<PAGE>
As filed with the Securities and Exchange Commission on October 30, 1997
Registration No. 333-35985
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
NORTH ARKANSAS BANCSHARES, INC.
(Name of Small Business Issuer in its charter)
<TABLE>
<CAPTION>
TENNESSEE 6035 [TO BE APPLIED FOR]
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification number)
</TABLE>
200 OLIVIA DRIVE
NEWPORT, ARKANSAS 72112
(870) 523-3611
- --------------------------------------------------------------------------------
(Address and telephone number of principal executive offices and principal place
of business)
BRAD SNIDER, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
NORTH ARKANSAS BANCSHARES, INC.
200 OLIVIA DRIVE
NEWPORT, ARKANSAS 72112
(870) 523-3611
- --------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
COPIES TO:
Gary R. Bronstein, Esquire
Joan S. Guilfoyle, Esquire
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
UP TO 322,000 SHARES OF COMMON STOCK
NORTH ARKANSAS BANCSHARES, INC.
200 OLIVIA DRIVE
NEWPORT, ARKANSAS 72112
(870) 523-3611
================================================================================
Newport Federal Savings Bank is converting from a federally chartered
mutual savings bank to a federally chartered stock savings bank. As part of the
conversion, Newport Federal Savings Bank will become a wholly owned subsidiary
of North Arkansas Bancshares, Inc. The Company was formed in September 1997 and
upon completion of the conversion will own all of the shares of Newport Federal
Savings Bank. The common stock of the Company is being offered to the public in
accordance with a plan of conversion. The plan of conversion must be approved by
the Office of Thrift Supervision and by a majority of the votes eligible to be
cast by members of Newport Federal Savings Bank. The offering will not go
forward if Newport Federal Savings Bank does not receive these approvals and the
Company does not sell at least the minimum number of shares.
The shares of common stock are first being offered pursuant to
nontransferable subscription rights in a Subscription Offering. Depositor and
borrower members as of certain eligibility dates will receive subscription
rights. Shares of common stock not subscribed for in the Subscription Offering
may be offered for sale in a community offering with preference given to
residents of Jackson County, Arkansas.
================================================================================
TERMS OF OFFERING
An independent appraiser has estimated the market value of the converted Newport
Federal Savings Bank to be between $2,380,000 and $3,220,000, which establishes
the number of shares to be offered at a price of $10 per share. Subject to
Office of Thrift Supervision approval, up to 370,300 shares, an additional 15%
above the maximum number of shares, may be offered. Based on these estimates, we
are making the following offering of shares of common stock:
<TABLE>
<CAPTION>
<S> <C>
. Price Per Share: $10
. Number of Shares Minimum/Maximum/
Maximum, as adjusted: 238,000 to 322,000 to 370,300
. Offering Expenses: $400,000
. Net Proceeds to the Company
Minimum/Maximum/Maximum, as adjusted: $1,980,000 to $2,820,000 to $3,303,000
. Net Proceeds Per Share
Minimum/Maximum/Maximum, as adjusted: $8.32 to $8.76 to $8.92
</TABLE>
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE 1 OF THIS DOCUMENT.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, Office of Thrift Supervision,
nor any state securities regulator has approved or disapproved these securities
or determined if this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK INFORMATION CENTER AT (870)
523-3340.
TRIDENT SECURITIES, INC.
The date of this Prospectus is November __, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions and Answers About the Stock Offering
Summary
Selected Financial and Other Data
Risk Factors
Proposed Purchases by Directors and Officers
The Company
Newport Federal Savings Bank
Use of Proceeds
Dividends
Market for the common stock
Capitalization
Historical and Pro Forma Capital Compliance
Pro Forma Data
The Conversion
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Business of North Arkansas Bancshares, Inc.
Business of Newport Federal Savings Bank
Regulation
Taxation
Management of the Company
Management of Newport Federal Savings Bank
Restrictions on Acquisitions of the Company
Description of Capital Stock
Legal and Tax Matters
Experts
Additional Information
Index to Financial Statements of Newport Federal Savings Bank
Glossary
</TABLE>
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 1 of this document.
Please see the Glossary beginning on page A-___ for the meaning of
capitalized terms that are not defined in this document.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q. WHAT IS A MUTUAL TO STOCK CONVERSION?
A: The conversion is a change in our form of organization. Currently, we
operate as a federally chartered mutual savings bank with no stockholders.
As a result of the conversion, we will become a federally chartered stock
savings bank. As part of our conversion, the Company is offering for sale
shares of its common stock The Company will be our sole stockholder and
will purchase our stock in exchange for a portion of the proceeds from its
offering.
Q: WHAT IS THE PURPOSE OF THE CONVERSION AND THE OFFERING?
A: As a stock savings association operating through a holding company
structure, we will have the ability to plan and develop long-term growth
and improve our future access to the capital markets. The stock offering
will increase our capital and the amount of funds available to us for
lending and investment activities. This will give us greater flexibility
to diversify operations and expand into other geographic markets if we
choose to do so. If the Company's earnings are sufficient in the future,
you might also receive dividends and benefit from the long-term
appreciation of our stock price.
Q: HOW MANY SHARES OF STOCK WILL BE SOLD?
A: Between 238,000 and 322,000 shares of common stock will be sold, all at a
price of $10.00 per share. The number of shares to be sold may be
increased to 370,300 shares without further notice to you, subject to
receipt of approval of the Office of Thrift Supervision, if market or
financial conditions change prior to completion of the conversion or if
additional shares are needed to fill the order of our employee stock
ownership plan (the "ESOP").
Q: HOW DO I PURCHASE THE STOCK?
A: You must complete and return the Stock Order Form to us together with your
payment or your authorization for withdrawal of the payment amount from an
account you have with us, on or before ________, 1997. See pages ___ to
__.
Q: HOW MUCH STOCK MAY I PURCHASE?
A: The minimum purchase is 25 shares (or $250). The maximum purchase per
eligible depositor in the subscription offering is 10,000 shares (or
$100,000). In certain instances, your purchase might be grouped together
with purchases by persons with other accounts with whom you are affiliated
or related and in that event the aggregate purchases may not exceed
(ii)
<PAGE>
15,000 shares ($150,000). We may decrease or increase the maximum purchase
limitation without notifying you.
If shares are sold in a Community Offering, the maximum number of shares
that may be purchased by any party, when combined with the number of shares
purchased by other parties with whom your shares may be aggregated is
15,000 shares ($150,000). See pages ___ to ___.
Q: WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES TO FILL ALL ORDERS?
A: You might not receive any or all of the shares you want to purchase. If
there is an over subscription, the stock will be offered on a priority
basis to the following persons:
. ELIGIBLE ACCOUNT HOLDERS - Persons who had a deposit account with us
on December 31, 1995 with a balance of at least $50.00. Any remaining
shares will be offered to:
. OUR ESOP. Any remaining shares will be offered to:
. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS - Persons who had a deposit
account with us on September 30, 1997 with a balance of at least
$50.00. Any remaining shares will be offered to:
. OTHER MEMBERS - Other depositors and certain borrowers of ours, as of
_______, 1997.
If the above persons do not subscribe for all of the shares, the remaining
shares will be offered to certain members of the general public with
preference given to people who live in Jackson County, Arkansas. See pages
___ to ___.
Q: WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER OR NOT TO
BUY THE STOCK?
A: Because of the small size of the offering, there may not be an active
market for the shares, which may make it difficult to resell any shares you
may own. Before you decide to purchase stock, you should also read the
Risk Factors section on pages ___ of this document.
Q: AS A DEPOSITOR OR BORROWER MEMBER OF NEWPORT FEDERAL SAVINGS BANK, WHAT
WILL HAPPEN IF I DO NOT PURCHASE ANY STOCK?
A: You presently have voting rights while we are in the mutual form; however,
once we convert to the stock form you will lose your voting rights unless
you purchase stock. You are not required to purchase stock. Your deposit
account, certificate accounts and any loans you may have with us will be
not be affected. See pages __ to __.
(iii)
<PAGE>
Q: WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE STOCK
OFFERING?
A: In order to make an informed investment decision, you should read this
entire document. In addition, you should contact:
STOCK INFORMATION CENTER
NORTH ARKANSAS BANCSHARES, INC.
200 OLIVIA DRIVE
NEWPORT, ARKANSAS
(870) 523-3340
(iv)
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. To understand the stock
offering fully, you should read carefully this entire document, including the
financial statements and the notes to the financial statements of Newport
Federal Savings Bank. References in this document to "we," "us," and "our"
refer to Newport Federal Savings Bank. In certain instances where appropriate,
"us" or "our" refers collectively to North Arkansas Bancshares, Inc. and Newport
Federal Savings Bank. References in this document to "the Company" refer to
North Arkansas Bancshares, Inc.
NORTH ARKANSAS BANCSHARES, INC.
North Arkansas Bancshares, Inc. was formed in September 1997 as a Tennessee
corporation to be the holding company for Newport Federal Savings Bank. The
Company is not an operating company and has not engaged in any significant
business to date. The holding company structure will provide greater
flexibility in terms of operations, expansion and diversification. See page
___.
NEWPORT FEDERAL SAVINGS BANK
We are a community and customer oriented federal mutual savings bank with
one office located in Newport, Arkansas. We were originally founded in 1934 as
a federally chartered mutual savings and loan association. In 1995, we changed
our name to Newport Federal Savings Bank Our primary market area consists of
Jackson County, Arkansas. Historically, we have emphasized residential
mortgage lending, primarily originating one- to four-family mortgage loans. We
also make consumer loans, commercial real estate loans and commercial business
loans. At June 30, 1997, we had total assets of $34.4 million, deposits of
$31.1 million, and total retained earnings of $2.3 million. See pages ___to
___.
On August 20, 1997, we entered into an agreement with NationsBank, N.A. to
purchase the deposits of the Newport branch of NationsBank as well as the real
estate on which the office is located and certain loans and other assets. We
expect to assume approximately $6.3 million in deposits based on the balance of
deposits at the branch as of June 30, 1997 for which we will pay a deposit
premium equal to 2.26% of the deposits to be assumed. We will also be required
to pay NationsBank $125,000 for the real estate, branch equipment and furniture
we are buying, and the book value of all loans we are buying. We must obtain
regulatory approval before we can close this transaction. Assuming we obtain
such approval, we expect that this transaction will close in January 1998.
THE STOCK OFFERING
The Company is offering between 238,000 and 322,000 shares of common stock
at $10.00 per share. Subject to approval by the Office of Thrift Supervision,
the number of shares to be sold
(v)
<PAGE>
may be increased to 370,300 shares without further notice to you if market or
financial conditions change prior to completion of the conversion or if
additional shares are needed to fill the order of our ESOP. We would also have
to obtain
STOCK PURCHASES
The Company is first offering its shares of common stock in a Subscription
Offering. Depositor and borrower members as of certain eligibility dates will
receive subscription rights. The shares of common stock will be offered on the
basis of priorities. Any remaining shares may be offered in a Community
Offering or in a Syndicated Community Offering. See pages __ to __.
SUBSCRIPTION RIGHTS
You may not sell or assign your subscription rights. Any transfer of
subscription rights is prohibited by law. All persons exercising their
subscription rights will be required to certify that they are purchasing shares
solely for their own account and that they have no agreement or understanding
regarding the sale or transfer of shares.
THE OFFERING RANGE AND DETERMINATION OF THE PRICE PER SHARE
The offering range is based on an independent appraisal of the pro forma
market value of the common stock by Ferguson & Company ("Ferguson"), an
appraisal firm experienced in appraisals of savings institutions. The pro forma
market value of the shares is our market value after giving effect to the sale
of shares in this offering. Ferguson has estimated that in its opinion as of
September 2, 1997 such value ranged between $2.4 million and $3.2 million (with
a midpoint of $2.8 million) (the "Estimated Valuation Range"). The appraisal
was based in part upon our financial condition and operations and the effect of
the additional capital raised by the sale of common stock in this offering. The
$10.00 price per share was determined by our board of directors and is the price
most commonly used in stock offerings involving conversions of mutual savings
institutions. The appraisal will be updated prior to the consummation of the
conversion. If the updated pro forma market value of the common stock is either
below $2.4 million or above $3.7 million, we will notify you and you will have
the opportunity to modify or cancel your order. See pages __ to __.
TERMINATION OF THE OFFERING
The Subscription Offering will terminate at 12:00 p.m., Central Time, on
________, 1997. The Community Offering, if any, may terminate at any time
without notice but no later than ___________, 1997, without approval by the OTS.
(vi)
<PAGE>
BENEFITS TO MANAGEMENT FROM THE OFFERING
Our full-time employees will participate in the offering through purchases
of stock by our ESOP, which is a form of retirement plan. Following the
conversion, we also intend to implement a management recognition plan ("MRP")
under which officers will be entitled to receive awards of restricted stock at
no cost to them and a stock option and incentive plan (the "Option Plan"), which
will benefit our officers and directors. However, the MRP and Option Plan may
not be adopted until at least six months after the conversion and are subject to
stockholder approval and compliance with OTS regulations if adopted within the
first year following our conversion. See pages ___to ___.
USE OF THE PROCEEDS FROM THE SALE OF COMMON STOCK
The Company will use a portion of the net proceeds from the stock offering
to make a loan to our ESOP to fund its purchase of 8% of the common stock issued
in the conversion. The Company will use approximately 50% of the net proceeds
to purchase all the capital stock to be issued by us in the conversion. The
Company will retain the balance of the funds as its initial capitalization.
These funds will serve as a possible source of funds for the payment of
dividends to stockholders or to repurchase shares of common stock in the future
and for general corporate purposes. See page __.
DIVIDENDS
Management of the Company has not yet made a decision regarding the payment
of dividends. The Company will consider a policy of paying cash dividends on
its common stock following the conversion. See page __.
MARKET FOR THE COMMON STOCK
The Company intends to list the common stock over-the-counter through the
OTC "Electronic Bulletin Board" under the symbol "NARK." Since the size of the
offering is small, it is unlikely that an active and liquid trading market for
the shares will develop and be maintained. Investors should have a long-term
investment intent. Persons purchasing shares may not be able to sell their
shares when they desire or to sell them at a price equal to or above $10.00.
See page __.
IMPORTANT RISKS IN OWNING THE COMPANY'S COMMON STOCK
Before you decide to purchase stock in the offering, you should read the
"Risk Factors" section beginning on page one of this document.
(vii)
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
We are providing the following summary financial information about us for
your benefit. This information is derived from our audited financial statements
for each of the fiscal years shown below. The following information is only a
summary and you should read it in conjunction with our financial statements and
notes to our financial statements which you can find beginning on page F-1 of
this Prospectus. Our results of operations for the fiscal year ended June 30,
1997 include a special assessment of $179,000 which we were required to pay to
recapitalize the SAIF and a nonrecurring expense of $286,000 to fund our
director's retirement plan.
SELECTED FINANCIAL DATA
The following table sets forth certain information concerning our financial
position at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------
1997 1996
------- ------
(IN THOUSANDS)
<S> <C> <C>
Total assets................................................ $34,379 $ 32,446
Cash........................................................ 884 1,167
Certificates of deposit with other financial institutions.. 691 890
Securities held to maturity................................ 5,923 6,310
Loans receivable, net....................................... 24,794 21,982
Deposits.................................................... 31,073 29,657
Retained earnings substantially restricted.................. 2,266 2,465
</TABLE>
SUMMARY OF OPERATIONS
The following table sets forth certain information concerning our results
of operations for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1997 1996
------- ------
(IN THOUSANDS)
<S> <C> <C>
Interest income............................................. $2,493 $2,328
Interest expense............................................ 1,597 1,525
------ ------
Net interest income......................................... 896 803
------ ------
Provision for loan losses................................... 90 10
------ ------
Net interest income after provision
for loan losses............................................ 806 793
Noninterest income.......................................... 19 11
Noninterest expense......................................... 1,157 726
------ ------
Income (loss) before taxes.................................. (332) 78
Income tax expense.......................................... (133) 6
------ ------
Net income (loss)........................................... $ (199) $ 72
====== ======
</TABLE>
(viii)
<PAGE>
KEY OPERATING RATIOS
The table below sets forth certain performance ratios for us for the
periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED JUNE 30,
-----------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
PERFORMANCE RATIOS:
Return on assets (ratio of net earnings (loss)
to average total assets)...................... (.60)% .23% .71%
Return on equity (ratio of net earnings (loss)
to average equity)............................ (8.41) 2.96 9.35
Ratio of average interest-earning assets to
average interest-bearing liabilities.......... 102.60 104.12 105.15
Ratio of net interest income, after provision
for loan losses, to noninterest expense....... 69.66 109.23 156.93
Net interest rate spread......................... 2.54 2.49 2.78
Net yield on average interest-earning assets..... 2.77 2.70 3.01
ASSET QUALITY RATIOS:
Nonperforming loans to total loans
at end of period.............................. .30 .14 1.60
Nonperforming loans to total assets.............. .21 .09 1.06
Nonperforming assets to total assets
at end of period.............................. .21 .47 1.40
Allowance for loan losses to nonperforming
loans at end of period........................ 202.70 243.33 19.50
Allowance for loan losses to total loans, net.... .60 .33 .31
CAPITAL RATIOS:
Equity to total assets at end of period.......... 6.59 7.60 7.85
Average equity to average assets................. 7.08 7.72 7.57
REGULATORY CAPITAL RATIOS:
Tangible capital.................................. 6.59 7.59 7.85
Core capital..................................... 6.59 7.59 7.85
Total risk-based capital......................... 13.18 15.67 17.84
OTHER DATA:
Number of full service offices................... 1 1 1
</TABLE>
(ix)
<PAGE>
RECENT DEVELOPMENTS
The tables below set forth certain selected financial data for the Bank at
the dates and for the periods indicated. The data at September 30, 1997 and for
the three months ended September 30, 1997 and 1996 is unaudited, but in the
opinion of management reflects all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation. This information at
June 30, 1997 is derived in part from, and is qualified in its entirety by
reference to, the Financial Statements and Notes thereto included elsewhere
herein. The financial data for the three months ended September 30, 1997 is not
necessarily indicative of the operating results to be expected for the entire
fiscal year.
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, JUNE 30,
1997 1997
------------- ----------
(IN THOUSANDS)
<S> <C> <C>
FINANCIAL CONDITION DATA:
Total assets................................................. $33,750 $34,379
Cash......................................................... 642 884
Certificates of deposit with other financial institutions... 691 691
Securities held to maturity................................. 5,190 5,923
Loans receivable, net........................................ 30,194 24,794
Deposits..................................................... 30,341 31,073
Retained earnings substantially restricted................... 2,285 2,266
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Interest income............................................. $ 619 $ 614
Interest expense............................................ 406 391
Net interest income......................................... 203 223
Provision for losses on loans............................... -- --
Net interest income after provision
for loan losses............................................ 203 223
Noninterest income.......................................... 30 23
Noninterest expenses........................................ 224 363
Income (loss) before provision for income taxes............. 19 (117)
Provision for income taxes.................................. -- --
------- -------
Net income (loss)........................................... $ 19 $ (117)
======= =======
</TABLE>
(x)
<PAGE>
RESULTS OF OPERATIONS
We earned net income of $19,000 for the three months ended September 30,
1997 as compared to a net loss of $117,000 for the three month period ended
September 30, 1996. The $136,000 improvement in our net income for the first
three months of fiscal year 1998 was due primarily to the absence of any SAIF
special assessment during the most recent period. During the three months ended
September 30, 1996, we incurred a special assessment equal to $179,000. This
special assessment was required to be paid by all institutions with deposits
insured by the SAIF.
Net interest income during the three months ended September 30, 1997
decreased by $20,000 as compared to the same period in 1996. During the three
months ended September 30, 1997, we placed our largest loan on nonaccrual
status. As such, we were required to deduct from interest income all previously
accrued interest that was unpaid which amounted to approximately $21,000.
FINANCIAL CONDITION
Our total assets at September 30, 1997 were $33.8 million, a slight
decrease from June 30, 1997's level of $34.4 million. The decrease was due to
the combined effects of decreases in cash and securities due to a $732,000
reduction in deposits and payments on and maturities of investment securities.
Net loans receivable increased by $5.4 million, or 21.78%, which reflected our
continued marketing efforts. The $19,000 increase in retained earnings
reflected our earnings for the period.
(xi)
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should consider
carefully the following risk factors in deciding whether to invest in the common
stock.
LACK OF ACTIVE MARKET FOR COMMON STOCK
Due to the small size of the offering, it is highly unlikely that an active
trading market will develop and be maintained. If an active market does not
develop, you may not be able to sell your shares promptly or perhaps at all, or
sell your shares at a price equal to or above the price you paid for the shares.
The common stock may not be appropriate as a short-term investment. See "Market
for the common stock."
BELOW AVERAGE RETURN ON AVERAGE EQUITY AND INCREASED EXPENSES IMMEDIATELY AFTER
CONVERSION
Return on average equity (net income divided by average equity) is a ratio
used by many investors to compare the performance of a savings institution to
its peers. As a result of the conversion, our equity will increase
substantially. Our expenses also will increase because of the compensation
expense associated with our ESOP, MRP, and the costs of being a public company.
Because of the increases in our equity and expenses, our return on equity may
decrease as compared to our performance in previous years. Initially, we intend
to invest the net proceeds in short term investments which generally have lower
yields than residential mortgage loans. At June 30, 1996 and 1997 our return on
average equity was (8.41)% and 2.96%, respectively. A lower return on equity
could reduce the trading price of our shares.
RECENT OPERATING RESULTS
Our net interest income and net income in recent years have been below what
other institutions of a similar size to us have earned. During the year ended
June 30, 1997, we incurred certain nonrecurring expenses as a result of a
special assessment imposed on all institutions whose deposits are insured by
the Savings Association Insurance Fund ("SAIF") of the FDIC and the adoption of
a director retirement plan. The cost of our recently built headquarters has
also affected our net income. While we believe that the headquarters is
necessary for our growth, it is a significant asset that does not generate
interest income like loans do. Because of this, we have a higher percentage of
Anon-interest earning assets than our peers. This has lowered our net interest
income below some similarly sized thrifts. While the net proceeds we receive
from the conversion will result in an increase in our interest-earning assets
and thereby interest income, we will also incur additional expenses as a result
of the implementation of the ESOP and MRP and the costs associated with being a
public company. We cannot guarantee that our profitability will improve after
the conversion. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
1
<PAGE>
LARGE DELINQUENT LOAN
Subsequent to June 30, 1997, our largest loan became delinquent. As of
September 30, 1997, due to its past due status, we placed the loan on nonaccrual
status. This loan, which had a balance of $625,000 at June 30, 1997, is a
participation in a larger loan which had a total principal balance of $5.8
million and is secured by a 625-room hotel located in Oklahoma City. The loan
payments have not been made due to deteriorating cash flow from operations.
While the lead lender is attempting to resolve this problem, there can be no
assurance that the past due payments will be made or that we will return the
loan to accrual status. Further, if the lead lender proceeds to foreclosure, we
cannot assure you that the underlying property can be sold at a price sufficient
to repay us in full. Our net income will be reduced to the extent that such
loan remains a nonearning asset or if we are required to make additional
provisions to the allowance for loan loss as a result of such loan. While we
believe that our allowance for loan losses is adequate based on the information
available to us at this time, there can be no assurance that we will not be
required to make additional provisions to the allowance for loan loss as a
result of this loan.
RISKS ASSOCIATED WITH COMMERCIAL REAL ESTATE, MULTI-FAMILY REAL ESTATE AND
CONSUMER LENDING
Although our primary lending activity is the origination of one- to four-
family mortgage loans, approximately $7.5 million, or 29.94% of our gross loan
portfolio at June 30, 1997 consisted of loans other than single-family mortgage
loans. Such loans included $3.7 million in loans secured by commercial and
multi-family real estate, $3.6 million in consumer loans and $93,000 in
commercial business loans. Following the conversion, we intend to continue to
grow our nonresidential lending portfolio. Although these loans generally
provide for higher interest rates and shorter terms than permanent single-family
residential real estate loans, these loans generally have a higher degree of
credit and other risks. Nonresidential real estate lending often involves
larger loan balances to single borrowers or groups of related borrowers as
compared to residential real estate lending. The payment experience on such
loans typically is dependent on the successful operation of the real estate
project. These risks can be significantly affected by supply and demand
conditions in the market for commercial space, and, as such, may be subject to a
greater extent to adverse conditions in the economy generally. Consumer loans
also entail greater risk than single-family residential loans, particularly in
the case of consumer loans which are unsecured or secured by rapidly depreciable
assets, such as automobiles. In such cases, any repossessed collateral for a
defaulted consumer loans may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage, loss
or depreciation. Commercial business loans involve a greater degree of risk
than other types of lending as payments on such loans are often dependent on the
successful operation of the business involved which may be subject to a greater
extent to adverse conditions in the economy.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT
Our ability to make a profit, like that of most financial institutions, is
substantially dependent on our net interest income, which is the difference
between the interest income we earn on our interest-earning assets (such as
mortgage loans and investments) and the interest expense we pay
2
<PAGE>
on our interest-bearing liabilities (such as deposits). Because a portion of the
loans we originate have fixed rates and have longer effective maturities than
our interest-bearing liabilities, the yield on our interest-earning assets
generally will adjust more slowly to changes in interest rates than the cost of
our interest-bearing liabilities. As a result, our net interest income could be
adversely affected by material and prolonged increases in interest rates since
our interest expense would increase at a faster rate than our interest income.
Our earnings may also be adversely affected by rising interest rates due to
decreased customer demand. Although we attempt to reduce this risk by primarily
originating adjustable-rate loans ("ARMs"), the rates on such loans are fixed
for set periods of time (e.g., one, three or five years). In addition, the terms
of such loans do not permit us to increase the rate more than 2.0% at each rate
adjustment or above a fixed Aceiling rate." In addition, we may experience an
increase in delinquencies on our ARMs when interest rates rise since the
payments that borrowers are then required to pay will increase.
The average life of loans and mortgage-backed securities can also be
affected by changes in interest rates. As interest rates decline, borrowers
tend to refinance higher-rate, fixed rate loans at lower rates. We also
experience an increase in prepayments on mortgage-backed securities as the loans
underlying such securities are prepaid. Since rates will have declined, we
would not be able to reinvest such prepayments in assets earning interest rates
as high as the rates on the prepaid loans or mortgage-backed securities. As a
result our interest income could decline.
Our investment portfolio is also affected by changes in interest rates
since a substantial portion of our investments carry fixed rates. Generally,
the value of a fixed rate investment will decrease as interest rates rise. As
of June 30, 1997, the market value of our investment portfolio exceeded the
carrying value of such investments by $28,000.
MARKET AREA LIMITATIONS
Our primary market area consists of Jackson County, Arkansas. Population
growth in Jackson County is below that of the state of Arkansas as a whole.
This trend is expected to continue in the future. Our ability to make new loans
in our market area may be limited to the extent that the rate of population
growth is flat or even declines. In addition, within our market area, we
compete for loans and deposits with several other financial institutions. Many
competing institutions may have resources substantially greater than ours and
may therefore be able to offer a greater variety of loan and deposit accounts
which could give them a competitive advantage over us. Such competition could
adversely affect us in the future. See "Business of Newport Federal Savings
Bank--Competition."
DEPENDENCE ON PRESIDENT
Our successful operations depend to a considerable degree on our President,
Brad Snider and the loss of his services could adversely affect us. We have
attempted to provide for his continued employment with us by entering into a
three-year employment agreement with Mr. Snider. Mr. Snider could terminate his
employment at any time, however. See "Management of Newport Federal Savings
Bank" and "-- Executive Compensation -- Employment Agreement."
3
<PAGE>
ANTI-TAKEOVER PROVISIONS AND STATUTORY PROVISIONS THAT COULD DISCOURAGE HOSTILE
ACQUISITIONS OF CONTROL
Provisions in the Company's charter and bylaws, the General Corporation Law
of the state of Tennessee, and certain federal regulations may make it
difficult, and expensive, to pursue a tender offer, change in control or
takeover attempt which we oppose. As a result, stockholders who might desire to
participate in such a transaction may not have an opportunity to do so. Such
provisions will also render the removal of the current board of directors or
management of the Company more difficult. In addition, these provisions may
reduce the trading price of our stock. These provisions include: restrictions
on the acquisition of the Company's equity securities and limitations on voting
rights; the classification of the terms of the members of the board of
directors; certain provisions relating to the meeting of stockholders; denial of
cumulative voting by stockholders in the election of directors; the issuance of
preferred stock and additional shares of common stock without shareholder
approval; and super majority provisions for the approval of certain business
combinations. See "Restrictions on Acquisitions of the Company".
POSSIBLE VOTING CONTROL BY DIRECTORS AND OFFICERS
The proposed purchases of the common stock by our directors, officers and
ESOP (estimated to be approximately 91,400 shares, or 32.64% of the shares to be
outstanding assuming 280,000 shares are sold), as well as the potential
acquisition of common stock through the Option Plan and MRP, could make it
difficult to obtain majority support for stockholder proposals which are opposed
by us. In addition, the voting of those shares could enable us to block the
approval of transactions (i.e., business combinations and amendment to our
charter and bylaws) requiring the approval of 80% of the stockholders under the
Company's charter. See "Management of Newport Federal Savings Bank -- Executive
Compensation -- Employee Stock Ownership Plan," "-- Proposed Future Stock
Benefit Plans -- Stock Option Plan," "-- Management Recognition Plan,"
"Description of Capital Stock," and "Restrictions on Acquisitions of the
Company."
POSSIBLE DILUTIVE EFFECT OF MRP AND STOCK OPTIONS
If the conversion is completed and stockholders subsequently approve the
MRP and Option Plan, we will issue stock to our officers and directors through
these plans. If the shares for the MRP and stock options are issued from our
authorized but unissued stock, your ownership percentage could be diluted by up
to approximately __% and the trading price of our stock may be reduced. See
"Pro Forma Data," "Management of Newport Federal Savings Bank -- Proposed Future
Stock Benefit Plans -- Stock Option Plan," and "-- Management Recognition Plan."
FINANCIAL INSTITUTION REGULATION OF THE THRIFT INDUSTRY
We are subject to extensive regulation, supervision, and examination by the
OTS and FDIC. A bill has been introduced to the House Banking Committee that
would consolidate the OTS with the Office of the Comptroller of the Currency
("OCC"). If this regulation is approved, we could be forced to become a state
or national commercial bank. If we become a commercial bank, our
4
<PAGE>
investment authority, branching authority and the ability of the Company to
engage in, diversified activities may be limited, which could affect our
profitability. See "Regulation."
ARKANSAS USURY LAW
In 1982, Arkansas adopted an amendment to its Constitution which provides,
in part, that the maximum rate of interest we can charge on consumer loans is 5%
over the Federal Reserve Discount Rate in effect at the time the loan is made up
to a maximum of 17%. The effect of this provision is that we are unable to
charge rates on certain loans as high as our peers that are located outside the
state of Arkansas. Loans secured by a first mortgage on residential real estate
and all commercial loans are not subject to this maximum limitation. If we
charged an interest rate on consumer loans in excess of these limits, we could
be required to forfeit both the amount of the loan as well as any interest we
have collected.
POSSIBLE ADVERSE TAX CONSEQUENCES OF THE SUBSCRIPTION RIGHTS
We have received the opinion of Ferguson that the subscription rights
granted to eligible members in connection with the conversion have no value.
This opinion is not binding on the Internal Revenue Service ("IRS"), however.
Should the IRS determine that the subscription rights do have ascertainable
value, you could be taxed as a result of your exercise of such rights in an
amount equal to such value.
BRANCH ACQUISITION
On August 20, 1997, we entered into a Purchase and Assumption Agreement
with NationsBank, N.A. pursuant to which we agreed to purchase the deposits of
the Newport branch of NationsBank and to purchase the real estate on which the
office is located and certain loans and other assets. We expect to assume
approximately $6 million in deposits based on the balance of deposits at the
branch as of June 30, 1997. We must obtain regulatory approval before we can
close this transaction. The impact of this transaction on our net income
depends on our ability to invest the funds we will receive in loans and
investments earning higher rates than the rates we will be required to pay on
such deposits plus the additional expense resulting from the amortization of the
premium we will pay to NationsBank to purchase such deposits. We cannot assure
you that we will receive regulatory approval to purchase the branch nor can we
assure of the impact on our net interest income of the additional deposits.
RESTRICTIONS ON REPURCHASE OF SHARES
Generally, during the first year following the conversion, the Company may
not repurchase its shares. During each of the second and third years following
the conversion, the Company may repurchase up to 5% of its outstanding shares.
During those periods, if we decide that additional repurchases would be a good
use of funds, we would not be able to do so, without obtaining OTS approval.
There is no assurance that OTS approval would be given. See "The Conversion --
Restrictions on Repurchase of Shares."
5
<PAGE>
PROPOSED PURCHASES BY DIRECTORS AND OFFICERS
The following table sets forth the approximate purchases of common stock by
each director and executive officer and their associates in the conversion. The
table assumes that 280,000 shares (the midpoint of the Estimated Valuation
Range) of the common stock will be sold at $10.00 per share and that sufficient
shares will be available to satisfy their subscriptions.
<TABLE>
<CAPTION>
AGGREGATE
TOTAL PRICE OF PERCENT
SHARES SHARES OF SHARES
NAME POSITION PURCHASED PURCHASED PURCHASED
- ---- --------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
O. E. Guinn, Jr. Director 15,000 $150,000 5.36%
Kaneaster Hodges, Jr. Director 15,000 $150,000 5.36%
Paul K. Holmes Director 9,000 $ 90,000 3.21%
John Minor Director 15,000 $150,000 5.36%
Brad Snider Director; 15,000 $150,000 5.36%
President and
Chief Executive
Officer
All directors and executive
officers as a group (5 persons) 69,000 $690,000 24.65%
ESOP 22,400 $224,000 8.00%
MRP 11,200 $112,000 4.00%
</TABLE>
THE COMPANY
The Company was formed as a Tennessee corporation in September 1997 at our
direction for the purpose of serving as our holding company after the
conversion. Prior to the conversion, it has not engaged and is not expected to
engage in any material operations. The Company has received the approval of the
OTS to acquire control of us upon completion of the conversion. Upon
consummation of the conversion, the only assets the Company is expected to own
are the capital stock we will issue in the conversion, a note receivable from
our ESOP and any proceeds from the offering it retains.
As a holding company, the Company will have greater flexibility than we
would have to diversify its business activities through the formation of
subsidiaries or through acquisition. The Company will be classified as a unitary
savings and loan holding company after the conversion and will be required to
comply with OTS regulations and be subject to examination.
The Company's executive offices are located at 200 Olivia Drive, Newport,
Arkansas 72112 and its main telephone number is (870) 523-3611.
6
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
We are a federal mutual savings bank operating through one office in
Newport, Arkansas. We were founded in 1934 as a federally chartered institution
and a member of the FHLB System. Our deposits are insured up to applicable
limits by the Federal Deposit Insurance Corporation ("FDIC") under the Savings
Association Insurance Fund ("SAIF"). At June 30, 1997, we had total assets of
$34.4 million, total deposits of $31.1 million and total retained earnings of
$2.3 million.
On August 20, 1997, we entered into a Purchase and Assumption Agreement
with NationsBank, N.A. pursuant to which we agreed to purchase the deposits of
the Newport branch of NationsBank and to purchase the real estate on which the
office is located and certain loans and other assets. We expect to assume
approximately $6 million in deposits based on the balance of deposits at the
branch as of June 30, 1997. We must obtain regulatory approval before we can
close this transaction. Assuming we obtain such approval, we expect that this
transaction will close in January 1998.
Our principal business consists of attracting deposits from the general
public and originating residential mortgage loans. We also offer various types
of consumer loans and commercial business loans.
Our executive offices are located at 200 Olivia Drive, Newport, Arkansas
72112 and its main telephone number is (870) 523-3611.
USE OF PROCEEDS
The Company will retain 50% of the net proceeds from the offering and will
use the balance to purchase all of the capital stock we will issue in connection
with the conversion. A portion of the net proceeds to be retained by the
Company will be lent to our employee stock plan to fund its purchase of 8% of
the shares sold in the conversion. On a short-term basis, the balance of the
net proceeds retained by the Company initially will be invested in short-term
investments. The net proceeds subsequently may be used to fund acquisitions of
other financial services institutions or to diversify into non banking
activities, although we have no current plans or agreements to do so. Subject
to applicable regulatory restrictions, the net proceeds may also serve as a
source of funds for the repurchase of shares or for the payment of dividends to
stockholders, although the Company has not yet adopted a dividend policy. A
portion of the net proceeds may also be used to fund the purchase of 4.0% of the
shares for the MRP which is anticipated to be adopted following the conversion.
See "Pro Forma Data."
The funds we receive from the sale of our capital stock to the Company will
be added to our general funds and be used for general corporate purposes
including: (i) investment in mortgages and other loans, (ii) U.S. Government
and federal agency securities, (iii) mortgage-backed securities, (iv) funding
loan commitments or (v) repaying FHLB advances. However, initially, we intend
to invest
7
<PAGE>
the net proceeds in short-term investments until we can deploy the proceeds into
higher yielding loans. The funds added to our capital will further strengthen
our capital position.
The net proceeds may vary because the total expenses of the conversion may
be more or less than those estimated. We expect our estimated expenses to be
$400,000. Our estimated net proceeds will range from $2.0 million to $2.8
million (or up to $3.3 million in the event the maximum of the Estimated
Valuation Range is increased to $3.7 million). See "Pro Forma Data." The net
proceeds will also vary if the number of shares to be issued in the conversion
is adjusted to reflect a change in our estimated pro forma market value.
Payments for shares made through withdrawals from existing deposit accounts with
us will not result in the receipt of new funds for investment by us but will
result in a reduction of our liabilities and interest expense as funds are
transferred from interest-bearing certificates or accounts.
For a period of one year following the completion of the conversion, we
will not pay any dividends that would be construed as a return of capital nor
take any actions to pursue or propose such dividends.
DIVIDENDS
Although no decision has been made yet regarding the payment of dividends,
the Company may consider a policy of paying cash dividends on the common stock
following the conversion. However, declarations of dividends by the board of
directors will depend upon a number of factors, including: (i) the amount of
the net proceeds retained by the Company in the conversion, (ii) investment
opportunities available, (iii) capital requirements, (iv) regulatory
limitations, (v) results of operations and financial condition, (vi) tax
considerations, and (vii) general economic conditions. Upon review of such
considerations, the board may authorize future dividends if it deems such
payment appropriate and in compliance with applicable law and regulation. In
addition, from time to time in an effort to manage capital at a desirable level,
the board may determine to pay special cash dividends. Special cash dividends
may be paid in addition to, or in lieu of, regular cash dividends. In addition,
there can be no assurance that regular or special dividends will be paid, or, if
paid, will continue to be paid. See "Historical and Pro Forma Capital
Compliance," "The Conversion -- Effects of Conversion to Stock Form on Savers
and Borrowers of Newport Federal Savings Bank -- Liquidation Account" and
"Regulation -- Dividend and Other Capital Distribution Limitations."
The Company is not subject to OTS regulatory restrictions on the payment of
dividends to its stockholders although the source of such dividends will be
dependent in part upon the receipt of dividends from us. The Company is
subject, however, to the requirements of Tennessee law. Under Tennessee law,
the Company may pay a dividend as long as it will not affect the ability of the
Company, after the dividend has been distributed, to pay its debts in the
ordinary course of business or result in its assets being less than the sum of
its liabilities plus the amount that would be needed (if any) to satisfy any
preferential rights upon a dissolution of the Company of any stockholders with
rights ahead of those receiving the dividend.
8
<PAGE>
In addition to the foregoing, the portion of our earnings which have been
appropriated for bad debt reserves and deducted for federal income tax purposes
cannot be used by us to pay cash dividends to the Company without the payment of
federal income taxes by us at the then current income tax rate on the amount
deemed distributed, which would include the amount of any federal income taxes
attributable to the distribution. See "Taxation -- Federal Taxation" and Note 9
to the Financial Statements. The Company does not contemplate any distribution
by us that would result in a recapture of our bad debt reserve or otherwise
create federal tax liabilities.
MARKET FOR THE COMMON STOCK
The Company has never issued common stock to the public. Consequently,
there is no established market for the common stock. Following completion of
the Offering, the Company intends to list the common stock over-the-counter
through the OTC "Electronic Bulletin Board" under the symbol "NARK" and the
Company intends to request that Trident Securities Inc. ("Trident Securities")
undertake to match offers to buy and offers to sell the common stock. Trident
Securities has no obligation to match offers to buy and offers to sell and may
cease doing so at any time. There can be no assurance that timely or accurate
quotations will be available on the OTC "Electronic Bulletin Board." In
addition, the existence of a public trading market will depend upon the presence
in the market of both willing buyers and willing sellers at any given time. The
presence of a sufficient number of buyers and sellers at any given time is a
factor over which neither the Company nor any broker or dealer has control. Due
to the relatively small number of shares of common stock being offered in the
conversion and the concentration of ownership, it is unlikely that an active or
liquid trading market will develop or be maintained. Further, the absence of an
active and liquid trading market may make it difficult to sell the common stock
and may have an adverse effect on the price of the common stock. Purchasers
should consider the potentially illiquid and long-term nature of their
investment in the shares 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.
9
<PAGE>
CAPITALIZATION
The following table presents our historical capitalization as of June 30,
1997 and the pro forma consolidated capitalization of Company after giving
effect to the conversion, based upon the sale of the number of shares shown
below and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED CAPITALIZATION OF
CAPITALIZATION THE COMPANY AT JUNE 30, 1997 BASED ON THE SALE OF
OF THE ------------------------------------------------------------------------------
BANK AT 238,000 SHARES 280,000 SHARES 322,000 SHARES 370,300 SHARES
JUNE 30, AT $10.00 AT $10.00 AT $10.00 AT $10.00
1997 PER SHARE PER SHARE PER SHARE PER SHARE
-------- --------------- -------------------- ------------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits (1)............................ $31,073 $31,073 $31,073 $31,073 $31,073
FHLB advances........................... 618 618 618 618 618
------- ------- ------- ------- -------
Total deposits and borrowed funds... $31,691 $31,691 $31,691 $31,691 $31,691
======= ======= ======= ======= =======
Capital stock
Preferred stock, $0.01 par value per share:
authorized - 3,000,000 shares;
assumed outstanding - none.......... -- -- -- -- --
Common stock, $0.01 par value per share
authorized - 9,000,000 shares;
shares to be outstanding - as shown. -- 2 3 3 4
Paid-in capital (2)................... -- 1,978 2,397 2,817 3,299
Less: Common stock acquired by ESOP
(3).................................. -- (190) (224) (258) (296)
Common stock acquired by
MRP (4).................... -- (95) (112) (129) (148)
Retained earnings -- substantially
restricted........................... 2,266 2,266 2,266 2,266 2,266
------- ------- ------- ------- -------
Total stockholders' equity.......... $ 2,266 $ 3,961 $ 4,330 $ 4,699 $ 5,125
======= ======= ======= ======= =======
</TABLE>
____________________
(1) Withdrawals from savings accounts for the purchase of stock have not been
reflected in these adjustments. Any withdrawals will reduce pro forma
capitalization by the amount of such withdrawals.
(2) Based upon the estimated net proceeds from the sale of capital stock less
the par value of shares sold.
(3) Assumes 8% of the shares of common stock to be sold in the conversion are
purchased by the ESOP and that the funds used to purchase such shares are
borrowed from the Company. See "Pro Forma Data" for additional details.
(4) Assumes the Company issues 4.0% of the shares sold in the offering to the
MRP and the purchase price for the shares purchased by the MRP was equal to
the purchase price of $10 per share and 20% of the amount contributed was
an amortized expense during such period. Implementation of the MRP within
one year of conversion would require regulatory and stockholder approval at
a meeting of our stockholders to be held no earlier than six months after
the conversion.
10
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table shows our historical capital position relative to our
regulatory capital requirements as of June 30, 1997 and on a pro forma basis
after giving effect to the conversion and based upon the sale of the number of
shares shown below and the other assumptions set forth under "Pro Forma Data."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the OTS. For a discussion of the capital standards
applicable to us, see "Regulation -- Regulation of the Bank -- Regulatory
Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT JUNE 30, 1997 BASED ON THE SALE OF /(1)/:
---------------------------------------------------------------------------------
MINIMUM OF MIDPOINT OF MAXIMUM OF MAXIMUM, AS ADJUSTED
238,000 SHARES 280,000 SHARES 322,000 SHARES 370,300 SHARES
HISTORICAL AT AT $10.00 AT $10.00 AT $10.00 AT $10.00
JUNE 30, 1997 PER SHARE PER SHARE PER SHARE PER SHARE
-------------------- -------------------------------------------------------------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT ASSETS (2) AMOUNT ASSETS (2) AMOUNT ASSETS (2) AMOUNT ASSETS (2) AMOUNT ASSETS (2)
------ --------- ------ --------- ------ ---------- ------ ---------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under generally accepted
accounting principles..... $2,266 6.6% $2,971 8.4% $3,130 8.8% $3,289 9.2% $3,473 9.7%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Tangible capital............. $2,266 6.6% $2,971 8.4% $3,130 8.8% $3,289 9.2% $3,473 9.7%
Tangible capital requirement. 516 1.5 529 1.5 532 1.5 535 1.5 538 1.5
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Excess.................... $1,750 5.1% $2,442 6.9% $2,598 7.3% $2,754 7.7% $2,935 8.2%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Core capital................. $2,266 6.6% $2,971 8.4% $3,130 8.8% $3,289 9.2% $3,473 9.7%
Core capital requirement..... 1,031 3.0 1,058 3.0 1,064 3.0 1,070 3.0 1,076 3.0
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Excess.................... $1,235 3.6% $1,913 5.4% $2,066 5.8% $2,219 6.2% $2,397 6.7%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Total regulatory capital..... $2,411 13.2% $3,119 16.8% $3,278 17.5% $3,437 18.3% $3,621 19.1%
Risk-based capital requirement 1,463 8.0 1,489 8.0 1,497 8.0 1,505 8.0 1,514 8.0
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Excess.................... $ 948 5.2% $1,630 8.8% $1,781 9.5% $1,932 10.3% $2,107 11.1%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
- --------------------
</TABLE>
(1) Assumes that the Company will purchase all of our capital stock to be
issued upon conversion in exchange for 50% the net proceeds from the
Company offering. Assumes net proceeds distributed to the Company or to us
initially are invested in short-term securities that carry a risk-weight
equal to the ratio of risk-weighted assets to total assets at June 30,
1997. Assumes the ESOP purchases 8% of the shares to be sold in the
conversion and borrows the funds needed to purchase such shares from
theCompany. Although repayment of such debt will be secured solely by the
shares purchased by the ESOP, we expect to make discretionary contributions
to the ESOP in an amount at least equal to the principal and interest
payments on the ESOP debt. The approximate amount expected to be borrowed
by the ESOP is not reflected in this table as borrowed funds but is
reflected as a reduction of capital. Assumes a number of issued and
outstanding shares of common stock equal to 4% of the common stock to be
sold in the conversion will be purchased by the MRP after the conversion.
The dollar amount of the common stock possibly to be purchased by the MRP
is based on the price per share in the conversion and represents unearned
compensation and is reflected as a reduction of capital. Such amounts do
not reflect possible increases or decreases in the value of such stock
relative to the price per share in the conversion. As we accrue
compensation expense to reflect the vesting of such shares pursuant to the
MRP, the charge against capital will be reduced accordingly. Does not
reflect a possible increase in capital upon the exercise of options by
participants in the Option Plan, under which directors, executive officers
and other employees could be granted options to purchase an aggregate
amount of common stock equal to 10% of the shares issued in the conversion
(28,000 shares at the midpoint of the Estimated Valuation Range) at
exercise prices equal to the market price of the common stock on the date
of grant. Under the MRP and the Option Plan, shares issued to participants
could be newly issued shares or, subject to regulatory restrictions, shares
repurchased in the market. The MRP and the Option Plan are required to be
approved by the Company's stockholders and will not be implemented until at
least six months after the conversion. See "Management of Newport Federal
Savings Bank -- Proposed Future Stock Benefit Plans."
(2) Based on our total assets determined under generally accepted accounting
principles for equity purposes, adjusted total assets for the purposes of
the tangible and core capital requirements (35.5 million) and risk-weighted
assets for the purpose of the risk-based capital requirement $18.6.
11
<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 $2.0 million and $3.3 million at the minimum
and maximum, as adjusted, of the Estimated Valuation Range, based upon the
following assumptions: (i) all of the shares will be sold in the Subscription or
Community Offering; (ii) expenses, including the marketing fee to be paid to
Trident Securities, will amount to $400,000.
The following table sets forth our historical net earnings and
stockholders' equity prior to the conversion and the pro forma consolidated net
income (loss) and stockholders' equity of the Company following the conversion.
Pro forma consolidated net income (loss) and stockholders' equity have been
calculated as if the common stock to be issued in the conversion had been sold
at July 1, 1996, and the estimated net proceeds had been invested at 5.65%,
which was approximately equal to the one-year U.S. Treasury bill rate at June
30, 1997. The one-year U.S. Treasury bill rate, rather than an arithmetic
average of the average yield on interest-earning assets and average rate paid on
deposits, has been used to estimate income on net proceeds because it is
believed that it is a more accurate estimate of the rate that would be obtained
on an investment of net proceeds from the offering. In calculating pro forma
income, an effective state and federal income tax rate of 36% has been assumed,
resulting in an after tax yield of 3.62%. Withdrawals from deposit accounts for
the purchase of shares are not reflected in the pro forma adjustments. As
discussed under "Use of Proceeds," the Company expects to retain 50% of the net
conversion proceeds, part of which will be lent to the ESOP to fund its purchase
of 8.0% of the shares issued in the conversion. No effect has been given in the
pro forma stockholders= equity calculation for the assumed earnings on the net
proceeds. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares.
THE STOCKHOLDERS' EQUITY INFORMATION IS NOT INTENDED TO REPRESENT THE FAIR
MARKET VALUE OF THE COMMON STOCK, OR THE CURRENT VALUE OF OUR ASSETS OR
LIABILITIES, OR THE AMOUNTS, IF ANY, THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO
STOCKHOLDERS IN THE EVENT OF LIQUIDATION. FOR ADDITIONAL INFORMATION REGARDING
THE LIQUIDATION ACCOUNT, SEE "THE CONVERSION -- EFFECTS OF CONVERSION TO STOCK
FORM ON DEPOSITORS AND BORROWERS OF NEWPORT FEDERAL SAVINGS BANK -- LIQUIDATION
ACCOUNT" AND NOTE 15 TO THE FINANCIAL STATEMENTS. THE PRO FORMA INCOME DERIVED
FROM THE ASSUMPTIONS SET FORTH ABOVE SHOULD NOT BE CONSIDERED INDICATIVE OF THE
ACTUAL RESULTS OF OUR OPERATIONS FOR ANY PERIOD. SUCH PRO FORMA DATA MAY BE
MATERIALLY AFFECTED BY A CHANGE IN THE PRICE PER SHARE OR NUMBER OF SHARES TO BE
ISSUED IN THE CONVERSION AND BY OTHER FACTORS.
