As filed with the Securities and Exchange Commission on September 29, 1997
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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DELAWARE FIRST FINANCIAL CORPORATION
(Name of small business issuer in its charter)
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<S> <C> <C>
Delaware 6035 Applied For
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
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400 Delaware Avenue, Wilmington, Delaware 19801
(301) 421-9090
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(Address and telephone number of principal executive offices and principal
place of business)
Mr. Ronald P. Crouch
President and Chief Executive Officer
Ninth Ward Savings Bank, FSB
400 Delaware Avenue
Wilmington, Delaware 19801
(302) 421-9090
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(Name, address, and telephone number of agent for service)
Please send copies of all communications to:
Raymond J. Gustini, Esquire
Jeremy J. Sher, Esquire
Peabody & Brown
1255 23rd Street, N.W., Suite 800
Washington, D.C. 20037
(202) 973-7700
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
______
|______|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
______
|______|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
______
|______|
CALCULATION OF REGISTRATION FEE
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Title of each Class of Dollar Amount to be Prosposed Maximum Prosposed Maximum Amount of
Securities Dollar Registered Offering Price Per Aggregate Offering Registration Fee
Security Price(1)
- ---------------------------------------------------------------------------------------------------------------
Common Stock, par value $11,570,000 $10.00 $11,570,000 $3,990
$.01 per share
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS [LOGO]
Up to 1,006,000 Shares of Common Stock
DELAWARE FIRST FINANCIAL CORPORATION
400 Delaware Avenue
Wilmington, Delaware 19801
(302) 421-9090
================================================================================
Ninth Ward Savings Bank, FSB is converting from the mutual form to the
stock form of organization. As part of the Conversion, Ninth Ward Savings Bank,
FSB will become a wholly owned subsidiary of Delaware First Financial
Corporation. Delaware First Financial Corporation was formed in September 1997
and upon consummation of the Conversion will own all of the shares of Ninth Ward
Savings Bank, FSB. The common stock of Delaware First Financial Corporation is
being offered to the public in accordance with a Plan of Conversion. The Plan of
Conversion must be approved by a majority of the votes eligible to be cast by
members of Ninth Ward Savings Bank, FSB and by the Office of Thrift Supervision.
The offering will not go forward if Ninth Ward Savings Bank, FSB does not
receive these approvals or Delaware First Financial Corporation does not sell at
least the minimum number of shares.
================================================================================
TERMS OF OFFERING
An independent appraiser has estimated the market value of the common stock
being offered to be between $7,440,000 to $10,060,000, which establishes the
range of the number of shares to be offered. Subject to Office of Thrift
Supervision approval, up to 1,157,000 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:
o Price Per Share: $10
o Number of Shares
Minimum/Maximum/Maximum as adjusted: 744,000 to 1,006,000 to 1,157,000
o Underwriting Commissions and Expenses
Minimum/Maximum/Maximum as adjusted: $492,000 to $522,000 to $540,000
o Net Proceeds to Delaware First
Financial Corporation
Minimum/Maximum/Maximum as adjusted: $6,948,000 to $9,538,000 to $11,030,000
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Please refer to Risk Factors beginning on page _____ of this Prospectus.
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, please call the
Stock Information Center at (302) _________.
TRIDENT SECURITIES, INC.
November _______, 1997
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TABLE OF CONTENTS
Page
----
TERMS OF OFFERING.......................................................... i
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING............................. v
SUMMARY.................................................................... 1
SELECTED FINANCIAL DATA.................................................... 4
RECENT DEVELOPMENTS........................................................ 7
RISK FACTORS............................................................... 8
PROPOSED MANAGEMENT PURCHASES.............................................. 13
USE OF PROCEEDS............................................................ 14
DIVIDEND POLICY............................................................ 16
MARKET FOR THE COMMON STOCK................................................ 16
CAPITALIZATION............................................................. 17
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE................................ 19
PRO FORMA DATA............................................................. 21
CONSOLIDATED STATEMENT OF EARNINGS AND INCOME
OF NINTH WARD SAVINGS BANK, FSB.......................................... 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................ 28
BUSINESS OF DELAWARE FIRST FINANCIAL CORPORATION........................... 45
BUSINESS OF NINTH WARD SAVINGS BANK, FSB................................... 46
REGULATION................................................................. 69
TAXATION................................................................... 76
MANAGEMENT OF THE COMPANY.................................................. 78
MANAGEMENT OF NINTH WARD SAVINGS BANK, FSB................................. 79
THE CONVERSION............................................................. 89
RESTRICTIONS ON ACQUISITION OF THE COMPANY................................. 106
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY................................ 111
LEGAL AND TAX MATTERS...................................................... 113
EXPERTS.................................................................... 114
REGISTRATION REQUIREMENTS.................................................. 114
ADDITIONAL INFORMATION..................................................... 114
GLOSSARY................................................................... G-1
This Prospectus contains forward-looking statements which reflect
Delaware First Financial Corporation's views regarding future events and
financial performance. Actual results could differ materially from those
projected in the forward-looking statements as a result of risks and
uncertainties, including, but not limited to, those found in the "Risk Factors"
section. The words "believe," "expect," and "anticipate" and similar expressions
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identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of their dates.
Delaware First Financial Corporation undertakes no obligation to publicly update
or revise any forward-looking statements whether as a result of new information,
future events, or otherwise. The "Risk Factors" discussion begins on page
_______ of this Prospectus.
Please see the Glossary beginning on page G-1 for the meaning of
capitalized terms that are not defined in this Prospectus.
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: How will I benefit from the Offering?
A: The offering means that you will have the chance to become a stockholder of
our newly formed holding company, Delaware First Financial Corporation,
which will allow you to share in our future as a federal stock savings
bank. The stock offering will increase our capital and funds for lending
and investment activities, which will give us greater flexibility to
diversify operations and expand into other geographic markets. As a stock
savings institution 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.
Q: How do I subscribe for the stock during the offering?
A: You must complete and return the Stock Order Form to us together with your
payment, on or before December ___, 1997.
Q: For how much stock may I subscribe?
A: The minimum purchase is 25 shares (or $250). The maximum purchase is 10,000
shares (or $100,000), for any individual person or persons ordering through
a single account. In certain instances, your purchase might be grouped
together with purchases by persons with other accounts and in that event
the aggregate purchases may not exceed 20,000 shares (or $200,000). We may
decrease or increase the maximum purchase limitation without notifying you.
In the event that the offering is oversubscribed, shares will be allocated
based upon a formula.
Q: What happens if there are not enough shares to fill all orders?
A: You might not receive any or all of the shares for which you subscribe. If
there is an oversubscription, the stock will be offered on a priority basis
to the following persons:
o Persons who had a deposit account of $50 or more with us on December
31, 1995. Any remaining shares will be offered to:
o Tax Qualified Employee Plans, including the Employee Stock Ownership
Plan of Ninth Ward Savings Bank, FSB. Any remaining shares will be
offered to:
o Persons who had a deposit account of $50 or more with us on September
30, 1997. Any remaining shares will be offered to:
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o 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 the state of Delaware or counties in Maryland, New
Jersey or Pennsylvania that are contiguous to New Castle County, Delaware.
Q: What particular factors should I consider when deciding whether or not to
subscribe for 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. Also, before you decide to subscribe for stock, you should
carefully read the Risk Factors section in this Prospectus.
Q: As a depositor or borrower member of Ninth Ward Savings Bank, FSB, what
will happen if I do not subscribe for 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.
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 Prospectus. This section highlights selected information and may not
contain all of the information that is important to you. In addition, you
should contact:
Stock Information Center
Delaware First Financial Corp.
400 Delaware Avenue
Wilmington, Delaware 19801
(302) _____________________.
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SUMMARY
This summary highlights selected information from this Prospectus and may
not contain all the information that is important to you. To understand our
Conversion and the stock offering fully, you should carefully read this entire
Prospectus, including the consolidated financial statements and the notes to the
financial statements of Ninth Ward Savings Bank, FSB. References in this
Prospectus to "Ninth Ward," the "Bank," "we," "us," and "our" refer to Ninth
Ward Savings Bank, FSB. In certain instances where appropriate, "us" or "our"
refers collectively to Delaware First Financial Corporation and Ninth Ward
Savings Bank, FSB. References in this Prospectus to "the Company" refer to
Delaware First Financial Corporation, only.
The Companies
Delaware First Financial Corporation
400 Delaware Avenue
Wilmington, Delaware 19801
(302) 421-9090
Delaware First Financial Corporation is not an operating company and has
not engaged in any significant business to date. It was formed in September
1997, as a Delaware corporation to be the holding company for Ninth Ward Savings
Bank, FSB. The holding company structure will provide greater flexibility in
terms of operations, expansion and diversification. See "BUSINESS OF THE
COMPANY."
Ninth Ward Savings Bank, FSB
400 Delaware Avenue
Wilmington, Delaware 19801
(302) 421-9090
We are a community and customer oriented federal mutual savings bank
operating from a single office in Wilmington since 1922. Historically, we have
emphasized residential mortgage lending, primarily originating one-to-four
family mortgage loans. At June 30, 1997, we had total assets of $112.5 million,
total liabilities of $106.5 million, and retained earnings of $6.1 million. See
"BUSINESS OF NINTH WARD."
The Stock Offering
Between 744,000 and 1,006,000 shares of common stock par value $0.01 per
share of the Company are being offered at $10 per share (the "Common Stock"). As
a result of changes in market and financial conditions prior to completion of
the Conversion or to fill the
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order of our ESOP and subject to the Office of Thrift Supervision approval, the
offering may be increased to 1,157,000 shares without further notice to you.
Stock Purchases
The shares of Common Stock will be offered on the basis of priorities.
If you are a depositor or borrower member, you will receive subscription rights
to purchase the shares. The shares will be offered first to eligible depositor
and borrower members in a Subscription Offering and any remaining shares will be
offered in a Community Offering to members of the general public with first
preference being given to natural persons residing in Delaware, in Cecil County,
Maryland, Chester County and Delaware County, Pennsylvania, and in Salem County,
New Jersey . We reserve the right in our absolute discretion to reject in whole
or in part orders in the Community Offering and Syndicated Community Offering.
See "THE CONVERSION."
Subscription Rights
You may not sell or assign the subscription rights you may have because of
your status as a depositor or borrower of Ninth Ward Savings Bank, FSB. Any
transfer of subscription rights is prohibited by law.
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 FinPro, Liberty Corner, NJ 07938, an
appraisal firm experienced in appraisals of savings institutions. FinPro has
estimated that, in its opinion, as of ______, 1997, the aggregate pro forma
market value of the Common Stock ranged between $7.4 million and $10.1 million
(with a mid-point of $8.8 million). We are offering up to 1,006,000 shares for
sale. The pro forma market value of the shares is our market value after giving
effect to the sale of shares in this offering. 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 price per
share was determined by our Board of Directors and is the per share price most
commonly used in stock offerings involving conversions of mutual savings
institutions. The independent appraisal will be updated prior to the
consummation of the Conversion. If the pro forma market value of the Common
Stock is either below $7.4 million or above $11.6 million, or if the offering is
extended beyond _____, 1998, you will be notified by us and you will have the
opportunity to modify or cancel your order. See "THE CONVERSION."
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Termination of the Offering
The Subscription Offering will terminate at 12:00 p.m., Eastern Time, on
December _______, 1997. The Community Offering, if any, may terminate at any
time on or after the Subscription Offering expiration date without notice but no
later than _______________, 1998, without approval by the OTS.
Benefits to Management from the Offering
Our full-time employees will participate in the offering through purchases
of stock by our Employee Stock Ownership Plan (the "ESOP"), which is a form of
employee ownership and retirement plan. We also intend to implement a Restricted
Stock Plan (the "RSP") and an Option Plan following completion of the
Conversion, which will benefit our executive and other officers and directors.
However, the RSP and Option Plan cannot be adopted until after the Conversion
and are subject to both stockholder approval and compliance with OTS
regulations. See "MANAGEMENT OF NINTH WARD SAVINGS BANK, FSB."
Use of the Proceeds Raised from the Sale of Common Stock
The primary purpose of the Conversion is to increase the capital of the
Bank. The majority of the funds raised in the Conversion will be used by the
Company to purchase all of the outstanding shares of the Bank. Delaware First
Financial Corporation will retain up to 25% of the net proceeds from the stock
offering. The Company will use some or all of its funds to make a loan to our
ESOP to fund its purchase of stock in the Conversion. The loan to the ESOP must
be approved by the OTS. See "US OF PROCEEDS."
Dividends
Initially, we do not intend to pay any cash dividends on the Common Stock.
See "DIVIDEND POLICY."
Market for the Common Stock
We have applied to have the Common Stock quoted on the NASDAQ Small-Cap
Market under the symbol "________." However, since the size of the offering is
relatively small, no assurance can be given that our Common Stock will be quoted
on the NASDAQ or that an active and liquid trading market for the Common Stock
will develop and be maintained after the Conversion. 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.
Trident Securities, Inc. ("Trident") has informed us that they
3
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intend to make a market in the shares of the Common Stock following completion
of the Conversion. See "MARKET FOR COMMON STOCK."
Important Risks in Owning Delaware First Financial Corporation's Common Stock
Before you decide to purchase stock in the offering, you should read the
Risk Factors section on pages _______ of this Prospectus.
SELECTED FINANCIAL DATA
We are providing the following summary of selected financial information
and other data for your benefit. This information is only a summary and does not
purport to be complete, and is qualified in its entirety by reference to the
detailed information and financial statements and accompanying notes beginning
on page F-1. Selected financial information at June 30, 1997 and for the six
months ended June 30, 1997 and 1996 have been derived from unaudited financial
statements. In our opinion, such information reflects all adjustments (which
consist only of normal recurring adjustments) necessary for a fair presentation
of the selected financial information and other data. The results of operations
for the six months ended June 30, 1997 are not necessarily indicative of the
results which may be expected for any other period.
Selected Financial Data
December 31,
------------
June 30, 1997 1996 1995
------------- ---- ----
Total Assets $112,544,699 $112,683,218 $97,377,204
Investment securities, net(1) $5,992,005 $6,475,800 $11,488,192
Mortgage-backed securities(1) 190,414 203,147 698,669
Interest-bearing deposits 2,668,566 2,456,294 783,808
Noninterest-bearing deposits 169,649 187,158 277,048
Loans receivable, net 92,919,385 98,042,118 78,835,306
Loans held for sale 5,547,674 0 1,020,000
Savings deposits 78,351,363 78,408,793 81,522,249
FHLB advances 25,200,000 25,900,000 7,950,000
Net worth or retained earnings $6,086,942 $5,957,589 $6,062,906
-- substantially restricted
- ----------
(1) All of the Bank's investment securities and mortgage-backed securities were
classified as "Held to Maturity" at December 31, 1995 and "Available for
Sale" at December 31, 1996 and June 30, 1997.
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Summary of Operations
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For the Six Months For the Year
Ended June 30, Ended December 31,
------------------------ ------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
Operating Data:
<S> <C> <C> <C> <C>
Total interest income $4,072,358 $3,762,647 $7,922,109 $7,292,747
Total interest expense 2,976,891 2,641,110 5,750,139 5,055,141
---------- ---------- ---------- ----------
Net interest income: 1,095,467 1,121,537 2,171,970 2,237,606
Provision for loan losses 10,000 26,000 47,000 5,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,085,467 1,095,537 2,124,970 2,232,606
Gain on sales of loans 16,632 48,766 68,629 438,970
Other income 68,281 108,504 236,147 81,229
Other expenses 960,575 1,181,961 2,593,287 2,068,211
---------- ---------- ---------- ----------
Income (loss) before income taxes
and extraordinary item 209,805 70,846 163,541) 684,594
Income taxes (benefit) 88,000 30,000 (69,000) 264,670
---------- ---------- ---------- ----------
Net income (loss) $ 121,805 $ 40,846 $ (94,541) $ 419,924
========== ========== ========== ==========
Key Operating Ratios(1)
For the Six Months For the Year
Ended June 30, Ended December 31,
------------------------ ------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
Key Performance Ratios:
Return on average assets 0.22% 0.08% (0.09%) 0.45%
Return on average retained earnings 4.05 1.34 (1.57%) 7.17
Average retained earnings to
average assets 5.35 5.83 5.72 6.23
Average interest rate spread during
the period 1.75 1.99 1.78 2.13
Quality Ratios:
Nonperforming assets to total assets 0.29 0.22 0.33 0.25
Allowance for loan losses to total loans 0.27 0.24 0.25 0.25
Allowance for loan losses to
nonperforming loans 78.59 93.78 65.69 81.97
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Noninterest expense to average assets 0.85 1.13 2.47 2.20
Net interest income to noninterest
expense(2) (x times) 1.14 0.95 0.84 1.08
Average interest-earning assets to
average interest-bearing liabilities
(x times) 1.05 1.06 1.05 1.05
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(1) Quality ratios are end of period ratios. With the exception of end of
period ratios, all ratios are based on the average of period ending
balances during the indicated periods and are annualized where appropriate.
(2) Noninterest expense is assumed to be General & Administrative Expenses
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RECENT DEVELOPMENTS
[TO COME]
7
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RISK FACTORS
In addition to the other information in this Prospectus, you should
consider carefully the following risk factors in evaluating an investment in our
Common Stock.
Interest Rate Risk
Historically, we have primarily originated fixed rate mortgage loans.
Typically, we have sold a portion of these loans in the secondary market.
However, in 1996 we held many of these loans in our portfolio. At June 30, 1997,
over 87% of our first mortgage loans were fixed rate. This concentration of
fixed rate loans, and our inability to attract adjustable rate loans has exposed
us to greater interest rate risk which the OTS has advised us is unacceptably
high. In June we undertook certain actions to lower interest rate risk, but
these actions have not completely eliminated our exposure to interest rate risk.
Our operating results are also dependent to a significant degree on our net
interest income which is the difference between interest income from our loans
and investments and the interest we pay on deposits and the money we borrow. Our
interest income and expense change as interest rates increase or decrease and
the amount we earn on our assets and pay on our liabilities. Interest rates
fluctuate and assets and liabilities reprice because of a variety of factors
including general economic conditions, the policies of various regulatory
authorities, and other factors which are beyond our control. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Asset and Liability Management" and "BUSINESS OF NINTH WARD SAVINGS BANK --
Lending Activities" and "-- Deposits and Borrowings."
Because of our single office location, the competition in our market area
and a deposit base which we believe is interest rate sensitive, our cost of
funds is high. This high cost of funds in combination with our asset and
liability structure as it is presently constituted exposes us to substantial
interest rate risk. When interest rates are rising the interest income earned on
our predominantly fixed rate mortgage loan assets will not increase as rapidly
as the interest expense we pay on our deposit and borrowing liabilities, which
are predominately certificates of deposit with maturities of up to three years.
As a result, our earnings will be adversely affected when the cost of our
certificates of deposit and other savings accounts and borrowings increases more
rapidly than the income we earn on our loans and investments. The degree to
which such earnings will be adversely affected depends upon how quickly interest
rates rise and the degree to which we are affected by a rise in interest rates.
