Bank and the Company)
prior to any allocation to other subscribers in the Community Offering.
In the event of an oversubscription by First Priority Community Subscribers
whose orders would otherwise be accepted, shares of Common Stock will be
allocated first to each First Priority Community Subscriber whose order is
accepted in full or in part by the Bank and the Company in the entire amount of
such order up to a number of shares no greater than 5,000 shares, which number
shall be determined by the Board of Directors of the Bank prior to the time the
Conversion is consummated with the intent to provide for a wide distribution of
shares among such subscribers. Any shares remaining after such allocation will
be allocated to each First Priority Community Subscriber whose order is
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<PAGE>
accepted in full or in part on an equal number of shares basis until all orders
are filled. Such allocation shall also be applied to subscriptions by other
subscribers in the Community Offering, in the event shares are available for
such subscribers but there is an oversubscription by them.
Syndicated Community Offering
The Plan provides that, if necessary, all shares of Common Stock not
purchased in the Subscription and Community Offerings, if any, may be offered
for sale to the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers as selected dealers ("Selected Dealers")
to be formed and managed by Trident Securities acting as agent of the Company in
the sale of the Common Stock. The Company and the Bank have the right to reject
orders, in whole or in part, in their sole discretion in the Syndicated
Community Offering. Neither Trident Securities nor any registered broker-dealer
shall have any obligation to take or purchase any shares of the Common Stock in
the Syndicated Community Offering; however, Trident Securities has agreed to use
its best efforts in the sale of shares in the Syndicated Community Offering.
Common Stock sold in the Syndicated Community Offering will be sold at the
purchase price of $50.00 per share which is the same price as all other shares
being offered in the Conversion.
It is estimated that the Selected Dealers will receive a negotiated
commission based on the amount of Common Stock sold by the Selected Dealer,
payable by the Company. During the Syndicated Community Offering, Selected
Dealers may only solicit indications of interest from their customers to place
orders with the Company as of a certain date (the "Order Date") for the purchase
of shares of Common Stock. When and if Trident Securities and the Company
believe that enough indications and orders have been received in the Offerings
to consummate the Conversion, Trident Securities will request, as of the Order
Date, Selected Dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected Dealers will
send confirmations of the orders to such customers on the next business day
after the Order Date. Selected Dealers will debit the accounts of their
customers on a date which will be three business days from the Order Date
("Debit Date"). Customers who authorize Selected Dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the Debit Date. On the next business day following the Debit
Date, Selected Dealers will remit funds to the account that the Company
established for each Selected Dealer. After payment has been received by the
Company from Selected Dealers, funds will earn interest at the Bank's passbook
savings rate until the consummation of the Conversion. In the event the
Conversion is not consummated as described above, funds with interest will be
returned promptly to the Selected Dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
The Syndicated Community Offering may close at any time after the
Expiration Time at the discretion of the Bank and the Company, but in no case
later than _____________, 1998.
Fractional Shares
In making allocations in the event of oversubscriptions, all computations
will be rounded down to the nearest whole share; no fractional shares will be
issued. Excess and other amounts sent by subscribers which are not used to
satisfy subscriptions will be refunded with interest at the Bank's passbook
savings rate, and amounts designated for withdrawal from deposit accounts will
be released.
Purchase Price of Common Stock and Number of Shares Offered
The purchase price of shares of Common Stock sold in the Subscription
Offering, Community Offering and Syndicated Community Offering will be $50.00
per share. The purchase price was determined by the Boards of Directors of the
Company and the Bank in consultation with the Bank's financial advisor and sales
agent, Trident Securities, and was based upon a number of factors. The North
Carolina regulations governing conversions of North Carolina-chartered mutual
savings banks to
10
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stock form require that the aggregate purchase price of the shares of Common
Stock of the Company sold in connection with the Conversion be equal to not less
than the minimum, nor more than the maximum, of the Valuation Range which is
established by an independent appraisal in the Conversion and is described
below; provided, however, that with the consent of the Administrator and the
FDIC the aggregate purchase price of the Common Stock sold may be increased to
up to 15% above the maximum of the Valuation Range, without a resolicitation of
subscribers or any right to cancel, rescind or change subscription orders, to
reflect changes in market and financial conditions following commencement of the
Subscription Offering.
FDIC rules with respect to appraisals require that the independent
appraisal must include a complete and detailed description of the elements of
the appraisal report, justification for the methodology employed and sufficient
support for the conclusions reached. The appraisal report must include a full
discussion of each peer group member and documented analytical evidence
supporting variances from peer group statistics. The appraisal report must also
include a complete analysis of the converting institution's pro forma earnings,
which should include the institution's full potential once it fully deploys the
capital from the conversion pursuant to its business plan.
The Bank has retained JMP Financial, an independent appraisal firm
experienced in the valuation and appraisal of savings institutions and their
holding companies, to prepare an appraisal of the pro forma market value of the
Bank and the Company and to assist the Bank in preparing a business plan. For
its services in determining such valuation and assisting with the business plan,
JMP Financial will receive an aggregate fee of $27,500 and will be reimbursed
for its out-of-pocket expenses.
JMP Financial has informed the Bank that its appraisal has been made in
reliance upon the information contained in this Prospectus, including the
financial statements of the Bank. JMP Financial has further informed the Bank
that it also considered the following factors, among others, in making the
appraisal: (i) the present and projected operating results and financial
condition of the Company and the Bank; (ii) the economic and demographic
conditions in the Bank's existing market area; (iii) certain historical,
financial and other information relating to the Bank; (iv) the proposed dividend
policy of the Company; (v) a comparative evaluation of the operating and
financial statistics of the Bank with those of other savings institutions; (vi)
the aggregate size of the offering of the Common Stock; and (vii) the trading
market for the securities of institutions JMP Financial believes to be
comparable in relevant respects to the Company and the Bank and general
conditions in the markets for such securities. In addition, JMP Financial has
advised the Bank that it has considered the effect of the Conversion on the net
worth and earnings potential of the Company and the Bank.
On the basis of its consideration of the above factors, JMP Financial has
advised the Bank that, in its opinion, at September 2, 1997, the Valuation Range
of the Bank and the Company was from a minimum of $19,550,000 to a maximum of
$26,450,000, with a midpoint of $23,000,000. Based upon such valuation and a
purchase price for shares offered in the Conversion of $50.00 per share, the
number of shares to be offered ranges from a minimum of 391,000 shares to a
maximum of 529,000 shares, with a midpoint of 460,000 shares.
The Board of Directors of the Bank has reviewed the methodology and
assumptions used by JMP Financial in preparing the appraisal and has determined
that the Valuation Range, as well as the methodology and assumptions used, were
reasonable and appropriate.
Upon completion of the Offerings, JMP Financial will confirm or update its
valuation of the estimated aggregate pro forma market value of the Bank and the
Company. Based on the confirmed or updated appraisal, a determination will be
made of the total number of shares of Common Stock which shall be offered and
sold in the Conversion.