12
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30, 1997
---------------------------------------------------------
MAXIMUM, AS
MINIMUM OF MIDPOINT OF MAXIMUM OF ADJUSTED, OF
238,000 280,000 322,000 370,300
SHARES SHARES SHARES SHARES
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE
---------- ------------ ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross offering proceeds............. $ 2,380 $ 2,800 $ 3,220 $ 3,703
Less estimated offering expenses.... (400) (400) (400) (400)
-------- -------- -------- ------------
Estimated net offering proceeds.. $ 1,980 $ 2,400 $ 2,820 $ 3,303
======== ======== ======== ============
Less: Common stock acquired by ESOP.... $ (190) $ (224) $ (258) $ (296)
Common stock acquired by MRP (95) (112) (129) (148)
-------- -------- -------- ------------
Estimated investable net proceeds $ 1,694 $ 2,064 $ 2,434 $ 2,859
======== ======== ======== ============
Net income (loss):
Historical net income (loss)..... $ (199) $ (199) $ (199) $ (199)
Pro forma income on net proceeds. 61 75 88 103
Pro forma ESOP adjustment (1).... (12) (14) (16) (19)
Pro forma MRP adjustment (2)..... (12) (14) (16) (19)
-------- -------- -------- ------------
Total........................ $ (162) $ (153) $ (144) $ (134)
======== ======== ======== ============
Net income (loss) per share:(3)
Historical net income (loss)..... $ (0.90) $ (0.77) $ (0.67) $ (0.58)
Pro forma income on net proceeds. 0.28 0.29 0.29 0.30
Pro forma ESOP adjustment (1).... (0.06) (0.06) (0.06) (0.06)
Pro forma MRP adjustment (2)..... (0.06) (0.06) (0.06) (0.06)
-------- -------- -------- ------------
Total (3).................... $ (0.73) $ (0.59) $ (0.48) $ (0.39)
======== ======== ======== ============
Number of shares used in calculating loss
per share......................... 220,864 259,840 298,816 343,638
======== ======== ======== ============
Stockholders' equity: (4)
Historical...................... $ 2,266 $ 2,266 $ 2,266 $ 2,266
Estimated net offering proceeds (2) 1,980 2,400 2,820 3,303
Less: Common stock acquired by ESOP (1) (190) (224) (258) (296)
Common stock acquired by MRP (2). (95) (112) (129) (148)
-------- -------- -------- ------------
Total........................ $ 3,960 $ 4,330 $ 4,700 $ 5,125
======== ======== ======== ============
Stockholders' equity per share:(3)(4)
Historical....................... $ 9.52 $ 8.09 $ 7.04 $ 6.12
Estimated net offering proceeds (2) 8.32 8.57 8.76 8.92
Less: Common stock acquired by ESOP (1) (0.80) (0.80) (0.80) (0.80)
Common stock acquired by MRP (2). (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- ------------
Total........................ $ 16.64 $ 15.46 $ 14.60 $ 13.84
======== ======== ======== ============
Offering price as a percentage of
pro forma stockholders' equity per share(4) 60.1% 64.7% 68.5% 72.3%
======== ======== ======== ============
Ratio of offering price to pro forma
annualized net income per share(4) NA NA NA NA
======== ======== ======== ============
</TABLE>
(Footnotes on succeeding page)
13
<PAGE>
(footnotes continued from preceding page)
- -----------------------------------------
(1) Assumes the ESOP purchases 8% of the shares sold in the conversion and the
Company lends the ESOP the funds to do so. The approximate amount expected
to be borrowed by the ESOP is reflected as a reduction of capital. We
intend to make annual contributions to the ESOP over a 10 year period in an
amount at least equal to the principal and interest requirement of the debt.
The pro forma net income assumes: (i) the ESOP loan is payable over 10
years, (ii) the average fair value of the ESOP shares is $10.00 per share
in accordance with Statement of Position ("SOP") 93-6 of the American
Institute of Certified Public Accountants ("AICPA"), and (iii) the effective
tax rate was 36% for such period. The pro forma stockholders' equity per
share calculation assumes all ESOP shares were outstanding, regardless of
whether such shares would have been released. Because the Company will be
providing the ESOP loan, only principal payments on the ESOP loan are
reflected as employee compensation and benefits expense.
(2) Assumes the Company issues 4.0% of the shares sold in the offering to the
MRP and the purchase price for the shares purchased by the MRP was equal to
the purchase price of $10 per share and 20% of the amount contributed was
an amortized expense during such period. As we accrue compensation expense
to reflect the five-year vesting period of such shares pursuant to the MRP,
the charge against capital will be reduced accordingly. In calculating the
pro forma effect of the MRP, an effective state and federal income tax rate
of 36% has been assumed. Implementation of the MRP within one year of
conversion would require regulatory and stockholder approval at a meeting of
our stockholders to be held no earlier than six months after the conversion.
For purposes of this table, it is assumed that the MRP will be adopted by
the board of directors, reviewed by the OTS, and approved by the
stockholders, and that the MRP will purchase the shares in the open market
within the year following the conversion. If the shares to be purchased by
the MRP are assumed at July 1, 1996, to be newly issued shares purchased
from the Company at the minimum, midpoint, maximum and maximum, as adjusted,
of the Estimated Valuation Range, pro forma stockholders' equity per share
would have been $16.38, $15.25, $14.42, and $13.69 at June 30, 1997,
respectively. As a result of the MRP, stockholders' interests will be
diluted by approximately 3.8%. See "Management of Newport Federal Savings
Bank - Proposed Future Stock Benefit Plans - Management Recognition Plan."
(3) Per share data has been computed based on the assumed numbers of shares sold
in the conversion. This treatment is in accordance with SOP 93-6. No
effect has been given to shares to be reserved for issuance pursuant to the
Option Plan. Pro forma net loss per share calculations include the number
of shares assumed to be sold in the conversion and, in accordance with SOP
93-6, exclude ESOP shares which would not have been released during the
period. Accordingly, 17,136, 20,160, 23,184 and 26,662 shares have been
subtracted from the shares assumed to be sold at the minimum, midpoint,
maximum, and maximum, as adjusted, of the Estimated Valuation Range,
respectively, and 220,864, 259,840, 298,816 and 343,638 shares are assumed
to be outstanding at the minimum, midpoint, maximum, and maximum, as
adjusted of the Estimated Valuation Range. See Note 1 above.
(4) Consolidated stockholders' equity represents the excess of the carrying
value of the assets of the over its liabilities. The calculations are based
upon the number of shares issued in the conversion, without giving effect to
SOP 93-6. The amounts shown do not reflect the federal income tax
consequences of the potential restoration to income of the tax bad debt
reserves for income tax purposes, which would be required in the event of
liquidation. The amounts shown also do not reflect the amounts required to
be distributed in the event of liquidation to eligible depositors from the
liquidation account which will be established upon the consummation of the
conversion. Pro forma stockholders' equity information is not intended to
represent the fair market value of the shares, the current value of our
assets or liabilities or the amounts, if any, that would be available for
distribution to stockholders in the event of liquidation. Such pro forma
data may be materially affected by a change in the number of shares to be
sold in the conversion and by other factors.
14
<PAGE>
THE CONVERSION
THE OTS HAS APPROVED THE PLAN SUBJECT TO THE PLAN'S APPROVAL BY OUR MEMBERS
AT A SPECIAL MEETING OF MEMBERS, AND SUBJECT TO THE SATISFACTION OF CERTAIN
OTHER CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL. OTS APPROVAL, HOWEVER,
DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE OTS.
GENERAL
On May 29, 1997, our board of directors adopted a plan of conversion,
pursuant to which we will convert from a federally chartered mutual savings bank
to a federally chartered stock savings bank and become a wholly owned subsidiary
of the Company. This plan was amended on October 31, 1997. The conversion will
include adoption of the proposed Federal Stock Charter and Bylaws which will
authorize the issuance of capital stock by us. Under the Plan, our capital
stock is being sold to the Company and the common stock of the Company is being
offered to our customers and then to the public.
The OTS has approved the Company's application to become a savings and loan
holding company and to acquire all of our capital stock to be issued in the
conversion. Pursuant to such OTS approval, the Company plans to retain 50% of
the net proceeds from the sale of shares of common stock and to use the
remaining 50% to purchase all of the capital stock we will issue in the
conversion.
The shares are first being offered in a Subscription Offering to holders of
subscription rights. To the extent shares of common stock remain available
after the Subscription Offering, we may offer shares of common stock in a
Community Offering. The Community Offering, if any, may begin anytime
subsequent to the beginning of the Subscription Offering. Shares not subscribed
for in the Subscription and Community Offerings may be offered for sale by the
Company in a Syndicated Community Offering. We have the right, in our sole
discretion, to accept or reject, in whole or in part, any orders to purchase
shares of common stock received in the Community and Syndicated Community
Offering. See "-- Community Offering" and "-- Syndicated Community Offering."
We must sell common stock in an amount equal to our pro forma market value as
a stock savings institution in order for the conversion to become effective. We
must complete the Community Offering within 45 days after the last day of the
Subscription Offering, unless we extend such period and obtain the approval of
the OTS to do so. The Plan provides that the conversion must be completed
within 24 months after the date of the approval of the Plan by our members.
In the event that we are unable to complete the sale of common stock and
effect the conversion within 45 days after the end of the Subscription Offering,
we may request an extension of the period by the OTS. We cannot assure you that
the extension would be granted if requested, nor can we assure you that our
valuation would not substantially change during any such extension.
15
<PAGE>
If the Estimated Valuation Range of the shares must be amended, we cannot assure
that the OTS would approve such amended Estimated Valuation Range. Therefore, it
is possible that if the conversion cannot be completed within the requisite
period of time, we may not be permitted to complete the conversion. A
substantial delay caused by an extension of the period may also significantly
increase the expense of the conversion. We cannot sell any shares of common
stock unless the Plan is approved by our members.
The completion of the offering is subject to market conditions and other
factors beyond our control. We cannot give you any assurances as to the length
of time following approval of the Plan at the meeting of our members that will
be required to complete the Community Offering or other sale of the shares being
offered in the conversion. If we experience delays, our estimated pro forma
market value upon conversion could change significantly, together with
corresponding changes in the offering price and the net proceeds to be realized
by us from the sale of the shares. In the event we terminate the conversion, we
would be required to charge all conversion expenses against current income and
promptly return any funds collected by us in the offering to each potential
investor, plus interest at the prescribed rate.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF NEWPORT
FEDERAL SAVINGS BANK
VOTING RIGHTS. Currently in our mutual form, our depositor and borrower
members have voting rights and may vote for the election of directors.
Following the conversion, depositors and borrower members will cease to have
voting rights.
SAVINGS ACCOUNTS AND LOANS. The conversion will not affect the balances,
terms and FDIC insurance coverage of savings accounts, nor will the amounts and
terms of loans and obligations of the borrowers under their individual
contractual arrangements with us be affected.
TAX EFFECTS. We have received an opinion from our counsel, Housley
Kantarian & Bronstein, P.C. on the material federal tax consequences of the
conversion. We have filed the opinion as an exhibit to the registration
statement of which this prospectus is a part. The opinion provides, in part,
that,: (i) the conversion will qualify as a reorganization under Section
368(a)(1)(F) of the Code, and we will not recognize any taxable gain in either
our mutual form or our stock form as a result of the proposed conversion; (ii)
we will not recognize any taxable gain upon the receipt of money from the
Company for our stock, nor will the Company recognize any gain upon the receipt
of money for the common stock; (iii) our assets in either our mutual or our
stock form will have the same basis before and after the conversion; (iv) the
holding period of our assets will include the period during which the assets
were held by us in our mutual form prior to conversion; (v) no gain or loss will
be recognized by the Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members upon the issuance to them of withdrawable savings
accounts in us in the stock form in the same dollar amount as their savings
accounts in us in the mutual form plus an interest in the liquidation account of
us in the stock form in exchange for their savings accounts in us in the mutual
form; (vi) depositors will recognize gain or loss upon the receipt
16
<PAGE>
of liquidation rights and the receipt of subscription rights in the conversion,
to the extent such liquidation rights and subscription rights are deemed to have
value, as discussed below; (vii) the basis of each account holder's savings
accounts in us after the conversion will be the same as the basis of his savings
accounts in us prior to the conversion, decreased by the fair market value of
the nontransferable subscription rights received and increased by the amount, if
any, of gain recognized on the exchange; (viii) the basis of each account
holder's interest in the liquidation account will be zero; and (ix) the holding
period of the common stock acquired through the exercise of subscription rights
shall begin on the date on which the subscription rights are exercised.
With respect to the subscription rights, we have received an opinion of
Ferguson which, based on certain assumptions, concludes that the subscription
rights to be received by Eligible Account Holders and other eligible subscribers
do not have any economic value at the time of distribution or at the time the
subscription rights are exercised, whether or not a public offering takes place.
Such opinion is based on the fact that such rights are: (i) acquired by the
recipients without payment therefor, (ii) non-transferable, (iii) of short
duration, and (iv) afford the recipients the right only to purchase shares at a
price equal to their estimated fair market value, which will be the same price
at which shares for which no subscription right is received in the Subscription
Offering will be offered in the Community Offering. If the subscription rights
granted to Eligible Account Holders or other eligible subscribers are deemed to
have an ascertainable value, receipt of such rights would be taxable only to
those Eligible Account Holders or other eligible subscribers who exercise the
subscription rights in an amount equal to such value (either as a capital gain
or ordinary income), and we could recognize gain on such distribution.
We are also subject to Arkansas income taxes and have received an opinion
from KPMG Peat Marwick LLP that the conversion will be treated for Arkansas
state tax purposes similar to the conversion's treatment for federal tax
purposes.
Unlike a private letter ruling, the opinions of Housley Kantarian &
Bronstein, P.C., Ferguson and KPMG Peat Marwick LLP have no binding effect or
official status, and we cannot give you any assurance that a court would sustain
the conclusions reached in any of those opinions if contested by the IRS or the
Arkansas tax authorities. WE ENCOURAGE ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS, AND OTHER MEMBERS TO CONSULT WITH THEIR OWN TAX
ADVISERS AS TO THE TAX CONSEQUENCES IN THE EVENT THE SUBSCRIPTION RIGHTS ARE
DEEMED TO HAVE AN ASCERTAINABLE VALUE.
LIQUIDATION ACCOUNT. In the unlikely event of our complete liquidation in
our present mutual form, each depositor is entitled to equal distribution of any
of our assets, pro rata to the value of his accounts, remaining after payment of
claims of all creditors (including the claims of all depositors to the
withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
accounts was to the total value of all deposit accounts in us at the time of
liquidation.
17
<PAGE>
Upon a complete liquidation after the conversion, each depositor would have
a claim, as a creditor, of the same general priority as the claims of all other
general creditors of ours. Therefore, except as described below, a depositor's
claim would be solely in the amount of the balance in his deposit account plus
accrued interest. A depositor would not have an interest in the residual value
of our assets above that amount if any.
The Plan provides for the establishment, upon the completion of the
conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
$_________. Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he continues to maintain his deposit account with us, would be
entitled on a complete liquidation of us after conversion, to an interest in the
liquidation account prior to any payment to stockholders. Each Eligible Account
Holder would have an initial interest in such liquidation account for each
deposit account held in us on the qualifying date, December 31, 1995. Each
Supplemental Eligible Account Holder would have a similar interest as of the
qualifying date, ___________, 1997. The interest as to each deposit account
would be in the same proportion of the total liquidation account as the balance
of the deposit account on the qualifying dates was to the aggregate balance in
all the deposit accounts of Eligible Account Holders and Supplemental Eligible
Account Holders on such qualifying dates. However, if the amount in the deposit
account on any annual closing date of ours is less than the amount in such
account on the respective qualifying dates, then the interest in this special
liquidation account would be reduced from time to time by an amount
proportionate to any such reduction, and the interest would cease to exist if
such deposit account were closed. The interest in the special liquidation
account will never be increased despite any increase in the related deposit
account after the respective qualifying dates.
No merger, consolidation, purchase of bulk assets with assumptions of
savings accounts and other liabilities, or similar transactions with another
insured institution in which transaction we in our converted form are not the
surviving institution shall be considered a complete liquidation. In such
transactions, the liquidation account shall be assumed by the surviving
institution.
SUBSCRIPTION RIGHTS AND THE SUBSCRIPTION OFFERING
In accordance with OTS regulations, non-transferable subscription rights to
purchase shares of the common stock have been granted to all persons and
entities entitled to purchase shares in the Subscription Offering under the
Plan. The number of shares which these parties may purchase will be determined,
in part, by the total number of shares to be issued and by the availability of
the shares for purchase under the categories set forth in the Plan. If the
Community Offering, as described below, extends beyond 45 days following the
completion of the Subscription Offering, we will resolicit subscribers and
permit them to increase, decrease or rescind their orders. Subscription
priorities have been established for the allocation of stock to the extent that
shares are available after satisfaction of all subscriptions of all persons
having prior rights and subject to the maximum and minimum purchase limitations
set forth in the Plan and as described below under " -- Limitations on Purchases
of Shares." The following priorities have been established:
18
<PAGE>
CATEGORY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder (which
collectively encompasses all names on a joint account) will receive non-
transferable subscription rights on a priority basis to purchase that number of
shares of common stock which is equal to 10,000 shares ($100,000). If there
are insufficient shares to satisfy the orders of all Eligible Account Holders,
shares shall be allocated among subscribing Eligible Account Holders so as to
permit each such account holder, to the extent possible, to purchase the lesser
of 100 shares or the total amount of his subscription. Any shares remaining
shall be allocated among the subscribing Eligible Account Holders on an
equitable basis, related to the amounts of their respective qualifying deposits
as compared to the total qualifying deposits of all subscribing Eligible Account
Holders. Subscription rights received by officers and directors in this
category based on their increased deposits in us in the one-year period
preceding December 31, 1995, are subordinated to the subscription rights of
other Eligible Account Holders. See " -- Limitations on Purchases and Transfer
of Shares."
CATEGORY 2: ESOP. The ESOP has been granted subscription rights to purchase
up to 10% of the total shares issued in the conversion.
Although the right of the ESOP to subscribe for shares is subordinate to
the right of the Eligible Account Holders, in the event the offering results in
the issuance of shares above the maximum of the Estimated Valuation Range (i.e.,
more than 322,000 shares), the ESOP has a priority right to fill its
subscription. The ESOP currently intends to purchase up to 8.0% of the common
stock issued in the conversion. The ESOP may, however, determine to purchase
some or all of the shares covered by its subscription after the conversion in
the open market or, if approved by the OTS, out of authorized but unissued
shares in the event of an over subscription.
CATEGORY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each Supplemental
Eligible Account Holder (which collectively encompasses all names on a joint
account) who is not an Eligible Account Holder will receive non-transferable
subscription rights to purchase that number of shares which is equal to 10,000
shares ($100,000). If the allocation made in this paragraph results in an over
subscription, shares shall be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each such account holder, to the extent
possible, to purchase the lesser of 100 shares or the total amount of his
subscription. Any shares not so allocated shall be allocated among the
subscribing Supplemental Eligible Account Holders on an equitable basis, related
to the amounts of their respective qualifying deposits as compared to the total
qualifying deposits of all subscribing Supplemental Eligible Account Holders.
See "-- Limitations on Purchases and Transfer of Shares."
The right of Supplemental Eligible Account Holders to subscribe for shares
is subordinate to the rights of the Eligible Account Holders and the ESOP to
subscribe for shares.
CATEGORY 4: OTHER MEMBERS. Each Other Member (which collectively
encompasses all names on a joint account) who is not an Eligible Account Holder
or Supplemental Eligible Account Holder, will receive non-transferable
subscription rights to purchase up to 10,000 shares ($100,000) to the extent
such shares are available following subscriptions by Eligible Account Holders,
the ESOP, and Supplemental Eligible Account Holders. In the event there are not
enough
19
<PAGE>
shares to fill the orders of the Other Members, the subscriptions of the Other
Members will be allocated so that each subscribing Other Member will be entitled
to purchase the lesser of 100 shares or the number of shares ordered. Any
remaining shares will be allocated among Other Members whose subscriptions
remain unsatisfied on a reasonable basis. See "-- Limitations on Purchases and
Transfer of Shares."
MEMBERS IN NON-QUALIFIED STATES. We will make reasonable efforts to comply
with the securities laws of all states in the United States in which persons
entitled to subscribe for the shares pursuant to the Plan reside. However, no
person will be offered or allowed to purchase any shares under the Plan if he
resides in a foreign country or in a state with respect to which any of the
following apply: (i) a small number of persons otherwise eligible to subscribe
for shares under the Plan reside in that state or foreign country; (ii) the
granting of subscription rights or offer or sale of shares of common stock to
those persons would require either us, or our employees to register, under the
securities laws of that state or foreign country, as a broker or dealer or to
register or otherwise qualify our securities for sale in that state or foreign
country; or (iii) such registration or qualification would be impracticable for
reasons of cost or otherwise. We will not make any payment in lieu of the
granting of subscription rights to any person.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES. Persons are
prohibited from transferring or entering into any agreement or understanding to
transfer the legal or beneficial ownership of their subscription rights. Only
the person to whom they are granted may exercise subscription rights and only
for his account. Each person subscribing for shares will be required to certify
that he is purchasing shares solely for his own account and has not entered into
an agreement or understanding regarding the sale or transfer of those shares.
The regulations also prohibit any person from offering or making an announcement
of an offer or intent to make an offer to purchase subscription rights or shares
of common stock prior to the completion of the conversion.
We will pursue any and all legal and equitable remedies in the event we
become aware of the transfer of subscription rights and will not honor orders
believed by us to involve the transfer of subscription rights.
EXPIRATION DATE. The Subscription Offering will expire at 12:00 p.m.,
Central Time, on ________, 1997, (Expiration Date). Subscription rights will
become void if not exercised prior to the Expiration Date.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after filling all
orders received in the Subscription Offering, we may offer shares of common
stock to certain members of the general public residing in Arkansas and certain
other states with a preference to natural persons residing in Jackson County,
Arkansas under such terms and conditions as may be established by the board of
directors. In the Community Offering, the minimum purchase is 25 shares, and no
person, together
20
<PAGE>
with associates of and persons acting in concert with such persons, may purchase
more than 15,000 shares ($150,000).
WE MAY BEGIN THE COMMUNITY OFFERING AT ANY TIME AFTER THE SUBSCRIPTION
OFFERING HAS BEGUN. THE COMMUNITY OFFERING ONCE COMMENCED, MAY EXPIRE AT ANY
TIME WITHOUT NOTICE BUT NO LATER THAN 12:00 P.M., CENTRAL TIME, ON __________,
1997 UNLESS WE EXTEND IT WITH THE PERMISSION OF THE OTS. PURCHASES OF SHARES IN
THE COMMUNITY OFFERING ARE SUBJECT TO OUR RIGHT IN OUR SOLE DISCRETION, TO
ACCEPT OR REJECT SUCH PURCHASES IN WHOLE OR IN PART EITHER AT THE TIME AND
RECEIPT OF AN ORDER, OR AS SOON AS PRACTICABLE FOLLOWING THE COMPLETION OF THE
COMMUNITY OFFERING.
In the event Community Offering orders are not filled, we will promptly
refund funds received by us with interest at our passbook rate. In the event an
insufficient number of shares are available to fill all orders in the Community
Offering, the available shares will be allocated on an equitable basis
determined by the board of directors, provided however that a preference will be
given to natural persons residing in Jackson County, Arkansas. If regulatory
approval is received to extend the Community Offering beyond 45 days following
the completion of the Subscription Offering, subscribers will be resolicited.
Shares sold in the Community Offering will be sold at $10.00 per share.
SYNDICATED COMMUNITY OFFERING
The Plan provides that, if necessary, we may offer shares of common stock
not purchased in the Subscription and Community Offerings for sale to the
general public in a Syndicated Community Offering through a syndicate of
selected dealers to be formed and managed by Trident Securities. No individual
purchaser together with any associate or group of persons acting in concert may
purchase more than 15,000 shares ($150,000). Neither Trident Securities nor
any registered broker-dealer will be obligated to take or purchase any shares in
the Syndicated Community Offering, although Trident Securities has agreed to use
its best efforts in the sales of shares in any Syndicated Community Offering.
Shares sold in the Syndicated Community Offering will be sold at the Purchase
Price. See "-- Stock Pricing, "
The Syndicated Community Offering will terminate no more than 45 days
following the Expiration Date, unless the Company extends it with the approval
of the OTS.
LIMITATIONS ON PURCHASES AND TRANSFER OF SHARES
The Plan provides for certain additional limitations to be placed upon the
purchase of the shares in the conversion. The minimum purchase is 25 shares.
No persons, together with associates, or group of persons acting in concert, may
purchase more than 15,000 shares ($150,000), except for the ESOP which may
purchase up to 10% of the shares sold. The OTS regulations governing the
conversion provide that officers and directors and their associates may not
purchase, in the aggregate, more than 35% of the shares issued pursuant to the
conversion.
21
<PAGE>
Depending on market conditions and the results of the offering, the board
of directors may increase or decrease any of the purchase limitations without
the approval of our members and without resoliciting subscribers. If the
maximum purchase limitation is increased, persons who ordered the maximum amount
will be given the first opportunity to increase their orders. In doing so the
preference categories in the offerings will be followed.
In the event of an increase in the total number of shares offered in the
conversion due to an increase in the Estimated Valuation Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order of priority: (i) to fill the ESOP=s subscription of up to 8% of the
Adjusted Maximum number of shares (the ESOP currently intends to subscribe for
8%); (ii) in the event that there is an over subscription by Eligible Account
Holders, to fill unfulfilled subscriptions of Eligible Account Holders exclusive
of the Adjusted Maximum; (iii) in the event that there is an over subscription
by Supplemental Eligible Account Holders, to fill unfulfilled subscriptions to
Supplemental Eligible Account Holders exclusive of the Adjusted Maximum; (iv) in
the event that there is an over subscription by Other Members, to fill
unfulfilled subscriptions of Other Members exclusive of the Adjusted Maximum;
and (v) to fill unfulfilled subscriptions in the Community Offering to the
extent possible, exclusive of the Adjusted Maximum.
The term "associate" of a person means (i) any corporation or organization
(other than us or a majority-owned subsidiary of ours) of which such person is
an officer or partner or is, directly or indirectly, the beneficial owner of 10%
or more of any class of equity securities, (ii) any trust or other estate in
which such person has a substantial beneficial interest or as to which such
person serves as director or in a similar fiduciary capacity (excluding tax-
qualified employee stock benefit plans), 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 us, or any of our subsidiaries. For example,
a corporation of which a person serves as an officer would be an associate of
that person, and therefore all shares purchased by that corporation would be
included with the number of shares which that person individually could purchase
under the above limitations.
The term "officer" may include our chairman of the board, president, vice
presidents in charge of principal business functions, Secretary and Treasurer
and any other person performing similar functions. All references herein to an
officer have the same meaning as used for an officer in the Plan.
The term "residing," as used in relation to the preference afforded natural
persons in Jackson County, Arkansas, means any natural person who occupies a
dwelling within Jackson County, has an intention to remain within Jackson County
(manifested by establishing a physical, on-going, non-transitory presence within
Jackson County), and continues to reside in Jackson County at the time of the
offering. We may utilize deposit or loan records or such other evidence
provided to us to make the determination whether a person is residing in Jackson
County. Such determination will be in our sole discretion.
22
<PAGE>
TO ORDER SHARES IN THE CONVERSION, PERSONS MUST CERTIFY THAT THEIR PURCHASE
DOES NOT CONFLICT WITH THE PURCHASE LIMITATIONS. IN THE EVENT THAT THE PURCHASE
LIMITATIONS ARE VIOLATED BY ANY PERSON (INCLUDING ANY ASSOCIATE OR GROUP OF
PERSONS AFFILIATED OR OTHERWISE ACTING IN CONCERT WITH SUCH PERSONS), WE WILL
HAVE THE RIGHT TO PURCHASE FROM THAT PERSON AT $10.00 PER SHARE ALL SHARES
ACQUIRED BY THAT PERSON IN EXCESS OF THE PURCHASE LIMITATIONS. IF THE EXCESS
SHARES HAVE BEEN SOLD BY THAT PERSON, WE MAY RECOVER THE PROFIT FROM THE SALE OF
THE SHARES BY THAT PERSON. WE MAY ASSIGN OUR RIGHT EITHER TO PURCHASE THE
EXCESS SHARES OR TO RECOVER THE PROFITS FROM THEIR SALE.
Shares of common stock purchased pursuant to the conversion will be freely
transferable, except for shares purchased by our directors and officers. For
certain restrictions on the shares purchased by directors and officers, see " --
Restrictions on Sales and Purchases of Shares by Directors and Officers." In
addition, under guidelines of the NASD, members of the NASD and their associates
are subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
ORDERING AND RECEIVING SHARES
USE OF ORDER FORMS. Subscription rights to subscribe may only be exercised
by completion of an original order form. Persons ordering shares in the
Subscription Offering must deliver by mail or in person a properly completed and
executed original order form to us prior to the Expiration Date. Order forms
must be accompanied by full payment for all shares ordered. See "-- Payment for
Shares." Subscription rights under the Plan will expire on the Expiration
Date, whether or not we have been able to locate each person entitled to
subscription rights. ONCE SUBMITTED, SUBSCRIPTION ORDERS CANNOT BE REVOKED
WITHOUT OUR CONSENT UNLESS THE CONVERSION IS NOT COMPLETED WITHIN 45 DAYS OF THE
EXPIRATION DATE.
Persons and entities not purchasing shares in the Subscription Offering
may, subject to availability, purchase shares in the Community Offering by
returning to us a completed and properly executed order form along with full
payment for the shares ordered.
In the event an order form (i) is not delivered and is returned to us by
the United States Postal Service or we are unable to locate the addressee, (ii)
is not received or is received after the Expiration Date, (iii) is defectively
completed or executed, or (iv) is not accompanied by full payment for the shares
subscribed for (including instances where a savings account or certificate
balance from which withdrawal is authorized is insufficient to fund the amount
of such required payment), the subscription rights for the person to whom such
rights have been granted will lapse as though that person failed to return the
completed order form within the time period specified. We may, but will not be
required to, waive any irregularity on any order form or require the submission
of corrected order forms or the remittance of full payment for subscribed shares
by such date as we specify. The waiver of an irregularity on an order form in
no way obligates us to waive any other irregularity on that, or any irregularity
on any other, order form. Waivers will be considered on a case by case basis.
Photocopies of order forms, payments from private third parties, or electronic
transfers of
23
<PAGE>
funds will not be accepted. Our interpretation of the terms and conditions of
the Plan and of the acceptability of the order forms will be final. We have the
right to investigate any irregularity on any order form.
To ensure that each purchaser receives a prospectus at least 48 hours before
the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act, no
prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with Rule 15c2-8. Order
forms will only be distributed with a prospectus.
PAYMENT FOR SHARES. Payment for shares of common stock may be made (i) in
cash, if delivered in person, (ii) by check or money order, or (iii) by
authorization of withdrawal from savings accounts (including certificates of
deposit) maintained with us or (iv) by an IRA not held by us. Appropriate means
by which such withdrawals may be authorized are provided in the order form.
Once such a withdrawal has been authorized, none of the designated withdrawal
amount may be used by the subscriber for any purpose other than to purchase the
shares. Where payment has been authorized to be made through withdrawal from a
savings account, the sum authorized for withdrawal will continue to earn
interest at the contract rate until the conversion has been completed or
terminated. Interest penalties for early withdrawal applicable to certificate
accounts will not apply to withdrawals authorized for the purchase of shares;
however, if a partial withdrawal results in a certificate account with a balance
less than the applicable minimum balance requirement, the certificate evidencing
the remaining balance will earn interest at the passbook savings account rate
subsequent to the withdrawal. Payments made in cash or by check or money order,
will be placed in a segregated saving account and interest will be paid by us at
our passbook savings account rate from the date payment is received until the
conversion is completed or terminated. An executed order form, once received by
us, may not be modified, amended, or rescinded without our consent, unless the
conversion is not completed within 45 days after the conclusion of the
Subscription Offering, in which case subscribers may be given an opportunity to
increase, decrease, or rescind their order. In the event that the conversion is
not consummated, all funds submitted pursuant to the offering will be refunded
promptly with interest.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares in the offering, provided that such IRSs are not maintained on deposit
with us Persons with IRAs maintained with us must have their accounts
transferred to an unaffiliated institution or broker to purchase shares in the
offering. The Stock Information Center can assist you in transferring your
self-directed IRA. Because of the paperwork involved, persons owning IRAs with
us who wish to use their IRA account to purchase stock in the Offering, must
contact the Stock Information Center no later than __________, 1997.
DELIVERY OF STOCK CERTIFICATES. Certificates representing shares of common
stock issued in the conversion will be mailed to the person(s) at the address
noted on the order form, as soon as practicable following consummation of the
conversion. Any certificates returned as
24
<PAGE>
undeliverable will be held until properly claimed or otherwise disposed. Persons
ordering shares might not be able to sell their shares until they receive their
stock certificates.
FEDERAL REGULATIONS PROHIBIT US FROM LENDING FUNDS OR EXTENDING CREDIT TO
ANY PERSON TO PURCHASE SHARES IN THE CONVERSION.
MARKETING ARRANGEMENTS
We have engaged Trident Securities as our financial advisor in connection
with the offering. Trident Securities has agreed to exercise its best efforts
to assist us in the sale of the shares in the offering. As compensation,
Trident Securities will receive a fee in the amount of $105,000. If shares are
offered for sale in a Syndicated Community Offering, Trident Securities will
organize and manage the syndicate of selected broker-dealers. The commission to
be paid to any such selected broker-dealers will be at a rate to be agreed to
jointly by Trident Securities and us. Fees paid to Trident Securities and to any
other broker-dealer may be deemed to be underwriting fees, and Trident
Securities and such broker-dealers may be deemed to be underwriters. We have
agreed to indemnify Trident Securities for reasonable costs and expenses in
connection with certain claims or liabilities which might be asserted against
Trident Securities. This indemnification covers the investigation, preparation
of defense and defense of any action, proceeding or claim relating to
misrepresentation or breach of warranty of the written agreement among Trident
Securities and us or the omission or alleged omission of a material fact
required to be stated or necessary in the prospectus or other documents.
The shares will be offered principally by the distribution of this document
and through activities conducted at a Stock Information Center located at our
office. The Stock Information Center is expected to operate during our normal
business hours throughout the offering. A registered representative employed by
Trident Securities will be working at, and supervising the operation of, the
Stock Information Center. Trident Securities will assist us in responding to
questions regarding the conversion and the offering and processing order forms.
Our personnel will be present in the Stock Information Center to assist Trident
Securities with clerical matters and to answer questions related solely to our
business.
STOCK PRICING
We have retained Ferguson, an independent economic consulting and appraisal
firm, which is experienced in the evaluation and appraisal of business entities,
including savings institutions involved in the conversion process to prepare an
appraisal of our estimated pro forma market value. We will pay Ferguson a fee
of $15,000 for preparing the appraisal and will reimburse Ferguson up to $3,000
for reasonable out-of-pocket expenses. We have agreed to indemnify Ferguson
under certain circumstances against liabilities and expenses arising out of or
based on any misstatement or untrue statement of a material fact contained in
the information supplied by us to Ferguson.
25
<PAGE>
Ferguson prepared the appraisal in reliance upon the information contained
herein, including the financial statements. The appraisal contains an analysis
of a number of factors including, but not limited to, our financial condition
and operating trends, the competitive environment within which we operate,
operating trends of certain savings institutions and savings and loan holding
companies, relevant economic conditions, both nationally and in the state of
Arkansas which affect the operations of savings institutions, and stock market
values of certain savings institutions. In addition, Ferguson has advised us
that it has considered the effect of the additional capital raised by the sale
of the shares on our estimated aggregate pro forma market value.
On the basis of the above, Ferguson has determined, in its opinion, that as
of September 2, 1997 our estimated aggregate pro forma market value was
$2,800,000. OTS regulations require, however, that the appraiser establish a
range of value for the stock to allow for fluctuations in the aggregate value of
the stock due to changing market conditions and other factors. Accordingly,
Ferguson has established the Estimated Valuation Range from $2,380,000 to
$3,220,000 for the offering. The Estimated Valuation Range will be updated
prior to consummation of the conversion and the Estimated Valuation Range may
increase to $3,703,000.
The board of directors has reviewed the independent appraisal, including
the stated methodology of the independent appraiser and the assumptions used in
the preparation of the independent appraisal. The board of directors is relying
upon the expertise, experience and independence of the appraiser and is not
qualified to determine the appropriateness of the assumptions.
In order for stock sales to take place, Ferguson must confirm to the OTS
that, to the best of Ferguson's knowledge and judgment, nothing of a material
nature has occurred which would cause Ferguson to conclude that the Purchase
Price on an aggregate basis was incompatible with Ferguson's estimate of our pro
forma market value of us in converted form at the time of the sale. If,
however, facts do not justify such a statement, an amended Estimated Valuation
Range may be established.
THE APPRAISAL IS NOT A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF
PURCHASING THESE SHARES. IN PREPARING THE APPRAISAL, FERGUSON HAS RELIED UPON
AND ASSUMED THE ACCURACY AND COMPLETENESS OF FINANCIAL AND STATISTICAL
INFORMATION PROVIDED BY US. FERGUSON DID NOT INDEPENDENTLY VERIFY THE FINANCIAL
STATEMENTS AND OTHER INFORMATION PROVIDED BY US, NOR DID FERGUSON VALUE
INDEPENDENTLY OUR ASSETS AND LIABILITIES. THE APPRAISAL CONSIDERS US ONLY AS A
GOING CONCERN AND SHOULD NOT BE CONSIDERED AS OUR LIQUIDATION VALUE. MOREOVER,
BECAUSE THE APPRAISAL IS BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF
MATTERS WHICH ARE SUBJECT TO CHANGE, THE MARKET PRICE OF THE COMMON STOCK COULD
DECLINE BELOW $10.00.
CHANGE IN NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
Depending on market and financial conditions at the time of the completion
of the Subscription and Community Offerings, we may significantly increase or
decrease the number of
26
<PAGE>
shares to be issued in the conversion. In the event of an increase in the
valuation, we may increase the total number of shares to be issued in the
conversion. An increase in the total number of shares to be issued in the
conversion would decrease a subscriber's percentage ownership interest and the
pro forma net worth (book value) per share and increase the pro forma net income
and net worth (book value) on an aggregate basis. In the event of a material
reduction in the valuation, we may decrease the number of shares to be issued to
reflect the reduced valuation. A decrease in the number of shares to be issued
in the conversion would increase a subscriber's percentage ownership interest
and the pro forma net worth (book value) per share and decrease pro forma net
income and net worth on an aggregate basis.
Persons ordering shares will not be permitted to modify or cancel their
orders unless the change in the number of shares to be issued in the conversion
results in an offering which is either less than $2,380,000 or more than
$3,703,000.
RESTRICTIONS ON REPURCHASE OF SHARES
Generally, during the first year following the conversion, the Company may
not repurchase its shares and during each of the second and third years
following the conversion, the Company may repurchase five percent of the
outstanding shares provided they are purchased in open-market transactions.
Repurchases must not cause us to become undercapitalized and at least 10 days
prior notice of the repurchase must be provided to the OTS. The OTS may
disapprove a repurchase program upon a determination that (1) the repurchase
program would adversely affect our financial condition, (2) the information
submitted is insufficient upon which to base a conclusion as to whether the
financial condition would be adversely affected, or (3) a valid business purpose
was not demonstrated. In addition, SEC rules also govern the method, time,
price, and number of shares of common stock that may be repurchased by the
Company and affiliated purchasers. If, in the future, the rules and regulations
regarding the repurchase of stock are liberalized, the Company may utilize the
rules and regulations then in effect.
RESTRICTIONS ON SALES AND PURCHASES OF SHARES BY DIRECTORS AND OFFICERS
Shares purchased by directors and officers of the Company may not be sold
for one year following completion of the conversion. An exception to this rule
is a disposition of shares in the event of the death of the director or officer.
Any shares issued to directors and officers as a stock dividend, stock split, or
otherwise with respect to restricted stock shall be subject to the same
restrictions.
For three years following the conversion, directors and officers may
purchase shares only through a registered broker or dealer. Exceptions are
available only if the OTS has approved the purchase or the purchase is an arm's
length transaction and involves more than one percent of the outstanding shares.
27
<PAGE>
INTERPRETATION AND AMENDMENT OF THE PLAN
We are authorized to interpret and amend the Plan. Our interpretations are
final. Amendments to the Plan after the receipt of member approval will not
need further member approval unless required by the OTS.
CONDITIONS AND TERMINATION
Completion of the conversion requires (i) the approval of the Plan by the
affirmative vote of not less than a majority of the total number of votes
eligible to be cast by our members; and (ii) completion of the sale of shares
within 24 months following approval of the Plan by our members. If these
conditions are not satisfied, the Plan will be terminated and we will continue
our business in the mutual form of organization. We may terminate the Plan at
any time prior to the meeting of members to vote on the Plan or at any time
thereafter with the approval of the OTS.
OTHER
ALL STATEMENTS MADE IN THIS DOCUMENT ARE HEREBY QUALIFIED BY THE CONTENTS
OF THE PLAN OF CONVERSION, THE MATERIAL TERMS OF WHICH ARE SET FORTH HEREIN.
THE PLAN OF CONVERSION IS ATTACHED TO THE PROXY STATEMENT. COPIES OF THE PLAN
ARE AVAILABLE FROM US AND WE SHOULD BE CONSULTED FOR FURTHER INFORMATION.
ADOPTION OF THE PLAN BY OUR MEMBERS AUTHORIZES US TO INTERPRET, AMEND OR
TERMINATE THE PLAN.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations is intended to assist you in understanding our financial condition
and results of operations. The information in this section should also be read
with our Financial Statements and Notes to the Financial Statements elsewhere in
this document.
The Company has recently been formed and accordingly, has no results of
operations. The following discussion relates only to our financial condition
and results of operations
Our results of operations depend primarily on net interest income, which is
determined by (i) the difference between rates of interest we earn on our
interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest -earning
assets and interest-bearing liabilities. Our results of operations are also
affected by non-interest expense, including primarily compensation and employee
benefits, federal deposit insurance premiums and office occupancy costs. Our
results of operations also are affected significantly by general and economic
and competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities, all of which are
beyond our control.
28
<PAGE>
Following the conversion, we believe there will be sufficient demand in our
market area to continue our policy of emphasizing lending in the one- to four-
family real estate loan area. In addition, we hope to experience continued
growth in our non-residential mortgage, consumer and commercial loan portfolios
by modest amounts; however, there is no assurance that we will be able to do so.
See "Risk Factors -- Nonresidential Lending" and "Business of Newport Federal
Savings Bank-- Lending Activities."
ASSET/LIABILITY MANAGEMENT
Our assets and liabilities may be analyzed by examining the extent to which
our assets and liabilities are interest-rate sensitive and by monitoring the
expected effects of interest rate changes on our net portfolio value.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If our assets
mature or reprice more quickly or to a greater extent than our liabilities, our
net portfolio value and net interest income would tend to increase during
periods of rising interest rates but decrease during periods of falling interest
rates. Conversely, if our assets mature or reprice more slowly or to a lesser
extent than our liabilities, our net portfolio value and net interest income
would tend to decrease during periods of rising interest rates but increase
during periods of falling interest rates. Our policy has been to mitigate the
interest rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by pursuing certain
strategies designed to decrease the vulnerability of our earnings to material
and prolonged changes in interest rates.
To manage the interest rate risk of this type of loan portfolio, we limit
maturities of fixed-rate loans to no more than five years and emphasize the
origination of ARM loans. At June 30, 1997, the average weighted term to
maturity of our mortgage loan portfolio was approximately 14 years and the
average weighted term of our deposits was slightly less than two years.
NET PORTFOLIO VALUE
In recent years, we have measured our interest rate sensitivity by computing
the "gap" between the assets and liabilities which were expected to mature or
reprice within certain time periods, based on assumptions regarding loan
prepayment and deposit decay rates formerly provided by the OTS. However, the
OTS now measures an institution's interest rate risk by computing the amount by
which the net present value of cash flow from assets, liabilities and off
balance sheet items (the institution's net portfolio value or "NPV") would
change in the event of a range of assumed changes in market interest rates.
These computations estimate the effect on an institution's NPV from
instantaneous and permanent 1% to 4% (100 to 400 basis points) increases and
decreases in market interest rates. The following table presents the interest
rate sensitivity of our NPV at June 30, 1997, as calculated by the OTS, which is
based upon quarterly information that we voluntarily provided to the OTS.
29
<PAGE>
<TABLE>
<CAPTION>
NET PORTFOLIO VALUE NPV AS % OF PORTFOLIO VALUE OF ASSETS
CHANGE ------------------- -------------------------------------
IN RATES $ AMOUNT $ CHANGE % CHANGE NPV RATIO BASIS POINT CHANGE
-------- -------- -------- -------- ---------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
+ 400 bp 2,403 (669) (22)% 7.26% (151) bp
+ 300 bp 2,663 (408) (13) 7.91 (86) bp
+ 200 bp 2,873 (199) (6) 8.40 (37) bp
+ 100 bp 3,012 (59) (2) 8.70 (7) bp
0 bp 3,072 -- -- 8.77 --
- 100 bp 3,051 (21) (1) 8.63 (14) bp
- 200 bp 3,002 (69) (2) 8.42 (35) bp
- 300 bp 2,993 (78) (3) 8.32 (45) bp
- 400 bp 3,054 (18) (1) 8.38 (39) bp
</TABLE>
While we cannot predict future interest rates or their effects on our NPV
or net interest income, we do not expect current interest rates to have a
material adverse effect on our NPV or net interest income in the near future.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, prepayments and deposit runoff and should not be relied upon as
indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing, they may react at different times and in different
degrees to changes in the market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. Certain assets, such as ARM loans,
generally have features which restrict changes in interest rates on a short-term
basis and over the life of the loan. In the event of a change in interest
rates, prepayments and early withdrawal levels could deviate significantly from
those assumed in making calculations set forth above. Additionally, an
increased credit risk may result as the ability of many borrowers to service
their debt may decrease in the event of an interest rate increase.
The board of directors reviews our asset and liability policies. The board
of directors meets regularly to review interest rate risk and trends, as well as
liquidity and capital ratios and requirements. Management administers the
policies and determinations of the board of directors with respect to our asset
and liability goals and strategies. We expect that our asset and liability
policies and strategies will continue as described so long as competitive and
regulatory conditions in the financial institution industry and market interest
rates continue as they have in recent years.
30
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
The following table sets forth certain information relating to our average
statement of financial condition and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid at the date and for the periods indicated. Such yields
and costs are derived by dividing income or expense by the average monthly
balance of assets or liabilities, respectively, for the periods presented.
Average balances are derived from quarter-end balances. We do not believe that
the use of quarter-end balances instead of daily balances has caused any
material difference in the information presented.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------
AT JUNE 30, 1997 1996
1997 ------------------------------ ------------------------------
----------------- AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST BALANCE INTEREST COST
------- ------- ------- --------- -------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits.................... $ 1,295 5.56% $ 1,767 $ 72 4.07% $ 2,519 $ 129 5.12%
Mortgage-backed securities................... 5,077 6.68 5,374 339 6.30 4,442 280 6.30
Investment securities........................ 846 8.39 976 71 7.28 1,266 105 8.29
Loans (1).................................... 24,794 8.11 24,249 2,011 8.20 21,470 1,814 8.45
------- ------- ------- ------- -------
Total interest-earning assets................. 32,012 7.79 32,366 2,493 7.70 29,697 2,328 7.84
------- -------
Non-interest-earning assets................... 2,367 1,745 1,644
------- ------- -------
Total assets.................................. $34,379 $34,111 $31,341
======= ======= =======
INTEREST-BEARING LIABILITIES:
Savings deposits............................. $30,090 5.12% $29,684 $ 1,541 5.19% $28,383 $ 1,517 5.34%
FHLB advances................................ 618 5.55 1,238 56 4.52 140 8 5.71
------- ------- ------- ------- -------
Total interest-bearing liabilities............ 30,708 5.20 30,922 1,597 5.16 28,523 1,525 5.35
------- -------
Non-interest bearing liabilities.............. 1,405 789 351
------- ------- -------
Total liabilities............................. 32,113 31,711 28,874
Retained earnings............................. 2,266 2,400 2,467
------- ------- -------
Total liabilities and retained earnings....... $34,379 $34,111 $31,341
======= ======= =======
Net interest income........................... $ 896 $ 803
======= =======
Net interest rate spread (2).................. 2.59% 2.54% 2.49%
==== ==== ====
Net interest-earning assets................... $ 1,444 $ 1,174
======= =======
Net interest margin (3)....................... 2.77% 2.70%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities......... 104.66% 104.12%
======= =======
- --------------------
</TABLE>
(1) Includes nonaccrual loans.
(2) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate on interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
31
<PAGE>
RATE/VOLUME ANALYSIS
The table shows certain information regarding changes in our interest
income and interest expense of the Bank for the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to: (i) changes in volume (changes in volume
multiplied by old rate); and (ii) changes in rates (change in rate multiplied by
old volume); and (iii) change in rate-volume (changes in rate multiplied by the
changes in volume) are allocated between changes in rate and changes in
volume.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------
1997 VS. 1996 1996 VS. 1995
---------------------------------- ---------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
---------------------------------- ---------------------------------------
RATE/ RATE/
VOLUME RATE VOLUME TOTAL VOLUME RATE VOLUME TOTAL
------- ----- ------- ------ ------- ------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits............. $ (39) $(26) $ 8 $ (57) $(14) $ 26 $ (3) $ 9
Mortgage-backed securities............ 59 -- -- 59 (22) 51 (4) 25
Investment securities................. (24) (13) 3 (34) (11) 16 (2) 3
Loans................................. 235 (34) (4) 197 126 10 1 137
----- ---- ----- ----- ---- ----- ---- ----
Total interest-earning assets....... 231 (73) 7 165 79 103 (8) 174
----- ---- ----- ----- ---- ----- ---- ----
INTEREST-BEARING LIABILITIES:
Deposits.............................. 69 (43) (2) 24 44 195 7 246
FHLB advances......................... 63 (2) (13) 48 (1) (1) -- (2)
----- ---- ----- ----- ---- ----- ---- ----
Total interest-bearing liabilities.... 132 (45) (15) 72 43 194 7 244
Increase (decrease) in net interest
income.............................. $ 99 $(28) $ 22 $ 93 $ 36 $ (91) $(15) $(70)
===== ==== ===== ===== ==== ===== ==== ====
</TABLE>
32
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND JUNE 30, 1996
Total assets increased by $1.9 million or 5.96% from $32.4 million at June
30, 1996 to $34.4 million at June 30, 1997. Total liabilities increased $2.1
million or 7.1%, from $30.0 million at June 30, 1996 to $32.1 million at June
30, 1997. The increase in assets for the period was primarily attributable to
the growth in our loan portfolio of $2.8 million which was the result of
increased loan demand generally. Loan growth was funded from a net increase in
deposits of $1.4 million, an increase in FHLB advances of $484,000, a net
reduction in cash and interest-earning deposits of $482,000 and net maturities
and repayments on investment and mortgage-backed securities of $387,000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
NET INCOME. We incurred a net loss of $199,000 for the fiscal year ended
June 30, 1997 as compared to a net profit of $73,000 for the fiscal year ended
June 30, 1996. Our loss in the current fiscal year was primarily due to a
special assessment that all thrift institutions were required to pay in order to
recapitalize the SAIF, the FDIC fund that insures our deposits. The special
assessment amounted to $179,000 which we paid during the quarter ended December
31, 1996. In addition, we incurred an expense of $286,000 in connection with
our adoption of a Director Retirement Plan. We also increased our provision for
loan losses from $10,000 for fiscal year 1996 to $90,000 for fiscal year 1997.
NET INTEREST INCOME. Our net interest income, which is the difference
between our interest income and our interest expense, increased from $803,000
for fiscal year 1996 to $896,000 for fiscal year 1997. The $93,000 increase was
due to an increase in the level of interest income we received on our loan and
mortgage backed securities portfolios. Although the average yield on these
portfolios actually declined, the average balance of these assets rose which
accounted for the income growth. Total interest expense also increased during
the fiscal year by $72,000 due to an increase in our deposits and our FHLB
borrowings, our two main categories of interest-bearing liabilities. As with
the interest-earning assets, however, the average cost of these borrowings
decreased from fiscal year 1996 to fiscal year 1997.