Our earnings were also adversely affected in 1996 and the first half of 1997 by
the narrow difference between the interest paid by us on our deposits and the
income we received from our loans and assets. If
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interest rates rise, that spread may become smaller, since $72.1 million, or
77.5% of our loan portfolio at June 30, 1997 consisted of longer term fixed rate
loans, while $44.2 million, or 56.4% of our deposits mature within one year of
June 30, 1997. The interest earned on our loan portfolio will increase slowly to
the extent that existing fixed rate loans at lower rates are paid off and new
loans at higher rates are originated, while the rates paid on deposits would
increase more quickly. Rising interest rates also affect our earnings if loan
demand is diminished. Our total interest-bearing liabilities repricing within
one year exceeded our total interest-earning assets repricing in the same period
by $29.2 million, creating a one-year interest sensitivity gap of negative
25.9%. This will cause the Bank's net interest income to be adversely affected
in a rising rate environment. Both our business plan and our Supervisory
Agreement emphasize a reduction of this interest rate risk. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Asset and Liability Management"
Expansion into Small Business/Commercial Lending and Creation of Branches
To date, we have operated as a traditional savings and loan association
operating from a single location and emphasizing the origination of loans
secured by one-to-four family residences. At June 30, 1997, $82.6 million, or
88.9%, of our loan portfolio consisted of single family residential mortgage
loans in our market area. However, the Board of Directors believes that as a
result of market trends, including the recent consolidation of financial
institutions and the economics of our market area, there will be increasing
demand in our market area for commercial loans and home equity loans. After the
Conversion, we anticipate expanding our product line to offer small
business/commercial loans secured by real estate and unsecured small
business/commercial loans, as well as expanding our existing home equity loan
program. At the present time there is no one in our management with significant
experience in the small business/commercial lending area. In order to expand
into this area we anticipate hiring a Senior Officer to supervise and develop
this business. This person's ability and skills will be essential in order to
enable us to execute our strategy. If we are unable to locate and hire a
suitable individual we may be unable to implement our strategy concerning small
business/commercial lending.
While small business/commercial loans are more interest rate sensitive and
carry higher yields than do residential mortgage loans, they generally carry a
higher degree of credit risk than residential mortgage loans. Consequently,
diversification of our loan portfolio may alter and increase our risk profile..
Additionally, small business/commercial loans are often larger and may involve
greater risks than other types of lending. Because payments on such loans are
often dependent on successful operations of the underlying business or project,
repayment of such loans may be subject to a greater extent to adverse conditions
in the economy. We will seek to minimize these risks through underwriting
guidelines which may contain certain
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safeguards. However, our business plan calls for us to make small
business/commercial loans secured by real estate as well as unsecured business
loans.
We also plan to increase our home equity lending program. At June 30, 1997,
these loans amount to $10.9 million, or 11.7%, of our loan portfolio. These
loans may carry greater risks than our traditional mortgage loans because we are
often a second lien holder on such loans. Additionally, our provision for loan
losses may increase in the future as we implement the Board of Directors'
strategy of emphasizing home equity loans and expanding into small
business/commercial lending
Our business plan also calls for us to open additional branches in the next
two years. While such branches are intended to provide us with access to lower
cost funds, they will increase our operating expenses and related costs.
Source of Funds
At June 30, 1997, $65.8 million, or 84.0% of our deposits were in the form
of certificates of deposit. Of this amount, $14.3 million, or 18.3%, were
certificates of deposit of $100,000 or more ("Jumbo Deposits"). While many of
our certificates of deposit are accounts of long-standing customers, they are
significantly influenced by prevailing interest rate levels and market
conditions. Our single office location, the need to offer interest rates
competitive with other financial institutions, and the abundance of other
alternative investment products have caused us to be more reliant on
certificates of deposit, particularly Jumbo Deposits, which are generally
considered more sensitive to changes in interest rates. Therefore, we believe
our cost of funds is higher than many financial institutions operating in our
market area.
Only $12.6 million, or 16.0% of our deposits are in the form of passbooks,
money market and transaction accounts. We believe that these are core deposits,
which are traditionally defined as lower-cost funds not held in certificate of
deposit form. Core deposits, as opposed to those in certificate form, are
typically not as susceptible to withdrawal in times of rapidly increasing
interest rates. However, because the majority of our funding sources are in
certificate form, we are susceptible to the risk of withdrawal or changes in
interest income in the event of rapid increases in rates. The substantial amount
of Jumbo Deposits could enable a relatively small number of depositors to move
their deposits to higher yielding investments and cause a large deposit outflow.
Such an outflow could force us to place additional reliance on Federal Home Loan
Bank ("FHLB") advances as a source of funds. At June 30, 1997, we had $25.2
million of outstanding advances from the FHLB and an unused line of credit of
$8.6 million.
10
<PAGE>
Supervisory Agreement
On May 21, 1997, we entered into a Supervisory Agreement with the OTS.
Pursuant to the Supervisory Agreement, we are required to take certain actions
in the areas of interest rate risk, increases in capital, and the development
and adoption of a business plan. The primary thrust of the actions required by
the OTS is to improve operations and performance through reductions in our
interest rate risk and to provide OTS with a three year business plan. The
purpose of this business plan is, among other things, to improve performance and
achieve and maintain adequate levels of capital. Our business plan is also
required to address our long-term goals with respect to cost of funds, asset
growth and non-interest expense. See "BUSINESS OF NINTH WARD SAVINGS BANK, FSB
- -- Supervisory Agreement."
We are also required to adopt an interest rate risk policy which expressly
sets forth our policies and procedures for maintaining an acceptable level of
interest rate risk. Under regulations of the FDIC relating to the premiums paid
for deposit insurance, we are also required to pay more for federal deposit
insurance than we did before the Supervisory Agreement was instituted. That
additional cost will continue as long as the Supervisory Agreement remains in
effect and will prevent us from achieving the full benefit of the rate reduction
for deposit insurance which all well-capitalized institutions attained when the
SAIF was recapitalized. See "REGULATION -- Insurance of Deposit Accounts."
Lack of Active Market for Common Stock
Due to the small size of the offering, it is highly unlikely that an active
trading market in our Common Stock 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 which
you paid for the shares. The Common Stock may not be appropriate as a short-term
investment. See "MARKET FOR THE COMMON STOCK."
Intent to Remain Independent; Unsuitability as a Short-Term Investment
We have operated as an independent, community oriented savings association
since 1922. It is our intention to continue to operate as an independent
community oriented financial institution following the Conversion. Accordingly,
you are urged not to subscribe for shares of our Common Stock if you are
anticipating a rapid sale by us to a third party. See "BUSINESS OF THE COMPANY."
Also due to our intention to remain independent, we have included certain
provisions in our certificate of incorporation and bylaws which will assist us
in maintaining our status as an independent, publicly owned corporation. These
provisions as well as the Delaware general corporation law and certain federal
regulations may have certain anti-takeover effects
11
<PAGE>
which 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." As a result, stockholders who might wish to participate in a
change of control transaction may not have an opportunity to do so.
Decreased 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 we expect that our equity will increase
substantially. Our expenses also will increase because of the costs associated
with our ESOP, RSP, 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 December 31, 1995 and 1996 and June 30,
1997, our return on average equity was 7.17%, (1.57%), and 4.05% respectively.
See "USE OF PROCEEDS."
Possible Voting Control by Directors and Officers
The proposed purchases of the Common Stock by our directors, officers and
ESOP, as well as the potential acquisition of the Common Stock through the
Option Plan and RSP, 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 certificate and bylaws) requiring the approval
of 80% of the stockholders under the Company's certificate. See "MANAGEMENT OF
NINTH WARD SAVINGS BANK -- Executive Compensation," "DESCRIPTION OF CAPITAL
STOCK," and "RESTRICTIONS ON ACQUISITIONS OF THE COMPANY."
Possible Dilutive Effect of RSP and Stock Options
If the Conversion is completed and shareholders approve the RSP and Option
Plan, we will issue stock to our officers and directors through these plans. If
the shares for the RSP and Option Plan are issued from our authorized but
unissued stock, your ownership percentage could be diluted by up to
approximately 15.2% and the trading price of our stock may be reduced. See "PRO
FORMA DATA," "MANAGEMENT OF NINTH WARD SAVINGS BANK -- Proposed Future Stock
Benefit Plans."
12
<PAGE>
Financial Institution Regulation and Future of the Thrift Industry
We are subject to extensive regulation, supervision, and examination by the
OTS and FDIC. A bill, H.R. 10, has been reported by the U.S. House of
Representatives, Committee on Banking and Financial Services, that would
consolidate the OTS with the Office of the Comptroller of the Currency ("OCC")
and eliminate the federal thrift charter under which we currently operate. If
this legislation becomes law, we could be forced to become a state chartered
bank or a national commercial bank. If we become a commercial bank, our
investment authority and the ability of the Company to engage in diversified
activities would be more limited, which could affect our profitability. See
"REGULATION."
Competition
The city of Wilmington, Delaware, the market area in which we conduct our
business, is a highly competitive market for loans and deposits. Thirty-two
financial institutions operate 50 active branch offices and compete for $18.9
billion in total deposits in this market. Many of these financial institutions
are large national and regional entities with greater resources than ours.
Additionally, we operate from only one office and, as a result, have a
relatively high cost of funds as well as a limited product line. As such, we can
provide no assurance concerning our ability to achieve profitability in future
periods.
PROPOSED MANAGEMENT PURCHASES
The following table sets forth information regarding the approximate number
of shares of Common Stock, each director, executive officer and their
"associates" intends to purchase in the Conversion. All shares will be purchased
for investment purposes and not for purposes of resale. For purposes of the
following table, it has been estimated that 875,000 shares (the mid-point of the
estimated value range (the "EVR"), of Common Stock will be sold at $10 per share
and that sufficient shares will be available to satisfy subscriptions in all
categories.
Aggregate Price Percentage of
Total of Shares Total Shares
Name Position Purchased(1) Purchased Offered
- ---- -------- ------------ --------- -------
Dr. William R. Baldt Director 1,000 $10,000 .1%
J. Bayard Cloud Chairman 1,000 $10,000 .1%
Thomas B. Cloud Director 5,000 $50,000 .6%
Ronald P. Crouch President, Chief
Executive Officer
and Director 1,000 $10,000 .1%
Larry D. Gehrke Director 10,000 $100,000 1.2%
Alan B. Levin Director 500 $5,000 *
Ernest J. Peoples Vice Chairman 1,000 $10,000 .1%
Dr. Robert L.
Schweitzer Director 300 $3,000 *
Jerome P. Arrion Executive Vice
President, Chief
Operating Officer
and Treasurer 100 $1,000 *
Genevieve B. Marino Vice President 1,500 $15,000 .2%
Lori N. Richards Vice President 2,500 $25,000 .3%
------ -------- ---
Total N/A 23,900 $239,000 2.7%
====== ======== ===
- ----------
* Represents less than .1% of outstanding shares.
(1) Does not include shares purchased by the ESOP or shares awarded to
participants in the RSP, if implemented, or under the Option Plan, if
implemented.
13
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the Offering cannot be determined
until the offering is complete, we presently anticipate that the net proceeds
from the sale of Common Stock will be between $6,948,000 and $9,538,000
($11,030,000 million assuming an increase in EVR by 15%). See "PRO FORMA DATA."
The Company will use the majority of the net proceeds from the offering to
purchase all of the capital stock we will issue in connection with the
Conversion. Subject to regulatory approval, the Company will retain up to 25% of
the net proceeds. A portion of the net proceeds to be retained by the Company
will be loaned to our ESOP to fund its purchase of up to 8% of the shares sold
in the Conversion. Based on the issuance of 744,000 shares, or 1,006,000 shares
at the minimum and maximum of the EVR, the loan to the ESOP would be $595,200
and $804,800, respectively. If these shares are not available in the Conversion,
they will be purchased in the open market following completion of 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. A portion of
the net proceeds may also be used to fund the purchase of up to 4% of the shares
for a RSP which is anticipated to be adopted following the Conversion. Some of
the proceeds may be used to expand facilities, in particular the establishment
of branch offices. See "PRO FORMA DATA."
14
<PAGE>
Although we exceed all regulatory requirements, the funds we receive from
the sale of our capital stock will further strengthen our capital position.
These funds may be used for general corporate purposes including, but not
limited to: (i) repaying FHLB advances, (ii) funding loan commitments; (iii)
investment in mortgage-backed securities; (iv) investment in mortgages and other
loans; and (v) possible expansion of our banking facilities. However, initially
we intend to invest the net proceeds in short-term investments until we can
deploy the proceeds pursuant to our business plan. We also anticipate using a
portion of the proceeds from the Conversion to open a branch or branches in the
next two years. Branch expansion, however, is dependent upon finding a suitable
location for the facilities, the cost of constructing, purchasing or leasing
such a facility and general economic conditions, including the level of interest
rates. Accordingly, there is no assurance that expansion will be achieved in the
near future, if at all. We also plan to increase our home equity lending program
and enter new lines of lending, such as small business/commercial lending.
After the first year following the Conversion (or sooner if authorized by
the OTS), the Company may repurchase shares of our Common Stock subject to
applicable regulations of the OTS governing such repurchases. The decision to
repurchase our Common Stock will be made by our Board of Directors and will be
based on our board's view of the price of the Common Stock, general economic
conditions, the attractiveness of other investments and our capital needs. Any
decision to repurchase stock will be subject to the determination of the
Company's Board of Directors that both the Company and Ninth Ward Savings Bank,
FSB will be capitalized in excess of all applicable regulatory requirements
after such repurchases and the receipt of necessary approvals or non-objections
from the OTS. The repurchase of stock would also be prohibited if equity would
be reduced below the amount required for the liquidation account. There can be
no assurance that the Company will repurchase any shares.
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
between $492,000 and $522,000. Our estimated net proceeds will range from $6.9
million to $9.5 million (or up to $11.0 million in the event the maximum of the
estimated valuation range is increased to $11.6 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.
15
<PAGE>
DIVIDEND POLICY
Upon Conversion, our Board of Directors will have the authority to declare
dividends on the shares, subject to statutory and regulatory requirements.
Initially, we do not expect to pay cash dividends on the shares. Generally,
declarations of dividends by the Board of Directors depends upon a number of
factors, including, but not limited to: (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 dividends in the future if it deems such payment appropriate and in
compliance with applicable law and regulation.
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 Ninth Ward Savings Bank,
FSB. Ninth Ward, like all financial institutions regulated by the OTS, is
subject to certain restrictions on the payment of dividends based on its net
income, its capital in excess of regulatory capital requirements and the amount
of capital required for the liquidation account required to be established in
connection with the Conversion. The Company is subject, however, to the
requirements of Delaware law, which generally limit the payment of dividends to
amounts that will not affect the ability of the Company, after the dividend has
been distributed, to pay its debts in the ordinary course of business.
MARKET FOR THE COMMON STOCK
Ninth Ward, as a mutual thrift institution, and the holding company, as a
newly organized company, have never issued capital stock, and consequently there
is no established market for the Common Stock. Following the completion of the
offering, it is anticipated that the Common Stock will be traded on the NASDAQ
Small-Cap Market under the symbol "__________." However, there can be no
assurance that the Company will meet the NASDAQ Small-Cap listing requirements,
one of which is that at least two market markers make, or agree to make, a
market in the Common Stock. Trident has agreed to make a market for the
Company's Common Stock following consummation of the Conversion and will assist
the Company in seeking to encourage at least one additional market maker to
establish and maintain a market in the Common Stock. Making a market involves
maintaining bid and ask quotations and being able as principal to effect
transactions in reasonable quantities at those quoted prices subject to various
securities and other regulatory requirements. Prior to the Conversion the
Company will attempt to obtain the commitment from at least one additional
broker-dealer to act as market maker for the Common Stock. There is no assurance
that there
16
<PAGE>
will be two market makers. If the Common Stock cannot be listed on the NASDAQ
Small-Cap Market, it is expected to be quoted and traded on the OTC Bulletin
Board or the transactions in the Common Stock will be reported in the "Pink
Sheets" of the National Quotation Bureau, Inc.
The development of a public market having the desirable characteristics of
depth, liquidity and orderliness depends on the existence of willing buyers and
sellers, the presence of which is not within the Company's control or that of
any market broker. Due to the small size of the offering, it is highly unlikely
that an active trading market will develop and be maintained. You could have
difficulty disposing of your shares and you should not view the shares as a
short-term investment. The absence of an active and liquid trading market may
prevent you from selling your shares at a price equal to or above the price you
paid for the shares.
CAPITALIZATION
The following table presents Ninth Ward's historical capitalization
including deposits at June 30, 1997 and the pro forma consolidated
capitalization of the Company after giving effect to the Conversion based upon
the sale of the indicated number of shares at $10 per share and upon the other
assumptions set forth under "PRO FORMA DATA." A CHANGE IN THE NUMBER OF SHARES
TO BE ISSUED IN THE OFFERING MAY MATERIALLY AFFECT SUCH PRO FORMA
CAPITALIZATION.
17
<PAGE>
<TABLE>
<CAPTION>
The Company Pro Forma Consolidated Capitalization at June 30, 1997 On The Sale Of:
----------------------------------------------------------------------------------
875,000 Shares at 1,006,000 Shares at 1,157,000 Shares at
Historical 744,000 Shares at $10 per Share $10 per Share $10 per Share
Capitalization $10 per Share (Midpoint (Maximum (Maximum, as
June 30, 1997 (Minimum Range) of Range) of Range) adjusted)(1)
-------------- ----------------- ----------------- ------------------- -------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits (2) $ 78,351 $ 78,351 $ 78,351 $ 78,351 $ 78,351
FHLB advances 25,200 25,200 25,200 25,200 25,200
-------- -------- -------- -------- --------
Total deposits and borrowings $103,551 $103,551 $103,551 $103,551 $103,551
======== ======== ======== ======== ========
Shareholders' equity:
Preferred stock, par
value $.01, 500,000 shares
authorized; none issued $ -- $ -- $ -- $ - $ --
Common Stock, par value
$0.1 per share, 3,000,000
shares authorized; shares to
be issued as reflected(3)(4) -- 7 9 10 12
Additional paid-in capital(3)(5) -- 6,941 8,234 9,528 11,018
Retained earnings
(substantially restricted) 6,087 6,087 6,087 6,087 6,087
Less:
Common Stock acquired
by ESOP((3) -- (595) (700) (805) (926)
Common Stock acquired
by the RSP(3) -- (298) (350) (402) (463)
-------- -------- -------- -------- --------
Total shareholders' equity $ 6,087 $ 12,142 $ 13,280 $ 14,418 $ 15,728
======== ======== ======== ======== ========
</TABLE>
18
<PAGE>
- ----------
(1) As adjusted to give effect to an increase in the number of shares that
could occur to an increase in the EVR of up to 15% to reflect changes in
market and financial conditions prior to the completion of the Conversion
or to fill the order of the ESOP.
(2) No effect is given to possible withdrawals from deposit accounts to
purchase the Common Stock. Any such withdrawals will reduce pro forma
deposits by the amounts thereof.
(3) Assumes that 8% and 4% of the shares sold in the Conversion will be
purchased by the ESOP and the RSP, respectively. No shares will be
purchased by the RSP in the Conversion. It is assumed on a pro forma basis
that our RSP will be adopted by the Board of Directors, approved by the
stockholders at a special or annual meeting no earlier than six months
after completion of our Conversion of the Company and reviewed by the OTS.
It is assumed that the RSP will purchase Common Stock in the open market in
order to give an indication of its effects on capitalization. The pro forma
presentation does not show the impact of: (i) results of operations after
the Conversion; (ii) changes in market prices of shares of the Common Stock
after the Conversion; or (iii) a smaller than 4% purchase by the RSP.