With the consent of the Administrator and the FDIC, the aggregate price of
the shares sold in the Conversion may be increased by up to 15% above the
maximum of the Valuation Range, or to
11
<PAGE>
$30,417,500 (608,350 shares), without a resolicitation of subscribers and
without any right to cancel, rescind or change subscription orders, to reflect
changes in market and financial conditions following commencement of the
Subscription Offering.
No sale of shares of Common Stock may be consummated unless, after the
expiration of the offering period, JMP Financial confirms to the Bank, the
Company, the Administrator and the FDIC, that, to the best of its knowledge,
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause JMP Financial to conclude that the aggregate
purchase price of the Common Stock sold in the Conversion is incompatible with
its estimate of the aggregate pro forma market value of the Bank and the Company
at the conclusion of the Offerings. If the aggregate pro forma market value of
the Bank and the Company as of such date is within the Valuation Range (or, with
the consent of the Administrator and FDIC, not more than 15% above the maximum
of the Valuation Range), then such pro forma market value will determine the
number of shares of Common Stock to be sold in the Conversion. If there has
occurred a change in the aggregate pro forma market value of the Bank and the
Company so that the aggregate pro forma market value is below the minimum of the
Valuation Range or more than 15% above the maximum of the Valuation Range, a
resolicitation of subscribers may be made based upon a new Valuation Range, the
Plan may be terminated or such other actions as the Administrator and the FDIC
may permit may be taken.
In the event of a resolicitation, subscribers would be given a specified
time period within which to respond to the resolicitation. If a subscriber
fails to respond to the resolicitation by the end of such period, the
subscription of such subscriber will be cancelled, funds submitted with the
subscription will be refunded promptly with interest at the Bank's passbook
savings rate, and holds on accounts from which withdrawals were designated will
be released. Any such resolicitation will be by means of an amended prospectus
filed with the SEC. A resolicitation may delay completion of the Conversion.
If the Plan is terminated, all funds will be returned promptly with interest at
the Bank's passbook savings rate from the date payment was deemed received, and
holds on funds authorized for withdrawal from deposit accounts will be released.
See "-- Exercise of Subscription Rights and Purchases in the Community
Offering."
The valuation by JMP Financial is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing Common
Stock. JMP Financial did not independently verify the financial statements and
other information provided by the Bank, nor did JMP Financial value
independently the assets or liabilities of the Bank. The valuation considers
the Bank as a going concern and should not be considered as an indication of the
liquidation value of the Bank or the Company. Moreover, because such valuation
is necessarily based upon estimates and projections of a number of matters, all
of which are subject to change from time to time, no assurance can be given that
persons purchasing such shares in the Conversion will thereafter be able to sell
shares at prices in the range of the foregoing valuation of the pro forma market
value thereof.
A copy of the complete appraisal by JMP Financial is on file and available
for inspection at the office of the Savings Institutions Division of the North
Carolina Department of Commerce, Tower Building, Suite 301, 1110 Navaho Drive,
Raleigh, North Carolina 27609. A copy is also available for inspection at the
Stock Information Center. A copy of the appraisal has also been filed as an
exhibit to the Registration Statement filed with the SEC with respect to the
Common Stock offered hereby. See "ADDITIONAL INFORMATION" in the Prospectus.
Exercise of Subscription Rights and Purchases in Community Offering
In order for Subscription Rights to be effectively exercised in the
Subscription Offering and in order to purchase in the Subscription Offering, the
original signed Stock Order Forms, including an original signed form of
certification and the required payment for the aggregate dollar amount of Common
Stock desired or appropriate instructions authorizing withdrawal from one or
more the Bank
12
<PAGE>
deposit accounts (other than negotiable order of withdrawal accounts or other
demand deposit accounts), must be received by the Bank by the Expiration Time,
which is 12:00 noon, Eastern Time, on December ____, 1997. Subscription Rights
(i) for which the Bank does not receive original signed Stock Order Forms by the
Expiration Time (unless such time is extended), or (ii) for which Stock Order
Forms are executed defectively or are not accompanied by full payment (or
appropriate withdrawal instructions) for subscribed shares, will expire whether
or not the Bank has been able to locate the persons entitled to such rights.
Copies of the Stock Order Forms, including copies sent by facsimile, will not be
accepted. In order to purchase in the Community Offering, the Stock Order Forms,
accompanied by the required payment for the aggregate dollar amount of Common
Stock desired or appropriate instructions authorizing withdrawal from one or
more the Bank deposit accounts (other than negotiable order of withdrawal
accounts or other demand deposit accounts), must be received by the Bank prior
to the time the Community Offering terminates, which could be at any time at or
subsequent to the Expiration Time. No orders will be accepted from persons who
do not have Subscription Rights in the Subscription Offering unless a Community
Offering is commenced.
Persons wishing to use funds in a the Bank IRA to purchase Common Stock
must visit the Stock Information Center on or before December ____, 1997 in
order to complete that purchase so that the necessary forms may be forwarded for
execution and returned prior to the Expiration Time.
Executed Stock Order Forms once received by the Bank, may not be modified,
amended or rescinded without the consent of the Bank. The Bank has the right to
extend the subscription period subject to applicable regulations, unless
otherwise ordered by the Administrator, or to waive or permit correction of
incomplete or improperly executed Stock Order Forms, but does not represent that
it will do so.
The amount to be remitted with the Stock Order Forms shall be the aggregate
dollar amount that a subscriber or purchaser desires to invest in the
Subscription and Community Offerings. Complete payment must accompany all
completed Stock Order Forms submitted in the Subscription and Community
Offerings in order for subscriptions to be valid. See "-- Purchase Price of
Common Stock and Number of Shares Offered."
Payment for shares will be permitted to be made by any of the following
means: (i) in cash, if delivered in person to either office of the Bank; (ii) by
check, bank draft, negotiable order of withdrawal or money order, provided that
the foregoing will only be accepted subject to collection and payment; or (iii)
by appropriate authorization of withdrawal from any deposit account in the Bank
(other than a negotiable order of withdrawal account or other demand deposit
account). Stock Order Forms directing that payment for shares be made by
authorization of withdrawal will be accepted only if, at the time the Stock
Order Forms are received, there exists sufficient funds in the account from
which withdrawal is authorized to pay the full purchase price for the number of
shares ordered. Payment may not be made by wire transfer. In order to ensure
proper identification of Subscription Rights and proper allocations in the event
of an oversubscription, it is the responsibility of subscribers to provide
correct account verification information on the Stock Order Forms. Stock Order
Forms submitted by unauthorized purchasers or in amounts exceeding purchase
limitations will not be honored.
For purposes of determining the withdrawal balance of deposit accounts from
which withdrawals have been authorized, such withdrawals will be deemed to have
been made upon receipt of appropriate authorization therefor, but interest will
be paid by the Bank on the amount deemed to have been withdrawn at the
contractual rate of interest paid on such accounts until the date on which the
Conversion is completed or terminated.