PROVISION FOR LOAN LOSSES. Financial institutions are required to
establish an allowance for potential loan losses. The balance of such allowance
depends on the risk in the institution's loan portfolio, its level of problem
loans and general economic conditions, among other factors. Loans which cannot
be collected are charged against the allowance and thereby reduce its balance.
An institution adds to the allowance by making a provision for loan losses which
is an expense item. During fiscal year 1997, we made a provision for loan
losses of $90,000 as compared to a $10,000 provision during the previous fiscal
year. Although at June 30, 1997 we had not experienced any increase in the
level of our problem loans, we determined that the higher provision was
necessary based on the increased risks associated with consumer loans and other
non-mortgage loans during the year, as well as the growth in our total loan
portfolio.
33
<PAGE>
Subsequent to June 30, 1997, our largest loan was placed on nonaccrual
status due to the failure of the borrower to make the requisite payments. Based
on the information available to us as of the date hereof with respect to such
loan, we believe that our loan loss is adequate. We cannot assure you, however,
that such reserves are, or in the future will be, adequate to absorb all loan
losses or that regulators, in reviewing our assets, will not make us increase
our loss allowance, thereby negatively affecting our reported financial
condition and results of operations.
NONINTEREST INCOME. Noninterest income (e.g, loan and deposit account
fees) does not represent a significant portion of our revenues. For fiscal year
1997, we earned $19,000 in noninterest income as compared to $11,000 in fiscal
year 1996.
NONINTEREST EXPENSE. Our noninterest expenses consist mainly of salaries
and employee benefits, federal deposit insurance premiums and the expenses
associated with our building and equipment. For fiscal year 1997, total
noninterest expenses were $1.2 million as compared to $726,000 for the prior
fiscal year 1996. The increased expense level was due mainly to the special
SAIF assessment of $179,000 and the costs associated with the adoption of the
director retirement plan of $286,000.
We anticipate our deposit insurance premium expense to be reduced going
forward as the rate we have to pay for such insurance was significantly reduced
effective January 1, 1997. See "Regulation--Regulation of the Bank--Deposit
Insurance."
INCOME TAX EXPENSE. Our income tax expense for fiscal year 1997 was
significantly reduced due to the net loss for the year. We recognized a net
benefit of $133,000 for the year as compared to a net expense of $6,000 for the
prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
We are required to maintain minimum levels of liquid assets as defined by
OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of our
deposits and short-term borrowings. The required ratio currently is 5% and our
liquidity ratio for the month ended June 30, 1997 was 5.14%. It is our belief
that upon completion of the conversion our liquidity ratio will increase due to
the additional funds we will receive.
Our primary sources of funds are deposits, repayment of loans and mortgage-
backed securities, maturities of investments and interest-bearing deposits,
funds provided from operations and advances from the FHLB of Dallas. While
scheduled repayments of loans and mortgage-backed securities and maturities of
investment securities are predicable sources of funds, deposit flows and loan
prepayments are greatly influenced by the general level of interest rates,
economic conditions and competition. We use our liquidity resources principally
to fund existing and future loan commitments, to fund maturing certificates of
deposit and demand deposit withdrawals, to invest in other interest-earning
assets, to maintain liquidity, and to meet operating expenses.
34
<PAGE>
Liquidity may be adversely affected by unexpected deposit outflows, higher
interest rates paid by competitors, adverse publicity relating to the savings
and loan industry, and similar matters. Further, the disparity in Fico Bond
interest payments as described herein could result in us losing deposits to BIF
members that have lower costs of funds and therefore are able to pay higher
rates of interest on deposits. Management monitors projected liquidity needs
and determines the level desirable, based in part on our commitments to make
loans and management's assessment of our ability to generate funds.
We are subject to federal regulations that impose certain minimum capital
requirements. For a discussion on such capital levels, see "Historical and Pro
Forma Capital Compliance" and "Regulation -- Regulation of the Bank --
Regulatory Capital Requirements."
IMPACT OF INFLATION AND CHANGING PRICES
Our financial statements and the accompanying notes presented elsewhere in
this document, have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of our operations. As a
result, interest rates have a greater impact on our 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 prices of goods and services.
RECENT PRONOUNCEMENTS
FASB STATEMENT ON ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995,
the FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value based method"
of accounting for an employee stock option whereby compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period. FASB has encouraged all entities to adopt the fair value based
method, however, it will allow entities to continue the use of the "intrinsic
value based method" prescribed by Accounting Principles Board ("APB") Opinion
No. 25. Under the intrinsic value based method, compensation cost is the excess
of the market price of the stock at the grant date over the amount an employee
must pay to acquire the stock. However, most stock option plans have no
intrinsic value at the grant date and, as such, no compensation cost is
recognized under APB Opinion No. 25. Entities electing to continue use of the
accounting treatment of APB Opinion No. 25 must make certain pro forma
disclosures as if the fair value based method had been applied. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years beginning after December 15, 1995. Pro forma disclosures must
include the effects of all awards granted in fiscal years beginnings after
December 15, 1994. If the proposed Option Plan is adopted we will use the
intrinsic value method. Accordingly, there will be no impact as a result of our
adoption of SFAS No. 123.
35
<PAGE>
FASB STATEMENT ON ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES. In June 1996, FASB issued SFAS No.
125, which will be effective, on a prospective basis, for transfers and
servicing of financial assets and extinguishment of liabilities occurring after
December 31, 1996. SFAS No. 125 supersedes SFAS No. 122, Accounting for
Mortgage Servicing Rights. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a financial-components approach
that focuses on control. SFAS No. 125 extends the "available for sale" and
"trading" approach of SFAS No. 115 to non-security financial assets that can be
contractually prepaid or otherwise settled in such a way that the holder of the
asset would not recover substantially all of its recorded investment. In
addition, SFAS No. 125 amends SFAS No. 115 to prevent a security from being
classified as held to maturity if the security can be prepaid or settled in such
a manner that the holder of the security would not recover substantially all of
its recorded investment. The extension of the SFAS No. 115 approach to certain
non-security financial assets and the amendment to SFAS No. 115 are effective
for financial assets held on or acquired after January 1, 1997. The FASB has
proposed to defer the effective date of SFAS No. 125 until January 1, 1998 for
certain transactions including repurchase agreements, dollar-roll, securities
lending and similar transactions. We adopted SFAS No. 125 on January 1, 1997.
There was no impact on our financial statements of such adoption.
FASB STATEMENT ON EARNINGS PER SHARE. In February 1997, the FASB issued
SFAS No. 128, "Earnings Per Share." SFAS 128 supersedes APB Opinion No. 15,
"Earnings Per Share" and specifies the computation, presentation and disclosure
requirements for earnings per share for entities with publicly held common stock
or potential common stock. SFAS No. 128 replaces the presentation of primary
earnings per share with a presentation of basic earnings per share and fully
diluted earnings per share with diluted earnings per share. It also requires
dual presentation of basis and diluted earning per share on the fact of the
income statement for all entities with complex capital structures and requires
the reconciliation of the numerator and denominator of the basic earnings per
share computation to the numerator and denominator of the diluted earnings per
share computation. This statement is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods. SFAS No.
128 will be adopted by us in the initial period after December 15, 1997. We do
not believe the impact of adopting SFAS No. 128 will be material to our
financial statements.
FASB STATEMENT ON DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. In
February 1997, the FASB issued SFAS No. 129. The Statement incorporates the
disclosure requirements of APB Opinion No. 15, "Earnings per Share," and makes
them applicable to all public and nonpublic entities that have issued securities
addressed by the Statement. APB Opinion No. 15 requires disclosure of
descriptive information about securities that is not necessarily related to the
computation of earnings per share. The statement continues the previous
requirements to disclose certain information about an entity's capital structure
found in APB Opinion NO. 10, Omnibus Opinion - 1966 and No. 15, Earnings Per
Share and FASB Statement No. 47, Disclosure of Long-Term Obligations, for
entities that were subject to the requirements of those standards. This
Statement eliminates the exemption of nonpublic entities from certain disclosure
requirements of Opinion 15 as provided by Statement No. 21, Suspension of the
Reporting of Earnings per Share
36
<PAGE>
and Segment Information for Nonpublic Enterprises. It supersedes specific
disclosure requirements of Opinion 10 and 15 and Statement 47 and consolidates
them in this Statement for ease of retrieval and for greater visibility to
nonpublic entities. This Statement is effective for financial statements for
periods ending after December 15, 1997. SFAS No. 129 will be adopted by us in
the initial period after December 15, 1997. We do not believe the impact of
adopting SFAS No. 129 will be material to our financial statements.
FASB STATEMENT ON REPORTING COMPREHENSIVE INCOME. In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income," which requires entities
presenting a complete set of financial statements to include details of
comprehensive income that arise in the reporting period. Comprehensive income
consists of net income or loss for the current period and other comprehensive
income, expense, gains and losses that bypass the income statement and are
reported in a separate component of equity, i.e., unrealized gains and losses on
certain investment securities. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. We do not believe that adoption of SFAS No.
130 will have a material adverse effect on our financial position or results of
operations.
FASB STATEMENT ON DISCLOSURES REGARDING SEGMENTS. In June 1997, the FASB
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Statement 131 establishes standards for the way public
enterprises are to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Statement 131
supersedes FASB Statement No. 14, "Financial Reporting for Segments of a
Business Enterprise" but retains the requirement to report information about
major customers. It amends Statement No. 94, "Consolidation of all Majority-
Owned Subsidiaries" to remove the special disclosure requirements for previously
unconsolidated subsidiaries. Statement 131 is effective for financial
statements for periods beginning after December 15, 1997. We do not believe the
impact of adopting SFAS No. 131 will be material to our financial statements.
BUSINESS OF NORTH ARKANSAS BANCSHARES, INC.
The Company is not an operating company and has not engaged in any
significant business to date. It was formed in September 1997 as a Tennessee-
chartered corporation to be the holding company for Newport Federal Savings
Bank. The holding company structure and retention of proceeds will facilitate:
(i) diversification into non-banking activities, (ii) acquisitions of other
financial institutions, such as savings institutions, (iii) expansion within
existing and into new market areas and (iv) stock repurchases without adverse
tax consequences. There are no present plans regarding diversification,
acquisitions or expansion or stock repurchases.
Newport Federal have operated as an independent community oriented savings
institution since 1934. It is our intention to continue to operate as an
independent community oriented savings association following the
conversion.
37
<PAGE>
Since the Company will own only one savings association, it generally will
not be restricted in the types of business activities in which it may engage,
provided that we retain a specified amount of our assets in housing-related
investments. The Company initially will not conduct any active business and
does not intend to employ any persons other than officers but will utilize our
support staff from time to time.
BUSINESS OF NEWPORT FEDERAL SAVINGS BANK
The principal sources of funds for our activities are deposits, payments on
loans and borrowings from the FHLB of Dallas. Our deposits totaled $31.1
million at June 30, 1997. Funds are used principally for the origination of
loans secured by first mortgages on one- to four-family residences which are
located in our market area. Such loans totaled $17.5 million, or 70.06%, of our
total loans receivable portfolio at June 30, 1997. We also originate other
types of loans including loans secured by commercial real estate and consumer
loans and purchase investment and mortgage-backed securities. Our principal
source of revenue is interest received on loans and investments and our
principal expense is interest paid on deposits.
MARKET AREA
We consider our primary market area to be Jackson County in Northern
Arkansas. The City of Newport, where we are located, is the County Seat of
Jackson County. Jackson County is primarily rural in nature. According to 1990
Census data, approximately 26.6% of the households in Jackson County had incomes
below the poverty line. Median household income was estimated to be $16,641.
The unemployment rate calculated based on the 1990 Census data was 5.40%,
slightly below the average for all of Arkansas of 5.98% and the U.S. average of
6.24%. Major employers in our market area are Arkansas State University-
Beebe/Newport, which is located in Newport, two hospitals, also based in
Newport, Arkansas Steel and the Norandal Aluminum Rolling Plant. Two privately-
owned prisons are also scheduled to open shortly which are expected to add
approximately 284 new jobs to the market area according to the companies that
own the prisons. The principal sources of employment in Jackson County as a
whole are manufacturers, trade, public administration and services.
BUSINESS STRATEGY
Historically, our principal business, like that of most other savings
institutions, has been that of accepting deposits from the general public and
investing those funds in one- to four-family mortgage loans. Our loans have
typically been secured by properties located within Jackson County.
During 1995, we decided to move our offices to our current location at 200
Olivia Drive. We believed that this location would give us more exposure to
our potential customer base because of the proximity of a number of recently-
built retail establishments and other businesses. Since we completed
construction and moved to the new location, our deposit base has grown from
$27.8 million at June 30, 1995 to $31.1 million at June 30, 1997. We also
decided to expand the types of loans we offered and have since significantly
increased our nonresidential loan portfolio.
38
<PAGE>
While our new location has contributed to this growth and expansion, the
costs associated with its construction have caused us to experience decreased
earnings as compared to our peer institutions since we have a greater percentage
of our assets invested in non-earning fixed assets than do our peers. This also
limited our ability to grow in the future since our growth would have to be
financed to a large extent by deposits rather than capital. This factor
contributed to our decision to convert from mutual to stock form. We believe
that the proceeds we will receive from the offering will allow us to continue
our growth and diversification.
LENDING ACTIVITIES
Most of our loans are mortgage loans which are secured by one- to four-
family residences. We also make consumer, residential construction and
commercial real estate and commercial business loans. Following the
conversion, we believe there will be sufficient demand in our market area to
continue our policy of emphasizing lending in the one- to four- family real
estate loan area. In addition, we hope to continue our growth in our non-
residential mortgage, and consumer and commercial loan portfolios; however,
there is no assurance that we will be able to do so.
At June 30, 1997, our gross loans totaled $24.9 million of which $17.5
million were mortgage loans secured by one-to four-family residences. We
originate both fixed rate mortgage and ARM loans. Generally, all of the
consumer loans we originate have fixed rates.
The following table sets forth information concerning the types of loans
held by us at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------
1997 1996
--------------------- ----------------------
AMOUNT % AMOUNT %
------ --------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family.............. $17,479 70.06% $17,486 79.25%
Multi-family..................... 136 .55 145 .66
Non-residential.................. 3,613 14.48 2,628 11.91
------- ------ ------- ------
Total real estate loans....... 21,228 85.09 20,259 91.82
Consumer loans:
Loans secured by deposits........ 443 1.78 256 1.16
Home improvement................. 666 2.67 763 3.46
Automobile....................... 2,010 8.05 649 2.94
Other consumer................... 510 2.04 138 .62
Commercial......................... 93 .37 -- --
------- ------ ------- ------
Total loans................. 24,950 100.00% 22,065 100.00%
------- ====== ------- ======
Less:
Deferred fees and discounts...... 6 10
Allowance for losses............. 150 73
------- -------
Loan portfolio, net......... $24,794 $21,982
======= =======
</TABLE>
39
<PAGE>
The following table sets forth the estimated maturity of our loan portfolio
at June 30, 1997. The table does not include the effects of possible
prepayments or scheduled repayments. All mortgage loans are shown as maturing
based on the date of the last payment required by the loan agreement.
<TABLE>
<CAPTION>
DUE DURING THE YEAR ENDING DUE AFTER DUE AFTER DUE AFTER
JUNE 30, 3 THROUGH 5 THROUGH 10 THROUGH DUE AFTER 15
-------------------------- 5 YEARS AFTER 10 YEARS AFTER 15 YEARS AFTER YEARS AFTER
1998 1999 2000 JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997 TOTAL
--------- ------ ------- ------------- -------------- -------------- ------------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family....... $ 816 $ 91 $ 923 $2,390 $3,192 $4,432 $5,635 $17,479
Multi-family.............. -- -- -- -- -- 136 -- 136
Non-residential........... 838 24 836 764 275 798 78 3,613
Consumer loans:
Loans secured by
deposits................. 414 6 -- 23 -- -- -- 443
Home improvement.......... 5 11 24 84 396 138 8 666
Automobile................ 103 57 195 1,618 37 -- -- 2,010
Other consumer............ 188 100 39 148 35 -- -- 510
Commercial.................. 93 -- -- -- -- -- -- 93
------ ----- ------ ------ ------ ------ ------ -------
Total................... $2,457 $ 289 $2,017 $5,027 $3,935 $5,504 $5,721 $24,950
====== ===== ====== ====== ====== ====== ====== =======
</TABLE>
40
<PAGE>
The next table shows at June 30, 1997, the dollar amount of all our loans
due one year or more after June 30, 1997 which have fixed interest rates and
have floating or adjustable interest rates.
<TABLE>
<CAPTION>
FLOATING OR
FIXED RATE ADJUSTABLE RATES
---------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans
One- to four-family......... $4,285 $12,378
Multi-family................ -- 136
Non-residential............. 1,195 1,580
Consumer loans:
Loans secured by deposits... 29 --
Home improvement............ 661 --
Automobile.................. 1,907 --
Other consumer.............. 322 --
Commercial.................... -- --
------ -------
Total...................... $8,399 $14,094
====== =======
</TABLE>
ONE- TO FOUR-FAMILY RESIDENTIAL LOANS. Our primary lending activity
consists of the origination of one- to four-family residential mortgage loans
secured by property located in our primary market area. We generally originate
one- to four-family residential mortgage loans in amounts up to 80% of the
lesser of the appraised value or purchase price, with private mortgage insurance
or additional collateral required on loans with a loan to-value ratio in excess
of 80%. The maximum loan-to-value ratio on mortgage loans secured by nonowner
occupied properties generally is limited to 80%. We primarily originate and
retain fixed-rate balloon loans having terms of up to five years, with principal
and interest payments calculated using up to a 25-year amortization period.
We also offer ARM loans. The interest rate on ARM loans is based on an
index plus a stated margin. ARM loans provide for periodic interest rate
adjustments upward or downward of up to 2% per year. The interest rate may not
increase above a "ceiling rate" established at the time the loan is originated
and may not decrease below the original interest rate. ARM loans typically
reprice every one, three or five years and provide for terms of up to 30 years
with most loans having terms of between 15 and 30 years.
ARM loans decrease the risk associated with changes in interest rates by
periodically repricing, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of
the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the loan
documents, and, therefore is potentially limited in effectiveness during periods
of rapidly rising interest rates. At June 30, 1997, approximately 71% of the
one- to four-family residential loans we hold had adjustable rates of interest.
41
<PAGE>
Mortgage loans originated and held by us generally include due-on-sale
clauses. This gives us the right to deem the loan immediately due and payable
in the event the borrower transfers ownership of the property securing the
mortgage loan without our consent.
RESIDENTIAL CONSTRUCTION LOANS. We make a limited number of residential
construction loans on one- to four-family residential property to the
individuals who will be the owners and occupants upon completion of
construction. Borrowers are required to pay interest during the construction
period. Loan proceeds are disbursed according to a draw schedule and we inspect
the progress of the construction before additional funds are disbursed. We
charge a fixed rate of interest on our construction loans. While we
occasionally agree to convert the balance of construction loans to a permanent
mortgage upon completion of the construction phase, we will not commit to do so
at the same time as the construction loan is granted. Any permanent mortgage
would be granted on the same terms as other one-to four-family mortgage loans we
originate.
Construction lending is generally considered to involve a higher degree of
credit risk than long term financing of residential properties. Our risk of
loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction and the
estimated cost of construction. If the estimate of construction cost and the
marketability of the property upon completion of the project prove to be
inaccurate, we may be compelled to advance additional funds to complete the
construction. Furthermore, if the final value of the completed property is less
than the estimated amount, the value of the property might not be sufficient to
assure the repayment of the loan.
COMMERCIAL AND MULTI-FAMILY LOANS. Our commercial real estate loans are
secured by churches, office buildings, and other commercial properties. Multi-
family loans are secured by apartment and condominium buildings. At June 30,
1997, our three largest commercial real estate loans consisted of a loan to a
hotel which had a balance of $625,000 at June 30, 1997, a loan to a nursing home
which had a balance of $491,000 at June 30, 1997 and a loan to a funeral home
which had a balance of $282,000. At June 30, 1997, all three of these loans
were performing in accordance with their terms. Subsequent to fiscal year end,
the hotel loan has become delinquent. See "-- Nonperforming Assets."
Commercial and multifamily real estate lending entails significant
additional risks compared to residential property lending. These loans
typically involve large loan balances to single borrowers or groups of related
borrowers. The repayment of these loans typically is dependent on the
successful operation of the real estate project securing the loan. These risks
can be significantly affected by supply and demand conditions in the market for
office and retail space and may also be subject to adverse conditions in the
economy. To minimize these risks, we generally limit this type of lending to
our market area and to borrowers who are otherwise well known to us.
COMMERCIAL BUSINESS LOANS. We offer commercial business loans to benefit
from the higher fees and interest rates and the shorter term to maturity. Our
commercial business loans consist of
42
<PAGE>
equipment, lines of credit and other business purpose loans, which generally are
secured by either the underlying properties or by the personal guarantees of the
borrower.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment and other
income and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of
commercial business loans may be substantially dependent on the success of the
business itself and the general economic environment.
CONSUMER LOANS. We offer consumer loans in order to provide a wider range
of financial services to our customers. Consumer loans totaled $3.6 million, or
14.55% of our total loans at June 30, 1997. Our consumer loans consist of
automobile, home improvement, share account and personal loans. Our home
improvement loans are primarily originated under a program whereby the U.S.
Government guarantees 90% of the principal balance of such loans. We have just
begun to offer personal lines of credit. We offer both unsecured lines of
credit that are granted based upon the borrower's financial strength and home
equity lines of credit.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly. Repossessed collateral for a defaulted consumer
loan may not be sufficient for repayment of the outstanding loan, and the
remaining deficiency may not be collectible.
LOAN APPROVAL AUTHORITY AND UNDERWRITING. Our President may approve all one-
to four-family mortgage loans that conform to all of our policy requirements up
to $50,000 and may approve all consumer loans. The Executive Committee of our
board which consists of three directors may approve loans with principal
balances of up to $100,000. All other loans require the approval of our board of
directors.
Upon receipt of a completed loan application from a prospective borrower, a
credit report is ordered. Income and certain other information is verified. If
necessary, additional financial information may be requested. An appraisal or
other estimate of value of the real estate intended to be used as security for
the proposed loan is obtained. Appraisals are prepared by outside fee
appraisers who are approved by the board of directors.
Either title insurance or a title opinion is generally required on all real
estate loans. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property which is located in a
flood zone.
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<PAGE>
LOAN ORIGINATIONS, PURCHASES AND SALES. The following table sets forth
certain information with respect to our loan originations and purchases for the
periods indicated. We did not sell any loans during the periods.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net loans, beginning of period.......................... $21,982 $20,152
Origination by type:
- -------------------
Real estate loans:
One- to four-family.................................. $ 4,515 $ 3,714
Multi-family......................................... 55 43
Non-residential...................................... 936 561
------- -------
5,506 4,318
Consumer loans:
Loan secured by deposits............................. 577 398
Home improvement..................................... 115 148
Automobile........................................... 1,840 689
Other consumer....................................... 699 221
Commercial.............................................. 93 --
------- -------
Total loans originated............................. 8,830 5,774
------- -------
Purchases............................................... 500 1,005
------- -------
Total loans originated and purchased............... 9,330 6,779
------- -------
Repayments.............................................. 6,445 4,943
------- -------
Decrease (increase) in other items, net................. (73) (6)
------- -------
Net increase (decrease) in loans receivable, net... 2,812 1,830
------- -------
Net loans, end of period................................ $24,794 $21,982
======= =======
</TABLE>
Most of the loans we originate are intended to be held in our portfolio
rather than sold in the secondary mortgage market. We occasionally purchase
loan participations from other financial institutions. These participation
interest purchases are reflected in the above table. Generally, the purchase of
participation interests involves the same risks as would the origination of the
same types of loans as well as the additional risk that results from the fact
that we have less control over the origination and subsequent administration of
such loans. At June 30, 1997, all of our participation loans were performing in
accordance with their terms.
LOAN COMMITMENTS. Written commitments are given to prospective borrowers
on all approved real estate loans. Generally, the commitment requires
acceptance within 30 days of the date of issuance. At June 30, 1997,
commitments to cover originations of mortgage loans were $253,000. We believe
that virtually all of our commitments will be funded.
44
<PAGE>
LOANS TO ONE BORROWER. The maximum amount of loans which we may make to
any one borrower may not exceed the greater of $500,000 or 15% of our unimpaired
capital and unimpaired surplus. We may lend an additional 10% of our unimpaired
capital and unimpaired surplus if the loan is fully secured by readily
marketable collateral. Our maximum loan-to-one borrower limit was approximately
$500,000 at June 30, 1997. At June 30, 1997, our largest loan outstanding had a
balance of $625,000. This loan was originated prior to 1989 when we first
became subject to the limitation on loans to one borrower described above.
Subsequent to June 30, 1997, payments on this loan have become delinquent. See
"-- Nonperforming Assets." As of its origination, this loan was within lending
limits then in effect.
NONPERFORMING AND PROBLEM ASSETS
LOAN DELINQUENCIES. Generally when a mortgage loan becomes 15 days past
due, a notice of nonpayment is sent to the borrower. If, after 20-30 days,
payment is still delinquent, the borrower will receive a letter and/or telephone
call from us and may receive a visit from one of our representatives. If the
loan continues in a delinquent status for 90 days past due and no repayment plan
is in effect, a notice of right to cure default is sent to the borrower giving
30 additional days to bring the loan current before foreclosure is commenced.
Our loan committee meets regularly to determine when foreclosure proceedings
should be initiated. The customer will be notified when foreclosure is
commenced. At June 30, 1997, our loans past due between 30 and 89 days totaled
$156,000.
Loans are reviewed on a monthly basis and are generally placed on a non-
accrual status when the loan becomes more than 90 days' delinquent or when, in
our opinion, the collection of additional interest is doubtful. Interest
accrued and unpaid at the time a loan is placed on nonaccrual status is charged
against interest income. Subsequent interest payments, if any, are either
applied to the outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectibility of the loan.
45
<PAGE>
NONPERFORMING ASSETS. The following table sets forth information regarding
nonaccrual loans and real estate owned. As of the dates indicated, we had no
loans categorized as troubled debt restructurings within the meaning of SFAS 15
and no loans which were 90 days or more past due and still accruing interest.
<TABLE>
<CAPTION>
AT JUNE 30,
-----------
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Real estate:
One- to four-family....................... $ 67 $ 30
Multi-family.............................. -- --
Non-residential........................... -- --
----- -----
Total real estate loans.................. 67 30
Consumer loans:
Loans secured by deposits.................. 7 --
Home improvement........................... -- --
Automobile................................. -- --
Other consumer............................. -- --
Commercial.................................... -- --
----- -----
Total nonperforming loans............. 74 30
----- -----
Foreclosed real estate........................ -- 124
----- -----
Total nonperforming assets.................... 74 154
===== =====
Total nonperforming loans as a
percentage of total net loans............... .30% .14%
===== =====
Total nonperforming assets as a
percentage of total assets.................. .21% .47%
===== =====
</TABLE>
During the year ended June 30, 1997, we would have recorded additional
interest income of approximately $3,000 on nonaccrual loans if such loans had
been current throughout the period. We did not include any income on nonaccrual
loans during the year. In addition, we had $721,000 (which includes the
$625,000 commercial real estate loan described below) in loans which were not
classified as nonaccrual, 90 days past due or restructured, but where known
information causes us to have serious concerns as to the ability of these
borrowers to comply with their current loan terms.
Subsequent to June 30, 1997, our largest loan went into delinquent status.
This loan is a participation interest in a $5.8 million loan which is secured by
a 625-room hotel located in Oklahoma City. Our participation interest had a
balance of $625,000 at June 30, 1997. The lead lender has demanded payment on
the loan. There can be no assurance that this delinquency will be cured or, if
the lead lender proceeds to foreclosure, that the underlying property can be
sold at a price sufficient to repay us in full. Based on the information
available to us as of the date hereof, with respect to such loan, we believe
that our loan loss is adequate. We cannot assure you, however, that such
reserves are, or in the future will be, adequate to absorb all loan losses or
that regulators, in reviewing our assets, will not make us increase our loss
allowance, thereby negatively affecting our reported financial condition and
results of operations.
46
<PAGE>
CLASSIFIED ASSETS. OTS regulations provide for a classification system for
problem assets of savings associations which covers all problem assets. Under
this classification system, problem assets of savings associations such as ours
are classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the borrower or of the collateral pledged, if any. Substandard
assets include those characterized by the "distinct possibility" that the
savings association will sustain "some loss" if the deficiencies are 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 and improbable."
Assets classified as loss are those considered "uncollectible" and of such
little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. Assets may be designated "special
mention" because of potential weakness that do not currently warrant
classification in one of the aforementioned categories.
When a savings association classifies problem assets as either substandard
or doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances
which have been established to recognize the inherent risk associated with
lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. A savings association's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the OTS, which may order the establishment of additional general or specific
loss allowances. A portion of general loss allowances established to cover
possible losses related to assets classified as substandard or doubtful may be
included in determining a savings association's regulatory capital. Specific
valuation allowances for loan losses generally do not qualify as regulatory
capital.
At June 30, 1997, none of our assets were classified as special mention or
doubtful but we had loans classified as substandard and loss in amounts equal to
$91,000 and $5,000, respectively.
FORECLOSED REAL ESTATE. Real estate acquired by us as a result of
foreclosure is recorded as "real estate owned" until such time as it is sold.
When real estate owned is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan or its fair value less estimated disposal
costs. Any write down of real estate owned is charged to operations. At June
30, 1997, we did not have any real estate owned.
ALLOWANCE FOR LOAN LOSSES. Our policy is to provide for losses on
unidentified loans in our loan portfolio. A provision for loan losses is
charged to operations based on management's evaluation of the potential losses
that may be incurred in our loan portfolio. The evaluation, including a review
of all loans on which full collectibility of interest and principal may not be
reasonably assured, considers: (i) our past loan loss experience, (ii) known and
inherent risks in our portfolio, (iii) adverse situations that may affect the
borrower's ability to repay, (iv) the estimated value of any underlying
collateral, and (v) current economic conditions.
47
<PAGE>
We monitor our allowance for loan losses and make additions to the
allowance as economic conditions dictate. Although we maintain our allowance
for loan losses at a level that we consider adequate for the inherent risk of
loss in our loan portfolio, future losses could exceed estimated amounts and
additional provisions for loan losses could be required. In addition, our
determination as to the amount of its allowance for loan losses is subject to
review by the OTS, as part of its examination process. After a review of the
information available, the OTS might require the establishment of an additional
allowance.
The following table sets forth an analysis of our allowance for possible
loan losses for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1997 1996
----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period........... $ 73 $ 63
------- -------
Charge-offs:
One- to four-family.................... (13) --
Multi-family........................... -- --
Non-residential........................ -- --
------- -------
Total real estate loans............. (13) --
Net recoveries (charge-offs)............. (13) --
------- -------
Additions charged to operations.......... 90 10
------- -------
Balance at end of period................. 150 73
------- -------
Allowance for loan losses to total
Nonperforming loans at end of period... 202.70% 243.33%
======= =======
Allowance for loan losses to net loans
at end of period....................... .60% .33%
======= =======
Ratio of net charge-offs to average
loans outstanding during the period.... .05% -- %
======= =======
</TABLE>
48
<PAGE>
The following table illustrates the allocation of the allowance for loan
losses for each category of loan. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict our use of the allowance to absorb losses in other loan
categories.
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------
1997 1996
--------------------- --------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------ ------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family................. $105 70.06% $58 79.25%
Multi-family........................ 1 .55 -- .66
Non-residential..................... 22 14.48 9 11.91
---- ------ --- ------
Total real estate loans.......... 128 85.09 67 91.82
Consumer loans:
Loans secured by deposits.......... 3 1.78 1 1.16
Home improvement................... 4 2.67 3 3.46
Automobile......................... 12 8.05 2 2.94
Other consumer..................... 3 2.04 -- .62
Commercial............................ -- .37 -- --
---- ------ --- ------
Total allowance for loan losses... $150 100.00% $73 100.00%
==== ====== === ======
</TABLE>
INVESTMENT ACTIVITIES
INVESTMENT SECURITIES. We are required under federal regulations to
maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. See "Regulation --
Regulation of the Bank -- Federal Home Loan Bank System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." The level of liquid assets varies depending
upon several factors, including: (i) the yields on investment alternatives, (ii)
our judgment as to the attractiveness of the yields then available in relation
to other opportunities, (iii) expectation of future yield levels, and (iv) our
projections as to the short-term demand for funds to be used in loan origination
and other activities. We classify all our investment securities as "held to
maturity" in accordance with SFAS No. 115. At June 30, 1997, our investment
portfolio policy allowed investments in instruments such as: (i) U.S. Treasury
obligations, (ii) U.S. federal agency or federally sponsored agency obligations,
(iii) local municipal obligations, (iv) mortgage backed securities, (v) bankers=
acceptances, (vi) certificates of deposit, (vii) federal funds, including FHLB
overnight and term deposits (up to six months), and (viii) investment grade
corporate bonds, commercial paper and mortgage derivative products. See "--
Mortgage-backed Securities." The board of directors may authorize additional
investments.
49
<PAGE>
Our investment securities at June 30, 1997 did not contain securities of any
issuer with an aggregate book value in excess of 10% of our equity, excluding
those issued by the United States Government or its agencies.
MORTGAGE BACKED SECURITIES. To supplement lending activities, we have
invested in residential mortgage-backed securities. Mortgage backed securities
can serve as collateral for borrowings and, through repayments, as a source of
liquidity. Mortgage backed securities represent a participation interest in a
pool of single-family or other type of mortgages. Principal and interest
payments are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation interests in the form of securities, to investors such as us. Our
mortgage backed securities portfolio consists of participations or pass-through
certificates issued by the Federal Home Loan Mortgage Corporation (the "FHLMC"),
the Federal National Mortgage Association ("FNMA") and the Government National
Mortgage Association ("GNMA"). GNMA certificates are guaranteed as to principal
and interest by the full faith and credit of the United States, while FHLMC and
FNMA certificates are guaranteed by those agencies only. Our mortgage backed
securities portfolio was classified as "held to maturity" at June 30, 1997.
Expected maturities will differ from contractual maturities due to
scheduled repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
Mortgage backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable
mortgage loans. Mortgage backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed-rate
or adjustable-rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the
life of the underlying mortgages.
The following table sets forth the carrying (i.e., amortized cost) value of
our investment securities and mortgage backed securities, at the dates
indicated. At June 30, 1997, the market value of our investment securities,
held to maturity, was $6.0 million.
The following table sets forth the carrying value of our investment
securities and mortgage-backed portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
-----------
1997 1996
------ -----------
(IN THOUSANDS)
<S> <C> <C>
INVESTMENTS HELD TO MATURITY:
U.S. Government agencies....... $ 500 $1,000
Mortgage-backed securities..... 5,077 4,963
Federal Home Loan Bank stock... 283 267
Municipal securities........... 63 80
------ ------
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C>
Total...................... $5,923 $6,310
====== ======
</TABLE>
51
<PAGE>
The following table sets forth the scheduled maturities, carrying values,
market values and average yields for our investment portfolio at June 30, 1997.
<TABLE>
<CAPTION>
TOTAL INVESTMENT
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS MORE THAN TEN YEARS PORTFOLIO
---------------- ----------------- ----------------- ------------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE BOOK AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----- -------- -------- -------- ----- -------- ----- -------- ----- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
U.S. government and agencies $ -- -- $ 500 6.46% $ -- --% $ -- --% $ 500 6.46%
Mortgage-backed securities (1). -- -- 53 12.15 5,024 6.83 -- -- 5,077 6.75
FHLB stock.................. 283 5.84 -- -- -- -- -- -- 283 5.84
Municipal securities........ -- -- 9 9.46 13 9.46 41 9.46 63 9.46
---- ------ ------ ------ ------
$283 $ 562 $5,037 $ 41 $5,923
==== ====== ====== ====== ======
</TABLE>
______________
(1) For purposes of the maturity table, mortgage backed securities, which are
not due at a single maturity date, have been allocated to maturity groups
based on the weighted average estimated life of the underlying collateral.
52
<PAGE>
SOURCES OF FUNDS
Deposits are our major external source of funds for lending and other
investment purposes. Funds are also derived from the receipt of payments on
loans and prepayment of loans and, to a much lesser extent, maturities of
investment securities and mortgage-backed securities, borrowings and operations.
Scheduled loan principal repayments are a relatively stable source of funds,
while deposit inflows and outflows and loan prepayments are significantly
influenced by general interest rates and market conditions.
DEPOSITS. Consumer and commercial deposits are attracted principally from
within our primary market area through the offering of a selection of deposit
instruments including regular savings accounts, money market accounts, and term
certificate accounts. IRA accounts are also offered. Deposit account terms
vary according to the minimum balance required, the time period the funds must
remain on deposit, and the interest rate. The interest rates paid by us on
deposits are set weekly at the direction of our senior management. Interest
rates are determined based on our liquidity requirements, interest rates paid by
our competitors, and our growth goals and applicable regulatory restrictions and
requirements.
Certificates of deposit in amounts of $100,000 or more constituted $3.4
million or 10.82% of the deposit portfolio. The majority of these certificates
represent deposits from long-standing customers. As of June 30, 1997, we had no
brokered deposits.
At June 30, 1997, our deposits were represented by the various types of
savings programs described below.
<TABLE>
<CAPTION>
INTEREST MINIMUM MINIMUM BALANCES IN PERCENTAGE OF
RATE(1) TERM CATEGORY AMOUNT THOUSANDS TOTAL SAVINGS
- ------- ------- -------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
2.95% None Passbook accounts $ 500 $ 1,893 6.09%
-- None NOW accounts 500 1,670 5.37
-- None Super NOW accounts -- -- --
2.41 None Money market accounts 2,500 325 1.05
-- None Other non-interest bearing 100 983 3.16
CERTIFICATES OF DEPOSIT
-----------------------
4.00 31 days Fixed-Term, Fixed-Rate 500 49 .16
4.43 91 days Fixed-Term, Fixed-Rate 500 34 .11
5.47 6 months Fixed-Term, Fixed-Rate 500 5,204 16.75
5.67 12 months Fixed-Term, Fixed-Rate 500 6,106 19.65
5.60 15 months Fixed-Term, Fixed-Rate 500 3,013 9.69
5.77 18 months Fixed-Term, Fixed-Rate 500 1,282 4.13
5.82 24 months Fixed-Term, Fixed-Rate 500 979 3.15
5.93 36 months Fixed-Term, Fixed-Rate 500 942 3.03
6.08 60 months Fixed-Term, Fixed-Rate 500 8,593 27.66
------- -------
Total certificates of deposit 26,202 84.33
------- -------
Total savings deposits $31,073 100.00%
======= =======
</TABLE>
- -----------------
(1) Indicates weighted average interest rate at June 30, 1997.
53
<PAGE>
The following table sets forth our time deposits classified by interest
rate at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
2 - 3.99%........................ $ -- $ 49
4 - 5.99%........................ 26,202 16,666
6 - 7.99%........................ -- 9,259
------- -------
$26,202 $25,974
======= =======
</TABLE>
The following table sets forth the amount and maturities of our time
deposits at June 30, 1997.
<TABLE>
<CAPTION>
AMOUNT DUE
-------------------------------------------------------------------
LESS THAN ONE TO TWO TO AFTER
RATE ONE YEAR TWO YEARS THREE YEARS THREE YEARS TOTAL
- ---- --------- --------- ----------- ----------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
2 - 3.99%................... $ -- $ -- $ -- $ -- $ --
4 - 5.99%................... 10,787 9,962 1,135 4,318 26,202
------- ------- ------- ------ -------
$10,787 $ 9,962 $ 1,135 $4,318 $26,202
======= ======= ======= ====== =======
</TABLE>
The following table sets forth our savings activity for the periods
indicated:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JUNE 30, % OF INCREASE JUNE 30, % OF
1997 DEPOSITS (DECREASE) 1996 Deposits
------- -------- ---------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NOW accounts............................... $ 1,670 5.37% $ 4222 $ 1,448 4.88%
Money market deposit....................... 325 1.05 (200) 525 1.77
Savings deposits -- passbook............... 1,893 6.09 532 1,361 4.59
Certificates of deposit.................... 22,841 73.51 121 22,720 76.61
Jumbo certificates......................... 3,361 10.82 107 3,254 10.97
Other...................................... 983 3.16 634 349 1.18
------- ------ ------ ------- ------
$31,073 100.00% $1,416 $29,657 100.00%
======= ====== ====== ======= ======
</TABLE>
Our total deposits increased by $1.4 million from June 30, 1996 to June 30,
1997. This increase resulted from our increased marketing efforts in connection
with the relocation of our office. Of this total increase, $634,000, or 44.77%,
was in non-interest-bearing demand deposits.
54
<PAGE>
The following table indicates the amount of our certificates of deposit of
$100,000 or more by time remaining until maturity as of June 30, 1997.
<TABLE>
<CAPTION>
CERTIFICATES
MATURITY PERIOD OF DEPOSIT
--------------- --------------
(IN THOUSANDS)
<S> <C>
Three months or less............ $ 575
Over three through six months... 351
Over six through 12 months...... 1,058
Over 12 months.................. 1,377
------
Total......................... $3,361
======
</TABLE>
BORROWINGS. Advances (borrowing) may be obtained from the FHLB of Dallas
to supplement our supply of lendable funds. Advances from the FHLB of Dallas
are typically secured by a pledge of our stock in the FHLB of Dallas, a portion
of our first mortgage loans and other assets. Each FHLB credit program has its
own interest rate, which may be fixed or adjustable, and range of maturities.
At June 30, 1997, borrowings from the FHLB of Dallas totaled $618,000 and
consisted of a short term advance of $500,000 which matured in July 1997 and a
long term obligation of $118,000 which is due in August 2003.
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED JUNE 30,
------------------------
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Amounts outstanding at end of period:
FHLB advances.............................. $ 618 $ 134
Weighted average rate paid on:
FHLB advances................................ 5.58% 5.70%
Maximum amount of borrowings outstanding
at any month end:
FHLB advances.............................. 2,175 147
Approximate average short-term borrowings
outstanding with respect to:
FHLB advances.............................. 889 --
Approximate weighted average rate paid on:... 5.49% 5.70%
</TABLE>
55
<PAGE>
COMPETITION
We compete for deposits with other insured financial institutions such as
commercial banks, thrift institutions, credit unions, finance companies, and
multi-state regional banks in our market area. We also compete for funds with
insurance products sold by local agents and investment products such as mutual
funds and other securities sold by local and regional brokers. Loan competition
varies depending upon market conditions and comes from commercial banks, thrift
institutions, credit unions and mortgage bankers, many of whom have greater
resources than we have.
PROPERTIES
The following table sets forth certain information regarding our main office
which is our only branch location.
<TABLE>
<CAPTION>
BOOK VALUE AT DEPOSITS AT
YEAR OWNED OR JUNE 30, APPROXIMATE JUNE 30,
OPENED LEASED 1997 (1) SQUARE FOOTAGE 1997
------ -------- --------- -------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MAIN OFFICE: 1995 Owned $ 1,257 6,000 $31,073
</TABLE>
____________
(1) Cost less accumulated depreciation and amortization.
We also own the property which used to serve as our main office. Such
location is currently rented. The book value of such property at June 30, 1997
was $230,000.
PERSONNEL
At June 30, 1997, we had 10 full-time and three part-time employees. None
of our employees are represented by a collective bargaining group. We believe
that our relationship with our employees is good.
LEGAL PROCEEDINGS
We are, from time to time, a party to legal proceedings arising in the
ordinary course of our business, including legal proceedings to enforce our
rights against borrowers. We are not currently a party to any legal proceedings
which are expected to have a material adverse effect on our financial
statements.
56
<PAGE>
REGULATION
Set forth below is a brief description of certain laws which relate to us.
The description is not complete and is qualified in its entirety by references
to applicable laws and regulations.
GENERAL
As a federally chartered, SAIF-insured savings institution, we are subject
to extensive regulation by the OTS and the FDIC. Our lending activities and
other investments must comply with various federal and state statutory and
regulatory requirements, and the OTS periodically examines us for compliance
with various regulatory requirements. The FDIC also has authority to conduct
periodic examinations of us. We must file reports with the OTS describing our
activities and our financial condition and we must obtain approvals from
regulatory authorities before entering into certain transactions such as the
conversion or mergers with other financial institutions. We are also subject to
certain reserve requirements promulgated by the Board of Governors of the
Federal Reserve System ("Federal Reserve System"). Our relationship with our
depositors and borrowers is also regulated to a great extent by federal and
state law, especially in such matters as the ownership of savings accounts and
the form and content of our mortgage documents. This supervision and regulation
are primarily intended to protect depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in regulations,
whether by the OTS, the FDIC or any other government agency, could have a
material adverse impact on our operations.
REGULATION OF THE BANK
INSURANCE OF DEPOSIT ACCOUNTS. The FDIC maintains two separate funds for
the insurance of deposits up to prescribed statutory limits. The Bank Insurance
Fund ("BIF") insures the deposits of commercial banks and the Savings
Association Insurance Fund ("SAIF") insures the deposits of savings
associations. We are a member of the SAIF , although the deposits we will
acquire through our purchase of the Newport branch of NationsBank, N.A.,
assuming we obtain the requisite regulatory approval, will continue to be
insured by the BIF. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and the SAIF. The
FDIC may increase assessment rates for either fund if necessary to restore the
fund's ratio of reserves to insured deposits to its target level within a
reasonable time and may decrease such assessment rates if such target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments are set within a range, based
on the risk the institution poses to its deposit insurance fund. This risk
level is determined based on the institution's capital level and the FDIC's
level of supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The
BIF, however, met its required reserve level during the third calendar
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quarter of 1995. As a result, deposit insurance premiums for deposits insured by
the BIF were substantially less than premiums for deposits such as ours which
are insured by the SAIF. On September 30, 1996, President Clinton signed into
law legislation which included provisions designed to recapitalize the SAIF and
to eliminate the significant premium disparity between the BIF and the SAIF.
Under this law, institutions with deposits insured by the SAIF were required to
pay a special assessment equal to $0.657 per $100 of SAIF-assessable deposits
held at March 31, 1995. We recognized this special assessment of $179,000 during
the quarter ended September 30, 1996 and were required to pay the assessment on
November 27, 1996.
Beginning January 1, 1997, our annual deposit insurance premium was reduced
from 0.23% to 0.0644% of total assessable deposits. BIF institutions still pay
lower assessments than comparable SAIF institutions because BIF institutions pay
only 20% of the rate being paid by SAIF institutions on their deposits with
respect to obligations issued by the Financing Corp., a federally chartered
corporation which provided some of the financing required to resolve the thrift
crisis in the 1980s. Assuming we complete the acquisition of the Newport branch
of NationsBank, our overall deposit insurance expense will be somewhat less than
the minimum SAIF rate since the approximately $6 million in deposits we expect
to acquire will continue to be insured by the BIF.
The recapitalization plan also provides for the merger of the SAIF and BIF
effective January 1, 1999, assuming there are no savings institutions under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and the separate federal regulation of
thrifts. As a result, we might have to convert to a different financial
institution charter and be regulated under federal law as a national bank or
under Arkansas law as a state chartered commercial bank, including being subject
to the more restrictive activity limitations imposed on national banks. We
cannot predict the impact of our conversion to, or regulation as, a bank until
the legislation requiring such change is enacted.
REGULATORY CAPITAL REQUIREMENTS. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to at
least 1.5 % of total adjusted assets, (2) core capital equal to at least 3.0% of
total adjusted assets, and (3) risk-based capital equal to at least 8.0% of
total risk-weighted assets. In addition, the OTS may require that a savings
institution that has a risk-based capital ratio less than 8.0%, a ratio of Tier
1 capital to risk-weighted assets of less than 4.0% or a ratio of Tier 1 capital
to adjusted total assets of less than 4.0% (3.0% if the institution has received
the highest rating on its most recent examination) take certain actions to
increase its capital ratios. If the institution's capital is significantly
below the minimum required levels or if it is unsuccessful in increasing its
capital ratios, the OTS may significantly restrict its activities.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders'
equity (including retained earnings), non-cumulative perpetual preferred stock
and minority interests in the equity accounts of consolidated subsidiaries,
certain non-withdrawable accounts and pledged deposits of mutual savings
associations and qualifying supervisory goodwill, less non-qualifying intangible
assets, certain mortgage servicing rights and certain investments. Tier 1 has
the same definition as core capital.
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<PAGE>
Risk-based capital equals the sum of core capital plus supplementary
capital. The components of supplementary capital include, among other items,
cumulative perpetual preferred stock, perpetual subordinated debt, mandatory
convertible subordinated debt, intermediate-term preferred stock, and the
portion of the allowance for loan losses not designated for specific loan
losses. Overall, supplementary capital is limited to 100% of core capital. A
savings institution must calculate its risk-weighted assets by multiplying each
asset and off-balance sheet item by various risk factors as determined by the
OTS, which range from 0% for cash to 100% for delinquent loans, property
acquired through foreclosure, commercial loans, and other assets. At June 30,
1997, we were in compliance with all regulatory capital requirements as is shown
on the table below.
<TABLE>
<CAPTION>
PERCENT
AMOUNT OF ASSETS
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tangible capital................. $2,266 6.59%
Tangible capital requirement..... 516 1.50
------ -----
Excess (deficit)............... $1,750 5.09%
====== =====
Core capital..................... $2,266 6.59%
Core capital requirement......... 1,375 3.00
------ -----
Excess (deficit)............... $ 891 3.59%
====== =====
Risk-based capital............... $2,411 13.18%
Risk-based capital requirement... 1,463 8.00
------ -----
Excess (deficit)............... $ 948 5.18%
====== =====
</TABLE>
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A
savings institution will be considered to have a "normal" level of interest rate
risk exposure if the decline in its net portfolio value after an immediate 200
basis point increase or decrease in market interest rates (whichever results in
the greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio value
based on data submitted by the institution in a schedule to its quarterly Thrift
Financial Report and using the interest rate risk measurement model adopted by
the OTS. The amount of the interest rate risk component, if any, to be deducted
from an institution's total capital will be based on the institution's
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<PAGE>
Thrift Financial Report filed two quarters earlier. Savings institutions with
less than $300 million in assets and a risk-based capital ratio above 12% are
generally exempt from filing the interest rate risk schedule with their Thrift
Financial Reports. However, the OTS may require any exempt institution that it
determines may have a high level of interest rate risk exposure to file such
schedule on a quarterly basis and may be subject to an additional capital
requirement based upon its level of interest rate risk as compared to its peers.
Due to our size and risk-based capital level, we are exempt from the interest
rate risk component.
DIVIDEND AND OTHER CAPITAL DISTRIBUTION LIMITATIONS. OTS regulations
require us to give the OTS 30 days advance notice of any proposed declaration of
dividends to the Company. The OTS may prohibit the payment of dividends by us to
the Company. In addition, we may not declare or pay a cash dividend on our
capital stock if the effect would be to reduce our regulatory capital below the
amount required for the liquidation account to be established at the time of the
conversion. See "The Conversion -- Effects of Conversion to Stock Form on
Depositors and Borrowers of Newport Federal Savings Bank -- Liquidation
Account."
OTS regulations limit upon all capital distributions by savings
institutions, such as cash dividends, payments to repurchase or otherwise
acquire its shares, payments to stockholders of another institution in a cash-
out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all of its fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100.0% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. As of
June 30, 1997, we qualified as a Tier 1 institution.
In the event our capital falls below our fully phased-in requirement or the
OTS notifies us that we are in need of more than normal supervision, we would
become a Tier 2 or Tier 3 institution and as a result, our ability to make
capital distributions could be restricted. Tier 2 institutions, which are
institutions that before and after the proposed distribution meet their current
minimum capital requirements, may only make capital distributions of up to 75%
of net income over the most recent four quarter period. Tier 3 institutions,
which are institutions that do not meet current minimum capital requirements and
propose to make a capital distribution, and Tier 2 institutions that propose to
make a capital distribution in excess of the noted safe harbor level, must
obtain OTS approval prior to making such distribution. In addition, the OTS
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. The OTS has
proposed rules relaxing certain approval and notice requirements for well-
capitalized institutions.