Assumes that the funds used to acquire the ESOP shares will be borrowed
from the Company for a ten year term at prime rate as published in The Wall
Street Journal. For an estimate of impact of the ESOP on earnings, see "Pro
Forma Data." We intend to make contributions to the ESOP sufficient to
service and ultimately retire its debt. The amount to be acquired by the
ESOP and the RSP is reflected as a reduction in stockholder equity. The
issuance of authorized by unissued shares for the RSP in an amount equal to
4% of the outstanding shares of Common Stock will have the effect of
diluting existing stockholders' interests by 4.3%. There can be no
assurance that approval of the RSP will be obtained. See "Management Of
Ninth Ward Savings Bank -- Proposed Future Stock Benefit Plans."
(4) Does not reflect additional shares of Common Stock that possibly could be
purchased by participants in the Option Plan if implemented under which the
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 (87,500 shares at the midpoint of the estimated
value range) at exercise prices equal to the market price of the Common
Stock on the date of grant. Implementation of the option plan will require
regulatory and stockholder approval. See "Management Of Ninth Ward Savings
Bank -- Proposed Future Stock Benefit Plans."
(5) Based upon estimated net proceeds of $6.9 million, $8.2 million, and $9.5
million, less the par value of the shares sold. See "Pro Forma Data" for
assumptions used in calculating the net proceeds. Pro forma information
gives effect to the Company's retention of 25% of net proceeds.
-------------
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
At June 30, 1997 we exceeded each of the three OTS capital requirements.
Set forth below is a summary of our compliance with the OTS capital standards as
of June 30, 1997, on a historical and pro forma basis assuming that the
indicated number of shares of Common Stock were sold at $10 per share as of such
date. See "PRO FORMA DATA" for the assumptions used to determine the net
proceeds of the Conversion.
19
<PAGE>
<TABLE>
<CAPTION>
Pro Forma at June 30, 1997
--------------------------------------------------------------------------------------------
1,157,000 Shares
Historical (15% above
at June 30, 1997 744,000 Shares 875,000 Shares 1,006,000 Shares Maximum)
----------------- --------------------- --------------------- -------------------- ---------------------
Percent Percent Percent Percent Percent
of of of of of
Amount Assets(1) Amount(2) Assets(1) Amount(2) Assets(1) Amount(2) Assets(1) Amount(2) Assets(1)
------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital(3) $6,087 5.39% $12,142 10.75% $13,280 11.75% $14,418 12.76% $15,728 13.92%
===== ===== ======= ===== ======= ===== ======= ===== ====== =====
Tangible capital:
Capital level $6,058 5.38% $12,113 10.12% $13,251 11.07% $14,389 11.90% $15,699 12.85%
Requirement 1,688 1.50% 1,779 1.50% 1,791 1.50% 1,813 1.50% 1,833 1.50%
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $4,370 3.88% $13,892 8.62% $15,042 9.57% $16,202 10.40% $17,532 11.35%
====== ===== ======= ===== ======= ===== ======= ===== ======= =====
Core capital:
Capital level $6,058 5.38% $12,133 10.12% $13,251 11.07% $14,389 11.90% $15,699 12.85%
Requirement 3,375 3.00% 3,558 3.00% 3,581 3.00% 3,626 3.00% 3,666 3.00%
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $2,683 2.38% $15,671 7.12% $16,832 8.07% $18,015 8.90% $19,365 9.85%
====== ===== ======= ===== ======= ===== ======= ===== ======= =====
Risk capital:
Capital level $6,315 10.10% $13,755 22.00% 15,065 24.09% $16,375 26.19% $17,885 28.60%
Requirement(4) 5,002 8.00% 5,121 8.00% 5,142 8.00% 5,163 8.00% 5,187 8.00%
----- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $1,313 2.10% $8,634 14.00% $9,923 16.09% $11,212 18.19% $12,698 20.60%
====== ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ----------
(1) GAAP, adjusted or risk weighted assets as appropriate.
(2) Pro forma capital levels include the impact of the ESOP, RSP and assume
receipt by us of the net proceeds of the Conversion and the retention of
25% of the proceeds by the Company.
(3) Subject to certain restrictions.
(4) Assumes reinvestment of proceeds with 20% risk weighted assets as if such
proceeds had been received and applied on June 30, 1997.
20
<PAGE>
--------------------
PRO FORMA DATA
The following table sets forth the historical and, after giving effect to
the Conversion, the Bank's pro forma net income and shareholders' equity for the
year ended December 31, 1996 and the six months ended June 30, 1997. The pro
forma amounts have been calculated at the minimum, midpoint and anticipated
maximum of the Estimated Valuation Range ("EVR"), assuming the sale of the
Common Stock at $10 per share. The estimated net proceeds have been calculated
based upon the following assumptions: (1) the shares of Common Stock are
purchased by the following persons in the following amounts: (a) the ESOP and
the RSP will purchase up to 8% and 4% of the shares sold, respectively; (b) our
executive officers and directors will purchase 300,000 shares; and (c)
depositors, borrowers and members of the general public will purchase all
remaining shares; (2) based on negotiations between us and Trident, Trident will
receive a marketing fee of one and one half percent (1.5%) of the aggregate
dollar amount of Common Stock sold excluding any shares of Common Stock sold to
our directors, executive officers and their associates and the ESOP; and (3)
fixed expenses incurred in connection with the Conversion are expected to be
$403,000 excluding Trident's marketing fee. As a part of the Conversion, the
Company will retain 25% of the Conversion proceeds. We have also assumed that no
shares will be sold in a syndicated community offering by selected dealers. This
pro forma presentation also does not show the effect of: (i) results of
operations after the Conversion; (ii) changing market prices of the shares after
the Conversion; or (iii) less than 4% purchase by the RSP.
Fixed expenses are estimated to be $403,000. Actual offering expenses may
vary from those estimated, because the fees paid will depend upon the
percentages and total number of shares sold in the Conversion, the aggregate
Purchase Price and other factors. Based on the Independent Appraisal, the EVR is
between $7.4 million and $10.1 million (subject to adjustment up to $11.6
million to reflect an increase in the Independent Valuation). Based upon the $10
per share Purchase Price, this represents a range between a minimum of 744,000
shares and a maximum of 1,006,000 shares (subject to adjustment up to 1,157,000
shares).
Our pro forma net earnings for the year ended December 31, 1996, and the
six months ended June 30, 1997, have been calculated based on historical
earnings for those periods, the estimated net proceeds received by us being
invested at _____% and _____%, respectively. Our yield represents the actual
yield that we anticipated for reinvestment of the net proceeds at December 31,
1996 and June 30, 1997, respectively, which was calculated at the one year
Treasury Bill yield at the respective dates. The actual yield was used on the
reinvestment of the net proceeds because it reflects a more realistic rate of
return than the arithmetic average of the average yield of our interest-earning
assets and cost of deposits. The effect of withdrawals from deposit accounts for
the purchase of Common Stock has not been reflected. Our pro forma after-tax
yield is assumed to be _____% and _____%, respectively, based on an effective
tax rate of ________%. Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by 1,006,000 shares of
Common Stock, the total number of shares expected to be issued in the
Conversion. No effect
21
<PAGE>
has been given in the pro forma shareholders' equity calculations for the
assumed earnings on the net proceeds. The tables below give the effect to the
RSP which is expected to be adopted by the Company following the Conversion and
presented (together with the Option Plan) to stockholders for approval at our
annual or special meeting of stockholders to be held at least six months after
consummation of the Conversion. If approved by shareholders, the Company intends
to acquire an amount of stock equal up to 4% of the shares of conversion stock
in the offering through open market purchases or issued but unauthorized shares.
The stockholders' equity information is not intended to represent the fair
market value of the shares 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 a liquidation. For additional information regarding the liquidation
account see Note 16 to the consolidated financial statements. The pro forma
income derived from the assumptions set forth above should not be considered
indicative of 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 or other factors. For information
regarding investment of use of proceeds, see "USE OF PROCEEDS" and the
conversion stock pricing and number of shares to be issued in the Conversion.
22
<PAGE>
<TABLE>
<CAPTION>
At or For Six Months Ended June 30, 1997
-------------------------------------------------------------------
1,157,000
744,000 875,000 1,006,000 Shares at $10
Shares at $10 Shares at $10 Shares at $10 Per Share
Per Share Per Share Per Share (Super
(Minimum of (Midpoint of (Maximum of (Maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range) Range) Range) Range)
------------- ------------- ------------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $7,440 $8,750 $10,060 $11,570
Less: Estimated expenses (485) (500) (515) (532)
------- ------- ------- -------
Estimated net proceeds $6,955 $8,250 $9,545 $11,038
Less: Common stock acquired by ESOP (595) (700) (805) (926)
Common stock acquired by RSP (298) (350) (402) (463)
------- ------- ------- -------
Net investable net proceeds $6,062 $7,200 $8,338 $9,649
======= ======= ======= =======
Consolidated net income:
Historical $(95) $(95) $(95) $(95)
Pro forma income on net proceeds 217 257 258 345
Pro forma ESOP adjustments(1) (37) (44) (51) (58)
Pro forma RSP adjustments(2) (37) (44) (51) (58)
------- ------- ------- -------
Pro forma net income $48 $74 $101 $134
======= ======= ======= =======
Consolidated net income per share:
Historical $(0.14) $(0.12) $(0.10) $(0.09)
Pro forma income on net proceeds 0.32 0.32 0.32 0.32
Pro forma ESOP adjustments(1) (0.05) (0.05) (0.05) (0.05)
Pro forma RSP adjustment(2) (0.05) (0.05) (0.05) (0.05)
------- ------- ------- -------
Pro forma net income per share $0.08 $0.10 $0.12 $0.13
======= ======= ======= =======
Consolidated stockholders' equity (book value):(3)
Historical $5,958 $5,958 $5,958 $5,598
Estimated net proceeds(2) 6,955 8,250 9,545 11,038
Less: Common stock acquired by ESOP(1) (595) (700) (805) (926)
Common Stock acquired by RSP(2) (298) (350) (402) (463)
------- ------- ------- -------
Pro forma stockholders' equity $12,020 $13,158 $14,296 $15,607
======= ======= ======= =======
Consolidated stockholders' equity per share:(3)
Historical $8.01 $6.81 $5.92 $5.15
Estimated net proceeds(2) 9.35 9.43 9.49 9.54
Less: Common Stock acquired by ESOP(1) (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by RSP(2) (0.40) (0.40) (0.40) (0.40)
------ ------- ------- -------
Pro forma stockholders' equity per share $16.16 $15.04 $14.21 $13.49
===== ======= ======= =======
Purchase price as a percentage of pro forma
stockholders' equity per share(4) 61.88% 66.49% 70.37% 74.13%
Purchase price as a multiple of pro forma
net income per share(5) 125.00 x 100.00 x 83.33 x 76.92%
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1996
-------------------------------------------------------------------
1,157,000
744,000 875,000 1,006,000 Shares at $10
Shares at $10 Shares at $10 Shares at $10 Per Share
Per Share Per Share Per Share (Super
(Minimum of (Midpoint of (Maximum of (Maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range) Range) Range) Range)
------------- ------------- ------------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $7,440 $8,750 $10,060 $11,570
Less: Estimated expenses 492 507 552 540
------- ------- ------ -------
Estimated net proceeds $6,948 $8,243 $9,538 $11,030
Less: Common Stock acquired by ESOP 595 700 805 926
Common Stock acquired by RSP 298 350 402 463
------- --- --- ---
Net investable proceeds $6,055 $7,193 $8,331 $9,641
======= ======= ====== =======
Consolidated net income:
Historical $122 $122 $122 $122
Pro forma income on net proceeds 108 128 149 172
Pro forma ESOP adjustments(1) (19) (22) (25) (29)
Pro forma RSP adjustments(2) (19) (22) (25) (29)
------- ------- ---- -------
Pro forma net income $192 $206 $221 $236
======= ======= === =======
Consolidated net income per share:
Historical (0.18) $(0.15) $(0.13) $(0.11)
Pro forma income on net proceeds 0.16 0.16 0.16 0.16
Pro forma ESOP adjustments(1) (0.03) (0.03) (0.03) (0.03)
Pro forma SRP adjustment(2) (0.03) (0.03) (0.03) (0.03)
------- ------- ------- -------
Pro forma net income per share $0.28 $0.25 $0.23 $0.21
======= ======= ======= =======
Consolidated stockholders' equity (book value)(3):
Historical $6,087 $6,087 $6,087 $6,087
Estimated net proceeds(2) 6,948 8,243 9,538 11,030
Less: Common stock acquired by ESOP(1) (595) (700) (805) (926)
Common stock acquired by RSP(2) (298) (350) (402) (463)
------- ------- ------- -------
Pro forma stockholders' equity $12,142 $13,280 $14,418 $15,728
======= ======= ======= =======
Consolidated stockholders' equity per share:(3)
Historical $8.18 $6.96 $6.05 $5.26
Estimated net proceeds(2) 9.34 9.42 9.48 9.53
Less: Common Stock acquired by ESOP(1) (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by RSP(2) (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------
Pro forma stockholders' equity per share $16.32 $15.18 $14.33 $13.59
======= ======= ======= =======
Purchase price as a percentage of pro forma
stockholders' equity per share(4) 61.27% 65.58% 69.78% 73.58%
Purchase price as a multiple of pro forma net
income per share(5) 35.71 x 40.00 x 43.48 x 47.62%
</TABLE>
24
<PAGE>
- ----------
(1) Assumes 8% of the shares sold in the Conversion are purchased by the ESOP,
and that the funds used to purchase such shares are borrowed from the
Company. The approximate amount expected to be borrowed by the ESOP is not
reflected as a liability but is reflected as a reduction of capital. We
intend to make annual contributions to the ESOP over a ten year period in
an amount at least equal to the principal and interest requirement of the
debt. The pro forma net income assumes: (i) that 744,000, 875,000,
1,006,000, and 1,157,000 shares at the minimum, mid-point, maximum and
maximum, as adjusted of the EVR, were committed to be released during the
year ended December 31, 1996 and the six months ended June 30, 1997 at an
average fair value of $10 per share in accordance with Statement of
Position ("SOP") 93-6 of the American Institute of Certified Public
Accountants ("AICPA"); (ii) the effective tax rate was 37% for such
periods; and (iii) only the ESOP shares committed to be released were
considered outstanding for purposes of the per share net earnings. 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. As a result, to the extent the value of the shares
appreciates over time, compensation expense related to the ESOP will
increase. For purposes of the preceding tables, it was assumed that a
ratable portion of the ESOP shares purchased in the Conversion were
committed to be released during the periods ended June 30, 1997. If it is
assumed that all of the ESOP shares were included in the calculation of
earnings per share for the period ended at December 31, 1996 and June 30,
1997, earnings per share would have been $0.28, $0.25, $0.23, and $0.21, at
June 30, 1997, based on the sale of shares at the minimum, midpoint,
maximum and the maximum, as adjusted, of the EVR. See "Management Of Ninth
Ward Savings Bank -- Other Benefits - Employee Stock Ownership Plan."
(2) Assumes issuance to the RSP of 29,760, 35,000, 40,240 and 46,280 at the
minimum, mid-point, maximum, and maximum, as adjusted of the EVR. The
assumption in the pro forma calculation is that (i) shares were purchased
by the Company following the Conversion, (ii) the purchase price for the
shares purchased by the RSP was equal to the purchase price of $10 per
share and (iii) 20% of the amount contributed was an amortized expense
during such period. Such amount does not reflect possible increases or
decreases in the value of such stock relative to the Purchase Price. As we
accrue compensation expense to reflect the five year vesting period of such
shares pursuant to the RSP, the charge against capital will be reduced
accordingly. Implementation of the RSP 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 RSP will be adopted by
the Board of Directors, reviewed by the OTS, and approved by the
stockholders, and that the RSP will purchase the shares in the open market
within the year following the Conversion. If the shares to be purchased by
the RSP are assumed at July 1, 1997, to be newly issued shares purchased
from the Company by the RSP at the Purchase Price, at the minimum,
midpoint, maximum and maximum, as adjusted, of the EVR, pro forma
stockholders' equity per share would have been $16.32, $15.18, $14.33 and
$13.59 at June 30, 1997, and pro forma earnings per share would have been
$0.28, $0.25, $0.23, and $0.21, for the six months ended June 30, 1997,
respectively. As a result of the RSP, stockholders' interests will be
diluted by approximately 4.3%. See "Management Of Ninth Ward Savings Bank
-- Proposed Future Stock Benefit Plans - Restricted Stock Plan."
(3) Assumes that following the consummation of the Conversion, the Company will
adopt the Option Plan, which if implemented within one year of Conversion
would be subject to regulatory review and Board of Director and stockholder
approval, and that such plan would be considered and voted upon at a
meeting of the Company stockholders to be held no earlier than six months
after the Conversion. Under the Option Plan, employees and directors could
be granted options to purchase an aggregate amount of shares equal to 10%
of the shares issued in the Conversion at an exercise price equal to the
market price of the shares on the date of grant. In the event the shares
issued under the Option Plan were awarded, the interests of existing
stockholders would be diluted. At the minimum, midpoint, maximum and the
maximum, as adjusted, of the EVR, if all shares under the Option Plan were
newly issued at the
25
<PAGE>
beginning of the respective periods and the exercise price for the option
shares were equal to the Purchase Price, the number of outstanding shares
would increase to by 10%.
(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.
(5) Pro forma net income 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 net have been released during the period.
Accordingly, _____, _____, _____ and _____ shares have been subtracted from
the shares assumed to be sold at the minimum, mid-point, maximum, and
maximum, as adjusted, of the EVR, respectively, and _____, _____, _____,
and _____ shares are assumed to be outstanding at the minimum, mid-point,
maximum, and maximum, as adjusted of the EVR.
26
<PAGE>
STATEMENTS OF EARNINGS AND INCOME OF
NINTH WARD SAVINGS BANK, FSB
<TABLE>
<CAPTION>
For the Six Month Period For the Year
Ended June 30, Ended December 31,
------------------------- -------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(Unaudited)
Interest Income:
<S> <C> <C> <C> <C>
Interest on loans 3,797,982 3,346,748 $7,092,065 $6,408,566
Interest on mortgage-backed securities 6,821 22,141 38,982 40,336
Interest and dividends on investments 267,555 393,758 791,062 843,845
---------- ---------- ---------- ----------
Total interest income $4,072,358 $3,762,647 $7,922,109 $7,292,747
========== ========== ========== ==========
Interest Expense:
Deposits 2,196,245 2,276,637 4,497,657 4,351,008
Federal Home Loan Bank advances 780,646 364,473 1,252,482 704,133
---------- ---------- ---------- ----------
Total interest expense $2,976,891 $2,641,110 $5,750,139 $5,055,141
========== ========== ========== ==========
Net Interest Income 1,095,467 1,121,537 2,171,970 2,237,606
Provision For Loan Losses 10,000 26,000 47,000 5,000
---------- ---------- ---------- ----------
Net Interest Income After
Provision For Loan Losses 1,085,467 1,095,537 2,124,970 2,232,606
---------- ---------- ---------- ----------
Other Income:
Service fees 47,563 98,840 189,604 51,700
Gain on sale of loans 16,632 48,766 68,629 438,970
Realized market adjustment on loans 10,691 --- --- 11,060
Other 10,027 9,664 46,543 18,469
---------- ---------- ---------- ---------
Total other income 84,913 157,270 304,776 520,199
========== ========== ========== =========
Other Expenses:
Salaries and employee benefits 477,953 511,016 916,635 941,086
Advertising 101,210 142,024 202,825 169,170
Federal insurance premiums 15,265 94,053 187,057 171,097
SAIF Special Assessment -- -- 491,992 --
Occupancy expense 101,425 135,238 214,968 236,687
Data processing expense 69,761 65,703 121,121 103,178
Directors fees 53,738 57,046 105,817 99,036
General and administrative expenses 141,223 176,881 352,872 347,957
---------- ---------- ---------- ----------
Total other expenses 960,575 1,181,961 2,593,287 2,068,211
========== ========== ========== ==========
Income (Loss) Before Provision
(Benefit) For Income Taxes 209,805 70,846 (163,541) 684,594
---------- ---------- ---------- ----------
Provision (Benefit) For Income Taxes:
Current 88,000 30,000 (119,000) 214,670
Deferred 0 0 50,000 50,000
---------- ---------- ---------- ----------
Total provision (benefit) for income taxes 88,000 30,000 (69,000) 264,670
---------- ---------- ---------- ----------
Net Income (Loss) $121,805 $40,846 $(94,541) $419,924
========== ========== ========== =========
</TABLE>
See the accompanying notes to the Financial Statements included elsewhere in
this Prospectus.