Interest will be paid by the Bank on payments for Common Stock made in cash
or by check, bank draft, negotiable order of withdrawal or money order at the
Bank's passbook savings rate. Such interest shall be paid from the date the
order is accepted for processing and payment in good funds is received by the
Bank until consummation or termination of the Conversion. The Bank shall be
entitled to invest all amounts paid on subscriptions for Common Stock for its
own account until completion or
13
<PAGE>
termination of the Conversion. The Bank may not knowingly lend funds or
otherwise extend credit to any person to purchase Common Stock. After amounts
submitted for payment are applied to the purchase price for shares sold, they
will no longer earn interest, and they will not be insured by the FDIC or any
other government agency or other entity.
The Stock Order Forms contain appropriate means by which authorization of
withdrawals from deposit accounts may be made to pay for subscribed shares.
Once such a withdrawal has been authorized, none of the designated withdrawal
amount may be withdrawn (except by the Bank as payment for Common Stock) until
the Conversion is completed or terminated. Savings accounts will be permitted
to be established for the purpose of making payment for subscribed shares of
Common Stock. Funds authorized for withdrawal will continue to earn interest at
the applicable contract interest rate until completion or termination of the
Conversion or, in the case of an order submitted in the Community Offering,
until it is determined that such order cannot or will not be accepted.
Notwithstanding any regulatory provision regarding penalties for early
withdrawal from certificate accounts, payment for subscribed shares of Common
Stock will be permitted through authorization of withdrawals from such accounts
without the assessment of such penalties. However, if after such withdrawal the
applicable minimum balance requirement ceases to be satisfied, such certificate
account will be canceled and the remaining balance thereof will earn interest at
the Bank's passbook savings rate.
Upon completion or termination of the Conversion, the Bank will return to
subscribers all amounts paid with subscriptions which are not applied to the
purchase price for shares, plus interest at its passbook savings rate from the
date good funds are received until the consummation or termination of the
Conversion, and the Bank will release deposit account withdrawal orders given in
connection with the subscriptions to the extent funds are not withdrawn and
applied toward the purchase of shares.
Delivery of Stock Certificates
Certificates representing Common Stock issued in the Conversion will be
mailed by the Company's transfer agent to persons entitled thereto at the
address of such persons appearing on the Stock Order Forms as soon as
practicable following consummation of the Conversion. 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 Common Stock are available and delivered to subscribers,
subscribers may not be able to sell the shares of Common Stock for which they
have subscribed, even though trading of the Common Stock may have commenced.
Allocations of Common Stock will be deemed final only upon stockholder receipt
of the certificate representing the Common Stock.
Persons in Non-Qualified or Foreign Jurisdictions
The Company will make reasonable efforts to comply with the securities laws
of all states of the United States in which Eligible Account Holders,
Supplemental Eligible Account Holders, or Other Members entitled to subscribe
for shares of Common Stock reside. However, no shares of Common Stock or
Subscription Rights under the Plan will be offered or sold in a foreign country,
or in a state in the United States (i) where a small number of persons otherwise
eligible to subscribe for shares under the Plan reside or (ii) if the Company
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including, but not limited to, a
requirement that the Company, the Bank or any employee or representative thereof
register as a broker, dealer, agent or salesperson or register or otherwise
qualify the Subscription Rights or Common Stock for sale in such state. No
payments will be made in lieu of the granting of Subscription Rights to persons
residing in such jurisdictions.
14
<PAGE>
Marketing Arrangements
The Bank has retained Trident Securities to consult with and advise the
Bank and the Company and to assist the Company, on a best-efforts basis, in the
marketing of shares in the Offerings. Trident Securities is a broker-dealer
registered with the SEC and a member of the National Association of Securities
Dealers, Inc. ("NASD"). Trident Securities is headquartered in Raleigh, North
Carolina, and its telephone number is (919) 781-8900. Trident Securities will
assist the Bank and the Company in the Conversion as follows: (i) it will act as
marketing advisor with respect to the Subscription Offering and will assist the
Company on a best-efforts basis in the marketing of the Common Stock in the
Community Offering and Syndicated Community Offering; (ii) members of its staff
will conduct training sessions to educate directors, officers and employees of
the Bank regarding the Conversion process; and (iii) it will provide assistance
in the establishment and supervision of the Stock Information Center, including
training staff to record and tabulate orders for the purchase of Common Stock
and to respond to customer inquiries.
For rendering its services, the Bank has agreed to pay Trident Securities
(a) a management fee equal to .40% of the aggregate dollar amount of Common
Stock sold in the Offerings; and (b) a commission equal to 2.0% of the aggregate
dollar amount of Common Stock sold in the Subscription and Community Offerings,
excluding shares purchased by the ESOP, directors, executive officers and their
"associates" (as defined in the Plan). The Bank has also agreed to pay to
Selected Dealers, if any, negotiated commissions. The Bank has paid Trident
Securities $10,000 toward amounts due to such agent.
The Bank has agreed to reimburse Trident Securities for its reasonable out-
of-pocket expenses, including but not limited to travel, communications, legal
fees and postage, and to indemnify Trident Securities against certain claims or
liabilities, including certain liabilities under the Securities Act. Trident
has agreed that the Bank is not required to pay its legal fees to the extent
they exceed $27,500 or its other out of pocket expenses to the extent they
exceed $10,000. Total fees and commissions to Trident Securities are expected
to be between $382,280 and $617,018 at the minimum and 15% above the maximum,
respectively, of the Valuation Range. See "PRO FORMA DATA" in the Prospectus
for the assumptions used to determine these estimates.
Sales of Common Stock will be made primarily through registered
representatives affiliated with Trident Securities or by the broker-dealers
managed by Trident Securities. In addition, subject to applicable law, executive
officers of the Company and the Bank may participate in the solicitation of
offers to purchase Common Stock. Other employees of the Bank may participate in
the Offerings in clerical capacities, providing administrative support in
effecting sales transactions and answering questions of a mechanical nature
relating to the proper execution of the Stock Order Forms. Other questions of
prospective purchasers, including questions as to the advisability or nature of
the investment, will be directed to registered representatives. Such other
employees have been instructed not to solicit offers to purchase Common Stock or
provide advice regarding the purchase of Common Stock. A Stock Information
Center will be established in the Bank's office, in an area separate from the
Bank's banking operations. Employees will inform prospective purchasers that
their questions should be directed to the Stock Information Center and will
provide such persons with the telephone number of the Stock Information Center.
Stock orders will be accepted at the Bank's office and will be promptly
forwarded to the Stock Information Center for processing. Sales of Common Stock
by registered representatives will be made from the Stock Information Center. In
addition, the Bank may hire one or more temporary clerical persons to assist in
typing, opening mail, answering the phone, and with other clerical duties. An
employee of the Bank will also be present at the Stock Information Center to
process funds and answer questions regarding payment for stock, including
verification of account numbers in the case of payment by withdrawal
authorization and similar matters. Subject to applicable state law, the Company
will rely on Rule 3a4-1 under the Exchange Act, and sales of Common Stock will
be conducted within the requirements of Rule 3a4-1, so as to permit officers and
current full and part-time
15
<PAGE>
the Bank employees to participate in the sale of Common Stock. No officer,
director or employee of the Company or the Bank will be compensated in
connection with his or her participation by the payment of commissions or other
remuneration based either directly or indirectly on the transactions in the
Common Stock.