A savings institution is prohibited from making a capital distribution if,
after making the distribution, the savings institution would be undercapitalized
(i.e., not meet any one of its minimum
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<PAGE>
regulatory capital requirements). Further, a savings institution cannot
distribute regulatory capital that is needed for its liquidation account.
QUALIFIED THRIFT LENDER TEST. Savings institutions must meet a Qualified
Thrift Lender test. We must maintain at least 65.0% of our portfolio assets
(total assets less intangible assets, property we use in conducting our business
and liquid assets in an amount not exceeding 20.0% of total assets) in Qualified
Thrift Investments to satisfy the test. Qualified Thrift Investments consist
primarily of residential mortgage loans and mortgage-backed and other securities
related to domestic, residential real estate or manufactured housing. The
shares of stock we own in the FHLB of Dallas also qualify as Qualified Thrift
Investments. Subject to an aggregate limit of 20.0% of portfolio assets, we may
also count the following as Qualified Thrift Investments: (i) 50.0% of the
dollar amount of residential mortgage loans originated for sale, (ii)
investments in the capital stock or obligations of any service corporation or
operating subsidiary as long as such subsidiary derives at least 80% of its
revenues from domestic housing related activities, (iii) 200% of the dollar
amount of loans and investments to purchase, construct or develop "starter
homes," subject to certain other restrictions, (iv) 200% of the dollar amount of
loans for the purchase, construction or development of domestic residential
housing or community centers in "credit needy" areas or loans for small
businesses located in such areas, (v) loans for the purchase, construction or
development of community centers, (vi) loans for personal, family, household or
educational purposes, subject to a maximum of 10% of portfolio assets, and (vii)
shares of FHLMC or FNMA stock.
If we satisfy the test, we will continue to enjoy full borrowing privileges
from the FHLB of Dallas. If we do not satisfy the test we may lose our
borrowing restrictions and be subject to activities and branching restrictions
applicable to national banks. Compliance with the Qualified Thrift Lender test
is determined on a monthly basis in nine out of every 12 months. As of June 30,
1997, we were in compliance with our Qualified Thrift Lender requirement with
approximately 75.45% of our assets invested in Qualified Thrift Investments.
TRANSACTIONS WITH AFFILIATES. Generally, transactions between a savings
institution and its affiliates are subject to certain limitations. Such
transactions must be on terms as favorable to the savings institution as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. Our
affiliates include the Company and any company which would be under common
control with us. In addition, a savings institution may not extend credit to
any affiliate engaged in activities not permissible for a bank holding company
or acquire the securities of any affiliate that is not a subsidiary. The OTS
has the discretion to treat subsidiaries of savings institution as affiliates on
a case-by-case basis.
LOANS TO DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS. Loans
from us to our directors, executive officers and, subsequent to the conversion,
our principal stockholders may not be made on terms more favorable than those
afforded to other borrowers. In addition, we cannot make loans in excess of
certain levels to directors, executive officers or 10% or greater stockholders
(or any of their affiliates) unless the loan is approved in advance by a
majority of our board of directors with any "interested" director not voting.
We are also prohibited from paying any overdraft
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<PAGE>
of any of our executive officers or directors. We are also subject to certain
other restrictions on the amount and type of loans to executive officers and
directors and must annually report such loans to our regulators.
LIQUIDITY REQUIREMENTS. All savings institutions are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At June 30, 1997, our required liquid asset
ratio was 5.0% and our actual ratio was 5.14%. Monetary penalties may be imposed
upon institution for violations of liquidity requirements.
FEDERAL HOME LOAN BANK SYSTEM. We are a member of the FHLB of Dallas, which
is one of 12 regional FHLBs. Each FHLB serves as a reserve or central bank for
its members within its assigned region. It is funded primarily from funds
deposited by savings institutions and proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB.
As a member, we are required to purchase and maintain stock in the FHLB of
Dallas in an amount equal to at least 1% of our aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year, or 1/20 of our advances from the FHLB of Dallas, whichever is
greater. At June 30, 1997, we had $283,000 in FHLB stock, at cost, which was in
compliance with this requirement.
FEDERAL RESERVE SYSTEM. The Federal Reserve System requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS. At June 30,
1997, our reserve met the minimum level required by the Federal Reserve System.
HOLDING COMPANY REGULATION
GENERAL. The Company will be required to register and file reports with the
OTS and will be subject to regulation and examination by the OTS. In addition,
the OTS will have enforcement authority over the Company and any non-savings
institution subsidiaries. This will permit the OTS to restrict or prohibit
activities that it determines to be a serious risk to us. This regulation is
intended primarily for the protection of our depositors and not for the benefit
of you, as stockholders of the Company.
The Company will also be required to file certain reports with, and comply
with the rules and regulations of the SEC under the federal securities laws.
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<PAGE>
ACTIVITIES RESTRICTIONS. Since the Company will only own one savings
institution, it will be able to diversify its operations into activities not
related to banking, but only so long as we satisfy the Qualified Thrift Lender
test. If the Company controls more than one savings institution, it would lose
the ability to diversify its operations into non-banking related activities,
unless such other savings institutions each also qualify as a Qualified Thrift
Lender and were acquired in a supervised acquisition. See "-- Qualified Thrift
Lender Test."
RESTRICTIONS ON ACQUISITIONS. The Company must obtain approval from the
OTS before acquiring control of any other savings institution or savings and
loan holding company, substantially all the assets thereof or in excess of 5% of
the outstanding shares of another savings institution or savings and loan
holding company. The Company's directors and officers or persons owning or
controlling more than 25% of the Company=s stock, must also obtain approval of
the OTS before acquiring control of any savings institution or savings and loan
holding company.
The OTS may only approve acquisitions that will result in the formation of
a multiple savings and loan holding company which controls savings institutions
in more than one state if: (i) the multiple savings and loan holding company
involved controls a savings institution which operated a home or branch office
in the state of the institution to be acquired as of March 5, 1987; (ii) the
acquiror is authorized to acquire control of the savings institution pursuant to
the emergency acquisition provisions of the Federal Deposit Insurance Act; or
(iii) the statutes of the state in which the institution to be acquired is
located specifically permit institutions to be acquired by state-chartered
institutions or savings and loan holding companies located in the state where
the acquiring entity is located (or by a holding company that controls such
state-chartered savings institutions).
FEDERAL SECURITIES LAW. The Company has filed with the SEC a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
for the registration of the common stock. Upon completion of the conversion,
the common stock will be registered with the SEC under the Exchange Act and,
under OTS regulations, generally may not be deregistered for at least three
years thereafter. The Company will be subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the
Exchange Act.
The registration under the Securities Act of the common stock does not
cover the resale of such shares. Shares of the common stock purchased by
persons who are not affiliates of the Company may generally be resold without
registration. Shares purchased by an affiliate of the Company will be subject
to certain resale restrictions. As long as the Company meets the current public
information requirements, each affiliate of the Company who complies with the
other conditions would be able to sell a limited number of shares based upon the
number of shares outstanding and the average trading volume for the common
stock.
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<PAGE>
TAXATION
FEDERAL TAXATION
We are subject to the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), in the same general manner as other corporations.
However, prior to August 1996, savings institutions such as us, which met
certain definitional tests and certain other conditions prescribed by the Code
could benefit from certain favorable provisions regarding their deductions from
taxable income for annual additions to their bad debt reserve. The amount of
the bad debt deduction that a qualifying savings institution could claim for tax
purposes with respect to additions to its reserve for bad debts for "qualifying
real property loans" could be based upon our actual loss experience (the
"experience method" or as a percentage of our taxable income (the "percentage of
taxable income method"). Historically, we used the method that would allow us
to take the largest deduction.
In August 1996, the Code was revised to equalize the taxation of savings
institutions and banks. Savings institutions, such as us, no longer have a
choice between the percentage of taxable income method and the experience method
in determining additions to bad debt reserves. Thrifts with $500 million of
assets or less may still use the experience method, which is generally available
to small banks currently. Larger thrifts may only take a tax deduction when a
loan is actually charged off. Any reserve amounts added after 1987 will be
taxed over a six year period beginning in 1996; however, bad debt reserves set
aside through 1987 are generally not taxed. A savings institution may delay
recapturing into income its post-1987 bad debt reserves for an additional two
years if it meets a residential-lending test. This law is not expected to have
a material impact on us. At June 30, 1997, we had $70,000 of post-1987 bad-debt
reserves.
Earnings appropriated to our bad debt reserve and claimed as a tax
deduction including our supplemental reserves for losses will not be available
for the payment of cash dividends or for distribution (including distributions
made on dissolution or liquidation), unless we include the amount in income,
along with the amount deemed necessary to pay the resulting federal income tax.
If such amount is used for any purpose other than bad debt losses, including a
dividend distribution or a distribution in liquidation, it will be subject to
federal income tax at the then current rate.
The Code imposes a tax ("AMT") on alternative minimum taxable income
("AMTI") at a rate of 20%. AMTI is increased by certain preference items,
including the excess of the tax bad debt reserve deduction using the percentage
of taxable income method over the deduction that would have been allowable under
the experience method. Only 90% of AMTI can be offset by net operating loss
carryovers of which we currently have none. AMTI is also adjusted by
determining the tax treatment of certain items in a manner that negates the
deferral of income resulting from the regular tax treatment of those items.
Thus, our AMTI is increased by an amount equal to 75% of the amount by which our
adjusted current earnings exceeds our AMTI (determined without regard to this
adjustment and prior to reduction for net operating losses). In addition, for
taxable years beginning after December 31, 1986 and before January 1, 1996, an
environmental tax of 0.12% of the excess
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of AMTI (with certain modifications) over $2 million is imposed on corporations,
including us, whether or not an AMT is paid. Under pending legislation, the AMT
rate would be reduced to zero for taxable years beginning after December 31,
1994, but this rate reduction would be suspended for taxable years beginning in
1995 and 1996 and the suspended amounts would be refunded as tax credits in
subsequent years.
The Company may exclude from its income 100% of dividends received from us
as a member of the same affiliated group of corporations. A 70% dividends
received deduction generally applies with respect to dividends received from
corporations that are not members of such affiliated group, except that an 80%
dividends received deduction applies if the Company owns more than 20% of the
stock of a corporation paying a dividend. The above exclusion amounts, with the
exception of the affiliated group figure, were reduced in years in which we
availed our self of the percentage of taxable income bad debt deduction method.
Our federal income tax returns have not been audited by the IRS.
STATE TAXATION
We will continue to be subject to Arkansas corporation income tax which is
6.5% of all taxable earnings when income exceeds $100,000. The Company is
incorporated under Tennessee law and qualified to do business in Arkansas as a
foreign corporation.
MANAGEMENT OF THE COMPANY
Our board of directors consists of the same individuals who serve as
directors of Newport Federal Savings Bank. Our charter and bylaws require that
directors be divided into three classes, as nearly equal in number as possible.
Each class of directors serves for a three-year period, with approximately one-
third of the directors elected each year. Our officers will be elected annually
by the board and serve at the board's discretion.
The following individuals will serve as executive officers of the Company.
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY
---- ----------------------------
<S> <C>
Paul K. Holmes Chairman
Brad Snider President and Chief Executive Officer and Treasurer
Pam Decker Secretary/Treasurer
</TABLE>
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MANAGEMENT OF NEWPORT FEDERAL SAVINGS BANK
DIRECTORS AND EXECUTIVE OFFICERS
Our board of directors is composed of five members, each of whom serves for
a term of three years. Our proposed stock charter and bylaws require that
directors be divided into three classes, as nearly equal in number as possible.
Each class of directors serves for a three-year period, with approximately one-
third of the directors elected each year. Our officers are elected annually by
our board and serve at the board's discretion.
The following table sets forth information with respect to our directors and
executive officers, all of whom will continue to serve in the same capacities
after the conversion. We have no other executive officers.
<TABLE>
<CAPTION>
POSITION(S)
AGE AS OF WITH DIRECTOR TERM
NAME JUNE 30, 1997 THE BANK SINCE EXPIRES
- ---- ------------- -------- ------- -------
<S> <C> <C> <C> <C>
Paul K. Holmes, Jr. 82 Chairman 1947 1998
O.E. Guinn, Jr. 68 Director 1971 1999
Kaneaster Hodges, Jr. 58 Director 1979 1999
John Minor 63 Director 1971 1997
Brad Snider 37 President and Chief 1991 1997
Executive Officer; Director
</TABLE>
All of the directors and executive officers live in Newport. The business
experience for the past five years of each of the directors and executive
officers is as follows:
PAUL K. HOLMES, JR. serves as our Chairman of the Board. He is currently
retired. Prior to his retirement, he was the owner of retain men's clothing
store. He is currently a Director of the Newport Chamber of Commerce and serves
as President of the Newport Industrial Development Association.
O.E. GUINN, JR. has been retired since 1994. Prior to his retirement, he
was self-employed as an insurance salesman specializing in fire and casualty
insurance. He is a member of the Chamber of Commerce and the Newport Lions
Club.
KANEASTER HODGES, JR. is an attorney in private practice in Newport. He is
also involved in farming and real estate investments and operates a Newport-
based energy conservation firm, PSE, LLC. He is a member of the Newport Relief
Society, the Newport Levee District and the Walton Family Charitable Support
Foundation. He also serves on the White River Basin Study Commission and the
Arkansas State University-Beebe Charitable Foundation, Inc.
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JOHN MINOR is an insurance and real estate salesman in Newport. He is Past
President of the Arkansas Professional Insurance Agents' [League/Society?], Past
President of the Lions Club, the Newport Booster Club and the Jackson County
Wildlife Federation. He is a former member of the Newport School Board.
BRAD SNIDER has served as our President and Chief Executive Officer and
Director since 1991. He currently serves as President of the Newport Area
Chamber of Commerce and serves on the boards of the United Way of Jackson
County, the Arkansas League of Savings, the Newport Industrial Development
Association and the Arkansas State University/Newport Foundation. He is also a
Commissioner of the Newport Housing Authority of the City of Newport and is a
member of the Rotary Club.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors conducts its business through meetings of the board
and through activities of its committees. During the year ended June 30, 1997,
the board of directors held 16 regular meetings and two special meetings. No
director attended fewer than 75% of the total meetings of the board of directors
and committees on which such director served during the year ended June 30,
1997.
DIRECTOR COMPENSATION
Each of the directors is paid an annual fee of $10,500. Total aggregate
fees paid to the current directors for the year ended June 30, 1997 were
$52,500.
DIRECTOR RETIREMENT PLAN. The Bank adopted the Newport Federal Savings Bank
Retirement Plan for Directors, effective May 29, 1997. On the effective date,
we established a bookkeeping account in the name of each non-employee director,
and credited each account with an amount equal to the product of (i) $2,898, and
(ii) the director's full years of service as a director, up to 20 years. On
each fiscal year end, each participant who is then a director and has 20 or
fewer years of service shall have his account credited with an amount equal to
the product of $2,898 and the safe performance factor, which is determined based
on our actual performance as compared to budgeted goals for return on average
equity, non-performing assets and composite regulatory rating, provided that the
safe performance factor may not exceed 1.2. Also on the effective date, the
account of Brad Snider was credited for $60,000. On each June 30 during each of
the years from 1998 until 2006, his account will be credited with an additional
amount equal to the product of $19,600 and the safe performance factor. In the
event Mr. Snider should die or become disabled, his account will be credited
with an amount equal to the difference (if any) between (i) 50% of the present
value of all benefits which would have been credited to his account if he had
otherwise remained employed by us to age 65, and (ii) the benefits which are
actually credited to his account at the time of his death or disability. If his
employment terminates in connection with or following a "change in control" of
us, his account will be credited with an amount equal to the difference (if any)
between (i) 100% of the present value of all benefits which would have been
credited to his account if he had otherwise
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remained employed by us to age 65, and (ii) the benefits which are actually
credited to his account at the time of his termination, subject to applicable
"golden parachute" limitations under federal income tax laws. At June 30, 1997,
$51,000 would have been credited to Mr. Snider's account had a change in control
occurred at such date and his employment agreement was also in effect. All
amounts credited to participants' accounts are fully vested at all times. Until
distributed in accordance with the terms of the plan, each participant's account
will be credited with a rate of return equal to our highest rate of interest
paid on certificates of deposit having a term of one year. Following the
conversion, each participant may prospectively elect to have the dividend-
adjusted rate of return on the common stock measure future appreciation.
Each participant may elect to receive plan benefits in a lump sum cash
payment or over a period shorter than ten years, and in the absence of an
election will receive payments in ten substantially equal installments. In the
event of a participant's death, the balance of his plan account will be paid in
a lump sum (unless the participant elects a distribution period up to ten years)
to his designated beneficiary, or if none, his estate.
Any compensation accrued under the plan will be paid from our general
assets. We have established a trust in order to hold assets with which to pay
compensation. Trust assets would be subject to claims of our general creditors.
In the event a participant prevails over us in a legal dispute as to the terms
or interpretation of the plan, he would be reimbursed for his legal and other
expenses. Upon the implementation of the plan, we recognized compensation
expense totaling $286,000 to provide for participants' initial account balances.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer at
June 30, 1997. No other employee earned in excess of $100,000 for the year
ended June 30, 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
OTHER ANNUAL ALL OTHER
NAME YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- ---- ---- ------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Brad Snider 1997 $71,662 $-- $10,500 $4,085
</TABLE>
___________
(1) Consists of director fees.
(2) Consists of premiums paid on behalf of Mr. Snider for split-dollar life
insurance ($2,465) and disability insurance ($1,620).
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PENSION PLAN TABLE. The following table indicates the annual retirement
benefit that would be payable under the plan upon retirement at age 65 to a
participant electing to receive his retirement benefit in the standard form of
benefit, assuming various specified levels of plan compensation and various
specified years of credited service. Mr. Snider's credited years of service
under the plan are 5.5 years.
<TABLE>
<CAPTION>
CAREER YEARS OF SERVICE
AVERAGE ------------------------------------------
COMPENSATION 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 20,000 $ 4,500 $ 6,000 $ 7,500 $ 9,000 $10,500
40,000 9,000 12,000 15,000 18,000 21,000
60,000 13,500 18,000 22,500 27,000 31,500
80,000 18,000 24,000 30,000 36,000 42,000
100,000 22,500 30,000 27,500 45,000 52,500
</TABLE>
EMPLOYMENT AGREEMENT. We have entered into an employment agreement with
our President, Brad Snider. Mr. Snider's base salary under the employment
agreement is $________. The employment agreement has a term of three years.
The agreement is terminable by us for "just cause" as defined in the agreement.
If we terminate Mr. Snider without just cause or if Mr. Snider terminates his
employment for Agood reason", Mr. Snider will be entitled to a continuation of
his salary from the date of termination through the remaining term of the
agreement, plus an additional 12 months. The employment agreement also contains
a provision stating that in the event of the termination of employment in
connection with any change in control of the Company or us, Mr. Snider will be
paid a lump sum amount equal to 2.99 times his five year average annual taxable
cash compensation. If such payments had been made under the agreement as of
June 30, 1997, such payments would have equaled approximately $220,000. The
aggregate payments that would have been made to Mr. Snider would be an expense
to us, thereby reducing our net income and our capital by that amount. The
agreement may be renewed annually by our board of directors upon a determination
of satisfactory performance within the board's sole discretion. If Mr. Snider
shall become disabled during the term of the agreement, he shall continue to
receive payment of 100% of the base salary for a period of up to 180 days. Such
payments shall not be reduced by any other benefit payments made under other
disability program in effect for our employees. If Mr. Snider's employment
terminates for a reason other than just cause, he will be entitled to purchase
from us family medical insurance through any group health plan maintained by us.
EMPLOYEE STOCK OWNERSHIP PLAN. We have established an ESOP, the ESOP, for
the exclusive benefit of participating employee of ours, to be implemented upon
the completion of the conversion. Participating employees are employees who
have completed one year of service with us (including at least 1,000 hours of
service) and have attained the age of 21. An application for a letter of
determination as to the tax-qualified status of the ESOP will be submitted to
the IRS. Although no assurances can be given, we expect that the ESOP will
receive a favorable letter of determination from the IRS.
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The ESOP is to be funded by contributions made by us in cash or common
stock. Benefits may be paid either in shares of the common stock or in cash.
In accordance with the Plan, the ESOP may borrow funds with which to acquire up
to 8.0% of the common stock to be issued in the conversion. The ESOP intends to
borrow funds from the Company. The loan is expected to be for a term of ten
years at an annual interest rate equal to the prime rate as published in The
---
Wall Street Journal. Presently it is anticipated that the ESOP will purchase up
- --------------------
to 8.0% of the common stock to be issued in the offering (22,400 shares based on
the midpoint of the Estimated Valuation Range). The loan will be secured by the
shares purchased and earnings of ESOP assets. Shares purchased with such loan
proceeds will be held in a suspense account for allocation among participants as
the loan is repaid. We anticipate contributing approximately $22,400 annually
(based on a 22,400 purchase) to the ESOP to meet principal obligations under the
ESOP loan, as proposed. it is anticipated that all such contributions will be
tax-deductible. This loan is expected to be fully repaid in approximately 10
years.
Shares sold above the maximum of the Estimated Valuation Range (i.e., more
than 330,000 shares) may be sold to the ESOP before satisfying remaining
unfilled orders of Eligible Account Holders to fill the ESOP's subscription or
the ESOP may purchase some or all of the shares covered by its subscription
after the conversion in the open market.
Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of total compensation,
excluding bonuses. All participants must be employed at least 500 hours in a
plan year in order to receive an allocation. Participants will become 20%
vested in their ESOP account balances for each year of service beginning with
the second year of service, up to a maximum of 100% for six years of service.
Up to five years of service prior to the adoption of the ESOP shall be credited
for the purposes of vesting. Vesting will be accelerated upon retirement,
death, disability, change in control of the Company, or termination of the ESOP.
Forfeitures will be reallocated to participants on the same basis as other
contributions in the plan year. Benefits may be payable in the form of a lump
sum upon retirement, death, disability or separation from service. Our
contributions to the ESOP are discretionary and may cause a reduction in other
forms of compensation. Therefore, benefits payable under the ESOP cannot be
estimated.
In the event of a change in control of us, the outstanding balance of any
loans used to finance the purchase of shares by the ESOP will be payed off
through a transfer or sale of shares held as collateral under such loan, with
any remaining shares allocated to participant accounts pro rata based on their
account balances. Participants terminating employment on or after the change in
control will be entitled to receive a cash payment from the Company equal to the
amount, if any, which would have been allocated to the participant's account
immediately following the change in control but was precluded from allocation
based on allocation limits applicable under federal tax laws.
The board of directors has appointed non-employee directors to the ESOP
Committee to administer the ESOP and to serve as the initial ESOP Trustees. The
board of directors or the ESOP Committee may instruct the ESOP Trustees
regarding investments of funds contributed to the ESOP.
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The ESOP Trustees must vote all allocated shares held in the ESOP in accordance
with the instructions of the participating employees. Unallocated shares and
allocated shares for which no timely direction is received will be voted by the
ESOP Trustees as directed by the board of directors or the ESOP Committee,
subject to the Trustees' fiduciary duties.
PROPOSED FUTURE STOCK BENEFIT PLANS
STOCK OPTION PLAN. We intend to adopt a stock option plan (the Option
Plan) following the conversion, subject to approval by you and the Company's
stockholders, at a stockholders' meeting to be held no sooner than six months
after the conversion. If the Option Plan is adopted during the first year
following the conversion, the Option Plan would be in compliance with the OTS
conversion regulations in effect. See "-- Restrictions on Benefit Plans." If
the Option Plan is implemented more than one year after the conversion, the
Option Plan will comply with OTS regulations and policies that are applicable at
such time. If the Option Plan is implemented within one year after the
conversion, in accordance with OTS regulations, a number of shares equal to 10%
of the aggregate shares of common stock to be issued in the offering (i.e.,
28,000 shares based upon the sale of 280,000 shares at the midpoint of the
Estimated Valuation Range) would be reserved for issuance by the Company upon
exercise of stock options or stock appreciation rights ("SARs") to be granted to
our officers, directors and employees from time to time under the Option Plan.
The purpose of the Option Plan would be to provide additional performance and
retention incentives to certain officers, directors and employees by
facilitating their purchase of a stock interest in the Company. Under the OTS
conversion regulations, the Option Plan, would provide for a term of 10 years,
after which no awards could be made, unless earlier terminated by the board of
directors pursuant to the Option Plan and the options would vest over a five
year period (i.e., 20% per year), beginning one year after the date of grant of
the option. Options would expire no later than 10 years from the date granted
and would expire earlier if the Option Committee so determines or in the event
of termination of employment. Options would be granted based upon several
factors, including seniority, job duties and responsibilities, job performance,
our financial performance and a comparison of awards given by other savings
institutions converting from mutual to stock form.
The Company would receive no monetary consideration for the granting of
stock options or SARs under the Option Plan. It would receive the option price
for each share issued to optionees upon the exercise of such options. Shares
issued as a result of the exercise of options will be either authorized but
unissued shares or shares purchased in the open market by the Company. However,
no purchases in the open market will be made that would violate applicable
regulations restricting purchases by the Company. The exercise of options and
payment for the shares received would contribute to the equity of the Company.
MANAGEMENT RECOGNITION PLAN. We intend to adopt the MRP following the
conversion, the objective of which is to enable us to retain personnel and
directors of experience and ability in key positions of responsibility. The
Company expects to hold a stockholders' meeting no sooner than six months after
the conversion in order for stockholders to vote to approve the MRP. If the MRP
is implemented within one year after the conversion, in accordance with
applicable OTS
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regulations, the shares granted under the MRP will be in the form
of restricted stock vesting over a five year period (i.e., 20% per year)
beginning one year after the date of grant of the award. Additionally, the
number of shares to be granted could not exceed 3% of the shares sold in the
conversion (4% if we had tangible capital of 10% or more) if the MRP is adopted
during the first year following conversion. If the MRP is implemented more than
one year after the conversion, the MRP will comply with such OTS regulations and
policies that are applicable at such time. Compensation expense in the amount
of the fair market value of the common stock granted will be recognized pro rata
over the years during which the shares are payable. Until they have vested,
such shares may not be sold, pledged or otherwise disposed of and are required
to be held in escrow. Any shares not so allocated would be voted by the MRP
Trustees. Awards would be granted based upon a number of factors, including
seniority, job duties and responsibilities, job performance, our performance and
a comparison of awards given by other institutions converting from mutual to
stock form. The MRP would be managed by a committee of non-employee directors
(the "MRP Trustees"). The MRP Trustees would have the responsibility to invest
all funds contributed by us to the trust created for the MRP (the "MRP
Trust").
We expect to contribute sufficient funds to the MRP so that the MRP Trust
can purchase, in the aggregate, up to 4% of the amount of common stock that is
sold in the conversion. The shares purchased by the MRP would be authorized but
unissued shares or would be purchased in the open market. In the event the
market price of the common stock is greater than $10.00 per share, our
contribution of funds will be increased. Likewise, in the event the market
price is lower than $10.00 per share, our contribution will be decreased. In
recognition of their prior and expected services to us and the Company, as the
case may be, the officers, other employees and directors responsible for
implementation of the policies adopted by the board of directors and our
profitable operation will, without cost to them, be awarded stock under the MRP.
Based upon the sale of 280,000 shares of common stock in the offering at the
midpoint of the Estimated Valuation Range, the MRP Trust is expected to purchase
up to 11,200 shares of common stock.
RESTRICTIONS ON STOCK BENEFIT PLANS. OTS regulations provide that in the
event we implement stock option or management and/or employee stock benefit
plans within one year from the date of conversion, such plans must comply with
the following restrictions: (1) the plans must be fully disclosed in the
prospectus, (2) 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, (3) for restricted stock plans such as the MRP, the shares may not
exceed 3% of the shares issued in the conversion (4% for institutions with 10%
or greater tangible capital), (4) the aggregate amount of stock purchased by the
ESOP in the conversion may not exceed 10% (12% for well-capitalized institutions
utilizing a 4% management recognition plan), (5) no individual employee may
receive more than 25% of the available awards under the Option Plan or the MRP,
(6) directors who are not employees may not receive more than 5% individually or
30% in the aggregate of the awards under any plan, (7) all plans must be
approved by a majority of the total votes eligible to be cast at any duly called
meeting of the Company's stockholders held no earlier than six months following
the conversion, (8) for stock option plans, the exercise price must be at least
equal to the market price of the stock at the time of grant, (9) for restricted
stock plans such as the MRP, no stock issued in a conversion may
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be used to fund the plan, (10) neither stock option awards nor restricted stock
awards may vest earlier than 20% as of one year after the date of stockholder
approval and 20% per year thereafter, and vesting may be accelerated only in the
case of disability or death (or if not inconsistent with applicable OTS
regulations in effect at such time, in the event of a change in control), (11)
the proxy material must clearly state that the OTS in no way endorses or
approves of the plans, and (12) prior to implementing the plans, all plans must
be submitted to the Regional Director of the OTS within five days after
stockholder approval with a certification that the plans approved by the
stockholders are the same plans that were filed with and disclosed in the proxy
materials relating to the meeting at which stockholder approval was received.
We have not yet decided whether the Option Plan or the MRP will be
implemented during the first year after the conversion. If they are implemented
after the first anniversary of the conversion, the above-described limitations
and provisions will not apply.
CERTAIN RELATED TRANSACTIONS
During the year ended June 30, 1997, certain of our officers and directors
had loans from us in amounts exceeding $60,000. All of such loans were made in
the ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features.
RESTRICTIONS ON ACQUISITIONS OF THE COMPANY
The following discussion is a general summary of the material provisions of
the charter and bylaws of the Company and certain other Tennessee corporate law
and regulatory provisions, which may be deemed to have such an anti-takeover
effect. The description of these provisions is necessarily general and we refer
you to in each case to the charter and bylaws of the Company which are
incorporated herein by reference. See "Available Information" as to how to
obtain a copy of these documents.
While the board of directors is not aware of any effort that might be made
to obtain control of the Company after conversion, the board of directors
believes that it is appropriate to include certain provisions as part of the
Company's charter and bylaws to protect the interests of the Company and its
stockholders from hostile takeovers ("anti-takeover" provisions) which the board
of directors might conclude are not in the best interests of us or our
stockholders. These provisions may have the effect of discouraging a future
takeover attempt which is not approved by the board of directors but which
individual stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over the current
market prices. As a result, stockholders who might desire to participate in
such a transaction may not have an opportunity to do so. Such provisions will
also render the removal of the current board of directors or management of the
Company more difficult.
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PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
RESTRICTION ON ACQUISITION OF COMMON STOCK; LIMITATIONS ON VOTING RIGHTS.
The charter of the Company provides that, for a period of five years after
completion of the conversion, no person may directly or indirectly, acquire or
offer to acquire beneficial ownership of more than 10% of any class of equity
security outstanding of the Company (the "Limit"), unless the "continuing"
board of directors has first approved by a two-thirds vote the offer or
acquisition. Any shares acquired in violation of this restriction will not be
counted as shares outstanding for voting purposes, nor will the holder be
entitled to vote such shares. After five years from the date of conversion,
should any party acquire the beneficial ownership of shares in excess of 10%,
the record holders of more than 10% of any outstanding class of equity security
of the Company who obtained such shares without the requisite approval would be
entitled to cast only one-hundredth (1/100) of a vote for each share owned in
excess of 10%, and the aggregate voting power of such holders shall be allocated
proportionately among such record holders. A person is a beneficial owner of a
security if he has the power to vote or direct the voting of all or part of the
voting rights of the security, or has the power to dispose of or direct the
disposition of the security. The charter of the Company further provide that
this provision limiting voting rights may only be amended upon the vote of 80%
of the outstanding shares of voting stock.
ELECTION OF DIRECTORS. The Company's charter provides that the board of
directors of the Company will be divided into three staggered classes, with
directors in each class elected for three-year terms. As a result of this
provision, it would take two annual elections to replace a majority of the
Company's board. The Company's charter provides that the size of the board of
directors may be increased or decreased only if two-thirds of the directors then
in office concur in such action. The charter also provides that any vacancy
occurring in the board of directors, including a vacancy created by an increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a majority vote of the directors then in office. Finally, the charter
and the bylaws impose certain notice and information requirements in connection
with the nomination by stockholders of candidates for election to the board of
directors or the proposal by stockholders of business to be acted upon at an
annual meeting of stockholders.
The charter provides that a director may only be removed for cause by the
affirmative vote of at least 80% of the shares of the Company entitled to vote
generally in an election of directors cast at a meeting of stockholders called
for that purpose.
RESTRICTIONS ON CALL OF SPECIAL MEETING. The charter of the Company
provides that a special meeting of stockholders may be called only pursuant to a
resolution adopted by a majority of the board of directors, or a Committee of
the board.
ABSENCE OF CUMULATIVE VOTING. The Company's charter provides that
stockholders may not cumulate their votes in the election of directors.
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AUTHORIZED SHARES. The charter authorizes the issuance of 9,000,000 shares
of common stock and 3,000,000 shares of Preferred Stock. The shares of common
stock and Preferred Stock were authorized in an amount greater than that to be
issued in the conversion to provide the Company's board of directors with as
much flexibility as possible to effect, among other transactions, financings,
acquisitions, stock dividends, stock splits and the exercise of stock options.
However, these additional authorized shares may also be used by the board of
directors consistent with its fiduciary duty to deter future attempts to gain
control of the Company. The board of directors also has sole authority to
determine the terms of any one or more series of Preferred Stock, including
voting rights, conversion rates, and liquidation preferences. As a result of
the ability to fix voting rights for a series of Preferred Stock, the board has
the power, to the extent consistent with its fiduciary duty, to issue a series
of Preferred Stock to persons friendly to management in order to attempt to
block a post-tender offer merger or other transaction by which a third party
seeks control, and thereby assist management to retain its position. The
Company's board currently has no plans for the issuance of additional shares,
other than the possible issuance of additional shares pursuant to stock benefit
plans.
PROCEDURES FOR CERTAIN BUSINESS COMBINATIONS. The charter requires the
affirmative vote of at least 80% of the outstanding shares of the Company
entitled to vote in the election of director in order for the Company to engage
in or enter into certain "Business Combinations," as defined therein, with any
"Related Party" (as defined below) or any affiliates of the "Related Party",
unless the proposed transaction has been approved in advance by the Company's
board of directors, excluding those who were not directors prior to the time the
"Related Party" became the "Related Party." Absent this provision, only the
approval of a majority of the shares outstanding would be required.
The term "Related Party" is defined to include any person and the
affiliates and associates of the person (other than the Company or its
subsidiary) who beneficially owns, directly or indirectly, 10% or more of the
outstanding shares of voting stock of the Company. Any amendment to this
provision requires the affirmative vote of at least 80% of the shares of the
Company entitled to vote generally in an election of directors.
AMENDMENT TO CHARTER AND BYLAWS. Amendments to the Company's charter must
be approved by the Company's board of directors and also by a majority of the
outstanding shares of the Company's voting stock, provided, however, that
approval by at least 80% of the outstanding voting stock is generally required
for certain provisions (i.e., provisions relating to restrictions on the
acquisition and voting of greater than 10% of the common stock; number,
classification, election and removal of directors; amendment of Bylaws; call of
special stockholder meetings; director liability; certain business combinations;
power of indemnification; and amendments to provisions relating to the foregoing
in the charter).
The bylaws may be amended by a majority vote of the board of directors or
the affirmative vote of the holders of at least 80% of the outstanding shares of
the Company entitled to vote in the election of Directors cast at a meeting
called for that purpose.
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TENNESSEE BUSINESS CORPORATION ACT
The Tennessee Business Corporation Act contains several provisions
described below which may be applicable to the Company upon completion of the
conversion.
THE TENNESSEE CONTROL SHARE ACQUISITION ACT prohibits a person who acquires
over specified limits of shares of our holding company (that is, 20%, 33a% or
50% of its outstanding shares) from voting those shares in excess of each
specified limit unless a majority of our holding company's disinterested
stockholders vote to approve voting rights for the excess shares. Pursuant to
the Control Share Acquisition Act, the provisions of such Act will only apply to
a Tennessee corporation if its charter or bylaws so provides and which has: (i)
100 or more stockholders; (ii) its principal place of business, its principal
office or substantial assets within Tennessee; and (iii) either (A) more than
10% of its stockholders resident in Tennessee, (B) more than 10% of its shares
owned by stockholders resident in Tennessee, or (C) 10,000 or more stockholders
resident in Tennessee. Neither the Company's charter nor its bylaws contains a
provision declaring that the Company will be subject to the provisions of the
Control Share Acquisition Act, although the Company could amend its Charter or
Bylaws in the future to include such a provision. The Company cannot determine
at this time whether it would otherwise meet the requirements to be subject to
the provisions of the Control Share Acquisition Act.
THE TENNESSEE BUSINESS COMBINATION ACT imposes conditions on a person
owning more than 10% of a Aresident domestic corporation's outstanding voting
stock (an "interested stockholder") in connection with business combinations
with the Company for a period of five years following the date such person
became an interested stockholder, unless such business combination is otherwise
approved in accordance with the terms of the statute. For purposes of the
Business Combination Act, the term "resident domestic corporation" is defined as
an issuer of voting stock which, as of the share acquisition date in question,
is organized under the laws of Tennessee and meets two or more of the following
requirements: (i) the corporation has more than 10,000 or 10% of its
stockholders resident in Tennessee or more than 10% of its shares held by
stockholders who are Tennessee residents; (ii) the corporation has its principal
office or place of business located in Tennessee; (iii) the corporation has the
principal office or place of business of a significant subsidiary, representing
not less than 25% of the corporation's consolidated net sales located in
Tennessee; (iv) the corporation employs more than 250 individuals in Tennessee
or has a combined annual payroll paid to Tennessee residents which is in excess
of $5.0 million; (v) the corporation produces goods and services in Tennessee
which result in annual gross receipts in excess of $10.0 million; or (vi) the
corporation has physical assets and/or deposits, including those of any
subsidiary located within Tennessee which exceed $10.0 million in value. The
Company does not expect that it will initially meet the definition of a resident
domestic corporation although it is possible that it will meet the definition in
the future and will be entitled to the anti-takeover protection afforded by the
Business Combination Act.
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THE TENNESSEE GREENMAIL ACT makes it unlawful, under certain specified
circumstances, for the Company to purchase any of its outstanding shares of a
certain class at a price above the market value of the shares from a stockholder
owning more than 3% of the shares to be purchased, if such person has held his
shares for less than two years, unless the purchase is approved by a majority of
the outstanding shares of that class or the Company makes a similar offer to all
stockholders of that class of securities.
THE TENNESSEE INVESTOR PROTECTION ACT imposes conditions on offerors making
a tender offer for an "offeree company" and requires such offeror file with the
Tennessee Commissioner of Insurance a registration statement containing
information similar to that required by federal law, including any plans which
the offeror has in acquiring control of the company. For purposes of the
Investor Protection Act, an "offeree company" is defined as a corporation or
other issuer of equity securities which is incorporated or organized under the
laws of Tennessee or has its principal office in Tennessee, has substantial
assets located in Tennessee and which is or may be involved in a takeover offer
relating to any class of its equity securities.
The Investor Protection Act also prohibits any offeror from making a
takeover offer which is not made to the holders of record or beneficial owners
of the equity securities of an offeree company who reside in Tennessee on
substantially the same terms as the offer is made to holders residing elsewhere.
The Investor Protection Act also imposes certain other restrictions on takeover
offers involving offeree companies. Although the Company is a Tennessee
corporation, it is not anticipated at this time that the Company would satisfy
the requirement of having substantial assets located in Tennessee and therefore
would not be deemed an offeree company and entitled to the protections of the
Investor Protection Act. It is possible that the Company could satisfy this
requirement in the future and parties seeking to make a takeover offer would be
subject to the requirements of the Investor Protection Act.
BENEFIT PLANS
In addition to the provisions of the Company's charter and bylaws described
above, certain benefit plans of ours adopted in connection with the conversion
contain provisions which also may discourage hostile takeover attempts which the
boards of directors might conclude are not in the best interests for us or our
stockholders. For a description of the benefit plans and the provisions of such
plans relating to changes in control, see "Management of Newport Federal Savings
Bank - Proposed Future Stock Benefit Plans."
REGULATORY RESTRICTIONS
For three years following conversion, OTS regulations prohibit any person,
without the prior approval of the OTS, from acquiring or making an offer to
acquire more than 10% of the stock of any converted savings institution if such
person is, or after consummation of such acquisition would be, the beneficial
owner of more than 10% of such stock. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10%
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shall not be counted as shares entitled to vote and shall not be voted by any
person or counted as voting shares in connection with any matter submitted to a
vote of stockholders.
Federal law provides that no company, "directly or indirectly or acting in
concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition, any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation as a savings and loan
holding company. Control in this context means ownership of, control of, or
holding proxies representing more than 25% of the voting shares of a savings
association or the power to control in any manner the election of a majority of
the directors of such institution.
Federal law also provides that no "person," acting directly or indirectly
or through or in concert with one or more other persons, may acquire control of
a savings association unless at least 60 days prior written notice has been
given to the OTS and the OTS has not objected to the proposed acquisition.
Control is defined for this purpose as the power, directly or indirectly, to
direct the management or policies of a savings association or to vote more than
25% of any class of voting securities of a savings association. Under federal
law (as well as the regulations referred to below) the term "savings
association" includes state-chartered and federally chartered SAIF-insured
institutions, federally chartered savings and loans and savings banks whose
accounts are insured by the FDIC and holding companies thereof.
Federal regulations require that, prior to obtaining control of an insured
institution, a person, other than a company, must give 60 days notice to the OTS
and have received no OTS objection to such acquisition of control, and a company
must apply for and receive OTS approval of the acquisition. Control, involves a
25% voting stock test, control in any manner of the election of a majority of
the institution's directors, or a determination by the OTS that the acquiror has
the power to direct, or directly or indirectly to exercise a controlling
influence over, the management or policies of the institution. Acquisition of
more than 10% of an institution's voting stock, if the acquiror also is subject
to any one of either "control factors," constitutes a rebuttable determination
of control under the regulations. The determination of control may be rebutted
by submission to the OTS, prior to the acquisition of stock or the occurrence of
any other circumstances giving rise to such determination, of a statement
setting forth facts and circumstances which would support a finding that no
control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock after the
effective date of the regulations must file with the OTS a certification that
the holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
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DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 9,000,000 shares of the common stock,
$0.01 par value per share, and 3,000,000 shares of Preferred Stock, $0.01 par
value per share. The Company currently expects to issue up to 370,300 shares of
common stock in the conversion. The Company does not intend to issue any shares
of Preferred Stock in the conversion, nor are there any present plans to issue
such Preferred Stock following the conversion. Each share of common stock will
have the same relative rights as, and will be identical in all respects with,
each other share of common stock. THE COMMON STOCK OF THE COMPANY WILL
REPRESENT NONWITHDRAWABLE CAPITAL AND WILL NOT BE INSURED BY US, THE FDIC, OR
ANY OTHER GOVERNMENT AGENCY.
COMMON STOCK
VOTING RIGHTS. Each share of the common stock will have the same relative
rights and will be identical in all respects with every other share of the
common stock. The holders of the common stock will possess exclusive voting
rights in the Company, except to the extent that shares of Preferred Stock
issued in the future may have voting rights, if any. Each holder of the common
stock will be entitled to only one vote for each share held of record on all
matters submitted to a vote of holders of the common stock and will not be
permitted to cumulate their votes in the election of the Company's
directors.
LIQUIDATION. In the unlikely event of the complete liquidation or
dissolution of the Company, the holders of the common stock will be entitled to
receive all assets of the Company available for distribution in cash or in kind,
after payment or provision for payment of (i) all debts and liabilities of the
Company (including all deposits with us and accrued interest thereon); (ii) any
accrued dividend claims; (iii) liquidation preferences of any Preferred Stock
which may be issued in the future; and (iv) any interests in the liquidation
account established upon the conversion for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders who continue to have their
deposits with us.
DIVIDENDS. From time to time, dividends may be declared and paid to the
holders of the common stock, who will share equally in any such dividends. For
information about cash dividends, see "Dividends" and "Taxation."
RESTRICTIONS ON ACQUISITION OF THE COMMON STOCK. See "Certain Restrictions
on Acquisition of the Company" for a discussion of the limitations on
acquisition of shares of the common stock.
OTHER CHARACTERISTICS. Holders of the common stock will not have preemptive
rights with respect to any additional shares of the common stock which may be
issued. Therefore, the board of directors may sell shares of capital stock of
the Company without first offering such shares to existing stockholders of the
Company. The common stock is not subject to call for redemption, and the
outstanding shares of common stock when issued and upon receipt by the Company
of the full purchase price therefor will be fully paid and non-assessable.
79
<PAGE>
SERIAL PREFERRED STOCK
None of the 3,000,000 authorized shares of Preferred Stock of the Company
will be issued in the conversion. After the conversion is completed, the board
of directors of the Company will be authorized to issue serial preferred stock
and to fix and state voting powers, designations, preferences or other special
rights of such shares and the qualifications, limitations and restrictions
thereof, subject to regulatory approval but without stockholder approval. If
and when issued, the serial preferred stock is likely to rank prior to the
common stock as to dividend rights, liquidation preferences, or both, and may
have full or limited voting rights. The board of directors, without stockholder
approval, can issue serial preferred stock with voting and conversion rights
which could adversely affect the voting power of the holders of the common
stock. The board of directors has no present intention to issue any of the
serial preferred stock.
LEGAL AND TAX MATTERS
The legality of the common stock has been passed upon for us by Housley
Kantarian & Bronstein, P.C., Washington, D.C. Certain legal matters for
Trident Securities may be passed upon by Silver Freedman & Taff, L.L.P.,
Washington, D.C. The federal income tax consequences of the conversion have been
passed upon for us by Housley Kantarian & Bronstein, P.C., Washington, D.C. The
Arkansas income tax consequences of the conversion have been passed upon for us
by KPMG Peat Marwick LLP.
EXPERTS
The financial statements of Newport Federal Savings Bank as of June 30,
1997 and 1996, and for the years then ended, have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon authority of said firm as
experts in accounting and auditing.
Ferguson has consented to the publication herein of a summary of its letters
to us setting forth its opinion as to the estimated pro forma market value of us
in the converted form and its opinion setting forth the value of subscription
rights and to the use of its name and statements with respect to it appearing in
this document.
80
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement on Form SB-2
under the Securities Act of 1933, as amended, with respect to the common stock
offered in this document. As permitted by the rules and regulations of the SEC,
this document does not contain all the information set forth in the registration
statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. The SEC also maintains an internet address ("Web site") that
contains reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with the
SEC. The address for this Web site is " http: //www. sec. gov. " The
statements contained in this document as to the contents of any contract or
other document filed as an exhibit to the Form SB-2 describe the material
features of such contract or document but are, of necessity, brief descriptions
and are not necessarily complete; each such statement is qualified by reference
to such contract or document.
Newport Federal Savings Bank has filed an Application for conversion with
the OTS with respect to the conversion. Pursuant to the rules and regulations
of the OTS, this document omits certain information contained in that
Application. The Application may be examined at the principal office of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the Midwest Regional
Office of the OTS, 122 W. John Carpenter Freeway, Suite 600, Irving, Texas 75039
without charge.
A copy of the Charter and the Bylaws of the Company are available without
charge from Newport Federal Savings Bank.
81
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report F-1
Statements of Financial Condition as of June 30, 1997 and 1996 F-2
Statements of Operations for the Years Ended June 30, 1997 and 1996 F-3
Statements of Retained Earnings for the Years Ended June 30, 1997 and 1996 F-4
Statements of Cash Flows for the Years Ended June 30, 1997 and 1996 F-5
Notes to Financial Statements F-7
</TABLE>
All schedules are omitted because the required information is either not
applicable or is included in the financial statements or related notes.
Separate financial statements for the Company have not been included since it
will not engage in material transactions until after the conversion. The
Company, which has been inactive to date, has no significant assets,
liabilities, revenues, expenses or contingent liabilities.
82
<PAGE>
GLOSSARY
ARM Loan Adjustable-rate mortgage loan.
BIF Bank Insurance Fund of the FDIC
Common Stock The common stock, $.01 par value per share, of North
Arkansas Bancshares, Inc.
Community Offering Offering for sale to certain members of the general
public of anyshares of common stock not subscribed for
in the Subscription Offering, including the possible
offering of common stock in a Syndicated Community
Offering
Company North Arkansas Bancshares, Inc.
Conversion Simultaneous conversion of Newport Federal Savings
Bank, to stock form, the issuance of the Newport
Federal Savings Bank's outstanding capital stock to the
Company and the Company's offer and sale of common
stock
Eligible Account
Holders Savings account holders of Newport Federal Savings Bank
with account balances of at least $50 as of the close
of business on December 31, 1995
ERISA Employee Retirement Income Security of 1974, as amended
ESOP Employee Stock Ownership Plan
Estimated
Valuation Range Estimated pro forma market value of the common stock
ranging from $2,380,000 to $3,220,000
Exchange Act Securities Exchange Act of 1934, as amended
Expiration Date 12:00 p.m., Central time, on ________, 1997
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
Federal Reserve System The Board of Governors of the Federal Reserve System
<PAGE>
Ferguson Ferguson & Company
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
IRA Individual retirement account or arrangement
IRS Internal Revenue Service
MRP Management recognition plan to be adopted no earlier
than six months after the conversion
NASD National Association of Securities Dealers, Inc.
NOW account Negotiable order of withdrawal account
NPV Net portfolio value
Offering Subscription, Community and Syndicated Community
offerings, collectively
Option Plan Stock option plan to be adopted within one year of the
conversion
Order Form Form for ordering stock accompanied by a certification
concerning certain matters
Other Members Savings account holders (other than eligible account
holders and supplemental eligible account holders) and
certain borrowers (borrowers whose loans were
outstanding on August 21, 1997 and continue to be
outstanding) who are entitled to vote at the Special
Meeting due to the existence of a savings account or a
borrowing, respectively, on the Voting Record Date for
the Special Meeting
OTC Bulletin Board An electronic stock data system operated by Nasdaq
OTS Office of Thrift Supervision
Plan of Conversion Plan of Newport Federal Savings Bank to convert from a
federally chartered mutual savings bank to a federally
chartered stock savings
<PAGE>
bank and the issuance of all of Newport Federal Savings
Bank's outstanding capital stock to the Company and the
issuance of the Company's stock to the public
Purchase Price $10.00 per share price of the common stock
SAIF Savings Association Insurance Fund of the FDIC
SEC Securities and Exchange Commission
Securities Act Securities Act of 1933, as amended
SFAS Statement of Financial Accounting Standards adopted by
FASB
Special Meeting Special Meeting of members of Newport Federal Savings
Bank called for the purpose of approving the Plan
Subscription Offering Offering of non-transferable rights to subscribe for
the common stock, in order of priority, to Eligible
Account Holders, tax-qualified employee plans,
Supplemental Eligible Account Holders and Other Members
Supplemental Eligible Depositors, who are not Eligible Account Holders of
Newport
Account Holders Federal Savings Bank, with account balances of at least
$50 on September 30, 1997.
Syndicated Community Offering of shares of common stock remaining after the
Subscription
Offering Offering and undertaken prior to the end and as part of
the Community Offering, and which may, at our
discretion be made to the general public on a best
efforts basis by a selling group of broker-dealers.
Trident Securities Trident Securities, Inc.
Voting Record Date The close of business on _____________, 1997, the date
for determining members entitled to vote at the Special
Meeting.