27
<PAGE>
MANAGEMENT'S 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 beginning at
page F-1.
General
The Company has recently been formed and accordingly, has no results of
operations. The following discussion relates only to the financial condition and
results of operations of Ninth Ward.
The Bank's principal business consists of accepting deposits from the
general public and investing these funds primarily in loans, investment
securities and mortgage-backed securities. Our loans presently consist primarily
of fixed rate loans secured by residential real estate located in our market
area.
The Bank has operated as a traditional savings and loan association raising
money by offering FDIC-insured savings products of relatively short duration and
lending this money for the purpose of home financing. Historically, our strategy
has been to originate fixed rate mortgage loans for sale in the secondary market
to FNMA or FHLMC. In 1996, due to changes in the interest rate environment, we
began to hold a substantial amount of these loans in our portfolio, causing our
assets to increase substantially. As of June 30, 1997, 77.5% of our loans were
first mortgage loans with fixed rates. Although the Bank makes adjustable rate
mortgages and secured home equity loans, these loans have not been a significant
part of our activity. 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 (i) non-interest income, which includes income
from customer deposit account service charges, loan servicing fee income, gains
and losses from the sale of loans, investments and mortgage-backed securities
and (ii) non-interest expense, which includes compensation and employee
benefits, federal deposit insurance premiums, office occupancy costs,
advertising costs and data processing costs. Our results of operations also are
affected significantly by general 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>
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 evaluating the
expected effects of interest rate changes on our net portfolio value. The
ability to maintain consistent net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities that either reprice or mature within a given period
of time.
Thus, 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. The difference or interest rate
repricing "Gap" provides an indication of the extent to which an institution's
interest rate spread will be affected by changes in interest rates. A Gap is
considered positive when the amount of interest rate sensitive assets maturing
or repricing within a given period exceeds the amount of interest rate sensitive
liabilities maturing or repricing within such period. A Gap is considered
negative when the amount of interest-bearing liabilities repricing or maturing
within a given period exceeds the amount of interest rate sensitive assets
repricing or maturing within such period.
Our lending activities have historically emphasized long-term fixed rate
mortgage loans secured by one-to-four family residences. Currently, 77.5% of all
of our loans are of this type. Conversely, our deposit rates mature or are
subject to repricing within a relatively short period of time. These factors
have historically caused the income earned by us on our loan portfolio to adjust
more slowly to changes in interest rates than the interest we pay on our
deposits.
In recent years we have sought to manage our interest rate risk by selling
portions of our fixed rate loans to the FHLMC or another financial institution
(while retaining the servicing of those loans). We have also sought to manage
interest rate risk by lengthening the maturities of our certificates of deposit
and through longer term borrowings from the FHLB of Pittsburgh. However, the
imbalance between our assets and liabilities has caused our interest rate risk
to remain high.
Our Supervisory Agreement with the OTS identifies our interest rate risk
level as unacceptably high and requires us to develop and pursue strategies to
reduce interest-rate risk. The strategies we have been considering include
adjustment of FHLB advances by replacing short-term variable advances with the
proceeds of longer termed fixed rate advances. We have also sold or are
considering the sale of certain fixed rate loans to the FHLMC in order to help
29
<PAGE>
manage our interest-rate risk. The proceeds of these sales will be used to
either acquire short term variable rate assets or to repay short term variable
rate borrowings.
On June 26, 1997, we adopted a revised interest rate risk policy and also
took certain actions to implement this policy, including loan sales and
lengthening the maturities of some FHLB borrowings. At June 30, 1997 we had $5.5
million in loans held for sale. We anticipate taking additional actions of this
nature in order to reduce our interest rate sensitivity. In implementing these
strategies, we will attempt to balance the need to improve our interest rate
risk against the impact such restructuring will have on profitability. Following
the Conversion, we will experience an increase in investable assets
approximately equal to the net proceeds from the sale of Common Stock in the
Conversion less the amount of the ESOP loan. The investment of these net
proceeds can be expected to increase any positive Gap and reduce any negative
Gap because such investment will add short-term interest sensitive assets while
there will be no immediate corresponding increase in short-term interest
sensitive liabilities.
The following table, often referred to as a "Gap Table," sets forth asset
and liability balances at June 30, 1997 which are expected to reprice and mature
in each of the future periods indicated. Loans with adjustable rates are shown
as being due in the next adjustment period. Passbook accounts, money market
deposit accounts and NOW accounts are not assumed to be subject to immediate
repricing and are placed in repricing periods based upon assumptions prepared by
management.
30
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
More than More than More than
1 Month 2 Months 3 Months More than 6 More than
Less Month through through Months 1 Year
than 1 through 3 6 through 1 through More than
Month 2 Months Months Months Year 3 Years 3 Years
----- -------- ------ ------ ---- ------- -------
(Dollars in thousands)
Interest-Earning Assets
Cash and Interest Earning
<S> <C> <C> <C> <C> <C> <C> <C>
Deposits .................... $ 2,838 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investments ................... 1,996 500 501 0 2,995 0 0
FHLB Stock .................... 0 0 1,333 0 0 0 0
Equity Loans/Lines ............ 2,963 3 5 8 37 1,120 6,770
Collateral Loans .............. 710 0 0 0 0 0 0
Mortgage-Backed Securities .... 0 0 0 0 0 190 0
Adjustable Rate Mortgages .... 35 822 270 1,206 4,063 4,130 50
Balloon Mortgages(1) .......... 43 43 43 129 258 1,463 2,746
Fixed Rate Mortgages(2) ....... 482 487 486 1,455 3,016 11,618 49,783
Fixed Rate Mortgages -
Available for Sale .......... 5,548 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
TOTAL INTEREST-
EARNING ASSETS .............. $ 14,615 $ 1,855 $ 2,638 $ 2,798 $ 10,369 $ 18,521 $ 59,349
======== ======== ======== ======== ======== ======== ========
Interest-bearing
liabilities
Passbook Accounts(3) .......... 32 32 32 97 193 387 3,093
Checking Accounts(4) .......... 0 0 0 0 0 0 1,125
Money Market Deposit
Accounts(5) ................. 681 681 681 1,438 454 1,817 1,819
Fixed Rate Fixed Term
Deposits .................... 3,542 4,196 5,282 9,224 21,959 17,953 3,633
FHLB Advances -
Adjustable Rate ............. 0 0 0 0 0 0 0
FHLB Advances -
Fixed Rate and Term ......... 5,000 1,500 1,500 1,300 1,800 9,500 4,600
Escrow Deposits ............... 20 20 1,839 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES ................. $ 9,275 $ 6,429 $ 9,334 $ 12,059 $ 24,406 $ 29,657 $ 14,270
======== ======== ======== ======== ======== ======== ========
Excess (Deficiency) of
Interest-Earning Assets
over Interest-Bearing
Liabilities ................. $ 5,340 ($ 4,574) ($ 6,696) ($ 9,261) ($14,037) ($11,136) $ 45,079
======== ======== ======== ======== ======== ======== ========
Cumulative Excess
(Deficiency) of Interest-
Earning Assets Over
Interest-Bearing
Liabilities at
June 30, 1997 ............. $ 5,340 $ 766 ($ 5,930) ($15,191) ($29,228) ($40,364) $ 4,715
======== ======== ======== ======== ======== ======== ========
Cumulative Excess
(Deficiency) of Interest-
Earning Assets Over
Interest-Bearing
Liabilities as a
Percent of Total Assets
at June 30, 1997 .......... 4.74% 0.68% (5.27%) (13.49%) (25.96%) (35.86%) 4.19%
======== ======== ======== ======== ======== ======== ========
</TABLE>
(Footnotes on next page)
31
<PAGE>
- ----------
1. 12% annual prepayment rate is based on assumptions provided by the OTS.
2. 9% annual prepayment rate for 30 year loans and 8% annual prepayment rate
for 15 year loans is based on assumptions provided by the OTS.
3. Repricing rate is estimated at 10% for year 1, 10% for 1-3 yrs., and 80%
for 3+ years.
4. Repricing rate is estimated 100% for 3 plus years.
5. Repricing is based on the assumption that approximately 40% of accounts
with balances greater than $10,000 to reprice evenly over 6 months. The
remainder of accounts, assumed to be core deposits, reprice evenly over all
time periods.
Interest Rate Sensitivity Analysis
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 repricing provided by the OTS and management, respectively. However, in
order to encourage savings associations such as ours to reduce interest rate
risk, the OTS added an interest rate risk component to its risk-based capital
rules. The OTS requires the computation of the net present value of an
institution's cash flow from assets, liabilities and off balance sheet items
(the institution's net portfolio value or "NPV") and measures the change in NPV
in the event of a range of assumed changes in market interest rates.
The OTS measures an institution's interest rate risk by the change in its
NPV as a result of a hypothetical 200 basis point ("bp") change in market rates.
A resulting change in NPV of more than 2% of the estimated present value of
total assets ("PV") will require us to add to our capital 50% of that excess
change. The rules provide that the OTS will calculate the IRR component
quarterly for each institution such as ours. Although the regulation has been
adopted, the OTS is not enforcing the additional capital provision at this time.
Nevertheless, the following table estimates the effect on our NPV from
instantaneous and permanent 1% to 4% (100 to 400 basis points) increases and
decreases in market interest rates. The following table presents our NPV at June
30, 1997, which is based upon quarterly information that we provide to the OTS
and which is calculated for us by the OTS.
NET PORTFOLIO VALUE AT JUNE 30, 1997 NPV AS % OF PV OF ASSETS
------------------------------------ ------------------------
Change in Rates $ Amount $ Change % Change NPV Ratio Change
- --------------- -------- -------- -------- --------- ------
(Dollars in thousands)
+400 bp (2,089) (9,885) (127%) (2.09%) (8.91)%
+300 bp 253 (7,543) (97%) 0.24% (6.57)%
+200 bp 2,745 (5,052) (65%) 2.56% (4.25)%
+100 bp 5,318 (2,478) (32%) 4.80% (2.02)%
0 bp 7,796 -- -- 6.82% --
-100 bp 9,724 1,928 25% 8.28% 1.46%
-200 bp 10,458 2,661 34% 8.76% 1.94%
-300 bp 10,299 2,503 32% 8.56% 1.74%
-400 bp 10,372 2,576 33% 8.53% 1.71%
32
<PAGE>
The above calculations indicate that we would be deemed to have an
excessive level of interest rate risk under applicable regulatory requirements.
In the event of a 200 bp change in interest rates, the Bank would experience a
34% increase in NPV in a declining rate environment and a 65% decrease in NPV in
a rising rate environment. Additional capital would have been required had we
been subject to the rule. The OTS has the authority to require otherwise exempt
institutions to comply with the rule.
While we cannot predict future interest rates or their effects on our
"Gap," 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 run-offs 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 adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. 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 Bank has established an Asset/Liability Committee which is currently
comprised of non-employee directors Thomas L. Cloud, Chairman, Alan B. Levin,
Dr. Robert L. Schweitzer as well as the Bank's CEO, Ronald P. Crouch. This
committee meets periodically and reviews the maturity of our assets and
liabilities and discusses and recommends policies and strategies designed to
regulate our flow of funds and to coordinate the sources, uses and pricing of
such funds. The first priority in structuring and pricing of our assets and
liabilities is to maintain an acceptable interest rate spread while reducing the
net effects of changes in interest rates.
The Board of Directors also reviews our asset and liability policies. The
Board of Directors meets monthly to review interest rate risk and interest rate
trends, as well as liquidity and capital ratios and requirements. Management
administers the policy and determinations of the Board of Directors with respect
to our asset and liability goals and strategies. We expect that our asset and
liability policy 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.
33
<PAGE>
Analysis of Net Interest Income
Our earnings have historically depended upon our net interest income, which
is the difference between interest income earned on loans and investments (the
"interest-earning assets") and interest paid on deposits and any borrowed funds
(the "interest-bearing liabilities"). It is the single largest component of our
operating income. Net interest income is affected by (i) the difference between
rates of interest earned on our interest-earning assets and rates paid on our
interest-earning liabilities (the "interest rate spread") and (ii) the relative
amounts of our interest-earning assets and interest-bearing liabilities.
The following tables present an analysis of certain aspects of our
operations during the recent periods indicated. The first table presents the
average balances of and the interest and dividends earned or paid on each major
class of our interest earning assets and interest-bearing liabilities. Average
balances are daily average balances. The yields and costs include fees which are
considered adjustments to yields.
34
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------------------------
1996 1995
-------------------------------------- ------------------------------------
Average Daily Interest & Yield/ Average Daily Interest & Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets
Loans receivable, net ...................... $ 91,061,307 $ 7,092,065 7.79% $ 78,025,302 $ 6,408,566 8.21%
Investment securities(1) ................... 12,644,840 709,493 5.61% 13,455,339 763,764 5.68
Interest-bearing deposits .................. 2,412,209 120,551 5.00% 1,717,488 120,417 7.01
------------ ------------ ------------ ------------
Total interest-earning assets ............. 106,118,356 7,922,109 7.47% 93,198,129 7,292,747 7.83
Non-interest-earning assets .................. 3,621,634 3,268,610
------------ ------------
Total assets ................................. $109,739,990 $ 96,466,739
============ ============
Liabilities and Retained
Earnings:
Interest-bearing liabilities
Deposits ................................... $ 80,199,233 $ 4,497,657 5.61% $ 77,715,774 $ 4,351,008 5.60%
Advances from FHLB ........................... 20,868,039 1,252,482 6.00% 10,957,934 704,133 6.43%
------------ ------------ ------------ ------------
Total interest-bearing
liabilities ............................ 101,067,272 5,750,139 5.69% 88,673,708 5,055,141 5.70%
Non-interest-
bearing liabilities ........................ 2,386,544 1,776,907
------------ ------------
Total liabilities ............................ $103,453,816 $ 90,450,615
Retained earnings ............................ 6,286,174 6,016,124
------------ ------------
Total liabilities and
retained earnings .......................... $109,739,990 $ 96,466,739
============ ============
Net interest income/Interest
rate spread(2) ............................. $ 2,171,970 1.78% $ 2,237,606 2.13%
============ ============
Net interest-earning
assets/net interest
margin(3) ................................... 5,051,084 2.05% 4,524,421 2.40%
Interest-earning assets to
interest-bearing
liabilities ................................ 105.00% 105.10%
</TABLE>
- ----------
(1) Includes mortgage-backed securities
(2) 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 income before the provision for loan losses
divided by average interest-earning assets.
35
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-----------------------------------------------------------------------------
1996 1995
-------------------------------------- ------------------------------------
Average Daily Interest & Yield/ Average Daily Interest & Yield/ Yield/
Balance Dividends Rate Balance Dividends Rate Balance Rate
------- --------- ---- ------- --------- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets
Loans receivable, net ... $ 99,011,640 $ 3,797,982 7.74% $ 83,836,933 $ 3,346,748 8.05% $ 98,467,059 7.61%
Investment securities(1) 7,963,438 222,602 5.64% 12,943,599 364,433 5.68% 7,514,919 5.59%
Interest-bearing deposits 2,216,029 51,774 4.71% 2,342,926 51,466 4.43% 2,838,215 5.41%
------------ ------------ ----------- ----------- -----------
Total interest-earning
assets ................ 109,191,107 4,072,358 7.52% 99,123,458 3,762,647 7.66% 108,820,193 7.41%
Non-interest-earning assets 3,779,984 3,568,488 3,724,506
------------ ------------ -----------
Total assets .............. $112,971,091 $102,691,946 $112,544,699
============ ============ ===========
Liabilities and Retained
Earnings:
Interest-bearing
liabilities
Deposits ................ $ 78,725,866 $ 2,196,245 5.63% $ 81,604,579 $ 2,276,637 5.63% $ 78,351,363 5.64%
Advances from FHLB ........ 25,370,166 780,646 6.21% 12,314,174 364,473 5.97% 25,200,000 6.34%
------------ ------------ ------------ ------------ ------------
Total interest-bearing
liabilities ........... 104,096,032 2,976,891 5.77% 93,918,753 2,641,110 5.67% 103,551,363 5.81%
Non-interest-
bearing liabilities ..... 2,563,029 2,454,502 2,906,394
------------ ------------ ----------
Total liabilities ......... 106,659,061 96,373,255 106,457,757
Retained earnings ......... 6,312,030 6,318,691 6,086,942
------------ ------------ -----------
Total liabilities and
retained earnings ....... $112,971,091 102,691,946 $112,544,699
============ ============ ============
Net interest income/
Interest rate spread(2).. $ 1,095,467 1.75% $ 1,121,537 1.99% 1.60%
============ ============
Net interest-earning
assets/net interest
margin(3) ............... 5,095,075 2.01% 5,204,705 2.26%
Interest-earning assets
to interest-
bearing liabilities ..... 104.89% 105.54% 105.09%
</TABLE>
- ----------
(1) Includes mortgage-backed securities
(2) 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 income before the provision for loan losses
divided by average interest-earning assets.
36
<PAGE>
Rate/Volume Analysis
The following table sets forth certain information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by the old rate); (ii) changes in rate (changes in
rate multiplied by old volume); and (iii) net change.