The engagement of Trident Securities and the work performed by Trident
Securities pursuant to its engagement should not be construed by purchasers of
Common Stock as constituting an endorsement or recommendation relating to such
investment or a verification of the accuracy or completeness of information
contained in this Prospectus.
Minimum and Maximum Purchase Limitations
Each person subscribing for Common Stock in the Conversion must subscribe
for at least ten shares of the Common Stock to be offered in the Conversion. In
addition, the maximum number of shares of Common Stock which may be purchased in
the Conversion by (i) any person or entity, (ii) persons or entities exercising
Subscription Rights through a single account or (iii) group of persons or
entities otherwise acting in concert, is 6,000 shares; provided, however, that
the ESOP may purchase up to 8% of the number of shares offered in the Conversion
(48,668 shares, assuming the issuance of 608,350 shares). In addition, no
person or entity, or group of persons or entities acting in concert, together
with any associates (as defined in the Plan), may subscribe for more than 12,000
shares of Common Stock sold in the Conversion. Any shares held by the ESOP and
attributed to a natural person shall not be aggregated with other shares
purchased directly by or otherwise attributable to that natural person. The
Board of Directors of the Bank may in its absolute discretion (i) reduce the
above-described 6,000 and 12,000 share maximum purchase limitations to an amount
not less than 1% of the number of shares offered and sold in the Conversion or
(ii) increase such 6,000 and 12,000 share maximum purchase limitations to an
amount of up to 5% of the shares of Common Stock offered and sold. Any
reduction or increase in the maximum purchase limitation by the Bank's Board of
Directors may occur at any time prior to consummation of the Conversion, either
before or after the Special Meeting on December ____, 1997. In the event the
6,000 or 12,000 share maximum purchase limitation is increased, any subscriber
or group of subscribers in the Subscription, Community or Syndicated Community
Offering who has subscribed for the maximum amount which is increased, and
certain other large subscribers in the discretion of the Company, shall be given
the opportunity to increase their subscriptions up to the then applicable
maximum purchase limitation.
The Plan further provides that for purposes of the foregoing limitations
the term "associate" is used to indicate any of the following relationships with
a person:
(i) 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 Bank, the Company or any subsidiary of the Bank or of
the Company;
(ii) any corporation or organization (other than the Bank, the Company or
a majority-owned subsidiary of the Bank or the Company) of which the
person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity security; and
(iii) 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, except for any tax-qualified
employee stock benefit plan or any charitable trust which is exempt
from federal taxation pursuant to Section 501(c)(3) of the Code.
For purposes of the foregoing limitations, (i) directors and officers of
the Bank or the Company shall not be deemed to be associates or a group of
persons acting in concert solely as a result of their serving in such
capacities, (ii) the ESOP will not be deemed to be acting in concert with any of
its
16
<PAGE>
trustees for purposes of determining the number of shares which any such
trustee, individually, may purchase and (iii) shares of Common Stock held by the
ESOP and attributed to an individual will not be aggregated with other shares
purchased directly by, or otherwise attributable to, that individual.
For purposes of the foregoing limitations, persons will be deemed to be
"acting in concert" if they are (i) knowingly participating in a joint activity
or interdependent conscious parallel action towards a common goal (whether or
not pursuant to an express agreement), with respect to the purchase, ownership,
voting or sale of Common Stock or (ii) engaged in a combination or pooling of
voting or other interests in the securities of the Company for a common purpose
pursuant to any contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise. The Company and the Bank may presume
that certain persons are acting in concert based upon, among other things, joint
account relationships and the fact that such persons have filed joint Schedules
13D with the SEC with respect to other companies.
Approval, Interpretation, Amendment and Termination
Under the Plan, the Administrator's approval thereof, and applicable North
Carolina conversion regulations, consummation of the Conversion is subject to
satisfaction of certain conditions, including the following: (i) approval of the
Plan by the affirmative vote of a majority of the votes eligible to be cast by
members of the Bank at the Special Meeting; (ii) sale of shares of Common Stock
for an aggregate purchase price equal to not less than the minimum or more than
the maximum of the Valuation Range unless the aggregate purchase price is
increased to as much as 15% above the maximum with the consent of the
Administrator and FDIC, and (iii) receipt by the Company and the Bank of
favorable opinions of counsel or other tax advisor as to the federal and state
tax consequences of the Conversion. See "-- Income Tax Consequences."
If all conditions for consummation of the Conversion are not satisfied, no
Common Stock will be issued, the Bank will continue to operate as a North
Carolina-chartered mutual savings bank, all subscription funds will be promptly
returned with interest at the Bank's passbook savings rate, and all deposit
withdrawal authorizations (and holds placed on such accounts) will be canceled.
In such an event, the Company would not acquire control of the Bank.
All interpretations by the Bank and the Company of the Plan and of the
Stock Order Forms and related materials for the Subscription and Community
Offerings will be final, subject to the authority of the Administrator. The
Bank and the Company may reject Stock Order Forms that are not properly
completed. However, the Company and the Bank retain the right, but will not be
required, to waive irregularities in submitted Stock Order Forms or to require
the submission of corrected Stock Order Forms or the remittance of full payment
for all shares subscribed for by such dates as they may specify. In addition,
the Plan may be substantively amended by a two-thirds vote of the Bank's Board
of Directors at any time prior to the Special Meeting, and at any time
thereafter by a two-thirds vote of the Bank's Board of Directors with the
concurrence of the Administrator. If the Bank determines upon the advice of
counsel and after consultation with the Administrator that any such amendment is
material, subscribers would be given the opportunity to increase, decrease or
cancel their subscriptions. Also, as required by the regulations of the
Administrator, the Plan provides that the transactions contemplated thereby may
be terminated by a two-thirds vote of the Bank's Board of Directors at any time
prior to the Special Meeting and may be terminated by a two-thirds vote of the
Bank's Board of Directors at any time thereafter but prior to the completion of
the Conversion with the concurrence of the Administrator, notwithstanding
approval of the Plan by the Members at the Special Meeting.
Certain Restrictions on Transfer of Subscription Rights; False or Misleading
Order Forms
The Subscription Rights granted under the Plan are non-transferable.
Subscription Rights may be exercised only by the person to whom they are issued
and only for his or her own account. Persons exercising Subscription Rights are
required to certify that they are purchasing shares
17
<PAGE>
for their own accounts within the purchase limitations set forth in the Plan and
that they have no agreement or understanding for the sale or transfer of such
shares.