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Newport Federal Savings Bank:
We have audited the accompanying statements of financial condition of Newport
Federal Savings Bank as of June 30, 1997 and 1996, and the related statements of
operations, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Newport Federal Savings Bank as
of June 30, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
August 8, 1997
F-1
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Statements of Financial Condition
June 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Cash and amounts due from banks, includes interest
bearing deposits of $603,729 and $917,745 in 1997
and 1996, respectively $ 884,002 1,167,202
Certificates of deposit with other financial institutions 691,000 890,000
Investment securities held-to-maturity, at cost (notes 2 and 8) 5,922,956 6,310,348
Loans receivable, net (notes 3, 4 and 8) 24,794,194 21,982,108
Real estate acquired in settlement of loans, net - 123,830
Office properties and equipment, net (note 5) 1,651,298 1,666,980
Accrued interest receivable (note 6) 227,356 226,995
Other assets (note 9) 207,760 78,332
------------ ------------
Total assets $ 34,378,566 32,445,795
============ =============
LIABILITIES AND RETAINED EARNINGS
---------------------------------
Deposits (notes 2 and 7) $ 31,072,533 29,657,098
Federal Home Loan Bank advances (note 8) 618,389 133,916
Advances from borrowers for taxes and insurance 57,459 58,719
Other liabilities (notes 9 and 11) 363,916 131,020
------------ ------------
Total liabilities 32,112,297 29,980,753
Retained earnings - substantially restricted (notes 9, 12 and 15) 2,266,269 2,465,042
Commitments and contingencies (notes 3, 10, 11, 12, 14 and 15)
------------ ------------
Total liabilities and retained earnings $ 34,378,566 32,445,795
============ =============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Statements of Operations
Years ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans receivable $ 2,011,121 1,814,100
Deposits in other financial institutions 72,337 128,764
Mortgage-backed securities 338,621 280,201
Investment securities 71,261 105,499
--------- ---------
Total interest income 2,493,340 2,328,564
--------- ---------
Interest expense:
Deposits 1,540,820 1,517,090
Federal Home Loan advances 56,074 8,081
--------- ---------
Total interest expense 1,596,894 1,525,171
--------- ---------
Net interest income 896,446 803,393
Provision for loan losses (note 4) 90,000 10,000
--------- ---------
Net interest income after provision
for loan losses 806,446 793,393
--------- ---------
Non-interest income - other 19,156 10,758
--------- ---------
Non-interest expenses:
Salaries and employee benefits (note 11) 647,478 346,550
Legal and professional fees 12,032 16,050
Data processing fees 62,313 59,685
Federal insurance expense (note 12) 217,054 62,739
Furniture and equipment expense 32,953 20,783
Occupancy expense 58,516 39,456
Other expense 127,020 180,469
--------- ---------
1,157,366 725,732
--------- ---------
Income (loss) before income taxes (331,764) 78,419
Income tax expense (benefit) (note 9) (132,991) 5,571
--------- ---------
Net income (loss) (198,773) 72,848
========= =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Statement of Retained Earnings
Years ended June 30, 1997 and 1996
Balance at June 30, 1995 $2,392,194
Net Income 72,848
----------
Balance at June 30, 1996 2,465,042
Net Loss (198,773)
----------
Balance at June 30, 1997 $2,266,269
==========
See accompanying notes to financial statements.
F-4
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Statements of Cash Flows
Years ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (198,773) 72,848
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 57,395 15,916
Loss on sale of real estate owned 23,208 -
FHLB stock dividends (15,800) (15,792)
Net premium amortization on investments 10,752 23,256
Provision for loan losses 90,000 10,000
Increase in interest receivable (361) (13,992)
Increase in other assets (109,428) (28,164)
Increase in other liabilities 232,896 16,902
--------- ---------
Net cash provided by operating
Activities 89,889 80,974
--------- ---------
Cash flows from investing activities:
Purchase of held to maturity ("HTM") securities (850,310) (2,020,830)
Proceeds from maturities/principal repayments
of HTM securities 1,242,750 2,245,363
Net increase in loans receivable (2,427,390) (855,164)
Purchase of loans (500,000) (1,005,000)
Net decrease in certificates of deposit with
other financial institutions 199,000 196,000
Purchase of office properties and equipment (41,713) (758,676)
Proceeds from sale of real estate owned 105,926 -
--------- ---------
Net cash used in investing
Activities (2,271,737) (2,198,307)
--------- ---------
Cash flows from financing activities:
Net increase in deposits and advances from
Borrowers 1,414,175 1,913,688
Net increase (decrease) in Federal Home Loan
advances 484,473 (14,670)
--------- ---------
Net cash provided by financing
Activities 1,898,648 1,899,018
--------- ---------
Net decrease in cash and amounts due
from banks (283,200) (218,315)
Cash and amounts due from banks at beginning of year 1,167,202 1,385,517
--------- ---------
Cash and amounts due from banks at end of year $ 884,002 1,167,202
========= =========
Supplemental disclosures of cash flow information: Noncash
investing and financing activities:
Transfers from loans to real estate acquired
through foreclosure $ 25,304 20,224
Transfers from real estate acquired through
foreclosure to other assets 20,000 -
Cash paid during the year:
Interest on deposits 1,544,363 1,525,446
Income taxes 10,860 17,660
========= =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
June 30, 1997 and 1996
(1) Summary of Significant Accounting Policies
------------------------------------------
Newport Federal Savings Bank ("Bank") is a federally-chartered mutual
savings bank. The accounting principles used and methods of applying
them conform with generally accepted accounting principles and
practices within the savings and loan industry. The following are
descriptions of the more significant of the accounting and reporting
policies.
(a) Basis of Financial Statement Presentation
-----------------------------------------
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. Material
estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan
losses. Actual results could differ significantly from those
estimates.
Management believes that the allowance for losses on loans is adequate.
While management uses available information to recognize losses on
loans and real estate owned, future additions to the allowance may be
necessary based on changes in economic conditions. In addition,
regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for losses on
loans. Such agencies may require the Bank to recognize additions to
the allowance based on their judgments about information available to
them at the time of their examination.
The Bank adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," in
fiscal 1997. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of this Statement had no
impact on the Bank's financial condition or results of operations.
(b) Investment Securities
---------------------
Investment securities consist of mortgage-backed, U.S. Government
agency and state and political subdivision securities. The Bank
classifies its investment securities into one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities
are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities in
which the Bank has the ability and intent to hold the security until
maturity. All other securities not included in trading or held-to-
maturity are classified as available-for-sale. All investment
securities were classified as held-to-maturity at June 30, 1997 and
1996.
(Continued)
F-6
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses on trading securities are
included in earnings. Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities are excluded
from earnings and are reported as a separate component of equity
until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific
identification basis.
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed to be other than
temporary results in a reduction in carrying amount to fair value.
The impairment is charged to earnings and a new cost basis for the
security is established. Premiums and discounts are amortized or
accreted over the life of the related held-to-maturity security as an
adjustment to yield using the effective interest method. Dividend and
interest income are recognized when earned.
(c) Allowance for Losses
--------------------
Effective July 1, 1995, the Bank adopted SFAS No. 114, "ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN," as amended by SFAS No. 118
(collectively, "Statement 114"). Statement 114 addresses the
accounting treatment of certain impaired loans and amends SFAS No.'s
5 and 15. Statement 114 does not apply to large groups of
smaller-balance homogeneous loans unless they have been involved in a
restructuring. The adoption of Statement 114 had no effect on 1996
earnings.
Management, considering current information and events regarding the
borrowers ability to repay their obligations, considers a note to be
impaired when it is probable that the Bank will be unable to collect
all amounts due according to the contractual terms of the note
agreement. When a loan is considered to be impaired, the amount of
the impairment is measured using discounted cash flows, except when
it is determined that the sole (remaining) source of repayment for
the loans is the operation or liquidation of the underlying
collateral. In such case, the current fair value of the collateral,
reduced by costs to sell, will be used in place of discounted cash
flows. If the measurement of the impaired loan is less than the
recorded investment in the loan (including accrued interest),
impairment is recognized by creating or adjusting an existing
allocation of the allowance for loan losses. Statement 114 does not
change the timing of charge-offs of loans to reflect the amount
ultimately expected to be collected.
The accrual of interest on a loan is discontinued when, in management's
judgment, the interest will not be collectible in the normal course
of business. Also, in accordance with regulatory guidelines, a loan
is placed on nonaccrual status when it becomes 90 days past due
(although said loan would not necessarily be considered impaired).
When interest is discontinued, all interest previously accrued in the
current year, but not collected, is reversed against interest income.
Any interest accrued in prior years is charged against the allowance
for loan losses. Subsequent cash receipts are generally applied to
reduce the unpaid principal balance. A loan is returned to accrual
status and is no longer considered to be impaired when it becomes
current as to principal and interest or demonstrates a period of
performance under the contractual terms. The Bank did not change its
method of recognizing interest income on impaired loans upon adoption
of Statement 114.
(Continued)
F-7
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
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 upon the Bank's
past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may effect the borrower's ability to repay,
the estimated value of any underlying collateral, and current
economic conditions.
(d) Real Estate Acquired in Settlement of Loans
-------------------------------------------
Real estate properties acquired through loan foreclosure are initially
recorded at the lower of the related loan balance, less any specific
allowance for loss, or fair value at the date of foreclosure less
estimated costs to sell. Costs relating to development and
improvement of property are capitalized, whereas costs relating to
holding property are expensed.
Valuations are periodically performed by management and an allowance for
losses is established by a charge to operations if the carrying value
of a property exceeds its estimated net realizable value.
(e) Loan Origination Fees and Related Cost
--------------------------------------
Loan fees are accounted for in accordance with SFAS No. 91. Loan fees
and certain direct loan origination costs are deferred, and the net
fee or cost is recognized in income over the contractual life of the
loan, adjusted for estimated prepayments, using a method materially
the same as the level-yield method.
(f) Interest Income
---------------
Discounts and premiums on investment securities and loans are
accreted/amortized over the estimated remaining lives of the
securities and loans using a method which approximates the level
yield method. Interest income on loans is recognized under the
interest method, a basis which approximates a level rate of return
over the term of the loan.
(g) Office Properties and Equipment
-------------------------------
Office properties and equipment are carried at cost less accumulated
depreciation. Depreciation is computed under the straight-line method
over a period of 5 to 30 years. Maintenance and repairs are charged
to expense as incurred.
(h) Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
(Continued)
F-8
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
(i) Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents are
defined as those amounts included in the statement of financial
condition caption "cash and amounts due from banks."
(j) Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to current
year presentation.
(2) Investment Securities
---------------------
The carrying value, unrealized gains, unrealized losses and estimated fair
value of held to maturity investment securities are as follows:
<TABLE>
<CAPTION>
Obligations
U.S. of states Mortgage-
Government And backed Other
political
Agencies Subdivisions securities securities Total
-------- ------------ ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Investments held to maturity:
June 30, 1997:
Carrying value $ 500,000 62,500 5,076,965 283,491 5,922,956
Unrealized gains - - 82,837 - 82,837
Unrealized losses (289) - (54,494) - (54,783)
----------- ------- ----------- --------- -----------
Fair value $ 499,711 62,500 5,105,308 283,491 5,951,010
=========== ======= =========== ========= ===========
Investments held to maturity:
June 30, 1996:
Carrying value $ 1,000,000 80,000 4,962,656 267,692 6,310,348
Unrealized gains - - 39,016 - 39,016
Unrealized losses (7,650) - (61,225) - (68,875)
----------- ------- ----------- --------- -----------
Fair value $ 992,350 80,000 4,940,447 267,692 6,280,489
=========== ======= =========== ========= ===========
</TABLE>
Mortgage-backed securities held by the Bank at June 30, 1997 and 1996 were
issued by the Government National Mortgage Association, the Federal
National Mortgage Association or the Federal Home Loan Mortgage
Corporation.
As a member of the Federal Home Loan Bank System, the Bank is required to
maintain an investment ($282,892 and $267,092 at June 30, 1997 and 1996,
respectively, and included in other held to maturity securities) in the
capital stock of the Federal Home Loan Bank in an amount equal to 1% of
its outstanding home loans. No ready market exists for such stock and it
has no quoted market value.
(Continued)
F-9
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
The amortized cost and estimated fair value of debt securities held to
maturity at June 30, 1997 by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties:
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
---- ----------
<S> <C> <C>
Due in one year or less $ - -
Due after one year through five years 508,750 508,461
Due after five years through ten years 12,500 12,500
Due after ten years 41,250 41,250
--------- ---------
562,500 562,211
Mortgage-backed securities 5,076,965 5,105,308
Other 283,491 283,491
--------- ---------
$ 5,922,956 5,951,010
========= =========
</TABLE>
Investment securities with a par value of approximately $1,640,300 and
$394,700 at June 30, 1997 and 1996, respectively, were pledged to secure
public deposits.
(3) Loans Receivable
----------------
Loans receivable consist of the following at June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
First mortgage loans $ 21,227,604 20,259,315
Loans to depositors, secured by savings 443,472 256,208
Property improvement loans 666,078 762,789
Automobile loans 2,009,779 648,895
Other consumer loans 510,235 137,686
Commercial loans 92,938 -
---------- ----------
24,950,106 22,064,843
Less:
Unearned discounts on loans purchased 5,780 9,266
Net deferred loan fees 337 469
Allowance for losses (note 4) 149,795 73,000
---------- ----------
$ 24,794,194 21,982,108
========== ==========
</TABLE>
Loans serviced for others at June 30, 1997 and 1996, were $291,699 and
$423,231, respectively.
Approximately 65% of the Bank's loans are first mortgage loans on 1-to-4
family residences located in Jackson County, Arkansas, which is the Bank's
primary operating territory. These loans are expected to be repaid from the
borrower's personal income or proceeds from the sale of the residence. The
Bank's normal collateral policy is to require an initial loan to collateral
value ratio of 80% or less.
(Continued)
F-10
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
Loans to executive officers and directors are, in the opinion of management,
made in the ordinary course of business and at substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable loans of like qualities and risk of collectibility.
The aggregate indebtedness of these individuals to
the Bank is summarized as follows:
<TABLE>
<S> <C>
Balance at June 30, 1995 $ 504,327
----------
Additions 371,125
Repayments (212,538)
----------
Balance at June 30, 1996 662,914
----------
Additions 193,207
Repayments (130,747)
----------
Balance at June 30, 1997 $ 725,374
==========
</TABLE>
(4) Allowance for Losses on Loans
-----------------------------
The following summarizes the activity in the allowance for losses on loans:
<TABLE>
<S> <C>
Balance at June 30, 1995 $ 63,000
Provision for losses 10,000
-------
Balance at June 30, 1996 73,000
Provision for losses 90,000
Charge-offs (13,205)
-------
Balance at June 30, 1997 $ 149,795
=======
</TABLE>
(5) Office Properties and Equipment
-------------------------------
Office properties and equipment consist of the following at June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 320,866 320,866
Buildings and improvements 1,375,257 1,375,040
Furniture and equipment 501,694 460,198
--------- ---------
2,197,817 2,156,104
Less accumulated depreciation (546,519) (489,124)
--------- ---------
$ 1,651,298 1,666,980
========= =========
</TABLE>
Included in office properties is land and a building with a book value of
approximately $230,000 that is being leased on a month-to-month basis.
(Continued)
F-11
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
(6) Accrued Interest Receivable
---------------------------
Accrued interest receivable consists of the following at June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Loans $ 180,934 168,572
Mortgage-backed securities 33,711 34,786
Investment securities 11,295 21,585
Certificates of deposit 1,416 2,052
------- -------
$ 227,356 226,995
======= =======
</TABLE>
(7) Deposits
--------
Deposits consist of the following at June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Money market $ 325,336 524,861
NOW accounts (2.40% in 1997 and 1996) 1,669,713 1,447,854
Passbook accounts (3.00% in 1997 and 1996) 1,892,596 1,360,861
Other noninterest bearing/checking 982,720 349,016
---------- ----------
4,870,365 3,682,592
Certificates:
3.00% to 3.99% - 49,647
4.00% to 4.99% 83,631 -
5.00% to 5.99% 26,118,537 16,666,108
6.00% to 6.99% - 9,258,751
---------- ----------
26,202,168 25,974,506
---------- ----------
Total $ 31,072,533 29,657,098
========== ==========
Weighted average cost of deposits 5.19% 5.24%
==== ====
</TABLE>
The aggregate amount of certificates of deposit, each with a minimum
denomination of $100,000, was approximately $3,360,700 and $3,254,400 at
June 30, 1997 and 1996, respectively. The amount of an individual deposit
exceeding $100,000 is not insured by the Federal Deposit Insurance
Corporation.
A summary of certificates by maturity at June 30, 1997 is approximately as
follows:
<TABLE>
<S> <C>
Less than one year $ 10,787,000
One to two years 9,962,000
Two to three years 1,135,000
Three to four years 2,684,000
Four to five years 1,634,000
----------
$ 26,202,000
==========
</TABLE>
Interest expense on deposits consists of the following at June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Money market $ 10,777 $ 14,700
NOW accounts 37,390 32,254
Passbook accounts 47,738 36,274
Certificates 1,444,915 1,433,862
---------- ----------
$ 1,540,820 $ 1,517,090
</TABLE>
(Continued)
F-12
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
Some of the directors, officers, and employees of the Bank are also
customers. As such customers, at June 30, 1997 and 1996, the aggregate
deposits of those individuals were approximately $439,000 and $243,000,
respectively.
(8) Federal Home Loan Bank Advances
-------------------------------
Federal Home Loan Bank (FHLB) advances at June 30, 1997 and 1996 consist of
a long-term obligation of $118,389 and $133,916, respectively, which has
a maturity date of August, 2003 and is payable in monthly installments
of approximately $1,900, including interest at 5.7%. In addition, at
June 30, 1997 advances include a short-term obligation of $500,000 with
interest of 5.53% due July 1997. There were no short-term obligations of
FHLB advances at June 30, 1996. Pursuant to a collateral agreement with
the FHLB, advances are secured by certain investment securities and
qualifying first mortgage loans.
(9) Income Taxes
------------
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current Federal income tax $ (87,342) 1,406
Current state income tax - (1,866)
Deferred (45,649) 6,031
-------- -----
Total $ (132,991) 5,571
======= =====
</TABLE>
The actual tax expense (benefit) for 1997 and 1996 differs from the
"expected" tax expense (benefit) for those years (computed by applying
the U.S. Federal corporate tax rate of 34% to income (loss) before
income taxes) as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Income tax expense (benefit) "expected" rate $ (112,800) 26,662
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal
income tax benefit (12,587) (988)
Adjustment for graduated rates - (14,900)
Other, net (7,604) (5,203)
------- ------
$ (132,991) 5,571
======= ======
Effective tax rate 40.1% 7.1%
======= ======
</TABLE>
(Continued)
F-13
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
Included in other assets are refundable Federal taxes of $115,771 and
$26,189 at June 30, 1997 and 1996, respectively. Included in other
liabilities are net deferred tax liabilities of $4,903 and $50,552 at
June 30, 1997 and 1996, respectively.
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at June 30, 1997 and
1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 16,698 -
Contribution carryforwards 11,502 6,343
Allowance for losses on loans 35,239 806
Other 903 903
------ ------
Total gross deferred tax assets 64,342 8,052
------ ------
Deferred tax liabilities:
Property and equipment, due to
differences in depreciation (33,109) (25,180)
Prepaid insurance, expensed as
incurred for tax purposes (8,000) (11,453)
FHLBB stock, primarily due to stock
dividends not recognized for tax
Purposes (27,867) (21,721)
Other (269) (250)
------ --------
Total gross deferred tax liabilities (69,245) (58,604)
Net deferred tax liability (included
in other liabilities) $ (4,903) (50,552)
====== ======
</TABLE>
Based on the Bank's historical ability to generate future taxable income
exclusive of reversing temporary differences, management believes it is
more likely than not that the Bank will realize the benefits of the
deferred tax assets at June 30, 1997 in future periods.
At June 30, 1997 the Bank has net operating loss carryforwards for state
income tax purposes of $256,888, which are available to offset future
state taxable income, if any, through 2002.
Retained earnings at June 30, 1997 includes approximately $550,000 for
which no deferred Federal income tax liability has been recognized. This
amount represents an allocation of income to bad debt deductions for tax
purposes only. Reductions of amounts so allocated for purposes other
than tax bad debt losses may create income for tax purposes only, which
would be subject to then current corporate income tax rates.
(Continued)
F-14
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
(10) Commitments and Contingencies
-----------------------------
The Bank is a participant in a trusteed multi-employer retirement plan.
The defined-benefit plan has noncontributory and contributory features
and covers substantially all employees. Because this plan is a multi-
employer plan, separate actuarial valuations are not available for each
employer. The retirement plan's actuarial value is such that no
contributions were required in 1997 or 1996.
The Bank, from time to time, is involved in various legal actions arising
in the ordinary course of business. In the opinion of management the
ultimate disposition of these matters will not have a material adverse
effect on the Bank's financial statements.
(11) Director's Retirement Plan
--------------------------
Effective May 29, 1997 the Bank adopted a retirement plan for directors.
Participants in the plan are individuals who serve on the Bank's board
on or after the effective date. The plan awarded benefits for past
services rendered by each participant who was a director on the
effective date. The funding for past services totaled $286,047 and is
included in other liabilities at June 30, 1997. The Bank will contribute
additional amounts to the plan each year based on a defined performance
factor.
(12) Regulatory Matters
------------------
The Bank is subject to various regulatory capital requirements
administered by the federal agencies. Failure to meet minimum
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 measures of the Bank's assets, liabilities, and certain
off-statement of financial condition items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 and
tangible capital (as defined) to adjusted total assets (as defined).
Management believes, as of June 30, 1997, that the Bank meets all
capital adequacy requirements to which it is subject.
As of June 30, 1997 and 1996, the most recent notification from the Office
of Thrift Supervision ("OTS") categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
capital (to risk weighted assets), Tier I capital (to risk weighted
assets), Tier I capital (to adjusted total assets) and tangible capital
(to adjusted total assets) ratios as set forth in the table. There are
no conditions or events since that notification that management believes
have changed the Bank's regulatory capital category.
(Continued)
F-15
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
The Bank's actual capital amounts and ratios are presented in the
following table.
<TABLE>
<CAPTION>
Minimum required
to be well
Minimum required capitalized under
for capital prompt corrective
Actual adequacy purposes action provisions
----------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Total capital (to Risk
Weighted Assets) $ 2,411,064 13.2% $ 1,463,360 8.0% $ 1,829,200 10.0%
Tier I Capital (to Risk
Weighted Assets) 2,266,269 12.4 731,880 4.0 1,097,820 6.0
Tier I Capital (to Adjusted
Total Assets) 2,266,269 6.6 1,375,143 4.0 1,718,928 5.0
Tangible Capital (to
Adjusted Total Assets) 2,266,269 6.6 515,678 1.5 515,678 1.5
As of June 30, 1996:
Total capital (to Risk
Weighted Assets) 2,523,042 15.7 1,288,400 8.0 1,610,500 10.0
Tier I Capital (to Risk
Weighted Assets) 2,465,042 15.3 644,800 4.0 967,200 6.0
Tier I Capital (to Adjusted
Total Assets) 2,465,042 7.6 1,297,832 4.0 1,622,290 5.0
Tangible Capital (to
Adjusted total Assets) 2,465,042 7.6 486,687 1.5 486,687 1.5
</TABLE>
Tier I and tangible capital differ from total capital at June 30, 1997 and
1996 due to the non-specific allowance for loan losses.
The Bank pays annual assessments to the Savings Association Insurance Fund
(SAIF). A one time SAIF assessment of $179,129 was recorded in
September, 1996 and is included as Federal insurance expense in the
accompanying 1997 statement of operations.
(13) Financial Instruments
---------------------
SFAS No. 107, "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS"
("SFAS 107"), requires disclosure of fair value information about
financial instruments, whether or not recognized in the statement of
financial condition, for which it is practicable to estimate that value.
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments:
CASH AND AMOUNTS DUE FROM BANKS - The carrying amount of such
-------------------------------
instruments is deemed to be a reasonable estimate of fair value.
(Continued)
F-16
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
CERTIFICATES OF DEPOSIT WITH OTHER FINANCIAL INSTITUTIONS - The estimated
---------------------------------------------------------
fair value of such instruments is based on discounted amounts receivable
using current market rates for certificates with similar maturities.
INVESTMENT SECURITIES - Fair values for investment securities are based on
---------------------
quoted market prices.
LOANS RECEIVABLE - Fair values are estimated for portfolios of loans with
----------------
similar financial characteristics. Loans are segregated by type such as
real estate, commercial and consumer which are also segmented into fixed
and adjustable rate interest terms and by performing and nonperforming
loans.
The fair value of performing loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount
rates that reflect the credit and interest rate risk inherent in the loan.
The estimate of maturity is based on the Bank's historical experience with
repayments for each loan classification, modified, as required, by an
estimate of the effect of current economic and lending conditions.
Fair value for any significant nonperforming secured loans is based on
recent external appraisals. If appraisals are not available or the loan is
unsecured, estimated cash flows are discounted using a rate commensurate
with the risk associated with the estimated cash flows. Assumptions
regarding credit risk, cash flows, and discount rates are judgmentally
determined using available market information and specific borrower
information.
ACCRUED INTEREST RECEIVABLE - The carrying amounts of accrued interest
---------------------------
approximate their fair values.
DEPOSITS - The fair values disclosed for demand deposits are, as required
--------
by SFAS 107, equal to the amounts payable on demand at the reporting date
(i.e., their stated amounts). The fair value of certificates of deposit are
estimated by discounting the amounts payable at the certificate rates using
the rates currently offered for deposits of similar remaining maturities.
FEDERAL HOME LOAN BANK ADVANCES - The estimated fair value of advances from
-------------------------------
the FHLB is based on discounting amounts payable at contractual rates using
current market rates for advances with similar maturities.
(Continued)
F-17
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
The approximate stated and estimated fair value of financial instruments
are summarized below (in thousands of dollars):
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------
1997 1996
---------------------------- ---------------------------
Stated Estimated Stated Estimated
Amount fair value amount fair value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and amounts due from banks $ 884,002 884,002 1,167,202 1,167,202
Certificates of deposit with other
financial institutions 691,000 691,000 890,000 890,000
Investment securities 5,922,956 5,951,010 6,310,348 6,280,489
Loans receivable, net 24,794,194 25,178,798 21,982,108 22,350,256
Accrued interest receivable 227,356 227,356 226,995 226,995
Financial liabilities:
Deposits:
Demand accounts 4,870,365 4,870,365 3,682,592 3,682,592
Certificate accounts 26,202,168 26,272,622 25,974,506 25,956,816
Federal Home Loan Bank advances 618,389 613,921 133,916 127,146
</TABLE>
The Bank had off-statement of financial condition financial commitments at
June 30, 1997 and 1996, which include approximately $253,000 and
$11,000, respectively, of commitments to originate and fund loans. Of
these off-statement of financial condition financial commitments, $4,000
were fixed rate commitments at June 30, 1997 with a stated interest rate
of 11.5%. No commitments at June 30, 1996 were fixed rate commitments.
Since these commitments are based on current market rates, the
commitment amount is considered to be a reasonable estimate of fair
market value.
(14) Pending Acquisition
-------------------
In August 1997, the Bank entered into an agreement to purchase
deposits of approximately $6,000,000 from another institution. The
transaction is expected to close in January 1998.
(15) Plan of Conversion
------------------
On May 29, 1997, the Bank's Board of Directors formally approved a plan
("Plan") to convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank subject to approval by the Bank's
members as of a still-to-be determined future voting record date. The
Plan, which includes formation of a holding company, is subject to
approval by the OTS and includes the filing of a registration statement
with the Securities and Exchange Commission. As of June 30, 1997, the
Bank had incurred conversion costs of approximately $14,000 which have
been deferred. If the conversion is ultimately successful, actual
conversion costs will be accounted for as a reduction in gross proceeds.
If the conversion is unsuccessful, the conversion costs will be
expensed.
(Continued)
F-18
<PAGE>
NEWPORT FEDERAL SAVINGS BANK
Notes to Financial Statements
The Plan calls for the common stock of the Bank to be purchased by a
holding company and for the common stock of the holding company to be
offered to various parties in a subscription offering at a price based
on an independent appraisal. It is anticipated that any shares not
purchased in the subscription offering will be offered in a direct
community offering, and then any remaining shares offered to the general
public in a solicited offering.
The stockholders of the holding company will be asked to approve a proposed
stock option plan and a proposed restricted stock plan at a meeting of
the stockholders after the conversion. Shares issued to directors and
employees under these plans may be from authorized but unissued shares
of common stock or they may be purchased in the open market. In the
event that options or shares are issued under these plans, such
issuances will be included in the earnings per share calculation; thus,
the interests of existing stockholders would be diluted.
The Bank may not declare or pay a cash dividend if the effect thereof would
cause its net worth to be reduced below either the amounts required for
the liquidation account discussed below or the regulatory capital
requirements imposed by federal regulations.
At the time of conversion, the Bank will establish a liquidation account,
which will be a memorandum account that does not appear on the statement
of financial condition, in an amount equal to its retained earnings as
reflected in the latest statement of financial condition used in the
final conversion prospectus. The liquidation account will be maintained
for the benefit of eligible account holders who continue to maintain
their deposit accounts in the Bank after conversion. In the event of a
complete liquidation of the Bank (and only in such an event), eligible
depositors who continue to maintain accounts shall be entitled to
receive a distribution from the liquidation account before any
liquidation may be made with respect to common stock.
F-19
<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this document In connection with
the offering made hereby, and, ff given or made, such information or
representations must not be relied upon as having been authorized by Newport
Federal Savings Bank, the Company, or Trident Securities. This document does
not constitute an offer to sell, or the solicitation of an offer to buy, any of
the securities offered hereby to any person in any jurisdiction In which such
offer or solicitation would be unlawful. Neither the delivery of this document
by Newport Federal Savings Bank, the Company, or Trident Securities nor any sale
made hereunder shall in any circumstances create an implication that there has
been no change in the of Newport Federal Savings Bank or the Company, since any
of the dates as of which information is furnished herein or since the date
hereof.
NORTH ARKANSAS BANCSHARES, INC.
UP TO 322,000 SHARES
(ANTICIPATED MAXIMUM)
COMMON STOCK
PROSPECTUS
TRIDENT SECURITIES, INC.
DATED __________, 1997
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
UNTIL THE LATER OF _________, 1997, OR 25 DAYS AFTER COMMENCEMENT OF THE
OFFERING OF COMMON STOCK, ALL DEALERS THAT BUY, SELL OR TRADE THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REWARDED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING M UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
<TABLE>
<CAPTION>
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<S> <C>
* Legal Fees and Expenses.......................... $105,000
* Printing, Word Processing, Postage and Mailing... 55,000
* Appraisal Fees and Expenses...................... 17,000
* Business Plan Fee and Expenses................... 12,000
* Accounting Fees and Expenses..................... 75,000
* Blue Sky Filing Fees and Expenses
(including counsel fees).......................... 8,000
* Transfer Agent Fees.............................. 4,000
* Conversion Agent Fees............................ 7,000
* Federal Filing Fees (OTS and SEC)................ 11,000
* Other Expenses................................... 1,000
--------
Total.............................................. $295,000
========
- ---------------------
</TABLE>
* Estimated
** Does not include $105,000 in estimated underwriting fees and expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF NEWPORT FEDERAL SAVINGS BANK
Federal Regulations clearly define areas for indemnity coverage by Newport
Federal Savings Bank (the "Bank"), as follows:
(a) Any person against whom any action is brought by reason of the fact
that such person is or was a director or officer of the Bank shall be
indemnified by the Bank for:
(i) Reasonable costs and expenses, including reasonable attorney's
fees, actually paid or incurred by such person in connection with
proceedings related to the defense or settlement of such action;
(ii) Any amount for which such person becomes liable by reason of any
judgment in such action;
(iii) Reasonable costs and expenses, including reasonable attorney's
fees, actually paid or incurred in any action to enforce his rights
under this section, if the person attains a final judgment in favor of
such person in such enforcement action.
(b) Indemnification provided for in subparagraph (a) shall be made to such
officer or director only if the requirements of this subparagraph are met:
(i) The Bank shall make the indemnification provided by subparagraph
(a) in connection with any such action which results in a final
judgment on the merits in favor of such officer or director.
(ii) The Bank shall make the indemnification provided by subparagraph
(a) in case of settlement of such action, final judgment against such
director or officer or final judgment in favor of such director or
officer other than on the merits except in relation to matters as to
which he shall be adjudged to be liable for negligence or misconduct
in the performance of his duty, only if a majority of the directors of
the Bank determines that such a director or officer was acting in good
faith within what he was
II-1
<PAGE>
reasonably entitled to believe under the circumstances was the scope
of his employment or authority and for a purpose which he was
reasonably entitled to believe under the circumstances was in the best
interest of the Bank or their members or stockholders.
(c) As used in this paragraph:
(i) "Action" means any action, suit or other judicial or
administrative proceeding, or threatened proceeding, whether civil,
criminal, or otherwise, including any appeal or other proceeding for
review;
(ii) "Court" includes, without limitation, any court to which or in
which any appeal or any proceeding for review is brought;
(iii) "Final Judgment" means a judgment, decree, or order which is
appealable and as to which the period for appeal has expired and no
appeal has been taken;
(iv) "Settlement" includes the entry of a judgment by consent or by
confession or upon a plea of guilty or of nolo contendere.
First Federal has a directors and officers liability policy providing for
insurance against certain liabilities incurred by directors and officers of
First Federal while serving in their capacities as such.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF NORTH ARKANSAS BANCSHARES, INC.
The Tennessee Business Corporation Act requires Tennessee corporations such
as the Company to indemnify a director who was wholly successful, on the merits
or otherwise, in the defense of any proceeding to which he was a party because
he is or was a directors of the corporation against reasonable expenses incurred
by him, unless the corporation's charter provides otherwise. The Tennessee
Business Corporation Act also generally permits Tennessee corporations to
indemnify directors and officers in the same manner as Article XIII of the
Company's Charter provides. In no event, however, may a Tennessee corporation
indemnify a director if a judgment or other final adjudication adverse to the
director establishes his liability: (i) for any breach of the duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; or
(iii) for the approval of unlawful distributions.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
Pursuant to its Charter and Tennessee law, the Company is permitted to
purchase and maintain insurance on behalf of an individual who is or was a
director, officer, employee, or agent of the Company. The Bank currently
maintains such a policy and it is intended that the Company will become a party
to such policy.
ARTICLE XIII
INDEMNIFICATION
(A) (1) Except as provided in Section (B) of this Article XIII, the
Corporation shall indemnify any director who is made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative ("proceeding"), because he is or was a director
against liability incurred in such proceeding if: (a) he conducted himself in
good faith; (b) he reasonably believed, (i) in the case of conduct in his
official capacity with the Corporation, that his conduct was in the
Corporation's best interests and (ii) in all other cases,
II-2
<PAGE>
that his conduct was at least not opposed to its best interests; and (c) in the
case of any criminal proceeding, he had no reasonable cause to believe his
conduct was unlawful.
(2) The Corporation shall further indemnify any director and any
officer who is not a director who was wholly successful, on the merits or
otherwise, in the defense of any proceedings to which he was a party because he
is or was a director or officer of the Corporation against reasonable expenses
incurred by him in connection with the proceeding.
(B) The Corporation shall not indemnify a director in connection with a
proceeding by or in the right of the Corporation in which the director was
adjudged liable to the Corporation or in connection with any other proceeding
charging improper personal benefit to him, whether or not involving action in
his official capacity, in which he was adjudged liable on the basis that
personal benefit was improperly received by him.
(C) The Corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding if: (1) the director furnishes the Corporation a
written affirmation of his good faith belief that he has met the standard of
conduct set forth in Subsection (A)(1) of this Article XIII; (2) he provides the
Corporation a written undertaking, executed personally or on his behalf, to
repay the advance if it is ultimately determined that he is not entitled to
indemnification; and (3) a determination is made that the facts then known to
those making the determination would not preclude indemnification under this
Article XIII.
(D) The Corporation may not indemnify a director under Subsection (A)(1)
of this Article XIII unless authorized in the specific case after a
determination has been made that indemnification of the director is permissible
in the circumstances because he has met the standard set forth in Subsection
(A)(1) of this Article XIII. The determination shall be made:
(1) By the board of directors by majority vote of a quorum consisting
of directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under Subsection (1) of this
Section (D), by majority vote of a committee duly designated by the board
of directors (in which designation directors who are parties may
participate), consisting solely of two or more directors not at the time
parties to the proceeding;
(3) By independent special legal counsel;
(a) Selected by the board of directors or its committee in the
manner prescribed in Subsections (1) or (2) of this Section (D);
(b) If a quorum of the board of directors cannot be obtained
under Subsection (1) of this Section (D) and a committee cannot be
designated under Subsection (2) of this Section (D), selected by majority
vote of the full board of directors (in which selection directors who are
parties may participate); or
(4) By the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not
be voted on the determination.
(E) Authorization of indemnification under Subsection (A)(1) of this
Article XIII and evaluation that indemnification is permissible under Subsection
(A)(1) of this Article XIII shall be made in the same manner as the
determination that indemnification is permissible, except that, if the
determination is made by special legal counsel, authorization of indemnification
and evaluation as to reasonableness of expenses shall be made by those entitled
under Subsection (D)(3) of this Article XIII to select counsel.
II-3
<PAGE>
(F) The Corporation may indemnify and advance expenses to an officer,
employee or agent of the Corporation who is not a director to the same extent as
a director hereunder.
(G) The Corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee, or agent of the
Corporation, or who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, employee benefit plan or other
enterprise, against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee or agent,
whether or not the Corporation would have power to indemnify him against the
same liability hereunder.
(H) It is the intention of this Article XIII to provide for
indemnification of directors and officers to the fullest extent permitted by the
Tennessee Business Corporation Act, and this Article XIII shall be interpreted
accordingly. If this Article XIII or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director, officer, employee, and agent of the
Corporation as to costs, charges, and expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement with respect to any proceeding,
including an action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article XIII that shall not have
been invalidated and to the full extent permitted by applicable law. If the
Tennessee Business Corporation Act is amended or other Tennessee law is enacted
to permit further or additional indemnification of a director, officer, employee
or agent of the Corporation, then the indemnification of such director, officer,
employee or agent shall be to the fullest extent permitted by the Tennessee
Business Corporation Act, as so amended, or by such other Tennessee law.
(I) The indemnification and advance payment of expenses provided by this
Article XIII shall not be exclusive of any other rights to which a person may be
entitled by law, bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise.
(J) The indemnification provided by this Article XIII shall be deemed to
be a contract between the Corporation and the persons entitled to
indemnification thereunder, and any repeal or modification of this Article XVII
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon any such state
of facts. The indemnification and advance payment provided by this Article XIII
shall continue as to a person who has ceased to be a director or officer of the
Corporation and shall inure to his heirs, executors and administrators.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:
<TABLE>
<CAPTION>
(a) LIST OF EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
1 Agency Agreement with Trident Securities, Inc.
* 2 Plan of Conversion (Exhibit A to Proxy Statement filed
as Exhibit 99.2)
* 3.1 Charter of North Arkansas Bancshares, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
* 3.2 Bylaws of North Arkansas Bancshares, Inc.
* 4 Form of Common Stock Certificate of North Arkansas
Bancshares, Inc.
* 5 Opinion of Housley Kantarian & Bronstein, P.C. regarding
legality of securities being registered
8.1 Federal Tax Opinion of Housley Kantarian & Bronstein,
P.C.
8.2 State Tax Opinion of KPMG Peat Marwick, LLP
8.3 Opinion of Ferguson & Company as to the value of
subscription rights for tax purposes
* 10.1 Proposed North Arkansas Bancshares, Inc. 1998 Stock
Option and Incentive Plan
* 10.2 Proposed North Arkansas Bancshares, Inc. Management
Recognition Plan and Trust Agreement
* 10.3 Newport Federal Savings Bank Retirement Plan for
Directors
10.4 Employment Agreement between Newport Federal Savings
Bank and Brad Snider
* 10.5 Guaranty Agreement between North Arkansas Bancshares,
Inc. and Brad Snider
23.1 Consent of Housley Kantarian & Bronstein, P.C. (in
opinions filed as Exhibits 5 and 8.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Ferguson & Company
* 24 Power of Attorney (reference is made to the signature
page of the Form SB-2)
* 27 Financial Data Schedule
99.1 Proposed Stock Order Form and Form of Certification
* 99.2 Proxy Statement for Special Meeting of
Members of Newport Federal Savings Bank; Form
of Proxy
* 99.3 Form of Miscellaneous Solicitation and Marketing
Materials
* 99.4 Appraisal Report
</TABLE>
__________________
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
No financial statement schedules are filed because the required information
is not applicable or is included in the consolidated financial statements or
related notes.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any additional or changed material information on
the plan of distribution.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
registration statement of the securities offered, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To file a post-effective amendment or remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the questions whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this amended
registration statement to be signed on its behalf by the undersigned, in the
City of Newport, State of Arkansas, on October 29, 1997.
NORTH ARKANSAS BANCSHARES, INC.
By: /s/ Brad Snider
---------------
Brad Snider
President and Chief Executive Officer
(Duly Authorized Representative)
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signatures Title Date
---------- ----- ----
/s/ Brad Snider President, Chief Executive October 29, 1997
- ------------------------------
Brad Snider Officer and Director
(Principal Executive, Accounting
and Financial Officer)
* /s/ Paul K. Holmes Chairman of the Board
- --------------------
Paul K. Holmes
* /s/ O.E. Guinn, Jr. Director
- --------------------- --------
O.E. Guinn, Jr.
* /s/ Kaneaster Hodges, Jr. Director
- ---------------------------
Kaneaster Hodges, Jr.
* /s/ John Minor Director
- ---------------- --------
John Minor
* By: /s/ Brad Snider October 29, 1997
--------------- ----------------
Brad Snider
Attorney-in-Fact
II-7
<PAGE>
Exhibit 1
North Arkansas Bancshares, Inc.
238,000 To 322,000 Shares
Common Stock
(Par Value $.01 Per Share)
$10.00 Per Share
SALES AGENCY AGREEMENT
----------------------
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Dear Sirs:
North Arkansas Bancshares, Inc., a Tennessee-chartered corporation (the
"Company"), and Newport Federal Savings Bank, a federally chartered and insured
mutual savings association (the "Bank"), hereby confirm, as of ________, 1997,
their respective agreements with Trident Securities, Inc. ("Trident"), a broker-
dealer registered with the Securities and Exchange Commission ("Commission") and
a member of the National Association of Securities Dealers, Inc. ("NASD"), as
follows:
1. Introductory. The Bank intends to convert from a federally chartered
------------
mutual savings association to a federally chartered stock savings association
(to be known as Newport Federal Savings Bank) as a wholly owned subsidiary of
the Company (together with the Offerings, as defined below, the issuance of
shares of common stock of the Bank to the Company and the incorporation of the
Company, the "Conversion") pursuant to a plan of conversion adopted on
__________, 1997 (as amended, if amended, the "Plan"). In accordance with the
Plan, the Company is offering shares of its common stock, par value $.01 per
share (the "Shares" and the "Common Stock"), pursuant to nontransferable
subscription rights in a subscription offering (the "Subscription Offering") to
certain depositors and borrowers of the Bank and to the Bank's tax-qualified
employee benefit plans (i.e., the Bank's Employee Stock Ownership Plan (the
"ESOP")). Shares of the Common Stock not sold in the Subscription Offering may
be offered to the general public in a community offering, with preference given
to natural persons residing in Jackson County, Arkansas the "Community
Offering"), subject to the right of the Company and the Bank, in their absolute
discretion, to reject orders in the Community Offering in whole or in part.
Shares not sold in the Subscription Offering or otherwise in the Community
Offering may be offered to certain members of the general public as part of the
Community Offering by a group of broker-dealers (the "Syndicated Community
Offering") (the Subscription Offering and, if any, the Community and Syndicated
Community Offerings are sometimes referred to collectively as the "Offerings").
In the Offerings, the Company is offering between 238,000 and 322,000 Shares,
with the possibility of offering up to 370,300 Shares without a resolicitation
of subscribers, as contemplated by Part 563b of Title 12 of the Code of Federal
Regulations. With the exception of the ESOP, no person (or persons through a
single
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 2
account) may purchase in the Offerings more than 5,000 Shares; no person,
together with associates of and persons acting in concert with such person, may
purchase in the Offerings more than 5% of the Shares offered in the Offerings.
The Company and the Bank have been advised by Trident that it will utilize
its best efforts in assisting the Company and the Bank with the sale of the
Shares in the Offerings, including any Syndicated Community Offering. Prior to
the execution of this Agreement, the Company has delivered to Trident a
prospectus dated as of the date hereof and all supplements thereto to be used in
the Offerings. Such prospectus contains information with respect to the
Company, the Bank and the Shares.
2. Representations and Warranties.
------------------------------
(a) The Company and the Bank jointly and severally represent and
warrant to Trident that:
(i) The Company has filed with the Commission a registration
statement, including exhibits and an amendment or amendments thereto,
on Form SB-2 (No. 333-_____), including a prospectus relating to the
Offerings, for the registration of the Shares under the Securities Act
of 1933, as amended (the "Act"); and such registration statement has
become effective under the Act and no stop order has been issued with
respect thereto and no proceedings therefor have been initiated or, to
the Company's best knowledge, threatened by the Commission. Except as
the context may otherwise require, such registration statement, as
amended or supplemented, on file with the Commission at the time the
registration statement became effective, including the prospectus,
financial statements, schedules, exhibits and all other documents
filed as part thereof, as amended and supplemented, is herein called
the "Registration Statement," and the prospectus, as amended or
supplemented, on file with the Commission at the time the Registration
Statement became effective is herein called the "Prospectus," except
that if the prospectus filed by the Company with the Commission
pursuant to Rule 424(b) of the general rules and regulations of the
Commission under the Act (together with the enforceable published
policies and actions of the Commission thereunder, the "SEC
Regulations") differs from the form of prospectus on file at the time
the Registration Statement became effective, the term "Prospectus"
shall refer to the Rule 424(b) prospectus from and after the time it
is filed with or mailed for filing to the Commission and shall include
any amendments or supplements thereto from and after their dates of
effectiveness or use, respectively. If any Shares remain unsubscribed
following completion of the Subscription Offering and, if any, the
Community Offering, the Company (i) will promptly file with the
Commission a post-effective amendment to such Registration Statement
relating to the results of the Subscription Offering and, if any, the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 3
Community Offering, any additional information with respect to the
proposed plan of distribution and any revised pricing information or
(ii) if no such post-effective amendment is required, will file with,
or mail for filing to, the Commission a prospectus or prospectus
supplement containing information relating to the results of the
Subscription Offering and, if any, the Community Offering and pricing
information pursuant to Rule 424(c) of the Regulations, in either case
in a form reasonably acceptable to the Company and Trident.
(ii) The Bank has filed an Application for Approval of
Conversion on Form AC, including exhibits (as amended or supplemented,
the "Form AC" and together with the Form H-(e)1-S referred to below,
the "Conversion Application") with the Office of Thrift Supervision
(the "Office") under the Home Owners' Loan Act, as amended (the
"HOLA") and the enforceable rules and regulations, including published
policies and actions, of the Office thereunder (the "OTS
Regulations"), which has been approved by the Office; and the
Prospectus and the proxy statement for the solicitation of proxies
from members for the special meeting to approve the Plan (the "Proxy
Statement") included as part of the Form AC have been approved for use
by the Office. No order has been issued by the Office preventing or
suspending the use of the Prospectus or the Proxy Statement; and no
action by or before the Office revoking such approvals is pending or,
to the Bank's best knowledge, threatened. The Company has filed with
the Office the Company's application on Form H-(e)1-S promulgated
under the savings and loan holding company provisions of the HOLA and
the OTS Regulations and has received approval of its acquisition of
the Bank from the Office.
(iii) At the date of the Prospectus and at all times subsequent
thereto through and including the Closing Date (i) the Registration
Statement and the Prospectus (as amended or supplemented, if amended
or supplemented) complied with the Act and the Regulations, (ii) the
Registration Statement (as amended or supplemented, if amended or
supplemented) did not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii) the
Prospectus (as amended or supplemented, if amended or supplemented)
did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. Representations or warranties in this
subsection shall not apply to statements or omissions made in reliance
upon and in conformity with written information furnished to the
Company or the Bank relating to Trident by or on behalf of Trident
expressly for use in the Registration Statement or Prospectus.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 4
(iv) The Company has been duly organized as a Tennessee
corporation, and the Bank has been duly organized as a mutual savings
association under the laws of the United States, and each of them is
validly existing and in good standing under the laws of the
jurisdiction of its organization with full power and authority to own
its property and conduct its business as described in the Registration
Statement and Prospectus; the Bank is a member in good standing of the
Federal Home Loan Bank of Dallas; and the deposit accounts of the Bank
are insured by the Savings Association Insurance Fund ("SAIF")
administered by the Federal Deposit Insurance Corporation ("FDIC") up
to the applicable legal limits. Each of the Company and the Bank is
not required to be qualified to do business as a foreign corporation
in any jurisdiction where non-qualification would have a material
adverse effect on the Company and the Bank, taken as a whole. The Bank
does not own equity securities of or an equity interest in any
business enterprise except as described in the Prospectus. Upon
amendment of the Bank's charter and bylaws as provided in the rules
and regulations of the Office and completion of the sale by the
Company of the Shares as contemplated by the Prospectus, (i) the Bank
will be converted pursuant to the Plan to a federally chartered
capital stock savings bank with full power and authority to own its
property and conduct its business as described in the Prospectus, (ii)
all of the authorized and outstanding capital stock of the Bank will
be owned of record and beneficially by the Company, and (iii) the
Company will have no direct subsidiaries other than the Bank.
(v) The Bank has good, marketable and insurable title to all
assets material to its business and to those assets described in the
Prospectus as owned by it, free and clear of all material liens,
charges, encumbrances or restrictions, except for liens for taxes not
yet due, except as described in the Prospectus and except as could not
in the aggregate have a material adverse effect upon the operations or
financial condition of the Bank; and all of the leases and subleases
material to the operations or financial condition of the Bank, under
which it holds properties, including those described in the
Prospectus, are in full force and effect as described therein.
(vi) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary actions on the part of each of
the Company and the Bank, and this Agreement is a valid and binding
obligation with valid execution and delivery of each of the Company
and the Bank, enforceable in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws relating to or affecting
the enforcement of creditors' rights generally or the rights of
creditors of savings and loan holding companies the accounts of whose
subsidiaries are insured by the FDIC or by general equity
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 5
principles, regardless of whether such enforceability is considered in
a proceeding in equity or at law, and except to the extent that the
provisions of Sections 8 and 9 hereof may be unenforceable as against
public policy or pursuant to Section 23A of the Federal Reserve Act,
12 U.S.C. Section 371c ("Section 23A")).
(vii) There is no litigation or governmental proceeding pending
or, to the best knowledge of the Company or the Bank, threatened
against or involving the Company, the Bank or any of their respective
assets which individually or in the aggregate would reasonably be
expected to have a material adverse effect on the condition (financial
or otherwise), results of operations and business, including the
assets and properties, of the Company and the Bank, taken as a whole.
(viii) The Company and the Bank have received the opinions of
Housley, Kantarian & Bronstein, P.C. with respect to federal tax
consequences of the Conversion, and of KPMG Peat Marwick LLP, with
respect to Tennessee tax consequences of the Conversion, to the effect
that the Conversion will constitute a tax-free reorganization under
the Internal Revenue Code of 1986, as amended, and will not be a
taxable transaction for the Bank or the Company under the laws of
Tennessee, and the facts relied upon in such opinions are accurate and
complete.