37
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
Increase (Decrease) Increase (Decrease)
------------------------------------------ -----------------------------------------
1997 vs. 1996 1996 vs. 1995
------------------------------------------ -----------------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest Income:
<S> <C> <C> <C> <C> <C> <C>
Loans ................... $ 586,374 $ (135,540) $ 451,234 $ 1,025,048 $ (341,549) $ 683,499
Investment securities ... (139,282) (2,549) (141,831) (45,053) (9,218) (54,271)
Interest-bearing deposits (2,885) 3,193 308 40,481 (40,347) 134
----------- ----------- ----------- ----------- ----------- -----------
Total interest income ..... 444,207 (134,496) 309,711 1,020,476 (391,114) 629,362
----------- ----------- ----------- ----------- ----------- -----------
Interest Expense:
Deposits ................ $ (80,392) $ -- $ (80,392) $ 138,888 $ 7,761 $ 146,649
Advances from FHLB ...... 401,856 14,317 416,173 598,343 (49,994) 548,349
----------- ----------- ----------- ----------- ----------- -----------
Total interest expense .... 321,464 14,317 335,781 737,231 (42,233) 694,998
----------- ----------- ----------- ----------- ----------- -----------
Net interest income ....... $ 122,743 $ (148,813) $ (26,070) $ 283,245 $ (348,881) $ (65,636)
=========== =========== =========== =========== =========== ===========
</TABLE>
Year Ended December 31,
Increase (Decrease)
-----------------------------------------
1995 vs. 1994
-----------------------------------------
Volume Rate Net
------ ---- ---
Interest Income:
Loans ................... $ 992,930 $ 46,698 $ 1,039,628
Investment securities ... (10,443) 157,029 146,586
Interest-bearing deposits (58,143) 68,960 10,817
----------- ----------- -----------
Total interest income ..... 924,344 272,687 1,197,031
----------- ----------- -----------
Interest Expense:
Deposits ................ $ 286,691 $ 614,936 $ 901,627
Advances from FHLB ...... 298,670 41,557 340,227
----------- ----------- -----------
Total interest expense .... 585,361 656,493 1,241,854
----------- ----------- -----------
Net interest income ....... $ 338,983 $ (383,806) $ (44,823)
=========== =========== ===========
38
<PAGE>
Financial Condition
During 1995 we decided to increase our loan production through additional
mortgage and home equity lending. As a result of these efforts, total assets
increased by $15.3 million or 15.7% from $97.4 million at December 31, 1995 to
$112.7 million at December 31, 1996. At June 30, 1997, total assets were $112.5
million. Total liabilities increased by $15.4 million or 16.9% from $91.3
million at December 31, 1995 to $106.7 million at December 31, 1996. At June 30,
1997, total liabilities were $106.5 million. The increase in assets for the
period ended December 31, 1996 was primarily attributable to the growth in our
loan portfolio of $19.0 million which was the result of increased loan demand
and our decision to increase home equity lending. Loan growth was funded mainly
from sales of investment securities of approximately $3.3 million and Federal
Home Loan Bank advances of $17.9 million.
Comparison of Operating Results for the Six Months Ended June 30, 1997 and 1996
Net Income. We had net income of $122,000 for the six months ended June 30,
1997 compared to net income of $41,000 for the six months ended June 30, 1996.
This increase was due primarily to a reduction in other expenses from $1.2
million for the six months ended June 30, 1996 to $961,000 for the six months
ended June 30, 1997. This was somewhat offset by a decrease in other income from
$157,000 to $85,000.
Net Interest Income. Net interest income for the six months ended June 30,
1997 was $1.1 million, which was approximately the same amount as the six months
ended June 30, 1996.
Interest income. Total interest and dividend income was $4.1 million for
the six months ended June 30, 1997 compared to $3.8 million for the six months
ended June 30, 1996, representing an increase of $300,000 or 7.9%. The increase
in 1997 was due primarily to an increase in interest on loans from $3.3 million
for the six months ended June 30, 1996 to $3.8 million for the six months ended
June 30, 1997. This increase was slightly offset by a decrease in interest and
dividends on investments from $394,000 for the six months ended June 30, 1996 to
$268,000 for the six months ended June 30, 1997 and a decrease in interest on
mortgage-backed securities from $22,000 for the six months ended June 30, 1996
to $7,000 for the six months ended June 30, 1997.
Interest expense. Total interest expense, which consists primarily of
interest on savings deposits, increased from $2.6 million for the six months
ended June 30, 1996 to $3.0 million for the six months ended June 30, 1997, an
increase of $400,000 or 15.4%. This increase was primarily the result of an
increase in interest paid on FHLB advances.
Provision for Loan Losses. Provisions for loan losses are charged to
earnings to maintain the total allowance for loan losses at a level considered
adequate by us to provide for possible loan losses based on prior loss
experience, volume and type of lending conducted by
39
<PAGE>
us, available peer group information, and past due loans in our loan portfolio.
Our policies require the review of assets on a quarterly basis. We appropriately
classify loans as well as other assets if warranted. See "BUSINES -- Lending
Activity." While we believe we use the best information available to make a
determination with respect to the allowance for loan losses, we recognize that
future adjustments may be necessary. We provided $26,000 for loan losses for the
six months ended June 30, 1996 while providing $10,000 for loan losses for the
six months ended June 30, 1997. In establishing such provisions, we considered
the levels of the Bank's non-performing loans which were $241,000 and $327,000
at June 30, 1996 and 1997, respectively.
Non-interest income. Total non-interest income decreased from $157,000 for
the six months ended June 30, 1996 to $85,000 for the six months ended June 30,
1997. This decrease in non-interest income was attributable to a decrease in
service fees of $51,000 and a decrease in gains from the sales of loans of
$32,000, offset by a gain of $11,000 realized market adjustment on loans.
Non-interest expense. Total other expenses decreased from $1.2 million for
the six months ended June 30, 1996 to $961,000 for the six months ended June 30,
1997, a decrease of $239,000 or 19.9%. Compensation and employee benefits
decreased from $511,000 for the six months ended June 30, 1996 to $478,000 for
the six months ended June 30, 1997. This was the result of a reduction in staff
due to a decline in loan originations and a decline in pension expenses,
partially offset by certain adjustments relating to accounting for loan
origination expenses pursuant to SFAS 91. Additionally, advertising expense
decreased from $142,000 for the six months ended June 30, 1996 to $101,000 for
the six months ended June 30, 1997 as the Bank attempted to manage interest rate
risk by reducing the volume of fixed rate mortgage loans and thus curbed its
marketing efforts for these loans. FDIC premiums decreased from $94,000 for the
six months ended June 30, 1996 to $15,000 for the six months ended June 30, 1997
due to a reduction in premiums upon the recapitalization of the SAIF.
Income taxes. Our income tax expense was $88,000 for the six months ended
June 30, 1997 compared to $30,000 for the six months ended June 30, 1996. Our
effective tax rate was 41.9% The increase was attributable to our increased
profitability for the six months ended June 30, 1997 compared to the six months
ended June 30, 1996.
Comparison of Operating Results for the Years Ending December 31, 1995 and 1996
Net Income. We had a net loss of $95,000 for the year ended December 31,
1996 compared to net income of $420,000 for the year ended December 31, 1995.
The loss was primarily due to the recognition of a one-time SAIF special
assessment in the amount of $492,000. Excluding the SAIF special assessment,
pre-tax income for the year ended December 31, 1996 would have been $328,000
representing a decrease of $356,000 from the year ended December 31, 1995. This
decrease was the result of an increase in total interest expense from $5.1
million for the year ended December 31, 1995 to $5.8 million for the year
40
<PAGE>
ended December 31, 1996, as well as an increase in the provision for loan losses
from $5,000 for the year ended December 31, 1995 to $47,000 for the year ended
December 31, 1996, and a decrease in total other income from $521,000 for the
year ended December 31, 1995 to $305,000 for the year ended December 31, 1996.
These decreases were offset by an increase in total interest income from $7.3
million for the year ended December 31, 1995 to $7.9 million for the year ended
December 31, 1996.
Net Interest Income. Net interest income was approximately $2.2 million for
each of the years ended December 31, 1996 and 1995. The ratio of average
interest-earning assets to average interest-earning liabilities remained fairly
constant.
Interest income. Total interest income was $7.9 million for the year ended
December 31, 1996 compared to $7.3 million for the year ended December 31, 1995,
representing an increase of $600,000 or 8.2%. Such increase was primarily due to
an increase in interest on loans, and was partially offset by a decrease on
interest and dividends from investments. Interest on loans increased from $6.4
million for the year ended December 31, 1995 to $7.1 million for the year ended
December 31, 1996. This increase of $700,000 or 10.9% was due primarily to an
increase in originations of loans secured by single family residential real
estate. The increase in average balances of loans receivable was partially
offset by a 42 basis point decrease in the average yield on loans receivable.
Interest and dividends on investments decreased from $844,000 at December 31,
1995 to $791,000 at December 31, 1996.
Interest expense. Total interest expense increased from $5.1 million
for the year ended December 31, 1995 to $5.8 million for the year ended December
31, 1996, an increase of $700,000 or 13.7%. Interest on savings deposits
increased $100,000 or 2.3% from $4.4 million for the year ended December 31,
1995 to $4.5 million for the year ended December 31, 1996. Such increase was due
primarily to an increase in average balances of total interest-bearing
liabilities. During the year ended December 31, 1996, we borrowed funds from the
FHLB to increase our mortgage and home equity loan portfolios. It was our
determination that FHLB advances were less costly, on a marginal basis, than
increasing rates on savings accounts and certificates of deposit to attract more
funds. As a result, interest on borrowings increased by $500,000 or 71.4% from
$700,000 for the year ended December 31, 1995 to $1.2 million for the year ended
December 31, 1996.
Provision for Loan Losses. We provided $5,000 and $47,000 for loan losses
for the years ended December 31, 1995 and 1996, respectively. In establishing
such provisions, management considered the levels of our non-performing loans
which were $244,000 and $376,000 at December 31, 1995 and 1996, respectively.
The increase in the loan loss provision was primarily due to the increase in our
loan portfolio.
Non-interest income. Total non-interest income decreased from $520,000 for
the year ended December 31, 1995 to $305,000 for the year ended December 31,
1996. This change was the result of the reduction of gains on sales of loans
from $439,000 for the year ended
41
<PAGE>
December 31, 1995 to $69,000 for the year ended December 31, 1996. This was the
result of our determination to hold a greater percentage of loans originated in
our portfolio as opposed to selling such loans in the secondary market. This
reduction was offset by an increase in service fees from $52,000 for the year
ended December 31, 1995 to $190,000 for the year ended December 31, 1996 and an
increase in other income from $18,000 to $47,000. The increase in fees for
December 31, 1996 was due to an increase in loan originations.
Non-interest expense. Other non-interest expense increased by $500,000
or 23.8% from $2.1 million for the year ended December 31, 1995 to $2.6 million
for the year ended December 31, 1996. The increase was attributable to a
one-time special SAIF assessment of $492,000. Pursuant to the Economic Growth
and Paperwork Reduction Act of 1996 (the "Act"), the FDIC imposed a special
assessment on SAIF members to recapitalize the SAIF at the designated reserve
level of 1.25% as of October 1, 1996. Based on the Bank's deposits as of March
31, 1995, the date for measuring the amount of the special assessment pursuant
to the Act, our special assessment was $492,000. The recapitalization of the
SAIF has had the effect of lowering premiums for deposit insurance for the
entire thrift industry that holds deposits insured by the SAIF. The SAIF
insurance assessment rate paid by us before the recapitalization of the SAIF was
23 basis points per $100 of deposit and has decreased to 6.4 basis points per
$100 of deposits after the recapitalization of the SAIF. Pursuant to the Act, we
will pay in addition to our normal insurance premium as a member of the SAIF an
annual amount equal to approximately 6.4 basis points of outstanding SAIF
deposits towards the retirement of the Financing Corporation bonds issued in the
1980's to assist in the recovery of the savings and loan industry. Beginning no
later than January 1, 2000, the rate paid to retire these bonds will be equal
for members of the BIF and the SAIF. Members of the BIF, by contrast, will pay
in addition to their normal deposit insurance premium approximately 1.3 basis
points. Because of the Supervisory Agreement of May 21, 1997, we anticipate that
our premiums will be increased by the FDIC. The Act also provides for the
merging of the BIF and the SAIF by January 1, 1999 provided there are no
financial institutions still chartered as federal savings associations at that
time.
Advertising costs increased from $169,000 for the year ended December 31,
1995 to $203,000 for the year ended December 31, 1996, or a $34,000 increase.
Salaries and employee benefits decreased from $941,000 for the year ended
December 31, 1995 to $917,000 for the year ended December 31, 1996. Occupancy
expenses also decreased from $237,000 for the year ended December 31, 1995 to
$215,000 for the year ended December 31, 1996.
Income tax expense. Our income tax expense was a benefit of $69,000 for the
year ended December 31, 1996 compared to $265,000 owed for the year ended
December 31, 1995. This decrease in taxes was the result of our net loss of
$164,000, before taxes, for the year ended December 31, 1996.
42
<PAGE>
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 5.0%. Our
liquidity ratio average was 14.8%, 11.2% and 8.8% at December 31, 1995, December
31, 1996, and June 30, 1997, respectively. The decrease in our average liquidity
rate at December 31, 1996 was the result of our sale of investments and increase
in short term borrowings. It is our belief that upon completion of the
Conversion our liquidity ratio will initially increase.
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
Pittsburgh. While scheduled repayments of loans and mortgage-backed securities
and maturities of investment securities are predictable, other sources of funds,
such as deposit flows and loan prepayments, can be 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.
Net cash used in our operating activities (i.e. cash items affecting net
income) for the six months ended June 30, 1997 was $353,000. In contrast, net
cash was provided by our operating activities for the year ended December 31,
1996 in the amount of $305,000, and in the amount of $551,000 for the year ended
December 31, 1995.
Net cash provided by our investing activities (i.e., cash receipts,
primarily from our investment securities and mortgage-backed securities
portfolios and our loan portfolio) for the six months ended June 30, 1997 was
$239,000. In contrast, net cash was used in our investing activities for the
year ended December 31, 1996 in the amount of $13.7 million, an increase of $6.6
million from the year ended December 31, 1995. The increase was primarily
attributable to a decrease in proceeds from loan sales.
Net cash provided by our financing activities (i.e., cash receipts
primarily from net increases in deposits and net FHLB advances) for 1996 totaled
$15.0 million. This is a result of an increase in net advances from the FHLB of
$22.9 million offset by a decrease in deposits of $14.1 million. The net
advances from the FHLB were used to fund loan growth.
Liquidity may be adversely affected by unexpected deposit outflows, higher
interest rates paid by competitors, and similar matters. Further, the disparity
in Financing Company ("FICO") bond interest payments as previously described
could result in the loss of deposits to BIF members that have this lower cost
and therefore are able to pay higher rates of interest on deposits. Management
monitors projected liquidity needs and determines the level desirable,
43
<PAGE>
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 Regulatory Capital Requirements."
Impact of Inflation and Changing Prices
Our financial statements and the accompanying notes presented elsewhere in
this Prospectus, 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 Accounting 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.
FASB Statement on Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities. In June 1996, FASB issued SFAS No.
125, which will be effective, on a prospective basis, for fiscal years beginning
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
44
<PAGE>
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.
Further, in December 1996, the FASB issued SFAS No. 127, Deferral of Effective
Date of Certain Provisions of FASB Statement No. 125. SFAS No. 127 defers for
one (1) year the effective date of SFAS No. 125 as it relates to transactions
involving secured borrowings and collateral and transfers and servicing of
financial assets. It also provides additional guidance on these types of
transactions. We do not believe SFAS No. 125 will have a material impact on our
financial statements.
In November 1993, the American Institute of Certified Public Accountants
("AICPA") issued SOP 93-6 Employers' Accounting for Employee Stock Ownership
Plan. SOP 93-6 addresses accounting for shares of stock issued to employees by
an employee stock ownership plan. SOP 93-6 requires that the employer record
compensation expense in an amount equal to the fair value of shares committed to
be released from the ESOP to employees. SOP 93-6 is effective for fiscal years
beginning after December 15, 1993 and relates to shares purchased by an ESOP
after December 31, 1992. If the Common Stock appreciates over time, SOP 93-6
will increase compensation expense relative to the ESOP, as compared with prior
guidance that required recognition of compensation expense based on the cost of
the shares acquired by the ESOP. The amount of any such increase, however,
cannot be determined at this time because the expense will be based on the fair
value of the shares committed to be released to employees, which amount is not
determinable. See "PRO FORMA DATA."
BUSINESS OF DELAWARE FIRST FINANCIAL CORPORATION
Delaware First Financial Corporation is not an operating company and has
not engaged in any significant business to date. It was formed in September 1997
as a Delaware chartered corporation to be the holding company for Ninth Ward
Savings Bank, FSB. 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.
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.
45
<PAGE>
The office of the Company is located at 400 Delaware Avenue, Wilmington
Delaware 19801. The telephone number is (302) 421-9090.
BUSINESS OF NINTH WARD SAVINGS BANK, FSB
We were founded in 1922 as Ninth Ward Building & Loan Association, a
Delaware chartered institution. In 1954 our name was changed to Ninth Ward
Savings & Loan Association. In 1992 we adopted a federal savings association
charter, and our name was changed to Ninth Ward Savings Bank, FSB. Our business
has been conducted from a single location since our inception. It is our
intention to operate as an independent community-oriented savings association
following the Conversion. Our address, 400 Delaware Avenue, Wilmington, Delaware
19801, and telephone number, (302) 421-9090 is the same as that of the Company.
The principal sources of funds for our activities are deposits, repayments
of loans and mortgage-backed securities, maturities of investments and
interest-bearing deposits, funds provided from operations and advances from the
FHLB of Pittsburgh. Our 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 $82.6 million, or 88.9%, of our total
loan portfolio at June 30, 1997. Our principal source of revenue is the interest
we receive on loans, and our principal expense is the interest we pay on
deposits and FHLB advances.
After the Conversion we intend to use a portion of the proceeds from the
offering to expand our home equity lending program. We also expect to open an
additional branch or branches after evaluating the results of branch feasibility
studies. This will allow us to offer more convenience for our depositors, and to
compete for their business based on accessible locations. We also anticipate
offering small business/commercial loans, which will add diversity to our loan
portfolio and help manage our interest rate risk.
Market Area
Our primary market area consists of New Castle County, Delaware. New Castle
County, which contains the city of Wilmington, is the site of incorporation of
many of the nation's largest corporations. The largest industries are service,
nondurable goods manufacturing and finance, insurance and real estate.
Agriculture also plays a prominent part in the state's economy. We are located
approximately 15 miles from Newark, Delaware, site of the University of
Delaware. Delaware has two other state supported institutions and four private
schools awarding post-secondary degrees. Owing to its preferred location as the
state of incorporation for many of the nation's largest corporations, the city
has many law, accounting and consulting firms. The state of Delaware has the
fourth lowest population in the nation but has both high employment and higher
than average income levels.
46
<PAGE>
The state of Delaware has adopted numerous favorable tax laws to attract
and retain businesses. Delaware has no sales tax and a relatively low real
property tax. Additionally, the state has a regressive bank franchise tax which
is favorable for large financial institutions. Several large banking companies
have established headquarters and other facilities here for credit card
operations. Delaware has also sought to augment the service-based sector of its
economy, having recently adopted a new trust law to facilitate the location of
trusts in Delaware.
Economic growth in our market area remains dependent upon the local
economy. In addition, our deposit and loan activity is significantly affected by
economic conditions in our market area. Based on our primary market area's
economic demographic history, we expect our market area to be relatively stable
in the future. However, significant banking competition will likely cause the
cost of funds to remain relatively high.
Supervisory Agreement
Since May 21, 1997, the Bank has been operating under a Supervisory
Agreement with the OTS. Under the Supervisory Agreement we have agreed to take
actions to improve our compliance with certain OTS regulations in the area of
interest rate risk, develop a three year business plan, and improve regulatory
compliance. With regard to interest rate risk management, we have adopted and
submitted to the OTS a revised interest rate risk policy and undertaken certain
actions including the sale of fixed rate mortgage loans to the FHLMC and
lengthening the maturities of certain FHLB advances. The Supervisory Agreement
also required that we submit a three year written Business Plan to the OTS which
addresses goals and strategies for improving and sustaining earnings. The
Business Plan is required to identify major areas for improving operating
performance and achieving and maintaining adequate levels of capital while
addressing operating expenses (including management compensation), our cost of
funds and asset growth. The Business Plan is required to be updated annually and
reviewed by our Board at least quarterly. Pursuant to the requirements of the
Supervisory Agreement, the Business Plan was submitted to the OTS regional
office on August 28, 1997 and approved on September _____, 1997. The Supervisory
Agreement also requires the OTS be notified 30 days before a new director or
executive officer is appointed. Further, we must provide notice to the OTS prior
to extending, renewing, reviewing or entering into any compensation or
benefit-related contract with a senior executive officer or director of Ninth
Ward. The Supervisory Agreement remains in effect until terminated by the OTS,
although it states that the OTS Regional Director will consider requests for
termination after the first Report of Examination following the May 21, 1997
effective date of the Supervisory Agreement. We anticipate asking the OTS to
consider termination of the Supervisory Agreement in early 1998 following the
Conversion and completion of the next Report of Examination.