The Bank reserves the right to make an independent investigation of any
facts or circumstances brought to its attention that indicate or tend to
indicate that one or more persons acting independently or as a group acting in
concert may be attempting to violate or circumvent the regulatory prohibition on
transferability of Subscription Rights. The nature and extent of such
investigation will be at the Bank's sole discretion and the Bank may require a
holder of Subscription Rights to provide certified affidavits and other
documentation to satisfy the Bank that its Plan and North Carolina and federal
conversion regulations regarding nontransferability are not being subverted by
actions of holders of Subscription Rights. In extreme cases the Bank reserves
the right to seek legal advice from the General Counsel for the Administrator as
to compliance with all regulations governing the Conversion, including the
nontransferability of Subscription Rights.
The Plan provides that, if the Bank's Board of Directors determines that a
subscriber (i) has submitted a false or misleading information on his or her
Stock Order Forms or otherwise in connection with the attempted purchase of
shares, (ii) has attempted to purchase shares of Common Stock in violation of
provisions of the Plan or (iii) fails to cooperate with attempts by the Bank or
the Company or their employees or agents to verify information with respect to
purchase rights, the Board of Directors may reject the order of such subscriber.
Income Tax Consequences
The Bank has received an opinion from its special counsel, Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P., of Greensboro, North Carolina, to the
effect that for federal income tax purposes: (i) the Conversion will constitute
a tax free reorganization with respect to the Bank and no gain or loss will be
recognized by the Bank either in its mutual or stock form; (ii) no gain or loss
will be recognized by the Bank upon the purchase of the Bank's stock by the
Company or upon the sale by the Company of its Common Stock; (iii) no gain or
loss will be recognized by the Bank's depositors with respect to their deposit
accounts at the Bank as a consequence of the Conversion; (iv) the tax basis of
depositors' deposit accounts at the Bank will not be changed as a result of the
Conversion; (v) assuming the Subscription Rights have no value, no gain or loss
will be recognized by Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members, or directors, officers and employees of the Bank upon
either the issuance to them of the Subscription Rights or the exercise or lapse
thereof; (vi) no gain or loss will be recognized by Eligible Account Holders or
Supplemental Eligible Account Holders upon the distribution to them of interests
in the Liquidation Account; (vii) assuming the Subscription Rights have no
value, the tax basis for Common Stock purchased in the Conversion will be the
amount paid therefor; and (viii) the tax basis of interests in the Liquidation
Account will be zero. The Bank has been further advised by its special counsel,
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., that the tax effects of
the Conversion under North Carolina tax laws will be consistent with the federal
income tax consequences.
Several of the foregoing legal opinions are premised on the assumption that
the Subscription Rights will have no value. The Bank has been advised by JMP
Financial that, in its opinion, the Subscription Rights will not have any
ascertainable value, based on the fact that such rights are acquired by the
recipients without cost, are non-transferable, are of short duration and afford
the recipients the right only to purchase Common Stock at a price equal to its
estimated fair market value as of the date such rights are issued, which will be
the same price paid by all purchasers in the Conversion. The opinion of JMP
Financial is not binding on the IRS and if the Subscription Rights were
ultimately determined to have ascertainable value, recipients of Subscription
Rights would have to include in gross income an amount equal to the value of the
Subscription Rights received by them. The basis of the Common Stock purchased
pursuant to Subscription Rights would be increased by the amount of income
realized with respect to the receipt or exercise of the Subscription Rights.
Moreover, recipients of Subscription Rights could then have to report the
transaction to the IRS. Each Eligible Account
18
<PAGE>
Holder, Supplemental Eligible Account Holder, Other Member or other recipient of
Subscription Rights is encouraged to consult with his, her or its own tax
advisor as to the tax consequences in the event the Subscription Rights are
deemed to have ascertainable value.
No legal opinion has been or will be received with respect to any tax
consequences of the Conversion not specifically described above, including the
tax consequences to Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members, other recipients of Subscription Rights or purchasers of
Common Stock under the laws of any other state, local or foreign taxing
jurisdiction to which they may be subject. Special counsel expresses no opinion
regarding the value of the Subscription Rights.
ANTICIPATED STOCK PURCHASES BY MANAGEMENT
Directors, officers and employees of the Bank will be entitled to subscribe
for shares of Common Stock in the Subscription Offering in their capacities as
such and to the extent they qualify as Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Shares purchased by such persons
will be purchased at the same price per share--$50.00--that will be paid by
other purchasers in the Offerings. They may also purchase Common Stock in the
Community Offering or in the Syndicated Community Offering, if any, subject to
the maximum purchase limitations applicable to all purchasers of shares in the
Conversion.
The following table sets forth for each of the executive officers and
directors of the Bank who intends to purchase Common Stock, and for all
executive officers and directors as a group (including in each case all
associates of such persons) the aggregate dollar amount of Common Stock for
which such director or executive officer has informed the Bank he intends to
subscribe. The amounts reflected in the table are estimates only and the actual
shares of Common Stock actually subscribed for by the listed individuals may
differ from the amounts reflected in the table. The following table assumes
that sufficient shares will be available to satisfy the subscriptions of the
Bank's executive officers and directors.
19
<PAGE>
<TABLE>
<CAPTION>
Anticipated
Anticipated Number
Amount of Shares As a Percent
to be Paid to be of Shares
Name for Shares Purchased/(1)/ Issued/(2)/
- ---- ------------ -------------- -------------
<S> <C> <C> <C>
Willis L. Barnette, Director $ 300,000 6,000 1.30%
Donald R. Belk, Director 300,000 6,000 1.30
Dale W. Brawley, Director,
Executive Vice President and
Treasurer 250,000 5,000 1.09
George W. Brawley, Jr., Director,
President and Chief Executive
Officer 300,000 6,000 1.30
Jack G. Lawler, Director 300,000 6,000 1.30
Calvin E. Tyner, Director 300,000 6,000 1.30
Claude U. Voils, Jr., Director 300,000 6,000 1.30
Billy R. Williams, Secretary and 200,000 4,000 0.87
Controller ---------- ------ ----
Total $2,250,000 45,000 9.78%
========== ====== ====
</TABLE>
(1) Subscriptions by the ESOP are not aggregated with shares of Common Stock
purchased by the executive officers and directors listed above. See
"MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan" in the
Prospectus. Also, grants under the proposed MRP and shares subject to
option under the Stock Option Plan, if approved by the stockholders of the
Company at a meeting of stockholders following the Conversion, are not
aggregated with shares of Common Stock purchased by the executive officers
and directors listed above. It is expected that the ESOP will acquire 8%
of the shares issued in the Conversion. Recipients of shares under the
ESOP will have voting control over the shares allocated to them, and
trustees of the ESOP (directors of the Bank) will have voting control over
unallocated shares. See "MANAGEMENT OF THE BANK -- Employee Stock
Ownership Plan" in the Prospectus. Under the proposed MRP, if approved by
the stockholders of the Company, a number of shares equal to 4% of the
shares issued in the Conversion are expected to be issued to directors and
certain employees of the Bank. Such shares could be purchased in the open
market at any time following consummation of the Conversion or could be
issued out of authorized but unissued shares. Recipients of shares under
the MRP will have voting control over such shares regardless of whether
such shares have vested. See "MANAGEMENT OF THE BANK -- Proposed
Management Recognition Plan" in the Prospectus. Under the proposed Stock
Option Plan, if approved by the stockholders of the Company, directors and
certain employees of the Bank are expected to receive options to purchase a
number of shares equal to 10% of the shares issued in the Conversion.