(ix) Each of the Company and the Bank has all such corporate
power, authority, authorizations, approvals and orders as may be
required to enter into this Agreement and to carry out the provisions
and conditions hereof, subject to the limitations set forth herein and
subject to the satisfaction of certain conditions imposed by the
Office in connection with its approvals of the Form AC and the
Application H-(e)1-S, and except as may be required under the
securities laws of various jurisdictions, and in the case of the
Company, as of the Closing Date, will have such approvals and orders
to issue and sell the Shares to be sold by the Company as provided
herein, and in the case of the Bank, as of the Closing Date, will have
such approvals and orders to issue and sell the Shares of its Common
Stock to be sold to the Company as provided in the Plan, subject to
the issuance of amended charter in the form required for federally
chartered stock savings associations (the "Stock Charter"), the form
of which Stock Charter has been approved by the Office.
(x) Neither the Company nor the Bank is in violation of any
rule or regulation of the Office or the FDIC that could reasonably be
expected to result in any enforcement action against the Company, the
Bank or their officers or directors that might have a material adverse
effect on the condition (financial or otherwise), operations,
businesses, assets or properties of the Company and the Bank, taken as
a whole.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 6
(xi) The financial statements and any related notes or
schedules which are included in the Registration Statement and the
Prospectus fairly present the financial condition, income, retained
earnings and cash flows of the Bank at the respective dates thereof
and for the respective periods covered thereby and comply as to form
with the applicable accounting requirements of the SEC and OTS
Regulations. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as set forth therein,
and such financial statements are consistent with financial statements
and other reports filed by the Bank with supervisory and regulatory
authorities except as such generally accepted accounting principles
may otherwise require. The tables in the Prospectus accurately present
the information purported to be shown thereby at the respective dates
thereof and for the respective periods therein.
(xii) There has been no material change in the condition
(financial or otherwise), results of operations or business, including
assets and properties, of the Company and the Bank, taken as a whole,
since the latest date as of which such condition is set forth in the
Prospectus, except as set forth therein; and the capitalization,
assets, properties and business of each of the Company and the Bank
conform to the descriptions thereof contained in the Prospectus. None
of the Company or the Bank has any material liabilities of any kind,
contingent or otherwise, except as set forth in the Prospectus.
(xiii) There has been no breach or default (or the occurrence
of any event which, with notice or lapse of time or both, would
constitute a default) under, or creation or imposition of any lien,
charge or other encumbrance upon any of the properties or assets of
the Company or the Bank pursuant to any of the terms, provisions or
conditions of, any agreement, contract, indenture, bond, debenture,
note, instrument or obligation to which the Company or the Bank is a
party or by which any of them or any of their respective assets or
properties may be bound or is subject, or violation of any
governmental license or permit or any enforceable published law,
administrative regulation or order or court order, writ, injunction or
decree, which breach, default, encumbrance or violation would have a
material adverse effect on the condition (financial or otherwise),
operations, business, assets or properties of the Company and the
Bank, taken as a whole; all agreements which are material to the
condition (financial or otherwise), results of operations or business
of the Company and the Bank, taken as a whole are in full force and
effect, and no party to any such agreement has instituted or, to the
best knowledge of the Company and the Bank, threatened any action or
proceeding wherein the Company or the Bank would be alleged to be in
default thereunder.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 7
(xiv) None of the Company or the Bank is in violation of its
respective charter or bylaws. The execution and delivery hereof and
the consummation of the transactions contemplated hereby by the
Company and the Bank do not conflict with or result in a breach of the
charter or bylaws of the Company or the Bank (in either mutual or
stock form) or constitute a material breach of or default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, give rise to any right of termination, cancellation or
acceleration contained in, or result in the creation or imposition of
any lien, charge or other encumbrance upon any of the properties or
assets of the Company or the Bank pursuant to any of the terms,
provisions or conditions of, any material agreement, contract,
indenture, bond, debenture, note, instrument or obligation to which
the Company or the Bank is a party or violate any governmental license
or permit or any enforceable published law, administrative regulation
or order or court order, writ, injunction or decree (subject to the
satisfaction of certain conditions imposed by the Office in connection
with its approval of the Conversion Application), which breach,
default, encumbrance or violation would have a material adverse effect
on the condition (financial or otherwise), operations or business of
the Company and the Bank, taken as a whole.
(xv) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and prior to the
Closing Date (as hereinafter defined), except as otherwise may be
indicated or contemplated therein, none of the Company or the Bank has
issued any securities which will remain issued at the Closing Date or
incurred any liability or obligation, direct or contingent, or
borrowed money, except borrowings in the ordinary course of business,
or entered into any other transaction not in the ordinary course of
business and consistent with prior practices, which is material in
light of the business of the Company and the Bank, taken as a whole.
(xvi) Upon consummation of the Conversion, the authorized,
issued and outstanding equity capital of the Company shall be within
the range as set forth in the Prospectus under the caption
"Capitalization," and no Common Stock of the Company shall be
outstanding immediately prior to the Closing Date; the issuance and
the sale of the Shares of the Company have been duly authorized by all
necessary action of the Company and approved by the Office and, when
issued in accordance with the terms of the Plan and paid for, shall be
validly issued, fully paid and nonassessable and shall conform to the
description thereof contained in the Prospectus; the issuance of the
Shares is not subject to preemptive rights, except as set forth in the
Prospectus; and good title to the Shares will be transferred by the
Company upon issuance thereof against payment therefor, free and clear
of all claims, encumbrances, security interests and liens against the
Company whatsoever. The certificates representing the Shares will
conform in all material respects with the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 8
requirements of applicable laws and regulations. The issuance and sale
of the capital stock of the Bank to the Company has been duly
authorized by all necessary action of the Bank and the Company and
appropriate regulatory authorities (subject to the satisfaction of
various conditions imposed by the Office in connection with its
approval of the Conversion Application), and such capital stock, when
issued in accordance with the terms of the Plan, will be fully paid
and nonassessable and will conform in all material respects to the
description thereof contained in the Prospectus.
(xvii) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution and
delivery of this Agreement or the issuance of the Shares, except for
the declaration of effectiveness of any required post-effective
amendment by the Commission and approval thereof by the Office and
approval of the Company's application on Form H-(e)1-S by the Office,
the issuance of the Stock Charter by the Office and as may be required
under the securities laws of various jurisdictions.
(xviii) All contracts and other documents required to be filed
as exhibits to the Registration Statement or the Conversion
Application have been filed with the Commission and/or the Office, as
the case may be.
(xix) KPMG Peat Marwick LLP, which has audited the financial
statements of the Bank for the years ended June 30, 1997 and 1996
included in the Prospectus, is an independent public accountant within
the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants and Title 12 of the Code of
Federal Regulations, Section 571.2(c)(3).
(xx) For the past five years, the Company and the Bank have
timely filed all required federal, state and local franchise tax
returns, and no deficiency has been asserted with respect to such
returns by any taxing authorities, and the Company and the Bank have
paid all taxes that have become due and, to the best of their
knowledge, have made adequate reserves for similar future tax
liabilities, except where any failure to make such filings, payments
and reserves, or the assertion of such a deficiency, would not have a
material adverse effect on the condition of the Company and the Bank,
taken as a whole.
(xxi) All of the loans represented as assets of the Bank on
the most recent financial statements of the Bank included in the
Prospectus meet or are exempt from all requirements of federal, state
or local law pertaining to lending and interest, including without
limitation truth in lending (including the requirements of Regulation
Z and 12 C.F.R. Part 226 and Section 563.99), real estate settlement
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 9
procedures, consumer credit protection, equal credit opportunity and
all disclosure laws applicable to such loans, except for violations
which, if asserted, would not have a material adverse effect on the
Company and the Bank, taken as a whole.
(xxii) The records of account holders, depositors, borrowers
and other members of the Bank delivered to Trident by the Bank or its
agent for use during the Conversion have been prepared or reviewed by
the Bank and, to the best knowledge of the Company and the Bank, are
reliable and accurate.
(xxiii) None of the Company, the Bank or the employees of the
Company or the Bank, has made any payment of funds of the Company or
the Bank prohibited by law, and no funds of the Company or the Bank
have been set aside to be used for any payment prohibited by law.
(xxiv) To the best knowledge of the Company and the Bank, the
Company and the Bank are in compliance with all laws, rules and
regulations relating to the discharge, storage, handling and disposal
of hazardous or toxic substances, pollutants or contaminants and
neither the Company nor the Bank believes that the Company or the Bank
is subject to liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or any
similar law, except for violations which, if asserted, would not have
a material adverse effect on the Company and the Bank, taken as a
whole. There are no actions, suits, regulatory investigations or other
proceedings pending or, to the best knowledge of the Company or the
Bank, threatened against the Company or the Bank relating to the
discharge, storage, handling and disposal of hazardous or toxic
substances, pollutants or contaminants. To the best knowledge of the
Company and the Bank, no disposal, release or discharge of hazardous
or toxic substances, pollutants or contaminants, including petroleum
and gas products, as any of such terms may be defined under federal,
state or local law, has been caused by the Company or the Bank or, to
the best knowledge of the Company or the Bank, has occurred on, in or
at any of the facilities or properties of the Company or the Bank,
except such disposal, release or discharge which would not have a
material adverse effect on the Company and the Bank, taken as a whole.
(xxv) At the Closing Date, the Company and the Bank will have
completed the conditions precedent to, and shall have conducted the
Conversion in all material respects in accordance with, the Plan, the
HOLA, the OTS Regulations and all other applicable laws, regulations,
published decisions and orders, including all terms, conditions,
requirements and provisions precedent to the Conversion imposed by the
Office.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 10
(b) Trident represents and warrants to the Company and the Bank that:
(i) Trident is registered as a broker-dealer with the
Commission, and is in good standing with the Commission and the NASD.
(ii) Trident is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with
full corporate power and authority to provide the services to be
furnished to the Company and the Bank hereunder.
(iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary action on the part of Trident,
and this Agreement is a legal, valid and binding obligation of
Trident, enforceable in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws relating to or affecting
the enforcement of creditors' rights generally or the rights of
creditors of registered broker-dealers accounts of whose may be
protected by the Securities Investor Protection Corporation or by
general equity principles, regardless of whether such enforceability
is considered in a proceeding in equity or at law, and except to the
extent that the provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy or pursuant to Section 23A).
(iv) Each of Trident and, to Trident's knowledge, its employees,
agents and representatives who shall perform any of the services
required hereunder to be performed by Trident shall be duly authorized
and shall have all licenses, approvals and permits necessary to
perform such services, and Trident is a registered selling agent in
the jurisdictions listed in Exhibit A hereto and will remain
registered in such jurisdictions in which the Company is relying on
such registration for the sale of the Shares, until the Conversion is
consummated or terminated.
(v) The execution and delivery of this Agreement by Trident,
the fulfillment of the terms set forth herein and the consummation of
the transactions contemplated hereby shall not violate or conflict
with the corporate charter or bylaws of Trident or violate, conflict
with or constitute a breach of, or default (or an event which, with
notice or lapse of time, or both, would constitute a default) under,
any material agreement, indenture or other instrument by which Trident
is bound or under any governmental license or permit or any law,
administrative regulation, authorization, approval or order or court
decree, injunction or order.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 11
(vi) Any funds received by Trident to purchase Common Stock will
be handled in accordance with Rule 15c2-4 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(vii) There is not now pending or, to Trident's knowledge,
threatened against Trident any action or proceeding before the
Commission, the NASD, any state securities commission or any state or
federal court concerning Trident's activities as a broker-dealer.
3. Employment of Trident; Sale and Delivery of the Shares. On the basis
------------------------------------------------------
of the representations and warranties herein contained, but subject to the terms
and conditions herein set forth, the Company and the Bank hereby employ Trident
as their agent to utilize its best efforts in assisting the Company with the
Company's sale of the Shares in the Subscription Offering and, if any, the
Community Offering. The employment of Trident hereunder shall terminate (a)
forty-five (45) days after the Offerings close, unless the Company and the Bank,
with the approval of the Office, are permitted to extend such period of time, or
(b) upon consummation of the Conversion, whichever date shall first occur.
In the event the Company is unable to sell a minimum of 238,000 Shares (or
such lesser amount as the Office may permit) within the period herein provided,
this Agreement shall terminate, and the Company and the Bank shall refund
promptly to any persons who have subscribed for any of the Shares, the full
amount which it may have received from them, together with interest as provided
in the Prospectus, and no party to this Agreement shall have any obligation to
the other party hereunder, except as set forth in Sections 6, 8(a) and 9 hereof.
Appropriate arrangements for placing the funds received from subscriptions for
Shares in special interest-bearing accounts with the Bank until all Shares are
sold and paid for were made prior to the commencement of the Offerings, with
provision for prompt refund to the purchasers as set forth above, or for
delivery to the Company if all Shares are sold.
If all conditions precedent to the consummation of the Conversion are
satisfied, including the sale of all Shares required by the Plan to be sold, the
Company agrees to issue or have issued such Shares and to release for delivery
certificates to subscribers thereof for such Shares on the Closing Date against
payment to the Company by any means authorized pursuant to the Prospectus, at
the principal office of the Company at 200 Olivia Drive, Newport, Arkansas
72112, or at such other place as shall be agreed upon between the parties
hereto. The date upon which Trident is paid the compensation due hereunder is
herein called the "Closing Date."
Trident agrees either (a) upon receipt of an executed order form of a
subscriber to forward the offering price of the Common Stock ordered on or
before twelve noon on the next business day following receipt or execution of an
order form by Trident to the Bank for deposit in a segregated account or (b) to
solicit indications of interest in which event (i) Trident will subsequently
contact
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 12
any potential subscriber indicating interest to confirm the interest and give
instructions to execute and return an order form or to receive authorization to
execute the order form on the subscriber's behalf, (ii) Trident will mail
acknowledgements of receipt of orders to each subscriber confirming interest on
the business day following such confirmation, (iii) Trident will debit accounts
of such subscribers on the third business day ("debit date") following receipt
of the confirmation referred to in (i), and (iv) Trident will forward completed
order forms together with such funds to the Bank on or before twelve noon on the
next business day following the debit date for deposit in a segregated account.
Trident acknowledges that if the procedure in (b) is adopted, subscribers' funds
are not required to be in their accounts until the debit date.
In addition to the expenses specified in Section 6 hereof, Trident shall
receive for its services hereunder a management fee of $105,000. This fee
includes Trident's out-of-pocket and legal expenses. Full payment of such
amount shall be made in same-day funds on the Closing Date or, if the Conversion
is not completed and is terminated for any reason full payment of Trident's out-
of-pocket expenses, including, but not limited to, travel, communications and
postage and legal fees and expenses (which in such event shall not exceed
$______), shall be reimbursed to Trident within ten (10) business days of
receipt by the Company of a written request from Trident for reimbursement of
its expenses. Trident acknowledges receipt of $10,000 advance payment from the
Bank which shall be credited against the total reimbursement due Trident
hereunder.
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.
The Company shall pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Shares. The Company and the Bank shall
also pay all expenses of the Conversion incurred by them or on their prior
approval including but not limited to their attorneys' fees, NASD filing fees,
and attorneys' fees relating to any required state securities laws research and
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 Conversion.
4. Offering. Subject to the provisions of Section 7 hereof, Trident is
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assisting the Company on a best efforts basis in offering a minimum of 238,000
and a maximum of 322,000 Shares, with the possibility of offering up to 370,300
Shares (except as the Office may permit to be decreased or increased) in the
Offerings. The Shares are to be offered to the public at the price set forth on
the cover page of the Prospectus and the first page of this Agreement.
5. Further Agreements. The Company and the Bank jointly and severally
------------------
covenant and agree that:
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 1
(a) The Company shall deliver to Trident, from time to time, such
number of copies of the Prospectus as Trident reasonably may request. The
Company authorizes Trident to use the Prospectus in any lawful manner in
connection with the offer and sale of the Shares.
(b) The Company will notify Trident immediately upon discovery, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement becomes effective or any supplement to the
Prospectus has been filed, (ii) of the issuance by the Commission of any
stop order relating to the Registration Statement or of the initiation or
the threat of any proceedings for that purpose, (iii) of the receipt of any
notice with respect to the suspension of the qualification of the Shares
for offering or sale in any jurisdiction, and (iv) of the receipt of any
comments from the staff of the Commission relating to the Registration
Statement. If the Commission enters a stop order relating to the
Registration Statement at any time, the Company will make every reasonable
effort to obtain the lifting of such order at the earliest possible moment.
(c) During the time when a prospectus is required to be delivered
under the Act, the Company will comply so far as it is able with all
requirements imposed upon it by the Act, as now in effect and hereafter
amended, and by the Regulations, as from time to time in force, so far as
necessary to permit the continuance of offers and sales of or dealings in
the Shares in accordance with the provisions hereof and the Prospectus. If
during the period when the Prospectus is required to be delivered in
connection with the offer and sale of the Shares any event relating to or
affecting the Company and the Bank, taken as a whole, shall occur as a
result of which it is necessary, in the opinion of counsel for Trident,
with the concurrence of counsel to the Company, to amend or supplement the
Prospectus in order to make the Prospectus not false or misleading in light
of the circumstances existing at the time it is delivered to a purchaser of
the Shares, the Company forthwith shall prepare and furnish to Trident a
reasonable number of copies of an amendment or amendments or of a
supplement or supplements to the Prospectus (in form and substance
satisfactory to counsel for Trident) which shall amend or supplement the
Prospectus so that, as amended or supplemented, the Prospectus shall not
contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser of the Shares, not misleading. The Company will not file or use
any amendment or supplement to the Registration Statement or the Prospectus
of which Trident has not first been furnished a copy or to which Trident
shall reasonably object after having been furnished such copy. For the
purposes of this subsection the Company and the Bank shall furnish such
information with respect to themselves as Trident from time to time may
reasonably request.
(d) The Company and the Bank have taken or will take all reasonably
necessary action as may be required to qualify or register the Shares for
offer and sale by the Company
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 14
under the securities laws of such jurisdictions as Trident and either the
Company or its counsel may agree upon; provided, however, that the Company
shall not be obligated to qualify as a foreign corporation to do business
under the laws of any such jurisdiction. In each jurisdiction where such
qualification or registration shall be effected, the Company, unless
Trident agrees that such action is not necessary or advisable in connection
with the distribution of the Shares, shall file and make such statements or
reports as are, or reasonably may be, required by the laws of such
jurisdiction.
(e) Appropriate entries will be made in the financial records of the
Bank sufficient to establish a liquidation account for the benefit of
eligible account holders and supplemental eligible account holders in
accordance with the requirements of the Office.
(f) The Company will file a registration statement for the Common
Stock under Section 12(g) of the Exchange Act, prior to completion of the
stock offering pursuant to the Plan and shall request that such
registration statement be effective upon completion of the Conversion. The
Company shall maintain the effectiveness of such registration for a minimum
period of three years or for such shorter period as may be required by
applicable law.
(g) The Company will make generally available to its security holders
as soon as practicable, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the regulations promulgated under the Act)
covering a twelve-month period beginning not later than the first day of
the Company's fiscal quarter next following the effective date (as defined
in said Rule 158) of the Registration Statement.
(h) For a period of three (3) years from the date of this Agreement
(unless the Common Stock shall have been deregistered under the Exchange
Act), the Company will furnish to Trident, as soon as publicly available
after the end of each fiscal year, a copy of its annual report to
shareholders for such year; and the Company will furnish to Trident (i) as
soon as publicly available, a copy of each report or definitive proxy
statement of the Company filed with the Commission under the Exchange Act
or mailed to shareholders, and (ii) from time to time, such other public
information concerning the Company as Trident may reasonably request.
(i) The Company shall use the net proceeds from the sale of the Shares
consistently with the manner set forth in the Prospectus.
(j) The Company shall not deliver the Shares until each and every
condition set forth in Section 7 hereof has been satisfied, unless such
condition is waived in writing by Trident.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 15
(k) The Company shall advise Trident, if necessary, as to the
allocation of deposits, in the case of eligible account holders, and votes,
in the case of other members, and of the Shares in the event of an
oversubscription and shall, after consultation with Trident, provide
Trident final instructions as to the allocation of the Shares ("Allocation
Instructions") in such event and such information shall be accurate and
reliable. Trident shall be entitled to rely on such instructions and shall
have no liability in respect of its reliance thereon, including without
limitation, no liability for or related to any denial or grant of a
subscription in whole or in part.
(l) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by Trident in order for Trident to
ensure compliance with the NASD's "Interpretation Relating to Free-Riding
and Withholding."
6. Payment of Expenses. Whether or not the Conversion is consummated,
-------------------
the Company and the Bank shall pay or reimburse Trident for (a) all filing fees
paid or incurred by Trident in connection with all filings with the NASD with
respect to the Offerings and, (b) in addition, if the Company is unable to sell
a minimum of 238,000 Shares or such lesser amount as the Office may permit or
the Conversion is otherwise terminated, the Company and the Bank shall reimburse
Trident for allocable expenses incurred by Trident relating to the offering of
the Shares as provided in Section 3 hereof; provided, however, that neither the
Company nor the Bank shall pay or reimburse Trident for any of the foregoing
expenses accrued after Trident shall have notified the Company or the Bank of
its election to terminate this Agreement pursuant to Section 11 hereof or after
such time as the Company or the Bank shall have given notice in accordance with
Section 12 hereof that Trident is in breach of this Agreement.
7. Conditions of Trident's Obligations. Except as may be waived in
-----------------------------------
writing by Trident, the obligations of Trident as provided herein shall be
subject to the accuracy of the representations and warranties contained in
Section 2 hereof as of the date hereof and as of the Closing Date, to the
performance by the Company and the Bank of their obligations hereunder and to
the following conditions:
(a) At the Closing Date, Trident shall receive the favorable opinions
of Housely, Kantarian & Bronstein, P.C., special counsel for the Company
and the Bank, and ________ _____________________, counsel for the Company
and the Bank, dated the Closing Date, addressed to Trident, in form and
substance reasonably satisfactory to counsel for Trident, substantially as
set forth in Exhibits B and C, respectively, hereto.
(b) At the Closing Date, Trident shall receive the letter of Housely,
Kantarian & Bronstein, P.C., special counsel for the Company and the Bank,
dated the Closing Date, addressed to Trident, in form and substance
reasonably satisfactory to counsel for Trident, substantially as set forth
in Exhibit D hereto.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 16
(c) Counsel for Trident shall have been furnished such documents as
they reasonably may require for the purpose of enabling them to review or
pass upon the matters required by Trident, and for the purpose of
evidencing the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained, including but
not limited to, resolutions of the Board of Directors of the Company and
the Bank regarding the authorization of this Agreement and the transactions
contemplated hereby.
(d) Prior to and at the Closing Date, in the reasonable opinion of
Trident, (i) there shall have been no material change in the condition,
financial or otherwise, business or results of operations of the Company
and the Bank, taken as a whole, since the latest date as of which such
condition is set forth in the Prospectus, except as referred to therein;
(ii) there shall have been no transaction entered into by the Company or
the Bank after the latest date as of which the financial condition of the
Company or the Bank is set forth in the Prospectus other than transactions
referred to or contemplated therein, transactions in the ordinary course of
business, and transactions which are not material to the Company and the
Bank, taken as a whole; (iii) none of the Company or the Bank shall have
received from the Office or Commission any direction (oral or written) to
make any change in the method of conducting their respective businesses
which is material to the business of the Company and the Bank, taken as a
whole, with which they have not complied; (iv) no action, suit or
proceeding, at law or in equity or before or by any federal or state
commission, board or other administrative agency, shall be pending or
threatened against the Company or the Bank or affecting any of their
respective assets, wherein an unfavorable decision, ruling or finding would
have a material adverse effect on the business, operations, financial
condition or income of the Company and the Bank, taken as a whole; and (v)
the Shares shall have been qualified or registered for offering and sale by
the Company under the securities laws of such jurisdictions as Trident and
the Company shall have agreed upon.
(e) At the Closing Date, Trident shall receive a certificate of the
principal executive, financial and accounting officer(s) of each of the
Company and the Bank, dated the Closing Date, to the effect that: (i) they
have examined the Prospectus and, at the time the Prospectus became
authorized by the Company for use, the Prospectus did not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading with respect to the Company or the
Bank; (ii) since the date the Prospectus became authorized by the Company
for use, no event has occurred which should have been set forth in an
amendment or supplement to the Prospectus which has not been so set forth,
including specifically, but without limitation, any material change in the
business, condition (financial or otherwise) or results of operations of
the Company or the Bank and, the conditions set forth in clauses (ii)
through (iv) inclusive of subsection (d) of this Section 7 have been
satisfied; (iii) to the best knowledge of such officers, no order has been
issued by
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 17
the Commission or the Office to suspend the Offerings or the effectiveness
of the Prospectus, and no action for such purposes has been instituted or
threatened by the Commission or the Office; (iv) to the best knowledge of
such officers, no person has sought to obtain review of the final actions
of the Office and division approving the Plan; and (v) all of the
representations and warranties contained in Section 2 of this Agreement are
true and correct, with the same force and effect as though expressly made
on the Closing Date.
(f) At the Closing Date, Trident shall receive, among other documents,
(i) copies of the letters from the Office authorizing the use of the
Prospectus and the Proxy Statement, (ii) a copy of the order of the
Commission declaring the Registration Statement effective; (iii) copies of
the letters from the Office evidencing the corporate existence of the Bank;
(iv) a copy of the letter from the appropriate Tennessee authority
evidencing the incorporation (and, if generally available from such
authority, good standing) of the Company; (v) a copy of the Company's
charter certified by the appropriate Tennessee governmental authority; (vi)
a copy of the letter from the appropriate Arkansas authority evidencing
that the Company is duly qualified to do business in Arkansas; and, (vii)
if available, a copy of the letter from the Office approving the Bank's
Stock Charter.
(g) As soon as available after the Closing Date, Trident shall receive
a copy of the Bank's Certified Stock Charter executed by the appropriate
federal governmental authority.
(h) Concurrently with the execution of this Agreement, Trident
acknowledges receipt of a letter from KPMG Peat Marwick LLP, independent
certified public accountants, addressed to Trident and the Company, in
substance and form satisfactory to counsel for Trident, with respect to the
financial statements and certain financial information contained in the
Prospectus.
(i) At the Closing Date, Trident shall receive a letter in form and
substance satisfactory to counsel for Trident from KPMG Peat Marwick LLP,
independent certified public accountants, dated the Closing Date and
addressed to Trident and the Company, confirming the statements made by
them in the letter delivered by them pursuant to the preceding subsection
as of a specified date not more than five (5) days prior to the Closing
Date.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Trident and its counsel, satisfactory to Trident and its counsel.
Any certificates signed by an officer or director of the Company or the Bank
prepared for Trident's reliance and delivered to Trident or to counsel for
Trident shall be deemed a representation and warranty by the Company and the
Bank to Trident as to the statements made therein. If any condition to
Trident's obligations hereunder to be fulfilled prior to or at the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 18
Closing Date is not so fulfilled, Trident may terminate this Agreement or, if
Trident so elects, may waive in writing any such conditions which have not been
fulfilled, or may extend the time of their fulfillment. If Trident terminates
this Agreement as aforesaid, the Company and the Bank shall reimburse Trident
for its expenses as provided in Section 3(b) hereof.
8. Indemnification.
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(a) The Company and the Bank jointly and severally agree to indemnify
and hold harmless Trident, its officers, directors and employees and each
person, if any, who controls Trident within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against any and all loss,
liability, claim, damage and expense whatsoever and shall further promptly
reimburse such persons for any legal or other expenses reasonably incurred
by each or any of them in investigating, preparing to defend or defending
against any such action, proceeding or claim (whether commenced or
threatened) arising out of or based upon (A) any misrepresentation by the
Company or the Bank in this Agreement or any breach of warranty by the
Company or the Bank with respect to this Agreement or arising out of or
based upon any untrue or alleged untrue statement of a material fact or the
omission or alleged omission of a material fact required to be stated or
necessary to make not misleading any statements contained in (i) the
Registration Statement or the Prospectus or (ii) any application (including
the Form AC and the Form H-(e)1-S) or other document or communication (in
this Section 8 collectively called "Application") prepared or executed by
or on behalf of the Company or the Bank or based upon written information
furnished by or on behalf of the Company or the Bank, whether or not filed
in any jurisdiction, to effect the Conversion or qualify the Shares under
the securities laws thereof or filed with the Office or Commission, unless
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company or the Bank with respect to
Trident by or on behalf of Trident expressly for use in the Prospectus or
any amendment or supplement thereof or in any Application, as the case may
be, or (B) the participation by Trident in the Conversion. This indemnity
shall be in addition to any liability the Company and the Bank may have to
Trident otherwise.
(b) The Company shall indemnify and hold Trident harmless for any
liability whatsoever arising out of (i) the Allocation Instructions or (ii)
any records of account holders, depositors, borrowers and other members of
the Bank delivered to Trident by the Bank or its agents for use during the
Conversion.
(c) Trident agrees to indemnify and hold harmless the Company and the
Bank, their officers, directors and employees and each person, if any, who
controls the Company or the Bank within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, to the same extent as the
foregoing indemnity from the Company and the Bank to Trident, but only with
respect to (A) statements or omissions, if any, made in the Prospectus
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 19
or any amendment or supplement thereof, in any Application or to a
purchaser of the Shares in reliance upon, and in conformity with, written
information furnished to the Company or the Bank with respect to Trident by
or on behalf of Trident expressly for use in the Prospectus or in any
Application; (B) any misrepresentation by Trident in Section 2(b) of this
Agreement; or (C) any liability of the Company or the Bank which is found
in a final judgment by a court of competent jurisdiction (not subject to
further appeal) to have principally and directly resulted from gross
negligence or willful misconduct of Trident.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with the
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than the reasonable cost of investigation except as
otherwise provided herein. In the event the indemnifying party elects to
assume the defense of any such action and retain counsel acceptable to the
indemnified party, the indemnified party may retain additional counsel, but
shall bear the fees and expenses of such counsel unless (i) the
indemnifying party shall have specifically authorized the indemnified party
to retain such counsel or (ii) the parties to such suit include such
indemnifying party and the indemnified party, and such indemnified party
shall have been advised by counsel that one or more material legal defenses
may be available to the indemnified party which may not be available to the
indemnifying party, in which case the indemnifying party shall not be
entitled to assume the defense of such suit notwithstanding the
indemnifying party's obligation to bear the fees and expenses of such
counsel. An indemnifying party against whom indemnity may be sought shall
not be liable to indemnify an indemnified party under this Section 8 if any
settlement of any such action is effected without such indemnifying party's
consent. To the extent required by law, this Section 8 is subject to and
limited by the provisions of Section 23A.
9. Contribution. In order to provide for just and equitable contribution
------------
in circumstances in which the indemnity agreement provided for in Section 8
above is for any reason held to be unavailable to Trident, the Company and/or
the Bank other than in accordance with its terms, the Company or the Bank and
Trident shall contribute to the aggregate losses, liabilities, claims, damages,
and expenses of the nature contemplated by said indemnity agreement incurred by
the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 20
Company or the Bank and Trident (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Bank on the one
hand and Trident on the other from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above, but also the relative fault of the Company or
the Bank on the one hand and Trident on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Bank on
the one hand and Trident on the other shall be deemed to be in the same
proportions as the total net proceeds from the Conversion received by the
Company and the Bank bear to the total commissions received by Trident under
this Agreement. The relative fault of the Company or the Bank on the one hand
and Trident on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Bank or by Trident and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Bank and Trident agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by the indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, Trident shall not be required
to contribute any amount in excess of the amount by which commissions owed
Trident pursuant to this Agreement exceeds the amount of any damages which
Trident has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. To the extent required by law, this Section 8 is subject to
and limited by the provisions of Section 23A.
10. Survival of Agreements, Representations and Indemnities. The
-------------------------------------------------------
respective indemnities of the Company and the Bank and Trident and the
representation and warranties of the Company and the Bank and of Trident set
forth in or made pursuant to this Agreement shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of Trident or the Company or the Bank or any
controlling person or indemnified party referred to in Section 8 hereof, and
shall survive any termination or consummation of this Agreement and/or the
issuance of the Shares, and any legal representative of Trident, the Company,
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 21
the Bank and any such controlling persons shall be entitled to the benefit of
the respective agreements, indemnities, warranties and representations.
11. Termination. Trident may terminate this Agreement by giving the
-----------
notice indicated below in this Section at any time after this Agreement becomes
effective as follows:
(a) If any domestic or international event or act or occurrence has
materially disrupted the United States securities markets such as to make
it, in Trident's reasonable opinion, impracticable to proceed with the
offering of the Shares; or if trading on the New York Stock Exchange shall
have suspended; or if the United States shall have become involved in a war
or major hostilities; or if a general banking moratorium has been declared
by a state or federal authority which has material effect on the Bank or
the Conversion; or if a moratorium in foreign exchange trading by major
international banks or persons has been declared; or if there shall have
been a material change in the capitalization, condition or business of the
Company, or if the Bank shall have sustained a material or substantial loss
by fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act, whether or not said loss shall have been
insured; or if there shall have been a material adverse change in the
condition or prospects of the Company, the Bank or the Subsidiary.
(b) If Trident elects to terminate this Agreement as provided in this
Section, the Company and the Bank shall be notified promptly by Trident by
telephone or telegram, confirmed by letter.
(c) If this Agreement is terminated by Trident for any of the reasons
set forth in subsection (a) above, and to fulfill its obligations, if any,
pursuant to Sections 3, 6, 8(a) and 9 of this Agreement and upon demand,
the Company and the Bank shall pay Trident the full amount so owing
thereunder.
(d) The Bank may terminate the Conversion in accordance with the
terms of the Plan. Such termination shall be without liability to any
party, except that the Company and the Bank shall be required to fulfill
their obligations pursuant to Sections 3(b), 6, 8(a) and 9 of this
Agreement.
12. Notices. All communications hereunder, except as herein otherwise
-------
specifically provided, shall be in writing and if sent to Trident shall be
mailed, delivered or telegraphed and confirmed to Trident Securities, Inc., 4601
Six Forks Road, Suite 400, Raleigh, North Carolina 27609, Attention: Mr. R. Lee
Burrows, Jr. (with a copy to Silver, Freedman & Taff, L.L.P., 1100 New York
Avenue, N.W., Suite 700, Washington, DC 20005, Attention: Jeffrey M. Werthan,
P.C.) and if sent to the Company or the Bank, shall be mailed, delivered or
telegraphed and confirmed to North Arkansas Bancshares, Inc., Newport Federal
Savings Bank , 200 Olivia Drive, Newport, Arkansas 72112, Attention: Mr. Brad
Snider, President (with a copy to Housely Kantarian &
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 22
Bronstein, P.C., 1220 19th Street, N.W., Washington, D.C. 20036, Attention:
Gary R. Bronstein, Esq.).
13. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon, Trident, the Company, the Bank and the controlling and
other persons referred to in Section 8 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
14. Construction. Unless governed by preemptive federal law, this
------------
Agreement shall be governed by and construed in accordance with the substantive
laws of [Tennessee].
15. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute but one and the same instrument.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 23
Please acknowledge your agreement to the foregoing by signing below and
returning to the Company one copy of this letter.
NORTH ARKANSAS BANCSHARES, INC. NEWPORT FEDERAL SAVINGS BANK
By: By:
------------------------------ ------------------------------
Brad Snider Brad Snider
President and Chief Executive President and Chief Executive
Officer Officer
Date:________________,1997 Date:________________,1997
Agreed to and accepted:
TRIDENT SECURITIES, INC.
By:
---------------------
Date: September __, 1997
<PAGE>
Exhibit A
Trident Securities, Inc. is a registered selling agent in the jurisdictions
--
listed below:
Alabama Missouri
Arizona Nebraska
Arkansas Nevada
California New Hampshire
Colorado New Jersey
Connecticut New Mexico
Delaware New York
District of Columbia North Carolina
Florida North Dakota (Trident Securities, Inc. only, no agents)
Georgia Ohio
Idaho Oklahoma
Illinois Oregon
Indiana Pennsylvania
Iowa Rhode Island
Kansas South Carolina
Kentucky Tennessee
Louisiana Texas
Maine Vermont
Maryland Virginia
Massachusetts Washington
Michigan Tennessee
Minnesota Wisconsin
Mississippi Wyoming
Trident Securities, Inc. is not a registered selling agent in the jurisdictions
---
listed below:
Alaska
Hawaii
Montana
South Dakota
Utah
<PAGE>
Exhibit B
________, 1997
Trident Securities, Inc.
4601 Six Forks Road
Suite 400
Raleigh, North Carolina 27609
Re: Newport Federal Savings Bank
North Arkansas Bancshares, Inc.
Ladies and Gentlemen:
We are rendering this opinion to Trident Securities, Inc. ("Trident" or
"you") as special counsel for Newport Federal Savings Bank (the "Bank") and
North Arkansas Bancshares, Inc. (the "Company"), pursuant to Section 7(a) of
the Sales Agency Agreement dated _______________ (the "Agency Agreement") by and
among the Bank, the Company and you, as agent for the sale of up to 322,000
shares of common stock, par value $0.01 per share, of the Company (the "Common
Stock") issued in connection with the conversion of the Bank from a federally
chartered mutual savings bank to a federally chartered capital stock savings
bank and the simultaneous issuance of all of the issued and outstanding stock of
the converted Bank to the Company in accordance with the Bank's Plan of
Conversion (the "Plan"). The sale of the Common Stock by the Company, the
conversion of the Bank from a federally chartered mutual savings bank to a
federally chartered capital stock savings bank and the issuance of the
outstanding common stock of the converted Bank to the Company are hereinafter
collectively referred to as the "Conversion." All references in this opinion to
instruments and other defined terms shall mean the instruments and other terms
as defined in the Agency Agreement, except to the extent they are otherwise
defined herein or the context otherwise requires.
As special counsel for the Bank and the Company, we have reviewed such
corporate records, certificates, and other documents, and such questions of law,
as we have considered necessary or appropriate for the purpose of rendering this
opinion. In the course of our review, we have assumed the genuineness of all
signatures on original documents, and the due execution and delivery of all
documents requiring due execution and delivery for the effectiveness thereof,
except the execution and delivery of the Agency Agreement by the Company and the
Bank as to which we have relied upon representations of officers of the Bank and
the Company. With respect to questions of good standing of the Bank and the
Company, we have relied solely upon the official letters of appropriate
governmental authorities and representations of officers of the Bank and the
Company.
<PAGE>
As to questions of fact material to the opinions hereinafter expressed, we
have relied upon the representations and warranties of the Company and the Bank
made in the Agency Agreement and the certificates of officers delivered at the
closing. We have made no examination or investigation for purposes of these
opinions to verify the accuracy or completeness of any financial, accounting,
pro forma, valuation, or statistical information or information with respect to
Trident set forth in the Registration Statement, the Prospectus, the Agency
Agreement, or any of the documents referred to herein or otherwise furnished to
Trident or with respect to any other accounting or financial matters and express
no opinion with respect thereto. We have also assumed for the purposes of the
opinions expressed herein that the Agency Agreement is a valid and binding
obligation of Trident.
Anything to the contrary, expressly stated or implied, notwithstanding,
each of the opinions hereinafter expressed is subject to the following further
qualifications whether or not such opinions refer to such qualifications:
(1) We offer no opinion and do not purport to opine as to the
enforceability of provisions contained in any documents relating to the
Conversion or contemplated by the Agency Agreement or documents as to which the
Bank or the Company is a party (a) relating to disclaimers, liability
limitations with respect to third parties, releases of legal or equitable
rights, or discharges of defenses and remedies, (b) fixing the amount of
liquidated damages, (c) requiring the payment of interest on interest, and (d)
relating to the payment of attorney's fees.
(2) Our opinions below are limited to the matters expressly set forth in
this opinion letter, and no opinion is to be implied or inferred beyond the
matters stated. Without limiting the foregoing, we express no opinion as to the
anti-fraud provisions of federal and state securities laws.
(3) We have made no independent investigation for purposes of these
opinions as to the accuracy or completeness of any representation, warranty,
date, or other information, written or oral, made or furnished in connection
with the Agency Agreement, and we have relied on the certificates of officers of
the Company and the Bank that none of such information contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements made not misleading.
(4) We are not required to be licensed to practice law in any jurisdiction
other than the District of Columbia. The opinions expressed herein are limited
solely to the federal banking and securities laws and regulations and Tennessee
corporate law applicable to the Agency Agreement and the transactions
contemplated thereby, and we do not opine on any other federal law or the laws
of any other applicable jurisdiction.
(5) We have acted as special counsel in connection with the application
of federal securities and banking law and regulations and Tennessee corporate
law applicable to the Agency Agreement and the Conversion and, consequently,
there may exist matters of a legal nature concerning the Company or the Bank or
affiliated parties in connection with which we have not been consulted and have
not represented the Company or the Bank.
<PAGE>
(6) Except as set forth in Sections (iv), (v), (xi) and (xiv), below, this
opinion should in no way be construed as an opinion as to the materiality of the
contents of the Registration Statement, the Prospectus, or the Conversion
Application.
(7) Except as otherwise expressly stated, this opinion shall be governed
and interpreted in accordance with the Legal Opinion Accord of the American Bar
Association Section of Business Law (1991).
Based upon and subject to the foregoing and in reliance thereon, and
subject to the assumptions, exceptions and qualifications set forth herein, it
is our opinion that:
(i) the Company has been duly incorporated and is validly existing as a
corporation under the laws of the State of Tennessee, and the Bank is validly
existing as a savings bank in mutual form under the laws of the United States,
each with full corporate power and authority to own its properties and conduct
its business as such properties and business are described in the Prospectus;
(ii) the Bank is a member of the Federal Home Loan Bank of Dallas, and the
deposit accounts of the Bank are insured by the SAIF up to the applicable legal
limits;
(iii) to our actual knowledge, the activities of the Bank, as such
activities are described in the Prospectus, are permitted under federal and
Tennessee law to subsidiaries of a Tennessee business corporation, and to our
actual knowledge the Bank does not have any subsidiaries other than the
Subsidiary;
(iv) the Plan complies with, and to our actual knowledge the Conversion
has been effected in all material respects in accordance with, the HOLA and the
OTS regulations; to our actual knowledge, all of the terms, conditions,
requirements and provisions with respect to the Plan and the Conversion imposed
by the Office, except with respect to the filing or submission of certain
required post-Conversion reports or other materials by the Company or the Bank,
have been complied with by the Company and the Bank; and, to our actual
knowledge, no person has sought to obtain regulatory or judicial review of the
final action of the Office in approving the Plan;
(v) the Company has authorized Common Stock as set forth in the
Registration Statement and the Prospectus, and the description of such Common
Stock in the Registration Statement and the Prospectus is accurate in all
material respects;
(vi) the issuance and sale of the Shares have been duly and validly
authorized by all necessary corporate action on the part of the Company; the
Shares, upon receipt of payment and issuance in accordance with the terms of the
Plan and the Agreement, will be validly issued, fully paid, nonassessable and
free of preemptive rights, and purchasers of the Shares from the Company, upon
issuance thereof against payment therefor, will acquire such Shares free and
clear of all claims, encumbrances, security interests and liens created by the
Company;
(vii) the form of certificate used to evidence the Shares is in proper
form and complies in all material respects with applicable Tennessee law;
<PAGE>
(viii) the issuance and sale of the capital stock of the Bank to the
Company have been duly authorized by all necessary corporate action of the Bank
and the Company and have received the approval of the Office, and such capital
stock, upon receipt of payment and issuance in accordance with the terms of the
Plan, will be validly issued, fully paid and nonassessable and owned of record
and, to our actual knowledge, beneficially by the Company;
(ix) subject to the satisfaction of the conditions of the Office's approval
of the Conversion Application, no further approval, authorization, consent or
other order of any federal governmental board or body is required in connection
with the execution and delivery of the Agency Agreement and the consummation of
the Conversion, except with respect to the issuance to the Bank of the Stock
Charter by the Office and as may be required under the securities laws of
various states and except for the approval by the NASD of the compensation
payable to Trident under the rules and regulations of the NASD;
(x) the execution and delivery of the Agreement and the consummation of
the Conversion have been duly and validly authorized by all necessary corporate
action on the part of each of the Company and the Bank;
(xi) the statements in the Prospectus and incorporated by reference in the
Proxy Statement under the captions "Regulation," "Taxation," "Dividends,"
"Certain Restrictions on Acquisition of the Holding Company," and "Description
of Capital Stock," insofar as they are, or refer to, statements of law or legal
conclusions (excluding financial data included therein, as to which no opinion
is expressed), have been prepared or reviewed by us and are correct in all
material respects;
(xii) the Conversion Application has been approved by the Office, and the
Prospectus and the Proxy Statement have been authorized for use by the Office;
the Registration Statement and any post-effective amendment thereto has been
declared effective by the Commission; and to our actual knowledge, no
proceedings are pending by or before the Commission or the Office seeking to
revoke or rescind the orders declaring the Registration Statement effective or
approving the Conversion Application or, to our actual knowledge, are
contemplated or threatened;
(xiii) the execution and delivery of the Agreement and the consummation of
the Conversion by the Company and the Bank do not conflict with or result in a
breach of the charter or bylaws of the Company or the Bank (in either mutual or
stock form); and
(xiv) the Conversion Application, the Registration Statement, the
Prospectus and the Proxy Statement, in each case as amended, comply as to form
in all material respects with the requirements of the Act, the HOLA, the SEC
Regulations and the OTS Regulations, as the case may be (except as to
information with respect to Trident included therein and financial statements,
notes to financial statements, financial tables and other financial and
statistical data, included therein, as to which no opinion is expressed); to our
actual knowledge, all documents and exhibits required to be filed with the
Conversion Application and the Registration Statement have been so filed and the
descriptions in the Conversion Application and the Registration Statement of
these documents and exhibits are accurate in all material respects.
<PAGE>
This opinion is being rendered solely for the benefit of the addressee
hereof and may not be relied upon by, nor may copies be delivered to, any other
person without our prior written consent. The opinion may be delivered to your
counsel. This opinion is given as of the date hereof and we assume no obligation
to advise you of changes that may hereafter be brought to our attention.
Very truly yours,
Housley, Kantarian & Bronstein, P.C.
<PAGE>
Exhibit C
________, 1997
Trident Securities, Inc.
4601 Six Forks Road
Suite 400
Raleigh, North Carolina 27609
Re: Newport Federal Savings Bank
North Arkansas Bancshares, Inc.
Ladies and Gentlemen:
We are rendering this opinion to Trident Securities, Inc. ("Trident" or
"you") as general counsel to Newport Federal Savings Bank (the "Bank") and North
Arkansas Bancshares, Inc. (the "Company") at the time of the conversion of the
Bank from a federally chartered mutual savings bank to a federally chartered
capital stock savings bank, the simultaneous issuance of all of the issued and
outstanding stock of the converted Bank to the Company and the sale and issuance
by the Company of up to 322,000 shares of its Common Stock, par value $0.01 per
share (collectively, the "Conversion") in accordance with the Bank's Plan of
Conversion adopted on ______, 1997 as amended (the "Plan"). Except to the
extent they are otherwise defined herein or the context otherwise requires, all
references in this opinion to instruments and other defined terms shall mean the
instruments and other terms as defined in the Sales Agency Agreement dated
_____________, 1997 (the "Agency Agreement") by and among the Bank, the Company,
and Trident. Our representation was limited solely to matters of Tennessee law
and this opinion is delivered to you pursuant to Section 7(a) of the Agency
Agreement.
As general counsel to the Company and the Bank, with respect to the Bank
and the Company, we have examined such corporate records, certificates, and
other documents, and such questions of law, as we have considered necessary or
appropriate for the purpose of rendering this opinion. In the course of our
examination, we have assumed the genuineness of all signatures on original
documents, and the due execution and delivery of all documents requiring due
execution and delivery for the effectiveness thereof. As to matters of fact
relating to my opinion, we have relied on certificates and written statements of
officers of the Bank and the Company.
Based upon and subject to the foregoing and in reliance thereon, and
subject to the assumptions, exceptions, and qualifications set forth herein, it
is my opinion that:
<PAGE>
(i) to our actual knowledge, the Bank has obtained all licenses, permits
and other governmental authorizations currently required for the conduct of its
business as such business is described in the Prospectus, all such licenses,
permits and other governmental authorizations are in full force and effect, and
the Bank is in all material respects complying therewith, except where the
failure to obtain and hold such licenses, permits or governmental authorizations
or the failure to so comply would not have a material adverse effect on the
Company and the Bank taken as a whole;
(ii) there are no material legal or governmental proceedings pending or,
to our actual knowledge, threatened against or involving the assets of the
Company or the Bank (provided that for this purpose we do not regard any
litigation or governmental procedure to be "threatened" unless the potential
litigant or government authority has manifested to the management of the Company
or the Bank, or to us, a present intention to initiate such litigation or
proceeding);
(iii) to our actual knowledge, the execution and delivery of the Agency
Agreement and the consummation of the Conversion by the Company and the Bank do
not constitute a material breach of or default (or an event which, with notice
or lapse of time or both, would constitute a default) under, give rise to any
right of termination, cancellation or acceleration contained in, or result in
the creation or imposition of any lien, charge or other encumbrance upon any of
the properties or assets of the Company or the Bank pursuant to any of the
terms, provisions or conditions of, any material agreement, contract, indenture,
bond, debenture, note, instrument or obligation to which the Company or the Bank
is a party or violate any governmental license or permit or any enforceable
published law, administrative regulation or order or court order, writ,
injunction or decree (subject to the satisfaction of certain conditions imposed
by the Office in connection with its approval of the Conversion Application),
which breach, default, encumbrance or violation would have a material adverse
effect on the financial condition, operations, business, assets or properties of
the Company and the Bank taken as a whole;
(iv) to our actual knowledge, there has been no material breach of any
provision of the Company's or the Bank's charter or bylaws or breach or default
(or the occurrence of any event which, with notice or lapse of time or both,
would constitute a default) under any agreement, contract, indenture, bond,
debenture, note, instrument or obligation to which the Company or the Bank is a
party or by which any of them or any of their respective assets or properties
may be bound, or any governmental license or permit, or a violation of any
enforceable published law, administrative regulation or order, or court order,
writ, injunction or decree which breach, default, encumbrance or violation would
have a material adverse effect on the financial condition, operations, business,
assets or properties of the Company and the Bank taken as a whole;
(v) the Agency Agreement is a legal, valid and binding obligation of each
of the Company and the Bank, enforceable in accordance with its terms (except as
the enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization, receivership, conservatorship or similar laws relating to or
affecting the enforcement of creditors' rights generally or the rights of
creditors of depository institutions whose accounts are insured by the FDIC or
savings and loan holding companies the accounts of whose subsidiaries are
insured by the FDIC or by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law, and except to
the extent that the provisions of Sections 8 and 9 thereof may be unenforceable
as
<PAGE>
against public policy or pursuant to Section 23A or Section 23B of the Federal
Reserve Act, as to which no opinion is rendered);
(vi) to our actual knowledge, the activities of the Bank, as such
activities are described in the Prospectus, are permitted under Tennessee law to
subsidiaries of a Tennessee business corporation;
(vii) each of the Company and the Bank has been duly qualified and is in
good standing to do business in Tennessee, to our actual knowledge, the only
state in which the Company or the Bank is doing business; and
(viii) subject to the satisfaction of the conditions of the Office's
approval of the Conversion Application, no further approval, authorization,
consent or other order of any governmental board or body is required in
connection with the execution and delivery of the Agency Agreement and the
consummation of the Conversion, except with respect to the issuance to the Bank
of the Stock Charter by the Office and as may be required under the securities
laws of various states and except for the approval by the NASD of the
compensation payable to Trident under the rules and regulations of the NASD.
This opinion is being rendered solely for the benefit of the addressee
hereof and that of the addressee's and the Company's special counsel and may not
be relied upon by, nor may copies be delivered to, any other person without our
prior written consent. We hereby consent to the delivery of this opinion to
your counsel named in the Agency Agreement and to the Company's special counsel
in connection with the consummation of the Conversion. This opinion is given as
of the date hereof and we assume no obligation to advise you of changes that may
hereafter be brought to our attention.