Lending Activities
The following table sets forth information concerning the types of loans
held by us.
47
<PAGE>
<TABLE>
<CAPTION>
Composition of Loan Portfolio
---------------------------------------------------------------------------------------------
December 31,
-------------------------------------------------------------
June 30, 1997 1996 1995
----------------------------- ------------------------------ ---------------------------
Amount Percent of Total Amount Percent of Total Amount Percent of Total
------ ---------------- ------ ---------------- ------ ----------------
Real estate loans:
<S> <C> <C> <C> <C> <C> <C>
Residential mortgage ............. $82,625,969 88.92% $87,918,256 89.67% $67,937,470 86.18%
----------- ------ ----------- ------ ----------- ------
Total real estate loans ........ 82,625,969 88.92 87,918,256 89.67 67,937,470 86.18
Other loans:
Deposit account .................. 710,275 0.76 528,198 0.54 839,344 1.06
Home equity loans ................ 7,942,666 8.55 8,082,865 8.24 8,387,260 10.64
Equity lines of credit ........... 2,963,299 3.19 2,823,273 2.88 2,753,989 3.49
----------- ------ ----------- ------ ----------- ------
Total other loans .............. 11,616,240 12.50 11,434,336 11.66 11,980,593 15.19
Less:
Unamortized fees ................. 1,065,824 1.15 1,063,474 1.08 882,757 1.12
Allowance for loan losses ........ 257,000 0.27 247,000 0.25 200,000 0.25
----------- ------ ----------- ------ ----------- ------
Total loans, net ................... $92,919,385 100.00% $98,042,118 100.00% $78,835,306 100.00%
=========== ====== =========== ====== =========== ======
Mortgage-backed securities ......... 190,414 203,147 698,669
----------- ----------- -----------
Total ..................... $93,109,799 $98,245,265 $79,533,975
=========== =========== ===========
</TABLE>
48
<PAGE>
We are currently servicing loans for the benefit of others. Such loans
totaled $53.3 million, $54.3 million and $56.7 million at June 30, 1997,
December 31, 1996 and December 31, 1995, respectively. Servicing loans for
others generally consists of collecting mortgage payments, maintaining escrow
accounts, disbursing payments to investors and foreclosure processing. Loan
servicing fees generated by these activities were $48,000 for the six months
ended June 30, 1997, and $190,000 and $52,000 for the years ended December 31,
1996 and 1995, respectively. Additionally, at June 30, 1997 and December 31,
1996 we had outstanding loan origination commitments of $387,000 and $2.3
million, respectively, for fixed and adjustable rate loans with rates ranging
from 6.5% to 7.75% and 6.75% to 8.5%, respectively. These commitments are
expected to be funded within one year. Commitments are issued in accordance with
the same loan policies and underwriting standards as settled loans.
The following table sets forth the estimated maturity of our loan portfolio
at June 30, 1997. Scheduled contractual principal repayments of loans do not
reflect the actual life of such assets. The average life of the loan is
substantially less than its contractual terms because of prepayments. In
addition, due on sale clauses on loans generally give the Bank the right to
declare loans immediately due and payable in the event, among other things, that
the borrower sells the real property subject to the mortgage and the loan is not
repaid. The average life of mortgage loans tend to increase, however, when the
current mortgage loan market rates are substantially higher than rates on
existing mortgage loans and, conversely, decrease when rates on existing
mortgage loans are substantially higher than current mortgage loan market rates.
All mortgage loans are shown as maturing based on the date of the last payment
required by the loan agreement except as noted.
Contractual Maturity of Loans and Mortgage-Backed Securities
<TABLE>
<CAPTION>
More than More than
Within 6 6 to 12 one year to three years Over 5
months months three years to five years years Total
------ ------ ----------- ------------- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential ........ $ 6 $ 111 $ 511 $ 1,889 $80,109 $82,626
mortgage
Deposit accounts ... 710 0 0 0 0 710
Home equity loans .. 16 37 1,120 2,175 4,595 7,943
Equity lines of
credit(1) ....... 2,963 0 0 0 0 2,963
------- ------- ------- ------- ------- -------
Total loans ........ 3,695 148 1,631 4,064 84,704 94,242
Mortgage-backed
securities ....... 0 0 190 0 0 190
------- ------- ------- ------- ------- -------
TOTAL ........... $ 3,695 $ 148 $ 1,821 $ 4,064 $84,704 $94,432
======= ======= ======= ======= ======= =======
</TABLE>
- ----------
(1) Equity lines of credit are open-ended and have no stated maturity date and
are shown as being due when interest rates are next subject to change.
49
<PAGE>
The following table sets forth the amount of fixed rate and adjustable rate
loans at June 30, 1997 which are due after June 30, 1998.
Loans at 6/30/97 due after 6/30/98
----------------------------------
Fixed Adjustable Total
----- ---------- -----
(Dollars in thousands)
Residential mortgage ................. $71,933 $10,576 $82,509
Deposit accounts ..................... 0 0 0
Home equity loans .................... 7,890 0 7,890
Equity lines of credit ............... 0 0 0
------- ------- -------
Total ....... $79,823 $10,576 $90,399
======= ======= =======
Percent of total loans ....... 85.91% 11.38% 97.29%
50
<PAGE>
The following table sets forth certain information with respect to our loan
origination, purchase and sales activity for the periods indicated.
<TABLE>
<CAPTION>
Loan Activity
-----------------------------------------------------------
Six Months Ended June 30, Year Ended December 31,
-------------------------- ----------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loans receivable
at beg. of period ........ $ 98,042,118 $ 78,835,306 $ 78,835,306 $ 72,134,479
Loans originated:
Real estate loans:
First mortgage loans .. $ 5,130,374 $ 17,578,611 $ 31,673,585 $ 41,250,431
Home equity loans ..... 1,208,392 1,257,800 3,139,302 2,701,850
Equity lines of credit 1,131,157 1,404,394 2,691,392 2,263,227
Collateral loans .......... 473,753 327,849 713,357 1,046,369
------------ ------------ ------------ ------------
Total loans originated $ 7,943,676 $ 20,568,654 $ 38,217,636 $ 47,261,877
Loans purchased:
Participations .......... 55,494 18,400 18,400 34,181
------------ ------------ ------------ ------------
Total loans purchased $ 55,494 $ 18,400 $ 18,400 $ 34,181
Loans sold:
Whole loans ............. (1,128,181) (1,013,297) (2,599,494) (26,010,908)
Participations .......... 0 0 (2,008,782) (3,859,071)
------------ ------------ ------------ ------------
Total loans sold ..... $ (1,128,181) $ (1,013,297) $ (4,608,276) $(29,869,979)
------------ ------------ ------------ ------------
Principal repayments ...... $ (6,451,198) $ (7,931,500) $(15,414,110) $ (9,726,497)
Allowance for losses
decrease (increase) ...... (10,000) (26,000) (47,000) (5,000)
Reclassifications-Held
for Sale ................. (5,547,674) 1,020,000 1,020,000 (1,020,000)
Other activity, net ....... 15,150 (88,868) 20,162 26,245
Net loan increase
(decrease) ............... (5,122,733) 12,547,389 19,206,812 6,700,827
------------ ------------ ------------ ------------
Net loans receivable at
end of period ............ $ 92,919,385 $ 91,382,695 $ 98,042,118 $ 78,835,306
============ ============ ============ ============
</TABLE>
51
<PAGE>
Most of our loans are first or second mortgage and equity loans which are
secured by one- to four-family residences. We also make loans on savings
accounts. Following the Conversion, we expect to continue making one- to four-
family real estate loans and anticipate placing greater emphasis on our existing
home equity loan program. We also intend to emphasize small business/commercial
loans, which will require us to increase our staff and add another executive
officer experienced in such lending. However, this is a new area of lending for
the Bank and one that is highly competitive in our market. Accordingly, our
ability to originate small business/commercial loans in a manner which is both
profitable and in which risks are maintained at acceptable levels is not
assured. Further, small business/commercial lending entails significantly
greater risk than traditional real estate lending. The repayment of these loans
typically is dependent on the successful operation and income stream of the
borrower. Such risks can be significantly affected by economic conditions.
At June 30, 1997, total loans were $92.9 million of which $82.6 million or
88.9% were first mortgage loans secured by one- to four-family residences. The
majority of our loans have interest rates which are fixed for the term of the
loan ("fixed rate"). To a much lesser extent when market conditions are
favorable, we originate loans with rates of interest which may adjust from
period to period during the term of the loan ("adjustable rate"). Our emphasis
on fixed rate loans has made us more susceptible to changes in interest rates
and as a result both our capital and our interest income could be adversely
affected in a rising interest rate environment. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -- Interest Rate Risk."
We presently do not originate small business/commercial loans. After the
Conversion, we expect to make small business/commercial lending part of our
lending activities. Commercial loans are business loans which may be secured by
real estate or may be unsecured. In connection with this program, we may offer
loans on property such as small apartment buildings and small office buildings,
shopping centers, and commercial and industrial buildings. Such loans will
typically be originated on an adjustable rate basis. Small business/commercial
lending has an inherently greater risk than residential 1-to-4 family lending.
See, "RISK FACTORS -- Expansion into Small Business/Commercial Lending and
Creation of Branches."
We obtain mortgage loans from a variety of sources. The most frequently
utilized method of obtaining mortgage loans is through employee originators who
handle telephone calls, walk-in customers and referrals from real estate
brokers. In previous years, we have obtained mortgage loans from a third party
originator.
An appraisal on each property which secures a first mortgage loan made by
us is obtained from an independent appraisal firm. These appraisers are approved
by our Appraisal Committee, and certain appraisals are reviewed randomly by the
Committee throughout the year. Each appraiser must annually submit updated
licenses and evidence of insurance coverage to maintain their status as an
approved appraiser. The appraised value of a property is determined by a
physical inspection of the property and comparison of the property to at
52
<PAGE>
least three comparable properties in the immediate area. The appraised value is
used as a basis for determining loan to value ratios unless the sale price of
the property is less than the appraisal value. In that case, the sale price is
used.
Loans are approved by the Loan Committee, a committee consisting of the
President, Executive Vice President and Vice President of Servicing. Every loan
we make is presented to the Loan Committee for approval. The approval of the
majority of the committee is required to approve a loan. This committee meets as
needed to review loan applications. Promptly after we approve a loan we provide
a commitment letter to the borrower which specifies the terms and conditions of
the proposed loan including the amount of the loan, the interest rate, the
amortization term, a brief description of the required collateral and required
insurance coverage, including fire and casualty insurance, and flood insurance
as required. We also require each loan to have title insurance. At June 30, 1997
we had commitments to originate $387,000 in mortgage loans.
We do not purchase whole loans. However, we do occasionally purchase
participation interests in loans and make loans secured by deposits held by us.
For the six months ended June 30, 1997, we purchased a $55,000 participation in
loans originated by Delaware Community Investment Corporation ("DCIC").
We require private mortgage insurance on all first mortgage loans when the
loan-to-value ratio exceeds 80%. We retain servicing on all loans originated.
From time to time we also sell some of the loans or participation interests in
some of the loans we originate. The only loans we sell are fixed-rate
residential mortgage loans. For the six months ended June 30, 1997 and the year
ended December 31, 1996, we sold $1.1 million and $4.6 million, respectively, of
such loans. Such loans are sold to either the FHLMC, FNMA, or another financial
institution.
Loans collateralized by deposits held by us must be approved by the Vice
President of Deposit Administration or her designee. Loans of this type in
excess of $25,000 must be approved by either the Vice President of Deposit
Administration, directly, the Treasurer or the President.
Originations, Purchases and Sales of Loans. As a federal association we are
permitted to make and/or purchase loans nationwide. We originate and purchase
participations in loans secured by real estate located only in our market area.
Recently, our purchasing activities have been limited to purchase participations
from DCIC. We make home mortgage loans secured by owner and nonowner occupied
dwellings, second mortgage loans secured by real estate. We occasionally make
construction loans secured by residential real estate and loans secured by
savings accounts. To a lesser extent we, from time to time, participate in
permanent or construction loans originated by other federally-insured financial
institutions. We also participate in permanent mortgages originated by the DCIC
secured by multi-family dwelling units.
53
<PAGE>
Our ability to originate loans is based on several factors. These include
the level of interest rates, the needs of our customers, our asset and liability
funding needs and the success of our marketing efforts. In 1995 we began to
increase our mortgage lending and hold loans in portfolio, rather than selling
them into the secondary market. The growth was largely due to our desire to
increase income through additional mortgage lending and a high refinancing
demand of consumers. Nearly all of these loans were fixed rate loans with terms
of 15 to 30 years. Holding these long-term loans with fixed rates, while
assisting in our income growth, caused our interest rate risk to increase and
made us more susceptible to declines in our interest income if interest rates
increased. Accordingly, in the last quarter of 1996 we reduced our lending
activities so that we could better manage our interest rate risk. This reduction
was also the result of less refinancing activity. Our 1997 mortgage loan
originations through June 30 were $5.1 million compared to $17.6 million for the
six months ended June 30, 1996.
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 conforming
one-to-four family owner occupied residential mortgage loans in amounts up to
95% loan-to-value ratio -- 97% in the case of some first time home buyer
programs -- with private mortgage insurance 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
75%. We primarily originate fixed-rate loans having terms from five to 30 years,
with principal and interest payments calculated using up to a 30-year
amortization period. At June 30, 1997, approximately 11.4% of our one- to
four-family residential loans had adjustable rates of interest.
Home Equity. Our portfolio also contains fixed-rate home equity loans and
variable rate equity lines of credit. These loans and lines of credit totaled
$10.9 million and comprised 11.7% of our total loan portfolio at June 30, 1997.
We originate fixed rate home equity loans for a minimum of three years and
a maximum of 15 years in amounts of $5,000 to $150,000. The maximum
loan-to-value ratio is 100%. However, we only lend up to 90% of loan-to-value
ratio on loans with first mortgages that have been outstanding for one year or
less. During the six months ended June 30, 1997, we originated $1.2 million in
home equity loans. At June 30, 1997, all of our home equity loans were secured
by first or second mortgages.
We also originate variable rate home equity lines of credit. These lines of
credit range in amounts from $10,000 to $100,000 and also require a perfected
second lien on owner occupied real property. For variable rate equity lines of
credit, the maximum loan-to-value ratio is 90%. For the six months ended June
30, 1997 we advanced $1.1 million on home equity lines of credit.
54
<PAGE>
Loans to One Borrower. Federal law requires that, in general, 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. Higher
limits apply to loans to develop domestic housing units. 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 $900,000 at June 30, 1997. At June 30, 1997, the
aggregate loans outstanding to our three largest borrowers and related entities
were $396,979, $393,022 and $340,699, respectively. Each of these loans was
secured and performing.
Nonperforming and Problem Assets
Loan Delinquencies. We classify a loan as delinquent when payment is 16
days past due. When a mortgage loan becomes 16 days past due, a computer
generated notice of nonpayment is sent to the borrower. On the 21st day, a
personal call is made to verify receipt of the first notice and to request
payment. A second delinquency notice is then mailed on the 30th day. If, after
60 days, payment is still delinquent, we will advise a borrower in writing of
our intent to commence foreclosure. If the loan continues in a delinquent status
for 90 days and no repayment plan is in effect, the delinquent account is
referred to an attorney for foreclosure. At June 30, 1997, our total delinquent
loans were $2.1 million, or 2.3% of our total loan portfolio.
The following table shows our total delinquent loans at the times
indicated:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 December 31, 1995
------------------------------- ------------------------------- --------------------------------
Loans Percentage Percentage Percentage
Delinquent For Number Amount of Portfolio Number Amount of Portfolio Number Amount of Portfolio
- -------------- ------ ------ ------------ ------ ------ ------------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 days ........... 32 $1,310,549 1.41% 35 1,438,199 1.47% 31 962,353 1.22%
60-89 days ........... 9 480,040 0.52% 8 130,490 0.13% 13 448,159 0.57%
90 days and
over ............... 7 327,117 0.35% 9 375,509 0.38% 6 244,177 0.31%
--- ---------- ---- --- ---------- ---- --- ---------- ----
Total delinquent
loans .............. 48 $2,117,706 2.28% 52 $1,944,198 1.98% 50 $1,654,689 2.10%
=== ========== ==== === ========== ==== === ========== ====
</TABLE>
55
<PAGE>
The following table shows our delinquent loans by loan type:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 December 31, 1995
------------------------- --------------------------- ----------------------------
Percentage of Percentage of Percentage of
Delinquent Delinquent Delinquent
Loan Type Amount Loans Amount Loans Amount Loans
--------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Residential mortgage .................. $1,888,520 89.18% $1,740,229 89.51% $1,271,381 76.83%
Deposit accounts ...................... 122,206 5.77% 56,417 2.90% 123,127 7.44%
Home equity loans ..................... 79,800 3.77% 108,147 5.56% 99,044 5.99%
Equity lines of credit ................ 27,180 1.28% 39,405 2.03% 161,137 9.74%
---------- ------ ---------- ------ ---------- ------
Total ............................. $2,117,706 100.00% $1,944,198 100.00% $1,654,689 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
Loans are reviewed on a quarterly 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.
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.
Interest income that would have been recorded on loans accounted for on a
nonaccrual basis under the original terms of such loans was immaterial for the
years ended December 31, 1995 and December 31, 1996, respectively. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Provision For Loan Losses."
Nonperforming and Restructured Assets
December 31,
------------------------
June 30, 1997 1996 1995
------------- ---- ----
(Dollars in thousands)
Non-accrual loans .................... $ 327(1) $ 376(2) $ 244(3)
Accruing loans delinquent
90 days or more ................... -- -- --
Real estate owned .................... -- -- --
------- ------- -------
Total non-performing loans ........... $ 327 $ 376 $ 244
======= ======= =======
Percentage of total loan portfolio ... 0.35% 0.38% 0.31%
Percentage of total assets ........... 0.29% 0.33% 0.25%
- ----------
(1) Consists of $321,000 in residential mortgage loans and $6,000 of loans
secured by deposit accounts held by us.
(2) Consists of $229,000 in residential mortgage loans, $108,000 in home equity
loans and $39,000 in equity line of credit loans.
(3) Consists of $244,000 in residential mortgage loans.
56
<PAGE>
Classification of Assets. OTS regulations provide for a classification
system for loans and other assets of savings associations. Under this
classification system, problem assets of savings associations 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.
57
<PAGE>
The following table presents our classified assets at the dates indicated:
Classified Assets
December 31,
-----------------
Classification June 30, 1997 1996 1995
------------- ---- ----
(Dollars in thousands)
Substandard ............................. $272(1) $303(2) $244(3)
Doubtful ................................ 0 0 0
Loss .................................... 0 0 0
---- ---- ----
Total Classified Assets ........... $272 $303 $244
==== ==== ====
- ------
(1) Consists of $149,000 in residential mortgage loans classified as
substandard, $42,000 in home equity loans classified as substandard and
$81,000 in equity line of credit loans classified as substandard.
(2) Consists of $168,000 in residential mortgage loans classified as
substandard, $88,000 in home equity loans classified as substandard, and
$47,000 in equity line of credit loans classified as substandard.