Shares to fund such options could be acquired in the open market or could
be acquired through the issuance of authorized but unissued shares. If
shares are acquired in the open market and held by a grantor trust prior to
the exercise of options under the Plan, holders of unexercised options will
have voting control over the shares held to fund their options. See
"MANAGEMENT OF THE BANK -- Proposed Stock Option Plan" in the Prospectus.
(2) Based upon the issuance of 460,000 shares of Common Stock which is the
number of shares to be issued at the midpoint of the Valuation Range.
Without the prior written consent of the Administrator, shares of Common
Stock purchased by directors or executive officers of the Bank in the Conversion
cannot be sold during a period of one year following the Conversion, except upon
death of the director or executive officer. Such restriction also applies to
any shares issued to such person as a stock dividend, stock split or otherwise
with respect to any of such originally restricted stock.
In addition, the North Carolina conversion regulations provide that
directors and executive officers and their associates are prohibited from
purchasing outstanding shares of Common Stock for a period of three years
following the Conversion, except from or through a broker or dealer registered
with the SEC or Secretary of State of North Carolina, unless the prior written
approval of the Administrator is obtained. This provision does not apply to
negotiated transactions involving more than 1% of the Company's outstanding
Common Stock or to purchases of stock made by or held by one or more tax-
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qualified or non-tax-qualified employee stock benefit plans of the Bank or the
Company which may be attributable to individual executive officers or directors.
Purchases and sales of Common Stock by officers and directors will also be
subject to the short-swing trading prohibitions contained in Section 16(b) of
the Securities Exchange Act of 1934 (the "Exchange Act"), and the short-swing
trading and other rules promulgated pursuant to the Exchange Act.
BENEFITS TO DIRECTORS AND EMPLOYEES
In connection with the Conversion, certain benefits will be provided to
directors, officers and employees of the Bank.
Employment Agreements. In connection with the Conversion, the Bank expects
to enter into employment agreements with George W. Brawley, Jr., President and
Chief Executive Officer, Dale W. Brawley, Executive Vice President and
Treasurer, and Billy R. Williams, Secretary and Controller. The employment
agreements provide for initial annual salaries of $139,200, $84,000 and $56,400
for Mr. G. Brawley, Mr. D. Brawley and Mr. Williams, respectively. See
"MANAGEMENT OF THE BANK -- Employment Agreements" in the Prospectus. Mr. G.
Brawley, Mr. D. Brawley and Mr. Williams, along with all other employees, are
also eligible to receive holiday bonuses as declared by the Bank's Board of
Directors. During the fiscal year ended December 31, 1996, the Bank's employees
received holiday bonuses based on a percentage basis, depending on the
employee's salary. See "MANAGEMENT OF THE BANK -- Bonus Compensation" in the
Prospectus.
ESOP. In connection with the Conversion, the Bank has established the
ESOP. As part of the Conversion, the ESOP intends to borrow funds from the
Company and to use such funds to purchase 8% of the shares of Common Stock to be
issued in the Conversion, estimated to be between 31,280 and 48,668 shares,
assuming the issuance of between 391,000 and 608,350 shares. See "MANAGEMENT OF
THE BANK -- Employee Stock Ownership Plan" in the Prospectus.
MRP. Pursuant to the MRP, which is expected to be adopted by the Boards of
Directors of the Company and the Bank, directors and certain employees of the
Bank could receive restricted stock grants of a number of shares of Common Stock
equal to 4% of the shares issued in the Conversion (between 15,640 and 21,160
shares, assuming the issuance of between 391,000 and 529,000 shares). Assuming
that the shares issued pursuant to the MRP had a value of $50.00 per share, such
shares would have a value of between $782,000 and $1,058,000.
Under applicable regulations, if the proposed MRP is submitted to and
approved by the stockholders of the Company within one year after consummation
of the Conversion, (i) no employee of the Bank (including Mr. G. Brawley, Mr. D.
Brawley and Mr. Williams) could receive more than 25% of the shares issued under
the MRP, or 5,290 shares, assuming the issuance of 529,000 shares in the
Conversion, (ii) the five non-employee directors of the Bank could receive
restricted stock grants for an aggregate of not more than 25% of the shares
issued under the MRP, or 6,348 shares, assuming the issuance of 529,000 shares
in the Conversion and (iii) none of the five non-employee directors of the Bank
could receive individually more than 5% of the shares issued under the MRP, or
1,058 shares, assuming the issuance of 529,000 shares in the Conversion.
Assuming the MRP shares had a value of $50.00 per share, 5,290 shares would have
a value of $264,500, 6,348 shares would have a value of $317,400 and 1,058
shares would have a value of $52,900. If the MRP is submitted to and approved
by the Company's stockholders more than one year after consummation of the
Conversion, the regulatory percentage limitations set forth above would not
apply.
The MRP will only be implemented if approved by the stockholders of the
Company at a meeting of stockholders to be held no sooner than six months
following the Conversion. Recipients of restricted stock under the MRP will not
have to pay for their restricted shares. See "MANAGEMENT OF THE BANK" --
Proposed Management Recognition Plan" in the Prospectus.
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<PAGE>
Stock Options. Pursuant to the Stock Option Plan which is expected to be
adopted by the Boards of Directors of the Company and the Bank, directors and
certain employees of the Bank could receive options to purchase a number of
shares of Common Stock equal to 10% of the shares issued in the Conversion
(between 39,100 and 52,900 shares, assuming the issuance of between 391,000 and
529,000 shares).
Under applicable regulations, if the proposed Stock Option Plan is
submitted to and approved by the stockholders of the Company within one year
after consummation of the Conversion, (i) no employee of the Bank (including Mr.
G. Brawley, Mr. D. Brawley and Mr. Williams) could receive more than 25% of the
options issued under the Stock Option Plan, or options to purchase 13,225
shares, assuming the issuance of 529,000 shares in the Conversion, (ii) the five
non-employee directors of the Bank could not receive in the aggregate more than
25% of the options issued under the Stock Option Plan, or options to purchase
15,870 shares, assuming the issuance of 529,000 shares in the Conversion, and
(iii) none of the five non-employee directors of the Bank could receive
individually more than 5% of the options issued under the Stock Option Plan, or
options to purchase 2,645 shares, assuming the issuance of 529,000 shares in the
Conversion. If the Stock Option Plan is submitted to and approved by the
Company's stockholders more than one year after consummation of the Conversion,
the regulatory percentage limitations set forth above would not apply.