Very truly yours,
-----------------------------
<PAGE>
Exhibit D
_________, 1997
Trident Securities, Inc.
4601 Six Forks Road
Suite 400
Raleigh, North Carolina 27609
Re: Newport Federal Savings Bank
North Arkansas Bancshares, Inc.
Ladies and Gentlemen:
We have acted as special counsel for North Arkansas Bancshares, Inc. (the
"Company") and Newport Federal Savings Bank (the "Bank") in connection with the
preparation and filing with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), of the Company's Registration Statement on Form SB-2 (No. 333-______), as
amended, and the Bank's Application for Conversion on Form AC, as amended,
relating to the offering of the Company's common stock (the "Common Stock") in a
subscription offering in connection with the conversion of the Bank from a
federally chartered mutual savings bank to a federally chartered stock savings
bank (the "Conversion") and the issuance of the Bank's capital stock to the
Company pursuant to the Bank's plan of conversion, originally adopted by the
Bank's Board of Directors on ______, 1997. Such registration statement, as
amended, when it became effective is herein called the "Registration Statement,"
and the related Prospectus dated ______________ is herein called the
"Prospectus." Such application for conversion, as amended, when it received
approval is herein called the "Conversion Application." This letter is furnished
pursuant to Section 7(b) of the Agency Agreement dated ________________ (the
"Agency Agreement") among the Company, the Bank, and Trident Securities, Inc.
("Trident" or "you").
Because the primary purpose of our professional engagement was not to
establish or confirm factual matters or financial, accounting, or statistical
matters and because of the wholly or partially non-legal character of many of
the statements contained in the Conversion Application, the Registration
Statement, and the Prospectus, for purposes of this letter, we are not passing
upon and do not assume any responsibility for the accuracy, completeness, or
fairness of the statements contained in the Conversion Application, the
Registration Statement, or the Prospectus and we make no representation that we
have independently verified the accuracy, completeness, or fairness of such
statements. Without limiting the foregoing, for purposes of this letter, we
assume no responsibility for, and have not independently verified, the accuracy,
completeness, or fairness of the financial statements and schedules and other
financial and statistical data and stock valuation information, or information
regarding you included in the Conversion Application, the Registration
Statement, and
<PAGE>
the Prospectus, and we have not examined the accounting, financial, or
statistical records from which such financial statements, schedules, and data
are derived. We note that, although certain portions of the Conversion
Application, the Registration Statement, and the Prospectus (including financial
statements and schedules and stock valuation information) have been included
therein on the authority of "experts" within the meaning of the Securities Act,
we are not such experts with respect to any portion of the Conversion
Application or the Registration Statement, including without limitation such
financial statements or schedules or the other financial or statistical data
included therein.
However, in the course of our acting as special counsel to the Company and
the Bank in connection with its preparation of the Conversion Application, the
Registration Statement, and the Prospectus:
(i) We participated in conferences with certain officers of, the
independent public and internal accountants for, and other representatives of
the Company and the Bank, at which conferences the contents of the Conversion
Application, the Registration Statement and the Prospectus and related matters
were discussed and, while, for purposes of this letter, we have not confirmed
the accuracy or completeness of or otherwise verified the information contained
in the Conversion Application, the Registration Statement or the Prospectus, and
do not assume any responsibility for such information, based upon such
conferences and a review of documents deemed relevant for the purpose of
rendering our opinion (relying as to factual matters on certificates of officers
and other factual representations by the Company and the Bank), nothing has come
to our attention that would lead us to believe that the Conversion Application,
the Registration Statement, the Prospectus, or any amendment or supplement
thereto (except as to information in respect of Trident contained therein and
except as to the financial statements, the notes thereto, statements concerning
recent accounting pronouncements, and other tabular, financial, statistical and
appraisal data included therein as to which no view is made) contained, as of
the date of approval or effectiveness, as the case may be, or as of the date
hereof, an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(ii) Since _________________, we have not participated with
representatives of the Bank or Company, representatives of the Company's
accountants, you or representatives of your counsel in any conferences or
telephone conversations during which the contents of the Conversion Application,
the Registration Statement, or the Prospectus were discussed, and since
_________________, we have not, for purposes of this letter, otherwise
undertaken any additional procedures for your benefit that were intended or
likely to elicit information concerning the accuracy, completeness, or fairness
of the statements made in the Conversion Application, the Registration Statement
or the Prospectus.
<PAGE>
We are furnishing this letter to you solely for your benefit. This letter
is not to be used, circulated, quoted, or otherwise referred to for any other
purpose, except that a copy may be provided to your counsel.
Very truly yours,
Housley, Kantarian & Bronstein, P.C.
<PAGE>
Exhibit 8.1
October 16, 1997
Board of Directors
Newport Federal Savings Bank
200 Olivia Drive
Newport, Arkansas 72112
Re: Certain Federal Income Tax Consequences Relating to Proposed Holding
Company Conversion
--------------------------------------------------------------------
Gentlemen:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to certain federal income tax consequences of the proposed
conversion of Newport Federal Savings Bank (the "Bank") from a federally
chartered mutual savings bank to a federally chartered capital stock savings
bank (the "Converted Bank") and the concurrent acquisition of 100% of the
outstanding capital stock of the Converted Bank by North Arkansas Bancshares,
Inc. (the "Company"), a Tennessee corporation formed at the direction of the
Board of Directors of the Bank to become the parent holding company of the
Converted Bank (the "Conversion").
For purposes of this opinion, we have examined such documents and
questions of law as we have considered necessary or appropriate, including but
not limited to the Plan of Conversion as adopted on May 29, 1997 by the Board of
Directors of the Bank (the "Plan"); the federal mutual charter and bylaws of the
Bank, as amended; the charter and bylaws of the Company; the Affidavit of
representations dated September __,1997 provided to us by the Bank (the
"Affidavit"), and the Prospectus (the "Prospectus") included in the Company's
Registration Statement on Form SB-2
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 16, 1997
Page 2
being filed with the Securities and Exchange Commission ("SEC") in connection
with the Conversion, on or about September __, 1997 (the "Registration
Statement"). In such examination, we have assumed, and have not independently
verified, the genuineness of all signatures on original documents where due
execution and delivery are requirements to the effectiveness thereof. Terms used
but not defined herein, whether capitalized or not, shall have the same meaning
as defined in the Plan.
BACKGROUND
----------
Based solely upon our review of such documents, and upon such
information as the Bank has provided to us (which we have not attempted to
verify in any respect), and in reliance upon such documents and information, we
set forth hereinbelow a general summary of the relevant facts and proposed
transaction, qualified in its entirety by reference to the documents cited
above.
The Bank is a federally chartered mutual savings bank, which is in the
process of converting to a federally chartered capital stock savings bank. The
Bank was organized as a federally chartered mutual savings and loan association
under the name "Newport Federal Savings and Loan Association" in 1934 and became
a member of the Federal Home Loan Bank ("FHLB") System and obtained federal
deposit insurance. In 1995 the Bank changed its name to Newport Federal Savings
Bank.
The Bank is a member of the FHLB System, and the deposits of the Bank
are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
applicable limits. The Bank is subject to comprehensive regulation and
supervision by the Office of Thrift Supervision ("OTS") and to examination by
the OTS. The Bank operates one office in Newport, Arkansas.
The Bank's principal business consists of attracting deposits from the
general public and investing those funds in loans secured by first mortgages on
existing owner-occupied single-family residences in the Bank's market area and,
to a lesser but growing extent, commercial and multi-family real estate loans
and consumer and commercial business loans. [Confirm] At June 30, 1997, the Bank
had total assets of $_____ million, deposits of $_____ million and retained
earnings of $____ million.
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 16, 1997
Page 3
As a federally chartered mutual savings bank, the Bank has no
authorized capital stock. Instead, the Bank, in mutual form, has a unique equity
structure. A savings depositor of the Bank is entitled to payment of interest on
his account balance as declared and paid by the Bank, but has no right to a
distribution of any earnings of the Bank except for interest paid on his
deposit. Rather, such earnings become retained income of the Bank.
However, a savings depositor does have a right to share pro rata, with
--- ----
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Bank is ever liquidated. Further,
savings depositors and borrowers are members of the Bank and thereby have voting
rights in the Bank. Under the Bank's federal mutual charter, as amended, each
depositor is entitled to cast one vote for each $100 or fraction thereof held in
a withdrawable deposit account of the Bank, and each borrower member
(hereinafter "borrower") is entitled to one vote in addition to the votes (if
any) to which such person is entitled in such borrower's capacity as a savings
depositor of the Bank. Also under such federal mutual charter, no member is
entitled to cast more than 1,000 votes. All of the interests held by a savings
depositor in the Bank cease when such depositor closes his accounts with the
Bank.
The Company was incorporated in September, 1997 under the laws of the
State of Tennessee to act as the savings and loan holding company of the
Converted Bank upon consummation of the Conversion. Prior to consummation of the
Conversion, the Company has not been engaged in and is not expected to engage in
any material operations. After the Conversion, the Company's principal business
will be overseeing the business of the Converted Bank. The Company has an
authorized capital structure of 9,000,000 shares of common stock (the "Common
Stock"), par value $.01 per share, and 3,000,000 shares of serial preferred
stock, par value $.01 per share.
PROPOSED TRANSACTION
--------------------
The Board of Directors of the Bank has decided that in order to attract
new capital to the Converted Bank to increase its net worth, to support future
savings growth, to increase the amount of funds available for lending and
investment, to provide greater resources for the expansion of customer services,
and to facilitate future expansion, it would be advantageous for the Bank to
convert from a federally chartered mutual savings bank to a federally chartered
capital stock savings bank. In addition, the Board of Directors intends to
implement stock option plans and
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 16, 1997
Page 4
other stock benefit plans following the Conversion in order to better attract
and retain qualified directors and officers. It is the further desire of the
Board of Directors to reorganize the Converted Bank as the wholly owned
subsidiary of the Company to enhance flexibility of operations, diversification
of business opportunities and financial capability for business and regulatory
purposes and to enable the Converted Bank to compete more effectively with other
financial service organizations.
Accordingly, pursuant to the Plan, the Bank will undergo the Conversion
whereby it will be converted from a federally chartered mutual savings bank to a
federally chartered capital stock savings bank. The Converted Bank will then
issue to the Company 100,000 shares of the Converted Bank's common stock,
representing all of the shares of capital stock to be issued by the Converted
Bank in the Conversion, and the Company will make payment to the Converted Bank
in an amount equal to at least 50% of the aggregate net proceeds realized by the
Company from the sale of its Common Stock sold pursuant to the Plan, after
deducting the amount necessary to fund a loan to an Employee Stock Ownership
Plan being established in connection with the Conversion, or such other portion
of the aggregate net proceeds as may be authorized or required by the OTS.
Pursuant to the Prospectus, the Company currently anticipates making such
payment to the Converted Bank of an amount equal to 50% of the aggregate net
proceeds from the sale of the Common Stock.
Also pursuant to the Plan, the Company will offer its shares of Common
Stock for sale in a Subscription Offering. Shares of Common Stock remaining, if
any, may then be offered to the general public in a Community Offering. Shares
of the Common Stock not otherwise subscribed for in the Subscription Offering
and Community Offering may be offered at the discretion of the Company to
certain members of the general public as part of a community offering on a best
efforts basis by a selling group of selected broker-dealers.
The purchase price per share and total number of shares of Common Stock
to be offered and sold pursuant to the Plan will be determined by the Boards of
Directors of the Bank and the Company, on the basis of the estimated pro forma
--- -----
market value of the Converted Bank, as a subsidiary of the Company, which will
in turn be determined by an independent appraiser. The aggregate purchase price
for all shares of the Common Stock will be equal to such estimated pro forma
--- -----
market value. Pursuant to the Plan, all such shares of Common Stock will be
issued and sold at a uniform price per share. The Conversion, including the sale
of newly issued shares of
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 16, 1997
Page 5
the stock of the Converted Bank to the Company, will be deemed effective
concurrently with the closing of the sale of the Common Stock.
Under the Plan and in accordance with regulations of the OTS, the
shares of Common Stock will first be offered through the Subscription Offering
pursuant to non-transferable subscription rights on the basis of preference
categories in the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans (i.e. the ESOP);
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
However, any shares of Common Stock sold in excess of the high-end of
the Valuation Range may first be sold to Tax-Qualified Employee Stock Benefit
Plans set forth in category (2) above.
Any shares of Common Stock not subscribed for in the Subscription
Offering will be offered in the Community Offering in the following order of
priority:
(a) Natural persons and trusts of natural persons (including
individual retirement and Keogh retirement accounts and
personal trusts in which such natural persons have substantial
interests) who are permanent Residents of the Bank's Local
Community; and
(b) The general public.
Shares not sold in the Subscription Offering and the Community
Offering, if any, may thereafter be offered for sale to certain members of the
general public as part of a community offering on a best efforts basis by a
selling group of selected broker-dealers. The sale of shares in the Subscription
Offering, Community Offering, and as sold through the selected broker-dealers
would be consummated at the same time.
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 16, 1997
Page 6
The Plan also provides for the establishment of a Liquidation Account
by the Converted Bank for the benefit of all Eligible Account Holders and
Supplemental Eligible Account Holders in an amount equal to the regulatory
capital of the Bank as of the date of the latest statement of financial
condition contained in the final prospectus issued in connection with the
Conversion. The establishment of the Liquidation Account will not operate to
restrict the use or application of any of the net worth accounts of the
Converted Bank, except that the Converted Bank may not declare or pay cash
dividends on or repurchase any of its stock if the result thereof would be to
reduce its regulatory capital below the amount required to maintain the
Liquidation Account. All such account holders will have an inchoate interest in
a proportionate amount of the Liquidation Account with respect to each savings
account held and will be paid by the Converted Bank in event of liquidation
prior to any liquidating distribution being made with respect to capital stock.
Under the Plan, the Conversion shall not be deemed to be a liquidation of the
Bank for purposes of distribution of the Liquidation Account. Instead, upon
consummation of the Conversion, the Liquidation Account, together with the
related rights and obligations of the Converted Bank, shall be assumed by the
Converted Bank.
The Conversion will not interrupt the business of the Bank. The
Converted Bank will, after the Conversion, engage in the same business as that
of the Bank immediately prior to the Conversion, and will continue to be subject
to regulation and supervision by the OTS and the FDIC. Further, the deposits of
the Converted Bank will continue to be insured by the FDIC. Each depositor will
retain a withdrawable savings account or accounts equal in dollar amount to, and
on the same terms and conditions as, the withdrawable account or accounts at the
time of Conversion except to the extent funds on deposit are used to pay for
Common Stock purchased in connection with the Conversion. All loans of the Bank
will remain unchanged and retain their same characteristics in the Converted
Bank immediately following the Conversion.
Following the Conversion, voting rights in the Converted Bank will rest
exclusively with the sole holder of stock in the Converted Bank, which will be
the Company. Voting rights in the Company will rest exclusively in the holders
of the Common Stock.
The Plan must be approved by the OTS and by an affirmative vote of at
least a majority of the total votes eligible to be cast at a meeting of the
Bank's members called to vote on the Plan. Immediately prior to the Conversion,
the Bank will have a positive net worth determined in accordance with generally
accepted accounting principles.
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 16, 1997
Page 7
OPINION
-------
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code
of 1986, as amended (the "Code"), and no gain or loss will be
recognized to either the Bank or the Converted Bank as a
result of the Conversion (see Rev. Rul. 80-105, 1980-1 C.B.
---
78).
2. The assets of the Bank will have the same basis in the hands
of the Converted Bank as in the hands of the Bank immediately
prior to the Conversion (Section 362(b) of the Code).
3. The holding period of the assets of the Bank to be received by
the Converted Bank will include the period during which the
assets were held by the Bank prior to the Conversion (Section
1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Bank upon
its receipt of money from the Company in exchange for shares
of common stock of the Converted Bank (Section 1032(a) of the
Code). The Company will be transferring solely cash to the
Converted Bank in exchange for all the outstanding capital
stock of the Converted Bank and therefore will not recognize
any gain or loss upon such transfer. (Section 351(a) of the
Code; see Rev. Rul. 69-357, 1969-1 C.B. 101).
---
5. No gain or loss will be recognized by the Company upon its
receipt of money in exchange for shares of the Common Stock
(Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account
Holders, Supplemental Eligible Account Holders, or Other
Members of the Bank upon the issuance to them of deposit
accounts in the Converted Bank in the same dollar amount and
on the same terms and conditions in exchange for their deposit
accounts in the Bank
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 16, 1997
Page 8
held immediately prior to the Conversion. (Section 1001(a) of
the Code; Treas. Reg. (S).1.1001-1(a)).
7. The tax basis of the savings accounts of the Eligible Account
Holders, Supplemental Eligible Account Holders, and Other
Members in the Converted Bank received as part of the
Conversion will equal the tax basis of such account holders'
corresponding deposit accounts in the Bank surrendered in
exchange therefor (Section 1012 of the Code).
8. Each depositor of the Bank will recognize gain upon the
receipt of his or her respective interest in the Liquidation
Account established by the Converted Bank pursuant to the Plan
and the receipt of his or her subscription rights deemed to
have been received for federal income tax purposes, but only
to the extent of the excess of the combined fair market value
of a depositor's interest in such Liquidation Account and
subscription rights over the depositor's basis in the former
interests in the Bank other than deposit accounts. Persons who
subscribe in the Conversion but who are not depositors of the
Bank will recognize gain upon the receipt of subscription
rights deemed to have been received for federal income tax
purposes, but only to the extent of the excess of the fair
market value of such subscription rights over such person's
former interests in the Bank, if any. Any such gain realized
in the Conversion would be subject to immediate recognition.
9. The basis of each account holder's interest in the Liquidation
Account received in the Conversion and to be established by
the Converted Bank pursuant to the Conversion will be equal to
the value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise of a
subscription right in the Conversion. (Rev. Rul. 56-572,
1956-2 C.B.182).
11. The basis of the shares of Common Stock acquired in the
Conversion will be equal to the purchase price of such shares,
increased, in the case of such shares acquired pursuant to the
exercise of subscription rights, by the fair market value, if
any, of the subscription rights exercised (Section 1012 of the
Code).
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 16, 1997
Page 9
12. The holding period of the Common Stock acquired in the
Conversion pursuant to the exercise of subscription rights
will commence on the date on which the subscription rights are
exercised (Section 1223(6) of the Code). The holding period of
the Common Stock acquired in the Community Offering will
commence on the date following the date on which such stock is
purchased (Rev. Rul. 70-598, 1970-2 C.B. 168; Rev. Rul. 66-97,
1966-1 C.B. 190).
SCOPE OF OPINION
----------------
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
state, local, foreign or other federal tax considerations. If any of the
information upon which we have relied is incorrect, or if changes in the
relevant facts occur after the date hereof, our opinion could be affected
thereby. Moreover, our opinion is based on the case law, Code, Treasury
Regulations thereunder and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change, and such change may be made with
retroactive effect. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion subsequent to consummation of the Conversion. Prior to
that time, we undertake to update or supplement our opinion in the event of a
material change in the federal income tax consequences set forth above and to
file such revised opinion as an exhibit to the Registration Statement and the
Bank's Application for Conversion on Form AC ("Form AC"). This opinion is not
binding on the Internal Revenue Service and there can be no assurance, and none
is hereby given, that the Internal Revenue Service will not take a position
contrary to one or more of the positions reflected in the foregoing opinion, or
that our opinion will be upheld by the courts if challenged by the Internal
Revenue Service.
CONSENTS
--------
We hereby consent to the filing of this opinion with the OTS as an
exhibit to the Application H-(e)1-S filed by the Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and
the OTS as exhibits to the Registration Statement and Form AC, respectively, and
the references to our firm in the
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 16, 1997
Page 10
Prospectus, which is a part of the Registration Statement and Form AC, under the
headings "The Conversion -- Effect of Conversion to Stock Form on Depositors and
Borrowers of Newport Federal Savings Bank -- Tax Effects" and "Legal and Tax
Matters."
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By: /s/ Gary R. Bronstein
----------------------------------
Gary R. Bronstein
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
October 27, 1997
Board of Directors
Newport Federal Savings Bank
200 Olivia Drive
Newport, Arkansas 72112
Gentlemen:
You have requested the opinion of KPMG Peat Marwick LLP as to the Arkansas
income tax consequences of the transaction described below. In formulating our
opinion and preparing this opinion letter, we have relied upon certain factual
representations made by Newport Federal Savings Bank (the "Bank"), entities
related to the Bank, and their respective employees and Directors, as well as
the Plan of Conversion as adopted on May 29, 1997 by the Board of Directors of
the Bank (the "Plan").
STATEMENT OF FACTS
The Bank is a federally chartered mutual savings and loan association with one
office in Newport, Arkansas. The Bank is a member of the FHLB System, and the
deposits of the Bank are insured by the Federal Deposit Insurance Corporation
("FDIC") up to applicable limits. The Bank is subject to comprehensive
regulation and supervision by the Office of Thrift Supervision ("OTS") and to
examination by the OTS.
The Bank is in the process of converting from a mutual form of ownership to a
stock form of ownership (the "Conversion"). One hundred percent (100%) of the
outstanding capital stock of the Bank following the conversion (the "Converted
Bank") will be acquired by a parent holding company known as North Arkansas
Bancshares, Inc., a newly formed holding corporation (the "Holding Company").
In the Conversion, the Bank will be converted from a federally chartered mutual
savings bank to a federally charted capital stock savings bank. The Converted
Bank will then issue to the Holding Company, 100,000 shares of the Converted
Bank's common stock, representing all of the shares of capital stock to be
issued by the Converted Bank in the Conversion, in exchange for payment by the
Holding Company of at least fifty percent (50%) of the aggregate net proceeds
realized by the Holding Company from the sale of its shares of common stock (the
"Common Stock") sold pursuant to the Plan, after deducting the amount necessary
to fund a loan to an Employee Stock Ownership Plan being established in
connection with the Conversion, or such other portion of the aggregate net
proceeds as may be authorized or required by the OTS.
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 27, 1997
Page 2
Also in connection with the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering. Shares of Common Stock
remaining, if any, may then be offered to the general public in a Community
Offering. Shares of the Common Stock not otherwise subscribed for in the
Subscription Offering and Community Offering may be offered at the discretion of
the Holding Company to certain members of the general public as part of a
community offering on a best efforts basis by a selling group of selected
broker-dealers.
The purchase price per share and total number of shares of Common Stock to be
offered and sold pursuant to the Plan will be determined by the Board of
Directors of the Bank and the Holding Company on the basis of the estimated pro
forma market value of the Converted Bank as a subsidiary of the Holding Company,
which value will be determined by an independent appraiser. The aggregate
purchase price for all shares of the Common Stock will be equal to such
estimated pro forma market value. All such shares of Common Stock will be
issued and sold at a uniform price per share. The Conversion, including the
sale of newly issued shares of the stock of the Converted Bank to the Holding
Company, will be deemed effective concurrently with the closing of the sale of
the Common Stock.
The Conversion will not interrupt the business of the Bank. The Converted Bank
will, after the Conversion, engage in the same business as that of the Bank
immediately prior to the Conversion, and will continue to be subject to
regulation and supervision by the OTS and the FDIC. Further, the deposits of
the Converted Bank will continue to be insured by the FDIC. Each depositor will
retain a withdrawable savings account or accounts equal in dollar amount to, and
on the same terms and conditions as, the withdrawable account or accounts at the
time of Conversion except to the extent funds on deposit are used to pay for
Common Stock purchased in connection with the Conversion. All loans of the Bank
will remain unchanged and retain their same characteristics in the Converted
Bank immediately following the Conversion.
Management of the Bank and the Holding Company believes that the Conversion will
qualify as a tax-free reorganization for federal income tax purposes within the
meaning of Section 368(a)(1)(F) of the U.S. Internal Revenue Code of 1986, as
amended the (the "Code"). It is the opinion of Housley Kantarian & Bronstein,
P.C., counsel to the Board of Directors of the Bank of the Conversion (the
"Counsel"), that the Conversion will qualify as a tax-free reorganization for
federal income tax purposes within the meaning of Section 368(a)(1)(F) of the
Code. We assume that the presentation, by Counsel, that the Conversion will
qualify as a tax-free reorganization for federal income tax purposes within the
meaning of Section 368(a)(1)(F) of the Code, is correct.
OPINION
The State of Arkansas has specifically adopted certain provisions promulgated
under the Internal Revenue Code of 1986. Other Internal Revenue Code provisions
are only addressed through
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 27, 1997
Page 3
regulations issued under the Arkansas Income Tax Act of 1987. Arkansas
Regulations Section 1.84-2014(3) specifically defines a reorganization to
include a mere change in identity, form, or place of organization, however,
effected. Further Section 1.84-2014(1) provides in part that no gain or loss
should be recognized if property is transferred to a corporation by one person
solely in exchange for stock or securities in such corporation and, immediately
after the exchange, such person is in control of the corporation, or by two or
more persons solely in exchange for stock or securities in such corporation, and
if, immediately after the exchange, such persons are in control of the
corporation, and the amount of stock and securities received by each is
substantially in proportion to his interest in the property prior to the
exchange. The language of this regulation is similar to the language of Section
368(a)(1)(F) of the Code, and the operative provisions of Sections 354 and 361.
Based upon the facts as stated in this opinion and upon the facts and
assumptions set forth in and the analysis and opinion rendered in Counsel's
federal income tax opinion letter dated October 16,1997, it is our opinion that
Arkansas income tax consequences will follow the federal. Therefore, the
Conversion will constitute a tax-free transaction under Arkansas state laws and
regulations. There will be no Arkansas income tax consequences for the Bank,
the Converted Bank, the Holding Company, or the account holders of the Bank
resulting from the Conversion.
However, each depositor of the Bank will recognize gain upon the receipt of his
or her respective interest in the Liquidation Account established by the
Converted Bank pursuant to the Plan and the receipt of his or her subscription
rights deemed to have been received for federal income tax purposes, but only to
the extent of the excess of the combined fair market value of a depositor's
interest in such Liquidation Account and subscription rights over the
depositor's basis in the former interests in the Bank other than deposit
accounts. Persons who subscribe in the Conversion but who are not depositors of
the Bank will recognize gain upon the receipt of subscription rights deemed to
have been received for federal income tax purposes, but only to the extent of
the excess of the fair market value of such subscription rights over such
person's former interests in the Bank, if any. Any such gain realized in the
Conversion would be subject to immediate recognition.
SCOPE OF OPINION
Our opinion is based upon the Arkansas statues and regulations in effect as of
the date of this letter. If there are any significant changes by the foregoing
tax authorities (for which we shall have not responsibility to advise you), it
may result in our opinion being rendered invalid or necessitating, upon your
request, a reconsideration of the opinion.
Our opinion is based upon our assumption (without independent investigation or
review) that all of the representations in or referred to in Counsel's federal
income tax opinion letter are accurate and true (without independent
investigation or review).
<PAGE>
Board of Directors
Newport Federal Savings Bank
October 27, 1997
Page 4
No opinion is expressed as to the federal income tax treatment of the
transaction as covered by Counsel's federal income tax opinion letter or to the
tax treatment for Arkansas income tax purposes of any existing conditions or
effects of the transaction which are not specifically set forth in Counsel's
opinion or in our opinion above.
While this letter represents our considered judgment as to the proper Arkansas
income tax treatment to the parties concerned, it is not binding on the Arkansas
tax authorities or the courts and should not be considered a guarantee that the
Arkansas tax authorities or the courts will concur with our opinion.
CONSENTS
We hereby consent to the filing of this opinion with the OTS as an exhibit to
the Application H-(e)1-S filed by the Holding Company with the OTS in connection
with the Conversion and the reference to our firm in the Application H-(e)1-S
under Item 110.55 therein. We also hereby consent to the filing of this opinion
with the Securities and Exchange Commission ("SEC") and the OTS as exhibits to
the Registration Statement and Form AC, respectively, and the references to our
firm in the Prospectus , which is a part of both the said Registration Statement
and the said Form AC, under the headings "The Conversion - Effect of Conversion
to Stock Form on Depositors and Borrowers of Newport Federal Savings Bank - Tax
Effects" and "Legal and Tax Matters." Other than the uses indicated in this
paragraph, our opinion may not be relied upon, distributed, or disclosed by
anyone without our prior written consent.
Very truly yours,
KPMG Peat Marwick LLP
/s/ Joseph I. Strack
Joseph I. Strack, Partner
JIS:hmc
<PAGE>
Exhibit 8.3
[FERGUSON & COMPANY LETTERHEAD]
September 8, 1997
Board of Directors
Newport Federal Savings Bank
200 Olivia Drive
Newport, Arkansas 72112
Plan of Conversion, Subscription Rights
---------------------------------------
Dear Directors:
Terms used in this letter not otherwise defined herein have the same
meaning for such terms in the Plan of Conversion adopted by the Board of
Directors of Newport Federal Savings Bank ("Newport Federal" 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 North Arkansas Bancshares, Inc. (the
"Holding Company"). Simultaneously, the Holding Company will issue shares of
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
plans, (3) Supplemental Eligible Account Holders, and (4) Other Members. Based
solely upon our observation that the Subscription Rights will be available to
such parties without cost, will be legally nontransferable and of short
duration, and will afford parties the right only to purchase shares of Common
Stock at the same price to be paid by members of the general public in the
Community Offering, but without undertaking any independent investigation of
state or federal laws or the position of the Internal Revenue Service with
respect to such issue, in our opinion:
(1) the Subscription Rights will have no ascertainable market value; and
(2) The price at which the Subscription Rights are exercisable will not be
more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates and other external forces (e.g.,
natural disasters or significant global events) occur from time to time and may
materially affect the value of thrift stocks as a whole or the Holding Company's
value. Accordingly, no assurance can be given that persons who subscribe to
shares of Common Stock in the Conversion will thereafter be able to sell such
shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
Exhibit 10.4
NEWPORT FEDERAL SAVINGS BANK
--------------------------
Employment Agreement with
Brad Snider
--------------------------
AGREEMENT entered into and effective this ____ day of_________, 1997, by
and between Newport Federal Savings Bank (the "Bank") and Brad Snider (the
"Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as its
President and is experienced in all phases of the business of the Bank; and
WHEREAS, the Board of Directors (the "Board") of the Bank believes it is in
the best interests of the Bank to enter into this Agreement with the Employee in
order to assure continuity of management of the Bank and to reinforce and
encourage the continued attention and dedication of the Employee to his assigned
duties; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Defined Terms
-------------
When used anywhere in this Agreement, the following terms shall have the
meaning set forth herein.
(a) "Change in Control" shall mean any one of the following events:
(i) the acquisition of ownership, holding or power to vote more than 25% of the
voting stock of the Bank or the Company, (ii) the acquisition of the ability to
control the election of a majority of the Bank's or the Company's directors,
(iii) the acquisition of a controlling influence over the management or policies
of the Bank or of the Company by any person or by persons acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or
(iv) during any period of two consecutive years, individuals (the "Continuing
Directors") who at the beginning of such period constitute the Board of
Directors of the Bank or of the Company (the "Existing Board") cease for any
reason to constitute at least two-thirds thereof, provided that any individual
whose election or nomination for election as a member of the Existing Board was
approved by a vote of at least two-thirds of the Continuing Directors then in
office shall be considered a Continuing Director. For purposes of this paragraph
only, the term "person" refers to an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not specifically listed
herein.
<PAGE>
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
---
occur solely by reason of a transaction in which the Association converts to the
stock form of organization, or creates an independent holding company in
connection therewith. The decision of the Board as to whether a Change in
Control has occurred shall be conclusive and binding.
(b) "Company" shall mean North Arkansas Bancshares, Inc.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and as interpreted through applicable rulings and regulations
in effect from time to time.
(d) "Code (S)280G Maximum" shall mean the product of 2.99 and the
Employee's "base amount" as defined in Code (S)280G(b)(3).
(e) "Disability" shall mean a physical or mental infirmity which
impairs the Employee's ability to substantially perform his duties under this
Agreement and which results in the Employee becoming eligible for long-term
disability benefits under the Bank's long-term disability plan (or, if the Bank
has no such plan in effect, which impairs the Employee's ability to
substantially perform his duties under this Agreement for a period of 180
consecutive days).
(f) "Effective Date" shall mean the date referenced in the opening
paragraph of this Agreement.
(g) "Good Reason" shall mean any of the following events, which has
not been consented to in advance by the Employee in writing: (i) the requirement
that the Employee move his personal residence, or perform his principal
executive functions, more than thirty (30) miles from his primary office as of
the later of the Effective Date and the most recent voluntary relocation by the
Employee; (ii) a material reduction in the Employee's base compensation under
this Agreement as the same may be increased from time to time; (iii) the failure
by the Bank or the Company to continue to provide the Employee with compensation
and benefits provided under this Agreement as the same may be increased from
time to time, or with benefits substantially similar to those provided to him
under any of the employee benefit plans in which the Employee now or hereafter
becomes a participant, or the taking of any action by the Bank or the Company
which would directly or indirectly reduce any of such benefits or deprive the
Employee of any material fringe benefit enjoyed by him under this Agreement;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position; (v) a failure to
reelect the Employee to the Board of Directors of the Bank or the Company, if
the Employee has served on such Board at any time during the term of the
Agreement; or (vi) a material diminution or reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank.
(h) "Just Cause" shall mean, in the good faith determination of the
Bank's Board of Directors, the Employee's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful
-2-
<PAGE>
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
No act, or failure to act, on the Employee's part shall be considered "willful"
unless he has acted, or failed to act, with an absence of good faith and without
a reasonable belief that his action or failure to act was in the best interest
of the Bank and the Company.
(i) "Protected Period" shall mean the twelve-month period following
the date of a Change in Control.
(j) "Trust" shall mean a grantor trust that is designed in
accordance with Revenue Procedure 92-64 and has a trustee independent of the
Bank and the Company.
2. Employment. The Employee is employed as the President of the Bank.
----------
The Employee shall render such administrative and management services for the
Bank as are currently rendered and as are customarily performed by persons
situated in a similar executive capacity. The Employee shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the business
of the Bank. The Employee's other duties shall be such as the Board may from
time to time reasonably direct, including normal duties as an officer of the
Bank.
3. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $__ per annum, payable in cash
not less frequently than monthly. The Board shall review, not less often than
annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
4. Discretionary Bonuses. The Employee shall participate in an equitable
---------------------
manner with all other senior management employees of the Bank in discretionary
bonuses that the Board may award from time to time to the Bank's senior
management employees. No other compensation provided for in this Agreement shall
be deemed a substitute for the Employee's right to participate in such
discretionary bonuses.
5. Participation in Retirement, Medical and Other Plans.
----------------------------------------------------
(a) The Employee shall be eligible to participate in any of the
following plans or programs that the Bank may now or in the future maintain:
group hospitalization, disability, health, dental, sick leave, life insurance,
travel and/or accident insurance, auto allowance/auto lease, retirement,
pension, and/or other present or future qualified or nonqualified plans provided
by the Bank, generally which benefits, taken as a whole, must be at least as
favorable as those in effect on the Effective Date.
(b) The Employee shall also be eligible to participate in any fringe
benefits which are or may become available to the Bank's senior management
employees, including for example: any stock option or incentive compensation
plans, and any other benefits which are
-3-
<PAGE>
commensurate with the responsibilities and functions to be performed by the
Employee under this Agreement. The Employee shall be reimbursed for all
reasonable out-of-pocket business expenses which he shall incur in connection
with his services under this Agreement upon substantiation of such expenses in
accordance with the policies of the Bank.
6. Term. The Bank hereby employs the Employee, and the Employee hereby
----
accepts such employment under this Agreement, for the period commencing on the
Effective Date and ending thirty-six (36) months thereafter (or such earlier
date as is determined in accordance with Section 10 or 12 hereof). Additionally,
on each annual anniversary date from the Effective Date, the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date, provided that either the Bank or the Company's Board
determines in a duly adopted resolution that the performance of the Employee has
met the Board's requirements and standards, and that this Agreement shall be
extended. Only those members of the Board of Directors who have no personal
interest in this Employment Agreement shall discuss and vote on the approval and
subsequent review of this Agreement.
7. Loyalty; Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, Employee may serve on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or unfavorably affect the performance of Employee's duties pursuant
to this Agreement, or will not violate any applicable statute or regulation.
"Full business time" is hereby defined as that amount of time usually devoted to
like companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank.
(b) Nothing contained in this Section shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
8. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Bank will provide Employee with the working facilities and
staff customary for similar executives and necessary for him to perform his
duties.
9. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:
-4-
<PAGE>
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies that the Board periodically establishes for senior
management employees of the Bank.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
(c) In addition to the aforesaid paid vacations, the Employee shall
be entitled without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of time
and for such valid and legitimate reasons as the Board may in its discretion
determine. Further, the Board may grant to the Employee a leave or leaves of
absence, with or without pay, at such time or times and upon such terms and
conditions as such Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
10. Termination and Termination Pay. Subject to Section 12 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. (1) The Bank may terminate the Employee's
employment after having established the Employee's Disability, in which event
the Employee shall be entitled to the compensation and benefits provided for
under this Agreement for (i) any period during the term of this Agreement and
prior to the establishment of the Employee's Disability during which the
Employee is unable to work due to the physical or mental infirmity, and (ii) any
period of Disability which is prior to the Employee's termination of employment
pursuant to this Section 10(b); provided that any benefits paid pursuant to the
Bank's long-term disability plan will continue as provided in such plan without
-------
reduction for payments made pursuant to this Agreement.
(2) During any period that the Employee shall receive disability
benefits and to the extent that the Employee shall be physically and mentally
able to do so, he shall furnish such information, assistance and documents so as
to assist in the continued ongoing business of the Bank and, if able, shall make
himself available to the Bank to undertake reasonable assignments consistent
with his prior position and his physical and mental health. The Bank shall pay
all reasonable expenses incident to the performance of any assignment given to
the Employee during the disability period.
-5-
<PAGE>
(c) Just Cause. The Board may, by written notice to the Employee,
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause.
(d) Without Just Cause; Constructive Discharge. The Board may, by
written notice to the Employee, immediately terminate his employment at any time
for a reason other than his Disability or Just Cause, in which event the
Employee shall be entitled to receive the following compensation and benefits
(unless such termination occurs during the Protected Period, in which event the
benefits and compensation provided for in Section 12 shall apply): (i) the
salary provided pursuant to Section 3 hereof, up to the expiration date of this
Agreement, including any renewal term (the "Expiration Date"), plus said salary
for an additional 12-month period, and (ii) at the Employee's election either
(A) cash in an amount equal to the cost to the Employee of obtaining all health,
life, disability and other benefits which the Employee would have been eligible
to participate in through the Expiration Date based upon the benefit levels
substantially equal to those that the Bank provided for the Employee at the date
of termination of employment or (B) continued participation under such Bank
benefit plans through the Expiration Date, but only to the extent the Employee
continues to qualify for participation therein. All amounts payable to the
Employee shall be paid, at the option of the Employee, either (I) in periodic
payments through the Expiration Date, or (II) in one lump sum within ten days of
such termination.
(e) Good Reason. The Employee shall be entitled to receive the
compensation and benefits payable under subsection 10(d) hereof in the event
that the Employee voluntarily terminates employment within 90 days of an event
that constitutes Good Reason, (unless such voluntary termination occurs during
the Protected Period, in which event the benefits and compensation provided for
in Section 12 shall apply).
(f) Termination or Suspension Under Federal Law. (1) If the Employee
is removed and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the
Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all
obligations of the Bank under this Agreement shall terminate, as of the
effective date of the order, but vested rights of the parties shall not be
affected.
(2) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(3) If a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the
Employee from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Employee all or part
of the compensation withheld while its contract obligations were suspended, and
(ii) reinstate (in whole or in part) any of its obligations which were
suspended.
-6-
<PAGE>
(4) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with both 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder,
----
and Regulatory Bulletin 27A, but only to the extent required thereunder on the
- ---
date any payment is required pursuant to this Agreement.
(g) Voluntary Termination by Employee. Subject to Section 12
hereof, the Employee may voluntarily terminate employment with the Bank during
the term of this Agreement, upon at least 90 days' prior written notice to the
Board of Directors, in which case the Employee shall receive only his
compensation, vested rights and employee benefits up to the date of his
termination (unless such termination occurs pursuant to Section 10(d) hereof or
within the Protected Period pursuant to Section 12(a) hereof, in which event the
benefits and compensation provided for in Sections 10(d) or 12, as applicable,
shall apply).
(h) Post-termination Health Insurance. If the Employee's employment
terminates with the Bank or the Company for any reason other than Just Cause,
the Employee shall be entitled to purchase from the Bank, at the Employee's own
expense which shall not exceed applicable COBRA rates, family medical insurance
under any group health plan that the Bank or the Company maintains for its
employees. This right shall be (i) in addition to, and not in lieu of, any other
rights that the Employee has under this Agreement, and (ii) shall continue until
the Employee first becomes eligible for participation in Medicare.
11. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
12. Change in Control.
-----------------
(a) Trigger Events. The Employee shall be entitled to collect the
severance benefits set forth in subsection (b) hereof in the event that either
(i) the Employee voluntarily terminates employment within 90 days of an event
that both occurs during the Protected Period and constitutes Good Reason, or
(ii) the Bank or the Company or their successor(s) in interest terminate the
Employee's employment without his written consent and for any reason other than
Just Cause during the Protected Period.
(b) Amount of Severance Benefit. If the Employee becomes entitled
to collect severance benefits pursuant to Section 12(a) hereof, the Bank shall
pay the Employee a severance benefit equal to the difference between the Code
(S)280G Maximum and the sum of any other "parachute payments" as defined under
Code (S)280G(b)(2) that the Employee receives on account of the Change in
Control.
-7-
<PAGE>
The amount payable under this Section 12(b) shall be paid either (i) in one
lump sum within ten days of the later of the date of the Change in Control and
the Employee's last day of employment with the Bank or the Company, or (ii) if
prior to the date which is 90 days before the date on which a Change in Control
occurs, the Employee filed a duly executed irrevocable written election in the
form attached hereto as Exhibit "A", payment of such amount shall be made
according to the elected schedule. Deferred amounts shall bear interest from the
date on which they would otherwise be payable until the date paid at a rate
equal to 120% of the applicable federal rate, compounded semiannually, as
determined under Code Section 1274(d) and the regulations thereunder.
In the event that the Employee, the Bank, and the Company jointly agree
that the Employee has collected an amount exceeding the Code (S)280G Maximum,
the parties may agree in writing that such excess shall be treated as a loan ab
--
initio, which the Employee shall repay to the Bank, on terms and conditions
- ------
mutually agreeable to the parties, together with interest at the applicable
federal rate provided for in Section 7872(f)(2)(B) of the Code.
-8-
<PAGE>
13. Indemnification. The Bank and the Company agree that their respective
---------------
Bylaws shall continue to provide for indemnification of directors, officers,
employees and agents of the Bank and the Company, including the Employee during
the full term of this Agreement, and to at all times provide adequate insurance
for such purposes.
14. Reimbursement of Employee for Enforcement Proceedings. In the event
-----------------------------------------------------
that any dispute arises between the Employee and the Bank as to the terms or
interpretation of this Agreement, whether instituted by formal legal proceedings
or otherwise, including any action that the Employee takes to defend against any
action taken by the Bank or the Company, the Employee shall be reimbursed for
all costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, provided that the Employee obtains either a
written settlement or a final judgement by a court of competent jurisdiction
substantially in his favor. Such reimbursement shall be paid within ten days of
Employee's furnishing to the Bank written evidence, which may be in the form,
among other things, of a canceled check or receipt, of any costs or expenses
incurred by the Employee.
15. Federal Income Tax Withholding. The Bank may withhold all federal and
------------------------------
state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
16. Successors and Assigns.
----------------------
(a) Bank. This Agreement shall not be assignable by the Bank,
provided that this Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Employee. Since the Bank is contracting for the unique and
personal skills of the Employee, the Employee shall be precluded from assigning
or delegating his rights or duties hereunder without first obtaining the written
consent of the Bank; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executors, administrators, or
other legal representatives of the Employee or his estate from assigning any
rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to exclusion, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
-9-
<PAGE>
17. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
18. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the State of Arkansas shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
19. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
20. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto and shall supersede any prior
agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: NEWPORT FEDERAL SAVINGS BANK
By
- ----------------------- --------------------------------
Secretary Its Chairman of the Board
WITNESS:
- ----------------------- ----------------------------------
Brad Snider
-10-
<PAGE>
Exhibit 23.2
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Newport Federal Savings Bank:
We consent to the use of our report included herein and to the reference to our
Firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Little Rock, Arkansas
October 28, 1997
<PAGE>
Exhibit 23.3
[Ferguson & Company Letterhead]
October 30, 1997
Board of Directors
Newport Federal Savings Bank
200 Olivia Drive
Newport, Arkansas 72112
Directors:
We hereby consent to the use of our firm's name in the Form AC Application
for Conversion of Newport Federal Savings Bank, Newport, Arkansas, and any
amendments thereto, and in the Form SB-2 Registration Statement of North
Arkansas Bancshares, Inc. and any amendments thereto. We also hereby consent to
the inclusion of, summary of, and references to our Appraisal Report and our
opinion concerning subscription rights in such filings including the Prospectus
of North Arkansas Bancshares, Inc.
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
North Arkansas Bancshares, Inc.
Stock Order Form
------------------------------------
EXPIRATION DATE
NEWPORT FEDERAL for Stock Order
SAVINGS BANK Forms:
200 OLIVIA DRIVE , 1997
NEWPORT, ARKANSAS 12:00 Noon,
72112 (870) 523- Central Time
3340
- --------------------------------------------------------------------------------
IMPORTANT--PLEASE NOTE: A properly completed original stock order form must
be used to subscribe for common stock. Faxes or copies of this form are not
required to be accepted. Please read the Stock Ownership Guide and Stock
Order Form Instructions as you complete this Form.
- --------------------------------------------------------------------------------
(1) NUMBER OF SHARES SUBSCRIPTION PRICE (2) TOTAL PAYMENT DUE
[ ] X $10.00 = [ ]
The minimum number of shares that may be subscribed for is 25 shares. The
maximum number of shares that may be purchased by any person in the
Subscription Offering is 10,000 shares. The maximum number of shares that
may be purchased in the conversion by any person together with associates or
groups acting in concert is 15,000 shares. Management has the authority to
increase or decrease these limits.
- --------------------------------------------------------------------------------
[_] (3) EMPLOYEE/OFFICER/DIRECTOR INFORMATION
Check here if you are a director, officer or employee of Salida Building and
Loan Association or a member of such person's immediate family.
- --------------------------------------------------------------------------------
[_] (4) METHOD OF PAYMENT/CHECK Check Amount
Enclosed is a check, bank draft or money [ ]
order made payable to Salida Building and
Loan Association in the amount of:
- --------------------------------------------------------------------------------
[_] (5) METHOD OF PAYMENT/WITHDRAWAL
The undersigned authorizes withdrawal from the following account(s) at
Salida Building and Loan Association. There is no penalty for early
withdrawal used for this payment.
------------------------------------------------------------------
Account Number(s) Withdrawal Amount(s)
----------------------------- -------------------------------
----------------------------- -------------------------------
----------------------------- -------------------------------
----------------------------- -------------------------------
Total Withdrawal Amount
--------------------------------
- --------------------------------------------------------------------------------
(6) PURCHASER INFORMATION
a. [_] Eligible Account Holder --Check here if you were a depositor of at
least $50.00 at Salida Building and Loan Association on December 31,
1995. Enter information below for all deposit accounts that you had
at Salida Building and Loan Association on December 31, 1995.
b. [_] Supplemental Eligible Account Holder--Check here if you were a
depositor of at least $50.00 at Salida Building and Loan Association
on September 30, 1997 but are not an Eligible Account Holder. Enter
information below for all deposit accounts that you had at Salida
Building and Loan Association on September 30, 1997.
c. [_] Other Member -- Check here if you held a deposit or loan at Salida
Building and Loan Association as of , 1997 but are not an Eligible
Account Holder or Supplemental Eligible Account Holder.
d. [_] Local Community Resident -- Check here if you are a permanent
resident of Chaffee, Lake, Fremont or Saguache County, Colorado.
---------------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
---------------------------------------- ------------------------
---------------------------------------- ------------------------
---------------------------------------- ------------------------
PLEASE NOTE: FAILURE TO LIST YOUR ACCOUNTS MAY RESULT IN LOSS OF PART OR
ALL OF YOUR SUBSCRIPTION RIGHTS. IF ADDITIONAL SPACE IS NEEDED, PLEASE
UTILIZE THE BACK OF THIS STOCK ORDER FORM.
- --------------------------------------------------------------------------------
(7) STOCK REGISTRATION/FORM OF STOCK OWNERSHIP
[_] Individual [_] Joint Tenants
[_] Tenants in Common
[_] Fiduciary (i.e. trust, estate, etc.) [_] Corporation or Partnership
[_] Uniform Gifts to Minors Act [_] Other
---------------------
(8) NAME(S) IN WHICH STOCK IS TO BE REGISTERED (PLEASE PRINT CLEARLY)
Name(s) continued Social Security # or Tax ID
----------------------------------- ---------------------------
Social Security # or Tax ID
----------------------------------- ---------------------------
Street Address City State Zip Code
----------------------------------- --------- -------- ----------------
(9) TELEPHONE INFORMATION Daytime Evening County of Residence
( ) ( )
- --------------------------------------------------------------------------------
[_] (10) NASD AFFILIATION
Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of
the immediate family of any such person to whose support such person
contributes, directly or indirectly, or the holder of an account in which an
NASD member or person associated with an NASD member has a beneficial
interest. To comply with conditions under which an exemption from the NASD's
Interpretation With Respect to Free-Riding and Withholding is available, you
agree, if you have checked the NASD Affiliation box, (i) not to sell,
transfer or hypothecate the stock for a period of 90 days following
issuance, and (ii) to report this subscription in writing to the applicable
NASD member within one day of payment therefor.
- --------------------------------------------------------------------------------
[_] (11) ASSOCIATE--ACTING IN CONCERT
Check here, and complete the reverse side of this Form, if you or any
associates (as defined on the reverse side of this Form) or persons acting
in concert with you have submitted other orders for shares in the
Subscription and/or Community Offerings.
- --------------------------------------------------------------------------------
(12) ACKNOWLEDGMENT
To be effective, this fully completed Stock Order Form must be actually
received by Salida Building and Loan Association, no later than 12:00 p.m.
Noon, Mountain Time, on __________, 1997, unless extended; otherwise this
Stock Order Form and all subscription rights will be void. Completed Stock
Order Forms, together with the required payment or withdrawal
authorization, may be delivered to Salida Building and Loan Association or
may be mailed to the Post Office Box indicated on the enclosed business
reply envelope. All rights exercisable hereunder are not transferable and
shares purchased upon exercise of such rights must be purchased for the
account of the person exercising such rights.
It is understood that this Stock Order Form will be accepted in accordance
with, and subject to, the terms and conditions of the Plan of Conversion of
Salida Building and Loan Association described in the accompanying
Prospectus. If the Plan of Conversion is not approved by the voting members
of Salida Building and Loan Association at a Special Meeting to be held on
____________, 1997, or any adjournment thereof, all orders will be
cancelled and funds received as payment, with accrued interest, will be
returned promptly. The undersigned agrees that after receipt by Salida
Building and Loan Association, this Stock Order Form may not be modified,
withdrawn or cancelled (unless the conversion is not completed within 45
days after the completion of the Subscription Offering) without the
Association's consent, and if authorization to withdraw from deposit
accounts at Salida Building and Loan Association has been given as payment
for shares, the amount authorized for withdrawal shall not otherwise be
available for withdrawal by the undersigned.
Under penalty of perjury, I certify that the Social Security or Tax ID
Number and the other information provided under number 8 of this Stock
Order Form are true, correct and complete that I am purchasing for my own
account and that there is no agreement or understanding regarding the
transfer of my subscription rights or the sale or transfer of these shares.