(3) Consists of $244,000 in residential mortgage loans classified as
substandard.
Allowances for Loan Losses. Our policy is to provide for losses based on
management's estimate of the potential losses that may be incurred with respect
to our loan portfolio. When we increase the allowances for loan losses we do so
by establishing a charge against our income. The estimate, 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.
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 to be adequate for the inherent risk of
loss in its 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 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
provision.
58
<PAGE>
The following table sets forth an analysis of our allowance for loan losses
at the dates indicated:
Allowance for Loan Losses
Six Months Ended June 30, Year Ended December 31,
------------------------ -----------------------
1997 1996 1996 1995
-------- -------- -------- --------
(Dollars in thousands)
Gross Loan Principal
Balance Outstanding ....... $94,242 $92,580 $99,353 $79,918
Average Loans Outstanding .. 99,012 83,837 91,061 78,025
Allowance Balance
(at beginning of period) .. 247 200 200 195
Loans charged off .......... 0 0 0 0
Recoveries ................. 0 0 0 0
Net loans charged-off ...... 0 0 0 0
Provision for possible
loan losses ............... 10 26 47 5
------- ------- ------- -------
Allowance Balance
at end of period .......... $ 257 $ 226 $ 247 $ 200
======= ======= ======= =======
Allowance for loan
losses to total loans ..... 0.27% 0.24% 0.25% 0.25%
Ratio of Allowance for
loan losses to total
non- performing loans ..... 78.59% 93.78% 65.69% 81.97%
Allocation of Allowance for Loan Losses. The following table presents an
allocation of the entire allowance for loan losses among various loan
classifications and sets forth the percentage of loans in each category to total
loans. The allowance shown in the table should not be interpreted as an
indication that charge-offs in future periods will occur in these amounts or
proportions or that the analysis indicates future charge-off trends.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
June 30, 1997 1996 1995
------------------ ------------------- -------------------
Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
First mortgage loans ..... $179 69.65% $169 68.42% $104 52.00%
Home equity loans ........ 10 3.89% 10 4.05% 34 17.00%
Equity lines of credit ... 67 26.07% 67 27.13% 61 30.50%
Collateral loans ......... 1 0.39% 1 0.40% 1 0.50%
---- ----- ---- ----- ---- -----
Total ........... $257 100% $247 100% $200 100%
==== ===== ==== ===== ==== =====
</TABLE>
59
<PAGE>
Investment Activities
General. We are permitted under federal law to make certain investments,
including investments in securities issued by various federal agencies, state
and municipal governments, deposits at the FHLB of Pittsburgh, certificates of
deposit in federally insured institutions, certain bankers' acceptances and
federal funds. We may also invest, subject to certain limitations, in commercial
paper rated in one of the two highest investment rating categories of a
nationally recognized credit rating agency, and certain other types of corporate
debt securities and mutual funds. Federal regulations require us to maintain an
investment in FHLB stock and a minimum amount of liquid assets which may be
invested in cash and specified securities. From time to time, the OTS adjusts
the percentage of liquid assets which savings banks are required to maintain.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
The goals of our investment policy are to (i) maintain profitability; (ii)
invest in relatively high quality securities; (iii) maintain adequate liquidity
levels for meeting cash demands; (iv) maintain compliance with regulations; and
(v) provide a short-term source of funds for the funding of loans designated for
sale.
Investment decisions will include these objectives as well as a review of
risk-based capital established for each type of security.
During periods when mortgage loan demand is moderate, we have invested our
funds in certain investment securities rather than originating whole loans.
The investment securities we purchase consist primarily of securities
issued or guaranteed by the U.S. government or agencies thereof and
mortgage-backed securities. At June 30, 1997, 100% of our mortgage-backed
securities were FHLMC pass-throughs. Investment and aggregate investment
limitations and credit quality parameters of each class of investment are
prescribed in our investment policy. We perform analyses on mortgage-related
securities prior to purchase and on an ongoing basis to determine the impact on
earnings and market value under various interest rate and prepayment conditions.
Under our current investment policy, the President and his designee(s) have been
delegated the authority by the Board of Directors to execute agreements,
transactions and any other appropriate material in order to effectuate
investment transactions authorized by the investment policy. The Board of
Directors reviews all securities transactions on a monthly basis.
We have adopted SFAS No. 115. This statement requires that we classify our
investment securities as either "trading," "available for sale" or "held to
maturity." We have no securities designated as "trading." Securities designated
as held to maturity are those assets which we have ability and intent to hold to
maturity. A held to maturity investment portfolio is carried at amortized cost.
In contrast, those securities designated as available for sale are those assets
which are not classified as trading securities or held to maturity.
60
<PAGE>
Securities designated as "available for sale" are carried at market value with
unrealized gains or losses, net of tax effect, recognized in retained earnings.
On November 29, 1996, in order to increase our capital ratios, we sold
investment securities with a book value of $3.0 million from our held to
maturity portfolio resulting in a loss of $2,000. Included in these securities
were investments with a book value of $998,000 that had a maturity of April 17,
1997 which exceeded the three month example discussed in the SFAS No. 115,
accounting for certain investments in debt and equity securities. As a result of
the sale, we transferred all securities previously classified as held to
maturity to available for sale. As a result of this sale, all of our investment
securities are now classified as available for sale.
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. The
quasi-governmental agencies, FHLMC, Government National Mortgage Association
("GNMA"), and FNMA, guarantee the payment of principal and interest to investors
As with our investment portfolio discussed above, on November 29, 1996, in
order to increase our capital ratios, we sold mortgage-backed securities with a
book value of $336,000 from our held-to-maturity portfolio resulting in a net
gain of $9,000. Included in these securities was a mortgage-backed security with
a book value of $173,000 that had a maturity of March 1, 1997 which exceeded the
three month example discussed in SFAS No. 115. As a result of this sale, we
transferred all mortgage- backed securities previously classified as
held-to-maturity to available for sale. Consequently, all of our mortgage-backed
securities are now classified as available for sale. Each security was issued by
the FHLMC. Expected maturities will differ from contractual maturities due to
scheduled repayments and because borrowers may have the right to prepay
obligations with or without prepayment penalties.
Mortgage-backed securities are typically 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
rate 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.
61
<PAGE>
The following table sets forth the carrying value of our investment
securities and mortgage-backed securities, at the dates indicated.
Investment Portfolio
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
June 30, 1997(1) 1996(1) 1995(2)
-------------------------- ------------------------- --------------------------
Estimated Estimated Estimated
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Federal Farm Credit Bank ................. -- -- -- -- $ 3,499,715 $ 3,495,131
Federal Home Loan Bank ................... $ 1,993,885 $ 1,993,885 $ 2,484,465 $ 2,484,465 2,490,745 2,478,061
Federal Home Loan Mortgage
Corporation ............................ 500,065 500,065 499,500 499,500 1,500,000 1,492,544
Federal National Mortgage
Association ............................ 497,675 497,675 495,805 495,805 1,000,000 1,000,922
Student Loan Marketing Association ....... 998,190 998,190 992,510 992,510 1,500,000 1,475,667
U.S. Treasury Notes ...................... 2,002,190 2,002,190 2,003,520 2,003,520 1,497,732 1,506,831
----------- ----------- ----------- ----------- ----------- -----------
Total Investment securities .......... $ 5,992,005 $ 5,992,005 $ 6,475,800 $ 6,475,800 $11,488,192 $11,449,156
=========== =========== =========== =========== =========== ===========
Mortgage-backed securities ............... 190,414 190,414 203,147 203,147 698,669 705,680
Federal Home Loan Bank
capital stock, at cost ................. 1,332,500 1,332,500 1,500,000 1,500,000 727,500 727,500
----------- ----------- ----------- ----------- ----------- -----------
Total .................................... $ 7,514,919 $ 7,514,919 $ 8,178,947 $ 8,178,947 $12,914,361 $12,882,336
=========== =========== =========== =========== =========== ===========
</TABLE>
- ----------
(1) All of our investment portfolio was classified as "Available for Sale" at
June 30, 1997 and December 31, 1996 pursuant to SFAS No. 115.
(2) All of our investment portfolio was classified as "Held to Maturity" at
December 31, 1995 pursuant to SFAS No. 115.
62
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying values, approximate fair market values, and weighted
average yields for our investment securities portfolio at June 30, 1997. The
following table does not take into consideration the effects of scheduled
repayments or the effects of possible prepayments.
Investment Portfolio Maturity
At June 30, 1997
<TABLE>
<CAPTION>
One Year or Less One to Five Years Total Investment Securities
----------------------- --------------------- -------------------------------------
Annualized Annualized Annualized
Weighted Weighted Approximate Weighted
Carrying Average Carrying Average Carrying Market Average
Value Yield Value Yield Value Value Yield
---------- ---------- -------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Obligations of U.S.
Government agencies ....... $5,992,005 5.36% $ 0 N/A $5,992,005 $5,992,005 5.36%
Mortgage-backed
securities ................ 0 N/A 190,414 7.01% 190,414 190,414 7.01%
FHLB stock(1) .............. 1,332,500 6.38% 0 N/A 1,332,500 1,332,500 6.38%
---------- -------- --------- ----------
Total investment
securities portfolio ...... $7,324,505 5.54% $190,414 7.01% $7,514,919 $7,514,919 5.58%
========== ======== ========== ==========
</TABLE>
- ----------
(1) FHLB stock has no stated maturity, but has been classified based upon its
next stated dividend payment date. As a member of the FHLB of Pittsburgh,
the Bank is required to maintain an investment in stock of the FHLB of
Pittsburgh equal to the greater of 1.0% of the Bank's outstanding home
mortgage related assets or 5.0% of its outstanding advances from the FHLB
of Pittsburgh.
Sources of Funds
Deposits are the major external source of funds for lending and other
investment purposes. Funds are also derived from the receipt of payments on
loans, prepayment of loans advances from the FHLB and, to a much lesser extent,
maturities of investment securities and mortgage-backed securities, and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments may be
significantly influenced by general interest rates and market conditions.
Deposits. Consumer deposits are attracted principally from within our
primary market area through the offering of deposit accounts including regular
savings accounts, checking accounts, money market accounts, term certificate
accounts and IRA accounts. Deposit account terms vary according to the minimum
balance required, the time period the funds must remain on deposit, and the
interest rate.
We compete for deposits with other institutions in our market area by
offering competitively priced accounts which are tailored to the needs of our
customers. Additionally, we seek to meet our customers' needs by providing
personalized customer service to the community. To provide additional
convenience, we participate in the MAC(R)and Plus(R)automatic teller machine
network at locations throughout Delaware and the United States, through which
customers can gain access to their accounts at any time. We do not actively
63
<PAGE>
solicit certificate accounts in excess of $100,000 nor do we use brokers to
obtain deposits or solicit deposits outside our market area.
The interest rates paid by us on deposits are set as needed at the
direction of our senior management. Rates on deposits are determined based on
our liquidity requirements, interest rates paid by our competitors, the general
levels of interest rates, our growth goals and applicable regulatory
restrictions and requirements.
Our deposit base is characterized by a relatively small amount of passbook
depositors and a significantly higher amount of certificates of deposit.
Passbook savings, money market and transaction accounts totalled $12.6 million,
or 16.0%, of our deposit portfolio at June 30, 1997. As of June 30, 1997,
certificates of deposit were $66.0 million or 84.0% of our deposit portfolio.
$14.3 million or 18.3% of the deposit portfolio were certificates of deposit
with balances of $100,000 or more.
We believe that a portion of our depositors are sensitive to changes in
interest rates. Accordingly, some of the funds placed in certificates of deposit
with us are susceptible to withdrawal if alternative investments pay a higher
returns or our rates do not adjust as rapidly as the competition. These deposits
cannot, therefore, be viewed as core deposits, which is also generally the case
for deposits at or in excess of $100,000. However, our certificates are not
derived from brokered deposits, and the majority of those in excess of $100,000
are deposits of long-standing customers of the Bank. See "RISK FACTORS - Source
of Funds."
64
<PAGE>
The following table sets forth our distribution of deposit accounts at the
dates indicated and the weighted average interest rate on each category of
deposits represented.
Account Distribution Balances
(Dollars in thousands)
<TABLE>
<CAPTION>
At June 30, 1997 At December 31, 1996 At December 31, 1995
------------------------------ ------------------------------ ------------------------------
Weighted Weighted Weighted
Percent of Average Percent of Average Percent of Average
Amount Total Rate Amount Total Rate Amount Total Rate
------ ----- ---- ------ ----- ---- ------ ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook Savings ................ $ 2,537 3.24% 4.14% $ 2,536 3.23% 4.14% $ 2,867 3.52% 4.14%
Money Market Accounts ........... 8,904 11.36% 3.37% 8,246 10.52% 3.35% 8,725 10.70% 3.17%
IRA Certificates of
Deposit ....................... 11,750 15.00% 6.52% 12,073 15.40% 6.47% 12,507 15.34% 6.89%
Certificates of deposit
with an original term to
maturity of:
Less than 1 year ............ 8,528 10.88% 5.52% 9,962 12.71% 5.46% 10,375 12.73% 5.57%
1 to 3 years ............... 34,163 43.60% 5.92% 33,193 42.33% 5.83% 34,265 42.03% 6.21%
More than 3 years ........... 11,344 14.48% 6.46% 11,517 14.69% 6.46% 12,193 14.96% 6.64%
Checking & Other ................ 1,125 1.44% 2.05% 881 1.12% 2.05% 590 0.72% 2.05%
------- ------ ------- ------ ------- ------
Total Deposits .................. $78,351 100.00% 5.64% $78,408 100.00% 5.62% $81,522 100.00% 5.87%
======= ====== ======= ====== ======= ======
</TABLE>
65
<PAGE>
The following table sets forth the amounts and maturities of our time
deposits at the dates indicated.
Certificate of Deposit Maturities
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1999 June 30, 2000 June 30, 2001 Total
------------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
2.00 to 4.00% .... $ 0 $ 5,377 $ 0 $ 0 $ 5,377
4.01 to 6.00% .... 41,603,352 7,598,587 691,265 3,022,847 52,916,051
6.01 to 8.00% .... 2,596,052 1,690,307 7,967,315 610,357 12,864,031
8.01 to 10.00%.... 0 0 0 0 0
10.01 to 12.00%... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Total ............ $44,199,404 $ 9,294,271 $ 8,658,580 $ 3,633,204 $65,785,459
=========== =========== =========== =========== ===========
</TABLE>
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.
Certificates of Deposit of $100,000 or more
Primary Maturity Period Amount
----------------------- ------
(In Thousands)
3 months or less $ 2,480
Over 3 months to 6 months 1,408
Over 6 months to 12 months 5,798
Over 12 months 4,634
-------
Total $14,320
=======
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<PAGE>
The following table sets forth net changes in our deposit accounts for the
periods shown.
Net Changes in Deposit Activity
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
-------------------------------- ---------------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net increase (decrease) before
interest credited ............................. ($2,007,131) ($4,184,761) ($7,074,384) $ 7,420,188
Interest credited ............................... 1,949,701 2,049,752 3,960,928 3,605,511
----------- ----------- ----------- -----------
Net deposit account increase
(decrease) .................................... ($ 57,430) ($2,135,009) ($3,113,456) $11,025,699
=========== =========== =========== ===========
Weighted average cost of deposits
during the period ............................. 5.63% 5.63% 5.61% 5.60%
Weighted average cost of deposits
at end of period ............................. 5.64% 5.59% 5.62% 5.87%
</TABLE>
Borrowings. We may obtain advances (borrowings) from the FHLB of Pittsburgh
to supplement our supply of lendable funds. Advances from the FHLB of Pittsburgh
are typically secured by a pledge of our stock in the FHLB of Pittsburgh, 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. If the need arises, we may also access the Federal Reserve Bank
discount window to supplement our supply of lendable funds and to meet deposit
withdrawal requirements. At June 30, 1997, borrowings from the FHLB of
Pittsburgh totaled $25.2 million.
67
<PAGE>
The following table sets forth information concerning our borrowings from
the FHLB of Pittsburgh.
Borrowings
At or For the At or For the
Six Months Ended June 30, Year Ended December 31,
------------------------- --------------------------
1997 1996 1996 1995
---- ---- ---- ----
FHLB Advances:
Average balance(1) .. $25,370,166 12,314,174 20,868,039 10,957,934
Maximum balance at
any month-end ...... 25,700,000 22,700,000 33,700,000 14,500,000
Balance at period end 25,200,000 22,700,000 25,900,000 7,950,000
Weighted average
interest rate during
the period ......... 6.21% 5.97% 6.00% 6.43%
Weighted average
interest rate at
period end ......... 6.34% 6.00% 6.33% 6.19%
- ----------
(1) The average balance was computed using an average of monthly balances
during the year.
Competition
Competition for deposits and loans comes from commercial banks, thrift
institutions, credit unions, finance companies, credits card banks, mortgage
bankers and multi-state regional banks in our market area, many of whom have
greater resources than us. Competition for deposits also includes a number of
insurance products sold by local agents and investment products such as mutual
funds and other securities sold by local and regional brokers.
We operate from a single office and until recent years relied extensively
on the presence of employees of several corporations located near our single
office for deposit growth. Our convenience enabled us to attract and maintain
funds that were reasonably priced. The relocation of corporate offices and the
transfer of employees to suburban locations has manifested itself in a decline
in the number of downtown Wilmington customer relationships and has required us
to seek deposits from other parts of New Castle County and to become more
reliant on Jumbo Certificates. In addition, the Bank has increased its
borrowings from the FHLB of Pittsburgh. This , in turn, has forced us to offer
higher interest rates on deposits which has increased our cost of funds. We have
been able to maintain our position in mortgage loan originations, market share,
and deposit accounts throughout our market areas by virtue of our local
presence, competitive pricing, and referrals from existing customers.
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<PAGE>
Properties
The following table sets forth our location and related information at June
30, 1997.
Net Book Value at
Location Leased or Owned Year Acquired June 30, 1997 (1)
- -------- --------------- ------------- -----------------
MAIN OFFICE:
400 Delaware Avenue
Wilmington, Delaware 19801 Owned 1953 $1,824,690
- ----------
(1) Net book value is calculated by totaling the estimated value of land and
buildings, $2,278,764, and then subtracting accumulated depreciation of
$454,074.
Personnel
At June 30, 1997 we had 19 full-time employees and one full-time seasonal
employee. 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 condition
or results of operations.
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 regulation.
69
<PAGE>
Savings and Loan 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.
QTL Test. 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 QTL 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 QTL or 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 SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
Bank Regulation
General. As a federally chartered, SAIF-insured savings bank, 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. We are also subject to certain reserve requirements
promulgated by the Board of Governors of the Federal Reserve System ("Federal
Reserve System").
The OTS, in conjunction with the FDIC, regularly examines us and prepares
reports for the consideration of our Board of Directors on any deficiencies that
the OTS finds in our operations. 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.
We must file reports with the OTS and the FDIC concerning our activities
and financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with or acquisitions of other
financial institutions. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the SAIF and depositors. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection
70
<PAGE>
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.
Insurance of Deposit Accounts. 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 are 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 at the
end of 1995. The BIF had, however, met its required reserve level during the
third calendar 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. Legislation to recapitalize the SAIF
and to eliminate the significant premium disparity between the BIF and the SAIF
became effective September 30, 1996. The recapitalization plan provided for a
special assessment equal to $.657 per $100 of SAIF deposits held at March 31,
1995, in order to increase SAIF reserves to the level required by law. Certain
BIF institutions holding SAIF-insured deposits were required to pay a lower
special assessment. Based on its deposits at March 31, 1995, on November 27,
1996, we paid a pre-tax special assessment of approximately $492,000.