The Stock Option Plan will only be implemented if approved by the
stockholders of the Company at a meeting of stockholders to be held no sooner
than six months following the Conversion. The exercise price of the options
will be the fair market value of the Common Stock at the time the options are
granted (which will be after the Stock Option Plan is approved by the Company's
stockholders), and the options will have terms of ten years or less. Recipients
of options under the Stock Option Plan will not have to pay for the options
issued to them. See "MANAGEMENT OF THE BANK" -- Proposed Stock Option Plan" in
the Prospectus.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently estimated that
such net proceeds will be between $16,434,720 and $22,357,680, based on the
current Valuation Range. If the gross proceeds of the shares sold are increased
to 15% above the maximum of the Valuation Range, it is estimated that net
proceeds will equal $25,763,382. See "PRO FORMA DATA" for the assumptions used
to arrive at these amounts. The actual net proceeds may vary materially from
the estimated amounts described herein. The estimated amount of net proceeds
includes proceeds from the sale of the shares which are expected to be purchased
by the ESOP in the Subscription Offering at $50.00 per share with funds borrowed
from the Company. The amount loaned to the ESOP to enable such purchases is
estimated to range from $1,564,000 if 391,000 shares are issued) to $2,433,400
(if 608,350 shares are issued). If for any reason the ESOP is unable to
purchase its shares in the Subscription Offering, the ESOP is expected to
purchase its shares in the open market--in which event the cost of the purchases
may be higher or lower because the purchase price per share may be higher or
lower than $50.00. See "MANAGEMENT OF THE BANK -- Employee Stock Ownership
Plan" in the Prospectus.
After first deducting the amount of the net proceeds used by the Company to
make the loan to the ESOP (estimated to range from $1,564,000 to $2,433,400), it
is expected that the Company will retain approximately 50% of the remaining net
proceeds of the Offerings and will pay the balance of the net proceeds to the
Bank in exchange for all of the common stock of the Bank to be issued in
connection with the Conversion. The Company expects to use the portion of the
net proceeds it retains for working capital and investment purposes. The
Company does not expect to have significant operating expenses and anticipates
that it will initially invest the net proceeds it retains primarily in interest-
earning deposits, U.S. government, federal agency and other marketable
securities and
22
<PAGE>
mortgage-backed securities. The types and amounts of such investments will vary
from time to time based upon the interest rate environment, asset/liability mix
considerations and other factors.
Net proceeds paid to the Bank initially will become part of the Bank's
general funds and will be invested primarily in mortgage, consumer and other
loans, and investments consisting primarily of interest-earning deposit
balances, U.S. government and federal agency obligations and other marketable
securities in accordance with the Bank's lending and investment policies. The
relative amounts to be invested in each of these types of investments will
depend upon loan demand, rates of return and asset/liability matching
considerations at the time the investments are to be made. Management is not
able to predict the yields which will be produced by the investment of the
proceeds of the Offerings because such yields will be significantly influenced
by general economic conditions and the interest rate environment existing at the
time the investments are made. Remaining net proceeds paid to the Bank will be
used for general corporate purposes.
The proceeds of the Offerings will result in an increase in the Bank's net
worth and regulatory capital and may enhance the potential for growth through
increased lending and investment activities, branch expansion, additional ATMs
or otherwise. The net proceeds retained by the Company could be used to support
the future expansion of operations of the Company through the opening of one or
more branch offices in or near the Bank's primary market area. The Company has
no current plans to open any additional office. Payments for shares of Common
Stock of the Company made through the withdrawal of existing deposit accounts at
the Bank will not result in the receipt of new funds for investment by the Bank.
Upon completion of the Conversion, the Board of Directors will have the
authority to adopt stock repurchase plans, subject to statutory and regulatory
requirements. Based upon facts and circumstances which may arise following the
Conversion, the Board of Directors may determine to repurchase stock in the
future. Such facts and circumstances may include but are not limited to (i)
market and economic factors such as the price at which the Common Stock is
trading, the volume of trading, the attractiveness of other investment
alternatives in terms of the rates of return and risks involved in the
investments, (ii) the ability to increase the book value and earnings per share
of the remaining outstanding shares, and improve the Company's return on equity;
(iii) the reduction of dilution to stockholders caused by having to issue
additional shares to cover the exercise of stock options or to fund employee
stock benefit plans; and (iv) 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 Board of
Directors that both the Company and the Bank will be capitalized in excess of
applicable regulatory requirements after any such repurchases and that capital
will be adequate taking into account, among other things, the level of
nonperforming assets and other risks, the Company's and the Bank's current and
projected results of operations and asset/liability structure, the economic
environment and tax and other regulatory considerations. Federal regulations
require that, subject to certain exceptions, the Company must obtain approval of
the Federal Reserve prior to repurchasing Common Stock in excess of 10% of its
net worth during any twelve-month period. See "SUPERVISION AND REGULATION --
Regulation of the Company -- Dividend and Repurchase Limitations" in the
Prospectus. The Company does not intend to repurchase any Common Stock during
the first year following the Conversion.
At any time following consummation of the Conversion, it is expected that
the MRP will acquire a number of shares of Common Stock equal to 4% of the
number of shares issued in the Conversion. See "MANAGEMENT OF THE BANK --
Proposed Management Recognition Plan" in the Prospectus. Such shares may be
acquired in the open market or acquired through the Company's issuance of
authorized but unissued shares. In the event shares are acquired in the open
market, the funds for such purchase may be provided by the Bank from the
proceeds of the Conversion. It is estimated that between 15,640 and 21,160
shares will be acquired by the MRP Trust, assuming the issuance of between
391,000 and 529,000 shares, respectively, in the Conversion. If all such shares
were acquired
23
<PAGE>
by the MRP in the open market, and if such shares were acquired at a price of
$50.00 per share, the Bank would contribute between $782,000 and $1,058,000,
respectively, to the MRP for this purpose.
At any time following consummation of the Conversion, it is expected that a
grantor trust will acquire a number of shares of Common Stock in the open market
equal to 10% of the number of shares issued in the Conversion. These shares
would be held by the grantor trust for issuance upon the exercise of stock
options. To the extent the grantor trust does not acquire sufficient shares to
satisfy options granted under the Stock Option Plan, the Company will reserve
authorized but unissued shares for this purpose. See "MANAGEMENT OF THE BANK --
Proposed Stock Option Plan" in the Prospectus. In the event shares are acquired
in the open market, the funds for such purchase may be provided by the Company
or the Bank from the proceeds of the Conversion. It is estimated that between
39,100 and 52,900 shares will be acquired by the grantor trust, assuming the
issuance of between 391,000 and 529,000 shares, respectively, in the Conversion.
If all such shares were acquired by the grantor trust in the open market, and if
such shares were acquired at a price of $50.00 per share, the Company or the
Bank would contribute between $1,955,000 and $2,645,000, respectively, to the
grantor trust for this purpose.