Applicable Regulations prohibit any person from transferring or entering
into any agreement directly or indirectly to transfer, the legal or
beneficial ownership of conversion subscription rights, or the underlying
securities to the account of another. Salida Building and Loan Association
and High Country Bancorp, Inc. may pursue any and all legal and equitable
remedies in the event they become aware of the transfer of subscription
rights and will not honor orders known by them to involve such transfer.
I acknowledge that the common stock offered is not a savings or deposit
account and is not federally insured or guaranteed.
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED TWICE: BELOW AND ON THE
ACKNOWLEDGEMENT FORM ON THE REVERSE HEREOF.
SIGNATURE DATE SIGNATURE DATE
-------------------------- ------------------------
DATE REC'D
-------------
CATEGORY
---------------
ORDER # BATCH
--- ------
DEPOSIT
----------------
A SIGNED ACKNOWLEDGEMENT FORM MUST ACCOMPANY ALL STOCK ORDER FORMS (SEE
REVERSE SIDE)
<PAGE>
ITEM (6)A, B, C--(CONTINUED)
Account Title (Names on Account Account Title (Names on Account
Accounts) Number(s) Accounts) Number(s)
- ------------------------ ------------ ------------------------- -----------
- ------------------------ ------------ ------------------------- -----------
- ------------------------ ------------ ------------------------- -----------
- ------------------------ ------------ ------------------------- -----------
ITEM (11)--(CONTINUED)
List below all other orders "Bank" is defined as: (i) any corporation or
submitted by you or your organization (other than Newport Federal
Associates (as defined) or by Savings Bank, North Arkansas Bancshares,
persons acting in concert with Inc., or a majority-owned subsidiary of
you. Newport Federal Savings Bank or North
Arkansas Bancshares, Inc.) of which such
Name(s) listed on Number of person is an officer or partner or is,
other Stock Order Shares directly or indirectly, the beneficial owner
Forms Ordered of 10% or more of any class of equity
- -------------------- ---------- securities; (ii) any trust or other estate
- -------------------- ---------- in which such person has a substantial
- -------------------- ---------- beneficial interest or as to which such
- -------------------- ---------- person serves as a director or in a similar
- -------------------- ---------- fiduciary capacity; provided, however, such
term shall not include North Arkansas
Bancshares, Inc.'s or Newport Federal
Savings Bank's employee benefit plans in
which such person has a substantial
beneficial interest or serves as a director
or in a similar fiduciary capacity; and
(iii) any relative or spouse of such person,
or any relative of such spouse, who either
has the same home as such person or who is a
Director of Newport Federal Savings Bank or
North Arkansas Bancshares, Inc. or any
subsidiaries thereof.
================================================================================
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED BELOW AND ON THE FRONT OF
THIS FORM.
ACKNOWLEDGEMENT FORM
I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND
IS NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY NEWPORT FEDERAL SAVINGS
BANK (THE "BANK") OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that this security is federally insured or guaranteed, or
is as safe as an insured deposit, I should call the Office of Thrift
Supervision, Midwest Region Director, Frederick R. Casteel at (972) 281-
2000.
I/We further certify that, before purchasing the common stock, par value
$.01 per share, of North Arkansas's Bancshares, Inc., the proposed holding
company for Newport Federal Savings Bank, I/we received a Prospectus dated
, 1997 (the "Prospectus").
The Prospectus that I/we received contains disclosure concerning the nature
of the security being offered and describes the risks involved in the
investment, including but not limited to:
1. Lack of Active Market for Common Stock (page 1)
2. Below Average Return on Average Equity and Increased
Expenses Immediately After Conversion (page 1)
3. Recent Operating Results (page 1)
4. Large Delinquent Loan (page 2)
5. Nonresidential Lending (page 2)
6. Potential Impact of Changes in Interest Rates
and the Current Interest Rate Environment (page 2)
7. Market Area Limitations (page 3)
8. Dependence on President (page 3)
9. Anti-Takeover Provisions and Statutory Provisions
that Could Discourage HostileAcquisitions of Control (page 3)
10. Possible Voting Control by Directors and Officers (page 4)
11. Possible Dilutive Effect of MRP and Stock Options (page 4)
12. Financial Institution Regulation of the Thrift Industry (page 4)
13. Arkansas Usury Law (page 4)
14. Possible Adverse Tax Consequences of the
Subscription Rights (page 5)
15. Branch Acquisition (page 5)
16. Restrictions on Repurchase of Shares (page 5)
Signature Date Signature Date
----------------------- --------- ----------------------- -----------
Name (Please Print) Name (Please Print)
- ----------------------------------- -----------------------------------
<PAGE>
Exhibit 99.3
NORTH ARKANSAS BANCSHARES, INC.
PROPOSED HOLDING COMPANY FOR
NEWPORT FEDERAL SAVINGS BANK
NEWPORT, ARKANSAS
PROPOSED MARKETING MATERIALS
9-22-97
[DRAFT]
<PAGE>
Marketing Materials
North Arkansas Bancshares, Inc.
Newport, Arkansas
Table of Contents
-----------------
I. Press Releases
A. Explanation
B. Schedule
C. Distribution List
D. Press Release Examples
II. Advertisements
A. Explanation
B. Schedule
C. Advertisement Examples
III. Question and Answer Brochure
A. Explanation
B. Method of Distribution
C. Example
IV. Cover Letters
E. Explanation
F. Examples
V. IRA Mailing
A. Explanation
B. Quantity
C. IRA Mailing Example
VI. Individual Letters and Community Meeting Invitation
A. Explanation
B. Method of Distribution
C. Examples
VII. Counter Cards and Lobby Posters
A. Explanation
B. Quantity
VIII. Proxy Reminder
A. Explanation
B. Example
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers receive prompt accurate
information in a simultaneous manner, Trident advises the Bank to forward
press releases to area newspapers, radio stations, etc. at various points
during the conversion process.
Only press releases approved by Conversion Counsel and the OTS will be
forwarded for publication in any manner.
B. Schedule
1. OTS Approval of Conversion
2. Close of Stock Offering
<PAGE>
C. Distribution List
National Distribution List
--------------------------
National Thrift News Wall Street Journal
- -------------------- -------------------
212 West 35th Street World Financial Center
13th Floor 200 Liberty
New York, New York 10001 New York, NY 10004
Richard Chang
American Banker SNL Securities
- --------------- --------------
One State Street Plaza Post Office Box 2124
New York, New York 10004 Charlottesville, Virginia
22902
Michael Weinstein
Barrons Investors Business Daily
- ------- ------------------------
Dow Jones & Company 12655 Beatrice Street
Barrons Statistical Information Post Office Box 661750
200 Burnett Road Los Angeles, California
90066
Chicopee, Massachusetts 01020
New York Times
- --------------
229 West 43rd Street
New York, NY 10036
<PAGE>
Local Media List
----------------
(To be provided)
Newspaper
- ---------
Radio
- -----
<PAGE>
PRESS RELEASE FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Brad Snider
(870) 523-3611
NEWPORT FEDERAL SAVINGS BANK
-----------------------------
CONVERSION TO STOCK FORM APPROVED
---------------------------------
Newport, Arkansas (___________, 1997) - Brad Snider, President and CEO of
Newport Federal Savings Bank ("Newport Federal" or the "Bank"), Newport,
Arkansas, announced that Newport Federal has received approval from the Office
of Thrift Supervision to convert from a federally-chartered mutual savings bank
to a federally-chartered stock savings bank. In connection with the Conversion,
Newport Federal has formed a holding company, North Arkansas Bancshares, Inc.,
to hold all of the outstanding capital stock of Newport Federal.
North Arkansas Bancshares, Inc. is offering up to 322,000 shares of its
common stock, subject to adjustment, at a price of $10.00 per share. Certain
account holders and borrowers of the Bank will have an opportunity to subscribe
for stock through a Subscription Offering that closes on ________, 1997. Shares
that are not subscribed for during the Subscription Offering may be offered to
certain members of the general public in a Community Offering, with first
preference given to natural persons and trusts of natural persons who are
residents of Jackson County, Arkansas. The Subscription Offering and Community
Offering, if conducted, will be managed by Trident Securities, Inc. of Raleigh,
North Carolina. Copies of the Prospectus relating to the offerings and
describing the Plan of Conversion will be mailed to customers on or about
_________, 1997.
As a result of the Conversion, Newport Federal will be structured in the
stock
<PAGE>
form as are all commercial banks and an increasing number of savings
institutions and will be a wholly-owned subsidiary of North Arkansas Bancshares,
Inc. According to Mr. Snider, "Our day to day operations will not change as a
result of the Conversion and deposits will continue to be insured by the FDIC up
to the applicable legal limits."
Customers with questions concerning the stock offering should call Newport
Federal's Stock Information Center at (870) 523-3340, or visit Newport Federal's
office.
<PAGE>
PRESS RELEASE FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Brad Snider
(870) 523-3611
NEWPORT FEDERAL COMPLETES INITIAL STOCK OFFERING
------------------------------------------------
Newport, Arkansas - (____________, 1997) Brad Snider, President and CEO of
Newport Federal Savings Bank ("Newport Federal" or the "Bank"), announced today
that North Arkansas Bancshares, Inc., the holding company for Newport Federal,
has completed its initial stock offering in connection with the Bank's
conversion from mutual to stock form. A total of ____________ shares were sold
at the price of $10.00 per share.
On ____________, 1997, Newport Federal's Plan of Conversion was approved by
the Bank's voting members at a special meeting of members.
Mr. Snider stated, "The officers and boards of directors of North Arkansas
Bancshares, Inc. and Newport Federal express their thanks for the response to
the stock offering. Newport Federal looks forward to serving the needs of its
customers and new stockholders as a community-based stock institution." The
stock is anticipated to commence trading on ____________, 1997 on the OTC
Bulletin Board. Trident Securities, Inc. of Raleigh, North Carolina managed the
stock offering.
<PAGE>
II. Advertisements
A. Explanation
The intended use of the attached advertisement "A" is to notify Newport
Federal's customers and members of the local community that the conversion
offering is underway.
The intended use of advertisement "B" is to remind Newport Federal's
customers of the closing date of the Subscription Offering.
B. Media Schedule
1. Advertisement A - To be run immediately following OTS approval and
possibly run weekly for the first three weeks.
2. Advertisement B - To be run during the last week of the subscription
offering.
Trident may feel it is necessary to run more ads in order to remind
customers of the close of the Subscription Offering and the Community
Offering, if conducted.
Alternatively, Trident may, depending upon the response from the customer
base, choose to run fewer ads or no ads at all.
These ads will run in the local newspapers.
The ad size will be as shown or smaller.
<PAGE>
This announcement is neither an offer to sell nor a solicitation of an offer to
buy these securities. The offer is made only by the prospectus. These shares
have not been approved or disapproved by the Securities and Exchange Commission,
the Office of Thrift Supervision or the Federal Deposit Insurance Corporation,
nor has such commission, office or corporation passed upon the accuracy or
adequacy of the prospectus. Any representation to the contrary is unlawful.
NEW ISSUE __________, 1997
322,000 SHARES
These shares are being offered pursuant
to a Plan of Conversion whereby
NEWPORT FEDERAL
SAVINGS BANK
Newport, Arkansas, will
convert from a federal mutual savings bank to a
federal capital stock savings bank
and become a wholly owned subsidiary of
NORTH ARKANSAS BANCSHARES, INC.
COMMON STOCK
_______________
PRICE $10.00 PER SHARE
_______________
TRIDENT SECURITIES, INC.
For a copy of the prospectus call (870) 523-3340.
Copies of the prospectus may be obtained in any State in which this announcement
is circulated from Trident Securities, Inc. or such other brokers and dealers
as may legally offer these securities in such state.
The stock will not be insured by the FDIC or any other government agency.
<PAGE>
NEWPORT FEDERAL
SAVINGS BANK
__________ __, 1997 IS THE DEADLINE TO
ORDER STOCK OF NORTH ARKANSAS BANCSHARES, INC.
Customers of Newport Federal Savings Bank
have the opportunity
to invest in Newport Federal Savings Bank
by subscribing
for common stock in its proposed holding company
NORTH ARKANSAS BANCSHARES, INC.
A Prospectus relating to these securities is
available at our office or by calling our
Stock Information Center at (870) 523-3340.
This announcement is neither an offer to sell nor a
solicitation of an offer to buy the stock of
North Arkansas Bancshares, Inc. The offer is made only by the
Prospectus. The shares of common stock are not
deposits or savings accounts and will not be insured
by the Federal Deposit Insurance Corporation
or any other government agency.
Copies of the Prospectus may be obtained in any State in which this announcement
is circulated from Trident Securities, Inc. or such other brokers and dealers
as may legally offer these securities in such state.
<PAGE>
III. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
conversion. It serves two purposes: a) to answer some of the most commonly
asked questions in "plain, everyday language"; and b) to highlight in
brochure form the purchase commitments of the Bank's officers and directors
shown in the Prospectus. Although most of the answers are taken verbatim
from the Prospectus, it saves the individual from searching for the answer
to a simple question.
B. Method of Distribution
There are four primary methods of distribution of the Question and Answer
brochure. However, regardless of the method the brochures are always
accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial mailing to all
members of the Bank.
2. Question and Answer brochures are available in Newport Federal's office.
3. Question and Answer brochures are sent out in a standard information packet
to all interested investors who phone the Stock Information Center
requesting information.
<PAGE>
PROPOSED OFFICER AND DIRECTOR PURCHASES
Name and Position Total Shares Amount of Purchase
- ----------------- ------------ ------------------
O.E. Guinn, Jr., Director
Kaneaster Hodges, Jr., Director
Paul K. Holmes, Director
John Minor, Director
Brad Snider, Director, President and
Chief Executive Officer
_______________________
All directors and executive officers,
as a group (5 persons) and their
associates *
* Represents ______ % of the total shares to be issued based upon the issuance
of 280,000 shares. Excludes amounts associated with the Bank's proposed ESOP
and MRP.
<PAGE>
Q
&
A
QUESTIONS AND ANSWERS
NORTH ARKANSAS BANCSHARES, INC.
(THE PROPOSED HOLDING COMPANY FOR
NEWPORT FEDERAL SAVINGS BANK)
Questions and Answers Regarding the Subscription and Community Offerings
<PAGE>
QUESTIONS AND ANSWERS
REGARDING
THE PLAN OF CONVERSION
On May 29, 1997, the Board of Directors of Newport Federal Savings Bank
("Newport Federal" or the "Bank") unanimously adopted the Plan of Conversion,
pursuant to which Newport Federal will convert from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank. In addition, all of
Newport Federal's outstanding capital stock will be issued North Arkansas
Bancshares, Inc. (the "Holding Company"), which was organized by Newport
Federal to own Newport Federal as a subsidiary.
This brochure is provided to answer general questions you might have about the
Conversion. Following the Conversion, Newport Federal will continue to provide
financial services to its depositors, borrowers and other customers as it has in
the past and will operate with its existing management and employees. The
Conversion will not affect the terms, balances, interest rates or existing
federal insurance coverage on Newport Federal's deposits or the terms or
conditions of any loans to existing borrowers under their individual contract
arrangements with Newport Federal.
For complete information regarding the Conversion, see the Prospectus and the
Proxy Statement dated __________ __, 1997. Copies of each of the Prospectus and
the Proxy Statement may be obtained by calling the Stock Information Center at
(870) 523-3340.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY NORTH ARKANSAS BANCSHARES, INC. COMMON STOCK. OFFERS TO BUY OR TO
SELL MAY BE MADE ONLY BY THE PROSPECTUS. PLEASE READ THE PROSPECTUS PRIOR TO
MAKING AN INVESTMENT DECISION.
THE SHARES OF NORTH ARKANSAS BANCSHARES, INC. COMMON STOCK BEING OFFERED IN THE
SUBSCRIPTION AND COMMUNITY OFFERINGS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND
ARE NOT INSURED BY THE SAVINGS BANK INSURANCE FUND OF THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
MUTUAL TO STOCK CONVERSION
--------------------------
1. Q. WHAT IS A "CONVERSION"?
A. Conversion is a change in the legal form of organization. Newport
Federal currently operates as a federally-chartered mutual savings
bank with no stockholders. Through the Conversion, Newport Federal
will become a federally-chartered stock savings bank, and the stock of
its holding company, North Arkansas Bancshares, Inc. will be held by
stockholders who purchase stock in the Subscription and Community
Offerings or in the open market following the Offerings.
2. Q. WHY IS NEWPORT FEDERAL CONVERTING?
A. Newport Federal, as a mutual savings bank, does not have stockholders
and has no authority to issue capital stock. By converting to the
stock form of organization, the Bank will be structured in the form
used by commercial banks, most business entities and a growing number
of savings institutions. The Conversion will be important to the
future growth and performance of the Newport Federal by providing a
larger capital base from which the Bank may operate, the ability to
attract and retain qualified management through stock-based employee
benefit plans, enhanced ability to diversify into other financial
services related activities and expanded ability to render services to
the public.
The Board of Directors and management of Newport Federal believe that
the stock form of organization is preferable to the mutual form of
organization for a financial institution. The Board and management
recognize the decline in the number of mutual thrifts from over 12,500
mutual institutions in 1929 to under 800 mutual thrifts today.
Newport Federal believes that converting to the stock form of
organization will allow Newport Federal to more effectively compete
with local community, statewide and regional banks which are in stock
form. Newport Federal believes that by combining its existing quality
service and products with a local ownership base the Bank's customers
and community members who become stockholders will be inclined to do
more business with Newport Federal.
Furthermore, because Newport Federal competes with local and regional
banks not only for customers, but also for employees, Newport Federal
believes that the stock form of organization will better afford
Newport Federal the opportunity to attract and retain employees,
management and directors through various stock benefit plans which are
not available to mutual savings institutions.
3. Q. IS NEWPORT FEDERAL'S MUTUAL TO STOCK CONVERSION BENEFICIAL TO THE
<PAGE>
COMMUNITIES THAT THE BANK SERVES?
A. Management believes that the structure of the Subscription and
Community Offerings is in the best interest of the communities that
Newport Federal serves because following the Conversion it is
anticipated that a significant portion of the Common Stock will be
owned by local residents desiring to share in the ownership of a local
community financial institution. Management desires that a significant
portion of the shares of common stock sold in the Offerings will be
sold to residents of the Bank's Local Community (Jackson County,
Arkansas).
4. Q. WHAT EFFECT WILL THE CONVERSION HAVE ON DEPOSIT ACCOUNTS AND LOANS?
A. Terms and balances of accounts in Newport Federal and interest rates
paid on such accounts will not be affected by the Conversion.
Insurable accounts will continue to be insured by the Federal Deposit
Insurance Corporation ("FDIC") up to the maximum amount permitted by
law. The Conversion also will not affect the terms or conditions of
any loans to existing borrowers or the rights and obligations of these
borrowers under their individual contractual arrangements with Newport
Federal.
5. Q. WILL THE CONVERSION CAUSE ANY CHANGES IN NEWPORT FEDERAL'S PERSONNEL?
A. No. Both before and after the Conversion, Newport Federal's business
of accepting deposits, making loans and providing financial services
will continue without interruption with the same board of directors,
management and staff.
6. Q. WHAT APPROVALS MUST BE RECEIVED BEFORE THE CONVERSION BECOMES
EFFECTIVE?
A. First, the Board of Directors of Newport Federal must adopt the Plan
of Conversion, which occurred on May 29, 1997. Second, the Office of
Thrift Supervision must approve the applications required to effect
the Conversion. These approvals have been obtained. Third, the Plan of
Conversion must be approved by a majority of all votes eligible to be
cast by Newport Federal's voting members. A Special Meeting of voting
members will be held on ____________, 1997, to consider and vote upon
the Plan of Conversion.
THE HOLDING COMPANY
-------------------
7. Q. WHAT IS A HOLDING COMPANY?
A. A holding company is a company that owns another entity. Concurrent
with the Conversion, Newport Federal will become a subsidiary of North
Arkansas Bancshares, Inc., a company organized by Newport Federal to
<PAGE>
acquire all of the capital stock of Newport Federal to be
outstanding after the Conversion.
8. Q. IF I DECIDE TO BUY STOCK IN THIS OFFERING, WILL I OWN STOCK IN THE
HOLDING COMPANY OR NEWPORT FEDERAL?
A. You will own stock in North Arkansas Bancshares, Inc. However, North
Arkansas Bancshares, Inc., as a holding company, will own all of the
outstanding capital stock of Newport Federal.
9. Q. WHY DID THE BOARD OF DIRECTORS FORM THE HOLDING COMPANY?
A. The Board of Directors believes that the Conversion of Newport Federal
and the formation of the Holding Company will result in a stronger
financial institution with the ability to provide additional
flexibility to diversify the Bank's business activities. The Holding
Company will also be able to use stock-based incentive programs to
attract and retain executive and other personnel.
ABOUT BECOMING A STOCKHOLDER
----------------------------
10. Q. WHAT ARE THE SUBSCRIPTION AND COMMUNITY OFFERINGS?
A. Under the Plan of Conversion adopted by Newport Federal, the Holding
Company is offering shares of stock in the Subscription Offering, to
certain current and former customers of the Bank and to the Bank's
Employee Stock Ownership Plan ("ESOP"). Shares which are not
subscribed for in the Subscription Offering, if any, may be offered to
the general public in a Community Offering with preference given to
natural persons who are residents of the Bank's Local Community
(Jackson County, Arkansas). These Offerings are consistent with the
board's objective of North Arkansas Bancshares, Inc. being a locally
owned financial institution. The Subscription Offering and Community
Offering, if conducted, are being managed by Trident Securities, Inc.
It is anticipated that any shares not subscribed for in either the
Subscription or Community Offerings may be offered for sale in a
Syndicated Community Offering, which is an offering on a best efforts
basis by a selling group of broker-dealers.
11. Q. MUST I PAY A COMMISSION TO BUY STOCK IN CONJUNCTION WITH THE
SUBSCRIPTION, COMMUNITY OR SYNDICATED COMMUNITY OFFERINGS?
A. No. You will not pay a commission to buy the stock if the stock is
purchased in the Subscription Offering or Community Offering, if
conducted.
12. Q. HOW MANY SHARES OF NORTH ARKANSAS BANCSHARES, INC. STOCK WILL BE
<PAGE>
ISSUED IN THE CONVERSION?
A. It is currently expected that between 238,000 shares and 322,000
shares of common stock will be sold at a price of $10.00 per share.
Under certain circumstances the number of shares may be increased to
370,330.
13. Q. HOW WAS THE PRICE DETERMINED?
A. The aggregate price of the common stock was determined by Ferguson &
Company, an independent appraisal firm specializing in the thrift
industry, and was approved by the Office of Thrift Supervision. The
price is based on the pro forma market value of Newport Federal and
the Holding Company as determined by the independent evaluation.
14. Q. WHO IS ENTITLED TO BUY STOCK IN THE CONVERSION?
A. The shares of North Arkansas Bancshares, Inc. to be issued in the
Conversion are being offered in the Subscription Offering in the
following order of priority to: (i) "Eligible Account Holders" who had
deposit accounts of at least $50.00 on December 31, 1995 (ii) the
Bank's ESOP, (iii) "Supplemental Eligible Account Holders" who had
deposit accounts of at least $50.00 on ___________, 1997 other than
Eligible Account Holders (iv) "Other Members" who were depositors or
borrowers of the Bank as of _____________, 1997, other than Eligible
Account Holders and Supplemental Eligible Account Holders, subject to
the priorities and purchase limitations set forth in the Plan of
Conversion.
IT IS THE RESPONSIBILITY OF EACH SUBSCRIBER QUALIFYING AS AN ELIGIBLE
<PAGE>
ACCOUNT HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER OR OTHER MEMBER
TO LIST COMPLETELY ALL ACCOUNT NUMBERS FOR QUALIFYING SAVINGS ACCOUNTS
OR LOANS AS OF THE QUALIFYING DATE ON THE STOCK ORDER FORM.
Shares, if any, not subscribed for in the Subscription Offering may be
offered in the Community Offering to certain members of the general
public, with preference given to natural persons residing in the
Bank's Local Community (Jackson County, Arkansas). Shares, if any, not
subscribed for in the Subscription or Community Offerings may be
offered to the general public in a Syndicated Community Offering.
15. Q. ARE THE SUBSCRIPTION RIGHTS TRANSFERABLE?
A. No. Persons are prohibited from transferring or entering into any
agreement or understanding to transfer the legal or beneficial
ownership of their subscription rights. Only the person to whom they
are granted may exercise subscription rights and only for his account.
We will pursue any and all legal and equitable remedies in the event
we become aware of the transfer of subscription rights and will not
honor orders believed by us to involve the transfer of subscription
rights.
16. Q. WHAT ARE THE MINIMUM AND MAXIMUM NUMBERS OF SHARES THAT I CAN PURCHASE
IN THE CONVERSION?
A. The minimum number of shares is 25. The maximum purchase in the
Subscription Offering is 5,000 shares or ($50,000), for any individual
person or persons ordering through a single account. Eligible Account
Holders, Supplemental Eligible Account Holders, and Other Members with
more than one account at Newport on the applicable eligibility record
date may purchase up to 5.0% of the total offering of shares (14,000
shares if a total of 280,000 shares are sold).
17. Q. ARE THE BOARD OF DIRECTORS AND MANAGEMENT OF NEWPORT FEDERAL BUYING A
SIGNIFICANT AMOUNT OF THE STOCK OF THE HOLDING COMPANY?
A. Directors and executive officers of the Bank are expected to subscribe
for _______ shares. The purchase price paid by directors and executive
officers will be the same $10.00 per share price as that paid by all
other persons who order stock in the Subscription or Community
Offerings.
18. Q. HOW DO I SUBSCRIBE FOR SHARES OF STOCK?
A. To subscribe for shares of stock in the Subscription Offering, you
should send or deliver a stock order form together with full payment
or instructions for withdrawal from a Newport Federal deposit account
to Newport Federal in the postage-paid envelope provided. The stock
order form and payment or withdrawal authorization instructions must
be received prior to the close of the Subscription Offering, which
will terminate at 12:00 p.m., Local Time, on __________ __, 1997,
unless
<PAGE>
extended. Payment for shares may be made in cash (if made in person)
or by check or money order. Subscribers who have deposit accounts with
Newport Federal may include instructions on the stock order form
requesting withdrawal from such deposit account(s) to purchase shares
of North Arkansas Bancshares, Inc. Withdrawals from certificates of
deposit may be made without incurring an early withdrawal penalty.
If shares remain available for sale after the expiration of the
Subscription Offering, they may be offered in the Community Offering,
which may commence at any time after the commencement of the
Subscription Offering and may terminate at any time without notice,
but may not terminate later than ______________, 1997. Persons who
wish to order stock in the Community Offering should return their
stock order form as soon as possible after the Community Offering
begins. Members of the general public should contact the Stock
Information Center at (870) 523-3340 for additional information.
19. Q. MAY I USE FUNDS IN A RETIREMENT ACCOUNT TO PURCHASE STOCK?
A. Yes. If you are interested in using funds held in your retirement
account at Newport Federal, the Stock Information Center can assist
you in transferring those funds to a self-directed IRA, if necessary,
and directing the trustee to purchase the stock. This process may be
done without an early withdrawal penalty and generally without a
negative tax consequence to your retirement account. Due to the
additional paperwork involved, IRA transfers must be completed by
_________. For additional information, call the Stock Information
Center at (870) 523-3340.
20. Q. WILL I RECEIVE INTEREST ON FUNDS I SUBMIT FOR A STOCK PURCHASE?
A. Yes. Newport Federal will pay interest at its passbook rate from the
date the funds are received until completion of the stock offering or
termination of the Conversion. All funds authorized for withdrawal
from deposit accounts with Newport Federal will continue to earn
interest at the contractual rate until the date of the completion of
the Conversion.
21. Q. MAY I OBTAIN A LOAN FROM NEWPORT FEDERAL TO PAY FOR SHARES PURCHASED
IN THE CONVERSION?
A. No. Federal regulations prohibit Newport Federal from making loans
for this purpose. However, federal regulations do not prohibit you
from obtaining a loan from another source for the purpose of
purchasing stock in the Conversion.
22. Q. IF I BUY STOCK IN THE CONVERSION, HOW WOULD I GO ABOUT BUYING
ADDITIONAL SHARES OR SELLING SHARES IN THE AFTERMARKET?
A. North Arkansas Bancshares, Inc., as a newly organized company, has
<PAGE>
never issued capital stock, and consequently there is no established
market for its Common Stock at this time. North Arkansas Bancshares,
Inc. has requested that Trident Securities, Inc. make a market for the
Common Stock through the OTC Electronic Bulletin Board. However, it is
unlikely that an active trading market for the Common Stock will
develop, and there can be no assurance that the shares of Common Stock
being offered in the Conversion can be resold at or above the $10.00
purchase price.
23. Q. WHAT IS THE HOLDING COMPANY'S DIVIDEND POLICY?
A. Although no decision has been made yet regarding the payment of
dividends, the Holding Company may consider a policy of paying cash
dividends on the Common Stock following the Conversion. Dividends will
be subject to determination and declaration by the Board of Directors,
which will take into account a number of factors, including the
proceeds of the offering, investment opportunities, capital
requirements, regulatory limitations, operating results and financial
condition, tax considerations, and general economic conditions. There
can be no assurance that dividends will be paid on Common Stock or
that, if paid, such dividends will not be reduced or eliminated in
future periods.
24. Q. WILL THE FDIC INSURE THE SHARES OF THE HOLDING COMPANY?
A. No. The shares of North Arkansas Bancshares, Inc. are not savings
deposits or savings accounts and are not insured by the FDIC or any
other government agency.
25. Q. IF I SUBSCRIBE FOR SHARES AND LATER CHANGE MY MIND, WILL I BE ABLE TO
GET A REFUND OR MODIFY MY ORDER?
A. No. Your order cannot be canceled, withdrawn or modified once it has
been received by Newport Federal without the consent of Newport
Federal.
ABOUT VOTING "FOR" THE PLAN OF CONVERSION
-----------------------------------------
26. Q. AM I ELIGIBLE TO VOTE AT THE SPECIAL MEETING OF MEMBERS TO BE HELD TO
CONSIDER THE PLAN OF CONVERSION?
A. You are eligible to vote at the Special Meeting of Members to be held
on ____________, 1997 if you were a depositor or borrower of Newport
Federal at the close of business on the Voting Record Date (_______,
1997) and continue as such until the Special Meeting. If you were a
member on the Voting Record Date, you should have received a proxy
statement and a proxy card with which to vote.
27. Q. HOW MANY VOTES DO I HAVE?
<PAGE>
A. Each account holder is entitled to one vote for each $100, or fraction
thereof, on deposit in such account(s). Each borrower member is
entitled to cast one vote in addition to the number of votes, if any,
he or she is entitled to cast as an account holder. No member may cast
more than 1,000 votes.
28. Q. IF I VOTE "AGAINST" THE PLAN OF CONVERSION AND IT IS APPROVED, WILL I
BE PROHIBITED FROM BUYING STOCK DURING THE SUBSCRIPTION OFFERING?
A. No. Voting against the Plan of Conversion in no way restricts you
from purchasing North Arkansas Bancshares, Inc. stock in the
Subscription Offering.
29. Q. DID THE BOARD OF DIRECTORS OF NEWPORT FEDERAL UNANIMOUSLY ADOPT
THE PLAN OF CONVERSION?
A. Yes. Newport Federal's Board of Directors unanimously adopted the
Plan of Conversion and urges that all members vote "FOR" approval of
such Plan.
30. Q. WHAT HAPPENS IF NEWPORT FEDERAL DOES NOT GET ENOUGH VOTES TO APPROVE
THE PLAN OF CONVERSION?
A. The Conversion would not take place, and Newport Federal would remain
a mutual savings bank.
31. Q. AS A QUALIFYING DEPOSITOR OR BORROWER OF NEWPORT FEDERAL, AM I
REQUIRED TO VOTE?
A. No. However, failure to return your proxy card or otherwise vote will
have the same effect as a vote AGAINST the Plan of Conversion.
32. Q. WHAT IS A PROXY CARD?
A. A proxy card gives you the ability to vote without attending the
Special Meeting in person. If you received more than one informational
packet, then you should vote the proxy cards in all packets. Your
proxy card(s) is (are) located in the window sleeve of your
informational packet(s).
You may attend the meeting and vote, even if you have returned your
proxy card, if you choose to do so. However, if you are unable to
attend, you still are represented by proxy. Previously executed
proxies, other than those proxies sent pursuant to the Conversion,
will not be used to vote for approval of the Plan of Conversion, even
if the respective members do not execute another proxy or attend the
Special Meeting and vote in person.
33. Q. HOW CAN I GET FURTHER INFORMATION CONCERNING THE STOCK OFFERING?
A. You may call the Stock Information Center at (870) 523-3340 for
further information or to request a copy of the Prospectus, a stock
order form, a
<PAGE>
proxy statement or a proxy card.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY NORTH ARKANSAS BANCSHARES, INC. COMMON
STOCK. SUCH OFFERS AND SOLICITATIONS MAY BE MADE ONLY BY MEANS OF THE
PROSPECTUS. COPIES OF THE PROSPECTUS MAY BE OBTAINED BY CALLING THE
STOCK INFORMATION CENTER AT (870) 523-3340.
THE SHARES OF NORTH ARKANSAS BANCSHARES, INC. COMMON STOCK BEING
OFFERED ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE
SAVINGS BANK INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
IV. Cover Letters for Initial Mailing
A. Explanation
These cover letters are used as an introduction for the Offering and Proxy
materials mailed to potential investors.
B. Examples
<PAGE>
*Sent to members with proxy card and stock order form
(Newport Federal Letterhead)
____________, 1997
Dear Valued Customer:
Newport Federal Savings Bank ("Newport Federal" or the "Bank") is pleased
to announce that it has received regulatory approval to proceed with its plan to
convert to a federally-chartered stock savings bank. This stock conversion is
the most significant event in the history of Newport Federal in that it allows
customers, community members, directors and employees an opportunity to own
stock in North Arkansas Bancshares, Inc., the proposed holding company for the
Bank.
For over 63 years, Newport Federal has successfully operated as a mutual
company. We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage deposits at the
Bank, or the terms or conditions of any loans to existing borrowers under their
individual contract arrangements with the Bank. Let us also assure you that the
Conversion will not result in any changes in the management, personnel or the
Board of Directors of the Bank.
As one of our valued members, you have the opportunity to invest in the
Bank's future by purchasing stock in North Arkansas Bancshares, Inc. during the
Subscription Offering, without paying a sales commission.
If you decide to exercise your subscription rights to purchase shares, you
must return the properly completed stock order form together with full payment
for the subscribed shares so that it is received by the Bank not later than
12:00 p.m. Local Time on __________, 1997.
Enclosed is a proxy card. Your Board of Directors solicits your vote "FOR"
the Bank's Plan of Conversion. A vote in favor of the Plan does not obligate
you to purchase stock. Please sign and return your proxy card promptly; your
vote is important to us.
We have also enclosed a Prospectus and Proxy Statement which fully
describes the Bank, its management, board and financial strength and the Plan
of Conversion. Please review it carefully before you vote or invest. For your
convenience we have established a Stock Information Center. If you have any
questions, please call the Stock Information Center collect at (870) 523-3340.
We look forward to continuing to provide quality financial services to you
in the future.
Sincerely,
Brad Snider
President and CEO
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of North Arkansas Bancshares, Inc. common stock offered in the
conversion, nor does it constitute the solicitation of a proxy in connection
with the conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and Proxy Statement. There shall be no sale of stock in
any state in which any offer, solicitation of an offer or sale of stock would
be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
*Sent to non-customers requesting information. Or with information in the event
of a Community Offering.
(Newport Federal Letterhead)
____________, 1997
Dear Interested Investor:
Newport Federal Savings Bank ("Newport Federal" or the "Bank") is pleased
to announce that it has received regulatory approval to proceed with its plan to
convert to a federally-chartered stock savings bank. This stock conversion is
the most significant event in the history of the Bank in that it allows
customers, community members, directors and employees an opportunity to own
stock in North Arkansas Bancshares, Inc., the proposed holding company for the
Bank.
For over 63 years, Newport Federal has successfully operated as a mutual
company. We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on the Bank's
deposits, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with the Bank.
Let us also assure you that the Conversion will not result in any changes
in the management, personnel or the Board of Directors of the Bank.
Enclosed is a Prospectus which fully describes the Bank, its management,
board and financial strength. Please review it carefully before you make an
investment decision. If you decide to invest, please return to the Bank a
properly completed stock order form together with full payment for shares at
your earliest convenience but not later than 12:00 p.m. Local Time on _________,
1997. For your convenience we have established a Stock Information Center. If
you have any questions, please call the Stock Information Center collect at
(870) 523-3340.
We look forward to continuing to provide quality financial services to you
in the future.
Sincerely,
Brad Snider
President and CEO
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of North Arkansas Bancshares, Inc. common stock offered in the
conversion, nor does it constitute the solicitation of a proxy in connection
with the conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and Proxy Statement. There shall be no sale of stock in
any state in which any offer, solicitation of an offer or sale of stock would
be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
*Sent to members who do not have a qualifying account on the Voter Record Date
and cannot vote.
(Newport Federal Letterhead)
____________, 1997
Dear Friend:
Newport Federal Savings Bank ("Newport Federal" or the "Bank") is pleased
to announce that we have received regulatory approval to proceed with its plan
to convert to a federally-chartered stock savings bank. This stock conversion
is the most significant event in the history of Newport Federal in that it
allows customers, community members, directors and employees an opportunity to
own stock in North Arkansas Bancshares, Inc., the proposed holding company for
the Bank.
For over 63 years, Newport Federal has successfully operated as a mutual
company. We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on the Bank's
deposits, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with the Bank.
Let us also assure you that the Conversion will not result in any changes
in the management, personnel or the Board of Directors of the Bank.
Our records indicate that you were a depositor of the Bank on __________,
but that you were not a member on _____________, 1997. Therefore, under
applicable law, you are entitled to subscribe for Common Stock in North Arkansas
Bancshares, Inc.'s Subscription Offering. Orders submitted by you and others
in the Subscription Offering are contingent upon the current members' approval
of the Plan of Conversion at a special meeting of members to be held on
_________, 1997 and upon receipt of all required regulatory approvals.
If you decide to exercise your subscription rights to purchase shares, you
must return the properly completed stock order form together with full payment
for the subscribed shares so that it is received at the Bank not later than
12:00 p.m. Local Time on _________, 1997.
Enclosed is a Prospectus which fully describes the Bank, its management,
board and financial strength. Please review it carefully before you invest.
For your convenience we have established a Stock Information Center. If you
have any questions, please call the Stock Information Center collect at
(870)523-3340.
We look forward to continuing to provide quality financial services to you
in the future.
Sincerely,
Brad Snider
President and CEO
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of North Arkansas Bancshares, Inc. common stock offered in the
conversion, nor does it constitute the solicitation of a proxy in connection
with the conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and Proxy Statement. There shall be no sale of stock in
any state in which any offer, solicitation of an offer or sale of stock would
be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
*Sent to Members in Non-Blue Sky States, who can vote but will not receive an
order form.
(Newport Federal Letterhead)
___________, 1997
Dear Member:
As a qualified member of Newport Federal Savings Bank ("Newport Federal" or
the "Bank"), you have the right to vote upon the Bank's proposed Plan of Holding
Company Conversion and also generally have the right to subscribe for shares of
common stock of North Arkansas Bancshares, Inc., the proposed holding company
for Newport Federal through the mutual to stock conversion of Newport Federal.
However, the proposed plan of Holding Company Conversion provides that North
Arkansas Bancshares, Inc. will not offer stock in any state in which compliance
with the securities laws would be impracticable for reasons of cost or
otherwise. Unfortunately, the securities laws of your state would require North
Arkansas Bancshares, Inc. to register its common stock and /or its employees in
order to sell the common stock to you. Such registration would be prohibitively
expensive or otherwise impracticable in light of the few members residing in
your state.
You may vote on the proposed Plan of Holding Company Conversion and we urge
you to read the enclosed Summary Proxy Statement and execute the enclosed
Revocable Proxy. Questions regarding the execution of the Revocable Proxy
should be directed to Newport Federal's Stock Information Center at
(870) 523-3340.
Sincerely,
Brad Snider
President and CEO
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of North Arkansas Bancshares, Inc. common stock offered in the
conversion, nor does it constitute the solicitation of a proxy in connection
with the conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and Proxy Statement. There shall be no sale of stock in
any state in which any offer, solicitation of an offer or sale of stock would
be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
V. IRA Mailing
A. Explanation
A special IRA mailing is proposed to be sent to all IRA customers of the
Bank in order to alert the customers that funds held in an IRA can be used
to purchase stock. Since this transaction is not as simple as designating
funds from a certificate of deposit like a normal stock purchase, this
letter informs the customer that this process is slightly more detailed and
involves a personal visit to the Bank.
B. Quantity
One IRA letter is proposed to be mailed to each IRA customer of the Bank.
These letters would be mailed following OTS approval for the conversion and
after each customer has received the initial mailing containing a Proxy
Statement and a Prospectus.
C. Example - See following page.
<PAGE>
*May be sent to IRA customers
(Newport Federal Letterhead)
__________ __, 1997
Dear Individual Retirement Account Participant:
As you know, Newport Federal Savings Bank is in the process of converting
from a federally-chartered mutual savings bank to a federally-chartered stock
savings bank and has formed North Arkansas Bancshares, Inc. to hold all of the
stock of Newport Federal (the "Conversion"). Through the Conversion, certain
current and former depositors and borrowers of Newport Federal have the
opportunity to purchase shares of common stock of North Arkansas Bancshares,
Inc. in a Subscription Offering. North Arkansas Bancshares, Inc. currently is
offering up to 322,000 shares, subject to adjustment, of North Arkansas
Bancshares, Inc. at a price of $10.00 per share.
As the holder of an individual retirement account ("IRA") at Newport
Federal, you have an opportunity to become a shareholder in North Arkansas
Bancshares, Inc. using funds being held in your IRA. If you desire to purchase
shares of common stock of North Arkansas Bancshares, Inc. through your IRA,
Newport Federal can assist you in self-directing those funds. This process can
be done without an early withdrawal penalty and generally without a negative tax
consequence to your retirement account.
Due to the added paperwork required to complete a stock purchase using IRA
funds, the deadline for IRA purchases is _________, 1997. If you are interested
in ordering North Arkansas Bancshares, Inc. Common stock utilizing IRA funds,
you must contact our Conversion Center before the deadline at (870) 523-3340.
Sincerely,
Brad Snider
President and CEO
This letter is neither an offer to sell nor a solicitation of an offer to buy
North Arkansas Bancshares, Inc. common stock. The offer is made only by the
Prospectus, which was recently mailed to you.
THE SHARES OF NORTH ARKANSAS BANCSHARES, INC. COMMON STOCK ARE NOT
DEPOSITS AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE
---
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
VI. Individual Letters and Community Meeting Invitations
A. Explanation
In order to educate the public about the stock offering, Trident suggests
holding Community meetings in various locations. In an effort to target a
group of interested investors, Trident requests that each Director of the
Bank submit a list of acquaintances that he or she would like to invite to
a community meeting.
B. Method of Distribution of Invitations and Prospect Letters
Each Director submits his list of prospects.
Invitations are sent to each Director's prospects through the mail. All
invitations are preceded by a Prospectus and all attendees are given a
Prospectus at the meeting. Letters will be sent to prospects to thank them
for their attendance and to remind them of closing dates.
C. Examples enclosed.
<PAGE>
The Directors and Officers
of
Newport Federal Savings Bank
cordially invite you to attend a brief
presentation regarding the stock
offering of
North Arkansas Bancshares, Inc.,
our proposed holding company
Please join us at the
--------------
---------------------
---------------------------
------------
------------
for refreshments
PLEASE RESPOND BY ____________ TO RESERVE A SEAT
R.S.V.P. (870) 523-3340
<PAGE>
Sent to prospects who are customers*
_______________, 1997
Name
Address
City, State ZIP
Dear Mr. and Mrs. Prospect
Recently you may have read in the newspaper that Newport Federal Savings
Bank ("Newport Federal" or the "Bank") will convert from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank. This is the
most significant event in the history of the Bank in that it allows customers,
employees and directors the opportunity to share in Newport Federal's future by
becoming charter stockholders of the Bank's newly-formed holding company, North
Arkansas Bancshares, Inc.
As a customer of Newport Federal, you should have received a packet of
information regarding the conversion, including a Prospectus and a Proxy
Statement. In addition, we are holding several presentations for friends of the
officers and directors to discuss the stock offering in more detail. You will
receive an invitation in the near future.
Please feel free to call me or the Newport Federal's Stock Information
Center at (870) 523-3340 if you have any questions. I look forward to seeing
you at one of our informational presentations.
Sincerely,
Brad Snider
President and CEO
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of North Arkansas Bancshares, Inc. common stock offered in the
conversion, nor does it constitute the solicitation of a proxy in connection
with the conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and the Summary Proxy Statement, respectively. There
shall be no sale of stock in any state in which any offer, solicitation of an
offer or sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
*Sent to prospects who are not customers*
____________, 1997
Name
Address
City, State ZIP
Dear Mr. and Mrs. Prospect
Recently you may have read in the newspaper that Newport Federal Savings
Bank ("Newport Federal" or the "Bank") will be converting from a federally-
chartered mutual savings bank to a federally-chartered stock savings bank. This
is the most significant event in the history of the Bank in that it allows
customers, employees and directors the opportunity to share in Newport Federal's
future by becoming charter stockholders of the Bank's holding company, North
Arkansas Bancshares, Inc.
[Director] has asked that you be sent a Prospectus and stock order form
which will allow you to become a charter stockholder, should you desire. In
addition, we are holding several presentations for friends of the officers and
directors of Newport Federal to discuss the stock offering in more detail. You
will receive an invitation in the near future.
Please feel free to call me or the Newport Federal's Stock Information
Center at (870) 523-3340 if you have any questions. I look forward to seeing
you at one of our information presentations.
Sincerely,
Brad Snider
President and CEO
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of North Arkansas Bancshares, Inc. common stock offered in the
conversion, nor does it constitute the solicitation of a proxy in connection
with the conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and the Summary Proxy Statement, respectively. There
shall be no sale of stock in any state in which any offer, solicitation of an
offer or sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
*Sent to those attending a community meeting*
____________, 1997
Name
Address
City, State ZIP
Dear Mr. and Mrs. Prospect
Thank you for attending our informational presentation relating to Newport
Federal Savings Bank's conversion to a stock company. The information presented
at the meeting and the Prospectus you recently received should assist you in
making an informed investment decision.
Obviously, we are excited about this stock offering and the opportunity to
share in the future of Newport Federal. This conversion is the most important
event in our history and it gives the Bank the strength to compete in the future
and will provide the Bank additional corporate flexibility.
We may contact you in the near future to get an indication of your interest
in our offering. If you make a decision to invest, please return your order
form no later than ___________, 1997. If you have any questions, please call
the Stock Information Center at (870) 523-3340.
Sincerely,
Brad Snider
President and CEO
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of North Arkansas Bancshares, Inc. common stock offered in the
conversion, nor does it constitute the solicitation of a proxy in connection
with the conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and the Summary Proxy Statement, respectively. There
shall be no sale of stock in any state in which any offer, solicitation of an
offer or sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
* Sent to those not attending a community meeting *
_________, 1997
Name
Address
City, State ZIP
Dear Mr. and Mrs. Prospect
I am sorry you were unable to attend our recent presentation regarding
Newport Federal Savings Bank's mutual to stock conversion. The Board of
Directors and management team of Newport Federal are committed to contributing
to long term shareholder value and as a group we are personally investing
approximately $____________ of our own funds. We are enthusiastic about the
stock offering and the opportunity to share in the future of Newport Federal.
We have established a Stock Information Center to assist you with any
questions regarding the stock offering. Should you require any assistance
between now and ___________, 1997, I encourage you to either stop by our Stock
Information Center or call (870) 523-3340.
I hope you will join me as a charter stockholder in North Arkansas
Bancshares, Inc.
Sincerely,
Brad Snider
President and CEO
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of North Arkansas Bancshares, Inc. common stock offered in the
conversion, nor does it constitute the solicitation of a proxy in connection
with the conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and the Summary Proxy Statement, respectively. There
shall be no sale of stock in any state in which any offer, solicitation of an
offer or sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
* Final Reminder Letter *
_________, 1997
Name
Address
City, State ZIP
Dear Mr. and Mrs. Prospect
I am writing to remind you that the deadline for purchasing stock in North
Arkansas Bancshares, Inc. is quickly approaching. I hope you will join me in
becoming a charter stockholder in one of Arkansas's newest publicly owned
financial institutions.
The deadline for becoming a charter stockholder is ____________, 1997. If
you have any questions, please call our Stock Information Center at
(870) 523-3340.
Once again, I look forward to having you join me as a charter stockholder
in North Arkansas Bancshares, Inc.
Sincerely,
Brad Snider
President and CEO
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of North Arkansas Bancshares, Inc. common stock offered in the
conversion, nor does it constitute the solicitation of a proxy in connection
with the conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and the Summary Proxy Statement, respectively. There
shall be no sale of stock in any state in which any offer, solicitation of an
offer or sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
VII. Counter Cards and Lobby Posters
A. Explanation
Counter cards and lobby posters serve two purposes: (1) As a notice to
Newport Federal's customers and members of the local community that the
stock sale is underway and (2) to remind the customers of the end of the
Subscription Offering. Trident has learned in the past that many people
forget the deadline for subscribing and therefore we suggest the use of
these simple reminders.
B. Quantity
Approximately 2 - 3 Counter cards will be used at teller windows and on
customer service representatives' desk.
Approximately 1 - 2 Lobby posters will be used at Newport Federal's office.
C. Example
D. Size
The counter card will be approximately 8 1/2" x 11".
The lobby poster will be approximately 16" x 20".
<PAGE>
C.
POSTER OR COUNTER CARD
"TAKE STOCK IN OUR FUTURE"
"NORTH ARKANSAS BANCSHARES, INC.
STOCK OFFERING MATERIALS
AVAILABLE HERE"
NEWPORT FEDERAL SAVINGS BANK
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VIII. Proxy Reminder
A. Explanation
A proxy reminder is used when the majority of votes needed to adopt the
Plan of Conversion is still outstanding. The proxy reminder is mailed to
those "target vote" depositors who have not previously returned their
signed proxy.
The target vote depositors are determined by the conversion agent.
B. Example
C. Size
Proxy reminder is approximately 8 1/2" x 11".
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B. Example
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P R O X Y R E M I N D E R
NEWPORT FEDERAL SAVINGS BANK
YOUR VOTE ON OUR STOCK CONVERSION PLAN HAS NOT BEEN RECEIVED. YOUR VOTE IS VERY
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IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO VOTING AGAINST
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THE PLAN.
VOTING FOR THE CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR ACCOUNTS.
DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED UP TO THE APPLICABLE
LIMITS.
YOU MAY PURCHASE STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR DELIVER, THE
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PROXY CARD TO NEWPORT FEDERAL TODAY.
PLEASE VOTE ALL PROXY CARDS RECEIVED.
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WE RECOMMEND THAT YOU VOTE TO APPROVE THE PLAN OF CONVERSION. THANK YOU.
THE BOARD OF DIRECTORS AND MAN
AGE
MENT
OF
NEWPORT FEDERAL SAVINGS BANK
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IF YOU RECENTLY MAILED THE PROXY,
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST.
FOR FURTHER INFORMATION CALL (870) 523-3340.
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of North Arkansas Bancshares, Inc. common stock offered in the
conversion, nor does it constitute the solicitation of a proxy in connection
with the conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and the Summary Proxy Statement, respectively. There
shall be no sale of stock in any state in which any offer, solicitation of an
offer or sale of stock would be unlawful.
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THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