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare quarterly dividends on the Common Stock, subject to
statutory and regulatory requirements. The Company expects to pay annual
dividends on the Common Stock at a rate of $1.00 per share which is equal to 2%
of the offering price for the Common Stock in the Conversion. In addition, the
Board of Directors may determine from time to time that it is prudent to pay
special nonrecurring cash dividends. Special cash dividends, if paid, may be in
addition to, or in lieu of, regular cash dividends. The Company's Board of
Directors will periodically review its policy concerning dividends.
Declarations of dividends, if any, by the Board of Directors will depend upon a
number of factors, including investment opportunities available to the Company
and the Bank, capital requirements, regulatory limitations, the Company's and
the Bank's results of operations and financial condition, tax considerations and
general economic conditions. Upon review of such considerations, the Board of
Directors of the Company may authorize dividends to be paid in the future if it
deems such payment appropriate and in compliance with applicable law and
regulation. No assurances can be given that any dividends will in fact be paid
on the Common Stock or, if dividends are paid, that they will not be reduced or
discontinued in the future.
In connection with the Conversion, the Bank has agreed with the FDIC that,
within the first year after completion of the Conversion, neither the Company
nor the Bank will pay any dividend or make any distribution that represents, or
is characterized as, or is treated for tax purposes as a return of capital.
The sources of income to the Company initially will consist of earnings on
the capital retained by the Company and dividends paid by the Bank to the
Company, if any. Consequently, future declarations of cash dividends by the
Company may depend upon dividend payments by the Bank to the Company, which
payments are subject to various restrictions. Under current North Carolina
regulations, the Bank could not declare or pay a cash dividend if the effect
thereof would be to reduce its net worth to an amount which is less than the
minimum required by the FDIC and the Administrator. In addition, for a period
of five years after the consummation of the Conversion, the Bank will be
required, under existing regulations, to obtain the prior written approval of
the Administrator before it can declare and pay a cash dividend on its capital
stock in an amount in excess of one-half of the greater of (i) its net income
for the most recent fiscal year, or (ii) the average of its net income after
dividends for the most recent fiscal year and not more than two of the
immediately preceding fiscal years, if applicable. See "SUPERVISION AND
REGULATION -- Regulation of the Bank -- Restrictions on Dividends and Other
Capital Distributions" in the Prospectus. As a result of this limitation, if
the Bank had been a stock institution at the end of fiscal 1996 and for the two
preceding fiscal years, it could not have paid a dividend in excess
24
<PAGE>
of $362,000 without the approval of the Administrator. As a converted
institution, the Bank also will be subject to the regulatory restriction that it
will not be permitted to declare or pay a dividend on or repurchase any of its
capital stock if the effect thereof would be to cause its regulatory capital to
be reduced below the amount required for the liquidation account established in
connection with the Conversion. See "THE CONVERSION -- Effects of Conversion --
Liquidation Rights" and "-- Liquidation Rights After the Conversion" in the
Prospectus. Also, see "TAXATION -- Federal Income Taxation" in the Prospectus
for a discussion of federal income tax provisions that may limit the ability of
the Bank to pay dividends to the Company without incurring a recapture tax.
MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital stock,
and consequently, there is no established market for the Common Stock at this
time. The Company has received conditional approval to have the Common Stock
listed on the National Market under the symbol "____." There can be no
assurance that the Common Stock will in fact be listed on the National Market or
that it will trade on the National Market. If the Common Stock is quoted on the
National Market, Trident Securities intends to act as a market maker and to
encourage at least one other market maker to make a market in the Common Stock.
If the Common Stock is not listed on the National Market, the Company will use
its best efforts to have it listed on the Nasdaq SmallCap Market or to encourage
or assist a market maker.
An active and liquid public trading market for the securities of any
issuer, including the Common Stock, depends upon the presence in the marketplace
of both willing buyers and willing sellers of the securities at any given time.
Although the Company expects to receive preliminary approval to have its shares
quoted on the National Market, subject to certain conditions which the Company
believes will be met, due to the size of the Company's offering (460,000 shares
at the midpoint of the Valuation Range), it is unlikely that a stockholder base
sufficiently large enough to create an active trading market will develop and be
maintained. Further, even if a market develops, there can be no assurance that
the shares of Common Stock offered in the Conversion can be resold at or above
the purchase price after completion of the Conversion. Purchasers of Common
Stock should consider the potentially illiquid and long-term nature of their
investment in the shares being offered hereby. The aggregate price of the
Common Stock is based upon an independent appraisal of the pro forma market
value of the Common Stock. However, there can be no assurance that an investor
will be able to sell the Common Stock purchased in the Conversion at or above
the purchase price.
NO REGISTRATION REQUIREMENT
The Company will register its Common Stock with the SEC pursuant to Section
12 of the Exchange Act in connection with the Conversion and will not deregister
the Common Stock for a period of three years following the completion of the
Conversion. Upon such registration, the proxy and tender offer rules, insider
trading reporting requirements and restrictions, annual and periodic reporting
and other requirements of the Exchange Act will be applicable to the Company.
LEGAL OPINIONS
The validity of the issuance of the Common Stock in the Conversion will be
passed upon for the Company by its special counsel, Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P., Greensboro, North Carolina, which firm has also
rendered its opinion to the Bank concerning certain federal and North Carolina
income tax aspects of the Conversion as described herein under "THE CONVERSION -
Income Tax Consequences." Certain legal matters will be passed upon for
Trident Securities by Housley, Kantarian & Bronstein, P.C., Washington, D.C.
25
<PAGE>
EXPERTS
The Financial Statements of the Bank as of December 31, 1996 and 1995 and
for each of the years in the two-year period ended December 31, 1996 and for the
nine-month period ended December 31, 1994 included herein have been included
herein in reliance upon the report of McGladrey & Pullen LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
JMP Financial has consented to being named as an expert herein and to the
summary herein of its appraisal report as to the estimated pro forma market
value of the Bank and the Company and its opinion with respect to Subscription
Rights.
ADDITIONAL INFORMATION AND ORDER FORMS
The Prospectus contains the following: audited consolidated financial
statements of the Bank for the two fiscal years ended December 31, 1996, 1995,
and the nine months ended December 31, 1994; unaudited consolidated financial
statements of the Bank for the six-month periods ended June 30, 1997 and 1996;
capitalization of the Company and the Bank; Management's Discussion and Analysis
of Financial Condition and Results of Operations; a description of the Bank's
lending and savings and investment activities; information concerning
compensation and other benefits of directors and officers; a description of the
Common Stock; anti-takeover provisions of the Company and the Bank; and
additional information about the business and financial condition of the Bank.
The Prospectus also contains forms (the "Stock Order Forms") for subscribing or
submitting an order for the Common Stock. A copy of the Prospectus accompanies
this Proxy Statement. Requests for an additional copy of the Prospectus and any
questions about the Conversion or the Special Meeting, including questions about
proxy voting procedures, should be directed to the Bank's Stock Information
Center at (704) 660-0408.
The Subscription Offering will commence on November _____, 1997, and end on
December _____, 1997. Stock Order Forms for purchases of Common Stock in the
Subscription Offering must be received by the Bank on or before September ____,
1995.
26