The recapitalization plan also provides that the cost of prior failures,
which were funded through the issuance of the Financing Corporation Bonds, will
be shared by members of both the SAIF and the BIF. This will increase BIF
assessments for healthy banks to approximately $.013 per $100 of deposits in
1997. SAIF assessments for healthy savings institutions in 1997 will be
approximately $.064 per $100 in deposits and may be reduced, but not below the
level set for healthy BIF institutions.
Pursuant to the recapitalization plan, the FDIC has lowered the rates on
assessments paid to the SAIF and widened the spread of those rates. The FDIC's
action established a base assessment schedule for the SAIF with rates ranging
from 4 to 31 basis points, and an adjusted assessment schedule that reduces
these rates by 4 basis points. As a result, the effective SAIF rates range from
0 to 27 basis points as of October 1, 1996. In addition, the FDIC's final rule
prescribed a special interim schedule of rates ranging from 18 to 27 basis
points for SAIF-member savings institutions for the last quarter of calendar
1996, to reflect the assessments paid to the Financing Corp. Finally, the FDIC's
action established a procedure for making
71
<PAGE>
limited adjustments to the base assessment rates by rulemaking without notice
and comment, for both the SAIF and 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 chartered
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 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. See "RISK
FACTORS -- Financial Institution Regulation and Future of the Thrift Industry."
Under regulations of the FDIC relating to premiums paid for deposit
insurance, we are also required to pay more for federal deposit insurance than
we previously have because of our Supervisory Agreement. That additional cost
will continue as long as the Supervisory Agreement remains in effect and will
prevent us from achieving the full benefit of the recapitalization plan.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. See "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE" for our capital
ratios.
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), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. 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. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association 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
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100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
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 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. See MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Interest Rate Risk."
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company. The OTS has the authority under its
supervisory powers to prohibit the payment of dividends by us to the Company. In
addition, we may not declare or pay a cash dividend on the Bank's 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 Ninth Ward Savings Bank, FSB."
OTS regulations impose limitations 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
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charged against capital. The rule establishes three tiers of institutions based
primarily on an institution's capital level. An institution that exceeds all
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% 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. Based on our capital level at December 31, 1996, 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 any 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 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 ("QTL") test. If we maintain an appropriate level of qualified
thrift investments ("QTLs") (primarily residential mortgages and related
investments, including certain mortgage-related securities) and otherwise
qualify as a QTL, we will continue to enjoy full borrowing privileges from the
FHLB of Pittsburgh. The required percentage of QTLs is 65% of portfolio assets
(defined as all assets minus intangible assets, property used by the institution
in conducting its business and liquid assets equal to 20% of total assets). In
addition, savings institutions may include shares of stock of the FHLBS, FNMA,
and FHLMC as QTLs. Compliance with the QTL 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 QTL requirement with approximately 97.8% of our portfolio assets invested in
QTLs.
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Transactions With Affiliates. Generally, restrictions on transactions with
affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates 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 or are prohibited altogether. 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.
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% and our actual ratio was 8.8%. Monetary penalties may be imposed
upon associations for violations of liquidity requirements.
Federal Home Loan Savings Bank System. We are a member of the FHLB of
Pittsburgh, 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
Pittsburgh 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. At June 30, 1997, the Bank held $1,332,500 in FHLB stock, at cost,
which was in compliance with this requirement. The FHLB imposes various
limitations on advances such as limiting the amount of certain types of real
estate related collateral to 30% of a member's capital and limiting total
advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve System. The Federal Reserve System requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction
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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.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System. We had no borrowings from the Federal Reserve System at
June 30, 1997.
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 other conditions prescribed by the Code, could benefit
from certain favorable provisions regarding deductions from taxable income for
annual additions to bad debt reserve. The amount of the bad debt deduction that
a qualifying savings institution could claim with respect to additions to its
reserve for bad debts was subject to certain limitations. We reviewed the most
favorable way to calculate the deduction attributable to an addition to our bad
debt reserve on an annual basis.
In August 1996, the Code was revised to equalize the taxation of thrifts
and banks. Thrifts, 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 must use the specific charge off method regarding bad debts. 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 approximately $330,000 of post 1987 bad-debt reserves.
Under the percentage of taxable income method, the bad debt deduction
attributable to "qualifying real property loans" could not exceed the greater of
(i) the amount deductible under the experience method, or (ii) the amount which,
when added to the bad debt deduction for non-qualifying loans, equaled the
amount by which 12% of the sum of the total deposits and the advance payments by
borrowers for taxes and insurance at the end of the taxable year exceeded the
sum of the surplus, undivided profits and reserves at the beginning of the
taxable
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year. The amount of the bad debt deduction attributable to qualifying real
property loans computed using the percentage of taxable income method was
permitted only to the extent that the institution's reserve for losses on
qualifying real property loans at the close of the taxable year did not exceed
6% of such loans outstanding at such time.
Under the experience method, the bad debt deduction may be based on (i) a
six-year moving average of actual losses on qualifying and non-qualifying loans,
or (ii) a fill-up to the institution's base year reserve amount, which is the
tax bad debt reserve determined as of December 31, 1987.
The percentage of specially computed taxable income that was used to
compute a savings institution's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") was 8% at the
time the Code was revised. The percentage of taxable income bad debt deduction
thus computed was reduced by the amount permitted as a deduction for
non-qualifying loans under the experience method. The availability of the
percentage of taxable income method permitted qualifying savings institutions to
be taxed at a lower effective federal income tax rate than that applicable to
corporations generally (approximately 31.3% assuming the maximum percentage bad
debt deduction).
If a savings institution's qualifying assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
institution may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a specified period , which is
immediately accruable for financial reporting purposes. As of December 31, 1996,
at least 60% of our assets were qualifying assets as defined in the Code. No
assurance can be given that we will meet the 60% test for subsequent taxable
years.
Earnings appropriated to our pre-1988 bad debt reserve and claimed as a tax
deduction as well as our supplemental reserves for losses will not be available
for the payment of cash dividends or for distribution to you, our stockholders
(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. As of June 30, 1997, we had $1.3 million of
accumulated earnings, representing our base year tax reserve, for which federal
income taxes have not been provided. 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%. 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
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which our adjusted current earnings exceeds our AMTI (determined without regard
to this adjustment and prior to reduction for net operating losses).
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 ourselves of the percentage of taxable income bad debt deduction method.
Our federal income tax returns have not been audited by the IRS for at
least the last five years.
Delaware State Taxation
The State of Delaware imposes a franchise tax on financial institutions of
8.7% of taxable income. Taxable income, for this purpose, is 56% of net
operating income after adjustments. These taxes have not been a material expense
for us.
As a Delaware holding company earning income in Delaware, the Company is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware. Minimum tax is generally equal to $5,000 for each 100,000
shares of authorized capital stock regardless of whether such stock has been
issued.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company consists of the same individuals who
serve as directors of our subsidiary, Ninth Ward Savings Bank, FSB. Our
certificate 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. See "MANAGEMENT OF NINTH WARD SAVINGS BANK, FSB."
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MANAGEMENT OF NINTH WARD SAVINGS BANK, FSB
Directors and Executive Officers
Our Board of Directors is composed of eight 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 executive 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.
Age at Current
June 30, Director Term
Name 1997 Position Since Expires
- ---- -------- -------- -------- -------
Dr. William R. Baldt 61 Director 1988 1998
J. Bayard Cloud 84 Chairman 1945 1999
Thomas B. Cloud 48 Director 1972 2000
Ronald P. Crouch 49 President, Chief
Executive Officer
and Director 1983 1998
Larry D. Gehrke 51 Director 1988 2000
Alan B. Levin 42 Director 1993 1999
Ernest J. Peoples 64 Vice Chairman 1964 1998
Dr. Robert L. Schweitzer 48 Director 1997 2000
Other Executive Officers
Age at
June 30,
Name 1997 Position
---- -------- --------
Jerome P. Arrison 46 Executive Vice President, Chief
Operating Officer and Treasurer
Genevieve B. Marino 32 Vice President, Retail
Banking Services
Lori N. Richards 34 Vice President, Finance and
Administration
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The principal occupation and business experience of each of the directors
is set forth below. Unless otherwise noted, the information applies for the past
five years. There are no arrangements or understandings between the Bank and any
person pursuant to which such person has been elected as a director.
Dr. William R. Baldt is currently President Emeritus of Goldey-Beacom
College in Wilmington, Delaware. Until August 30, 1996, he was the President of
the college.
J. Bayard Cloud has been Chairman of the Board since January 1, 1983. He
previously served as President of Ninth Ward from 1961 to 1982. He is the father
of Thomas B. Cloud.
Thomas B. Cloud, since December 1, 1995, has been President and Chief
Executive Officer of United Electric Supply Company, Inc. where he has been
employed since 1973 in various capacities including Controller, Vice President
of Finance and Chief Financial Officer and Executive Vice President. The firm
employs over 190 individuals and distributes electric products to industrial,
institutional and electrical construction customers in a five state area. Mr.
Cloud is the son of J. Bayard Cloud.
Ronald P. Crouch currently serves as President and Chief Executive Officer
of Ninth Ward, a position he has held since 1983. Mr. Crouch is a Certified
Public Accountant and served as a director of the Federal Home Loan Bank of
Pittsburgh from 1989 to 1996. He is a trustee of Goldey-Beacom College.
Larry D. Gehrke is a director and Vice President of Bellevue Holding
Company of Wilmington, Delaware, a real estate development concern. He has been
employed there since 1972. He holds real estate brokerage licenses from the
State of Delaware and the Commonwealth of Pennsylvania.
Alan B. Levin is Chairman, President and Chief Executive Officer of Happy
Harry's, Inc., a privately held pharmacy chain in Delaware with approximately
1,100 employees. He is a member of the Delaware Bar and a former chairman of the
Delaware Workforce Development Council and Delaware Private Industry Council. He
was formerly a member of the State Attorney General's Office in Delaware.
Ernest J. Peoples is the Vice Chairman of the board. He was a Vice
President of Ninth Ward. He is retired and was formerly an owner of a building
and construction firm.
Dr. Robert W. Schweitzer is Professor of Finance at the University of
Delaware, located in Newark, Delaware. He also serves as a faculty member of the
Stonier School of Banking and the National School of Banking at Fairfield
University.
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Executive Officers Who Are Not Directors
The following executive officers do not serve on the Board of Directors.
There are no arrangements or understandings between Ninth Ward and any person
pursuant to which such person serves as an executive officer. Except as
otherwise noted, they have been employed by Ninth Ward for the last five years.
Jerome P. Arrison has been employed by Ninth Ward since August 1989. He is
currently the Chief Operating Officer, Executive Vice President and Treasurer.
Genevieve B. Marino has been employed by Ninth Ward since November 1995 as
the Director of Marketing and Communications. She assumed her current position,
Vice President of Retail Banking Services, in July 1997. From November 1993 to
November 1995 she was the Advertising and Communications Manager of Wilmington
Savings Fund Society, FSB. Prior to that, she served in other capacities in the
Wilmington Savings Fund Society marketing department.
Lori N. Richards assumed her current position as Vice President of Finance
and Administration in July 1997. From June 1996 to July 1997 she was the
Controller of Ninth Ward. From September 1994 to June 1996 she was an accounting
supervisor at Lanxide Corporation located in Newark, Delaware. From May 1991 to
September 1994 she served as a senior financial accountant at TA Instruments,
Inc. in New Castle, Delaware. She is a Certified Public Accountant.
Board Meetings and Committees
The Board of Directors conducts its business through meetings and
activities of its committees. During the year ended December 31, 1996, the Board
of Directors held 12 regular 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 December 31, 1996. The standing committees
of the Board include the following:
Executive Committee - The Executive Committee meets as needed. It makes
recommendations to the full Board and acts on policies adopted by the full Board
in the absence of the meeting of the entire full Board. The committee did not
meeting during the year ended December 31, 1996. The committee is composed of
Messrs. Peoples (Chairman), J. Bayard Cloud, Thomas Cloud and Crouch.
Appraisal Committee - The Appraisal Committee consists of Messrs. Peoples
(Chairman), J. Bayard Cloud and Gehrke. The members of the committee review the
appraisals of the real estate collateral for certain loans. The Appraisal
Committee met five times in 1996.
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Personnel Committee - The Personnel Committee reviews and prepares
recommendations for annual salary adjustment and bonuses. The committee also
administers Ninth Ward's various benefit plans. It consists of Messrs. Gehrke
(Chairman), Levin and Dr. Schweitzer. The committee met 7 times during 1996.
Budget Committee - The Budget Committee is responsible for determining the
capital needs of Ninth Ward and making recommendations regarding how those needs
may be satisfied. The Budget Committee did not meet during 1996. It consists of
Dr. Baldt (Chairman) and Messrs. Gehrke and Crouch.
Audit Committee - The Audit Committee meets with our independent certified
public accountants annually to review the results of the annual audit and other
related matters. This committee consists of Dr. Baldt (Chairman) and Messrs.
Peoples and Levin. It did not meet during 1996 because the Bank's auditors met
with the entire Board of Directors.
Asset/Liability Committee - The Asset/Liability Committee was established
in 1997. and currently meets monthly. It consists of Messrs. Thomas Cloud
(Chairman), Levin, Crouch and Dr. Schweitzer. It is principally responsible for
management of our interest rate risk.
Director Compensation
Each of the non-employee directors is paid an annual retainer of $2,000.
Additionally, each non-employee director receives $300 for each board meeting
attended and $300 for each committee meeting attended. The maximum fee for
meetings attended for any director is $300 per day so that if we hold both a
board and committee meeting on the same day the maximum payment for attendance
is $300. Mr. Crouch receives no fees for his services on our board.
J. Bayard Cloud, the Chairman of the Board, receives a special retainer of
$28,800 per year and Ernest J. Peoples, the Vice Chairman, receives a special
retainer of $27,000 per year. These retainers are paid based on their service as
Chair and Vice Chair of the Board and for their review of appraisals.
Additionally, we currently pay a supplemental pension benefit to J. Bayard
Cloud. For 1996 the amount of that benefit was $14,291. We also pay the
Wilmington wage tax for all of our non-employe directors. This tax is currently
1.25% of gross earnings. Wilmington wage withholding for 1996 was $1,131. Total
aggregate fees paid to the current directors for the year ended December 31,
1996 were $106,920.
Deferred Non-employee Director Compensation Program
We have a deferred non-employee director compensation program, whereby
directors may defer their fees. Currently, Dr. Baldt and Mr. Gehrke participate
in this program. Pursuant to this program, directors defer their fees until
their retirement or resignation from the Board of Directors. For the year ended
December 31, 1996, $11,590 of fees were
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deferred pursuant to this program. Fees deferred pursuant to this program are
subject to the general rights of the Bank's creditors.
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our President and Executive Vice
President for the year ended December 31, 1996. No other employee earned in
excess of $100,000 in salary and bonus for the year ended December 31, 1996.
<TABLE>
<CAPTION>
Other Annual All Other
Name and Principal Position Salary Bonus Compensation(1) Compensation(2)
- --------------------------- -------- ------- -------------- --------------
<S> <C> <C> <C> <C>
Ronald P. Crouch, President and
Chief Executive Officer $116,595 $11,132 $--- $12,873
Jerome P. Arrison, Executive
Vice President and Chief
Operating Officer $ 96,606 $ 8,921 $--- $12,840
</TABLE>
- ----------
(1) Under the Other Annual Compensation category, perquisites for the year
ended December 31, 1996, did not exceed the lesser of $50,000 or 10% of the
salary and bonus as reported for Mr. Crouch.
(2) Includes amounts contributed to the pension plan for Mr. Crouch and Mr.
Arrison, respectively, during 1996.
Bonus Compensation. We have a bonus compensation plan pursuant to which our
officers can receive bonus compensation up to 20% of their salaries if certain
performance goals are met at the discretion of the Board of Directors. During
1996, Mr. Crouch and Mr. Arrison were paid bonuses of $11,132 and $8,921,
respectively. These bonuses were paid based on the Bank's performance for the
year ended December 31, 1995.
401(k) Plan. In 1997 we established a contributory savings plan for
employees which meets the requirements of Section 401(k) of the Code. All
employees who are at least 21 years old and who have completed at least one year
of service with us may elect to contribute a percentage of their compensation to
the plan each year subject to certain maximums imposed by federal law. We will
match 25% of each employee's contribution, on the first 2% of that employee's
contribution.
Participants are fully vested in the amounts they contribute to the 401(k).
Participants are fully vested in amounts contributed to the plan on their behalf
by us as employer matching contributions after seven years of service. Benefits
under the 401(k) plan are payable in the event of a participant's retirement,
death, disability, or termination of employment. Normal retirement age under the
401(k) plan is 65 years of age.
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Pension Plan. We maintain a noncontributory tax-qualified defined pension
benefit plan for eligible employees. All employees and officers with more than
1,000 hours of service per year who have attained the age of 21 and completed
one year of service are eligible to participate in the pension plan. The pension
plan provides a benefit for each participant. The annual benefit is equal to a
percentage of the average of the participant's highest five years' consecutive
salary. A participant is fully vested in his or her pension after seven years of
service. The pension plan is funded by us on an actuarial basis and all assets
are held in trust by the pension plan trustee. The following table illustrates
the annual benefit payable upon normal retirement at age 65 in the normal form
of benefit under the pension plan at various levels of average annual
compensation and years of service under the pension plan. Compensation upon
which pension is based is the average of the highest five year consecutive
salary.
Pension Plan Table
Years of Credited Service
------------------------------------------------------
Renumeration 15 20 25 30 35
------------ ------ ------ ------ ------ ------
$30,000 6,676 8,902 11,127 13,352 15,579
$50,000 12,246 16,327 20,409 24,491 28,573
$70,000 18,471 24,628 30,785 36,942 43,099
$90,000 24,696 32,928 41,160 49,392 57,625
$100,000 30,922 41,229 51,536 61,483 72,150
Mr. Crouch and Mr. Arrison have 19 years and 8 years of credited service,
respectively, at June 30, 1997.
We anticipate we will terminate the pension plan soon after the
consummation of the conversion and adoption of the ESOP.
Employee Stock Ownership Plan. The Bank has established an employee stock
ownership plan (the "ESOP") to allow participating employees to share in its
growth and profits, effective upon the successful completion of the public
offering of Bank stock following the Conversion. Participating employees are all
employees who have completed one year of service with the Bank 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 Internal Revenue
Service ("IRS"). Although no assurance can be given, it is expected that the
ESOP will receive a favorable letter of determination from the IRS.
The ESOP is to be funded by tax-deductible contributions made by the Bank
in cash or common stock. All contributions to the ESOP will be held in the trust
which is part of the ESOP and will be invested primarily in Bank stock. Shares
sold above the maximum of the EVR (i.e., more than 1,006,000 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.
The ESOP may borrow funds to acquire common stock of the Bank to be issued in
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the Conversion either at the time of the Conversion or after the Conversion
through open market purchases. The ESOP intends to borrow funds from the Company
(the "ESOP Loan") to purchase up to 8% of the common stock to be issued in the
offering (i.e., $700,000, based on the midpoint of the EVR). The ESOP Loan is
expected to be for a term of 10 years at an annual interest rate equal to the
prime rate as published in The Wall Street Journal with principal repayable in
equal installments. The ESOP Loan will be secured by a pledge of the shares
purchased by the ESOP. Shares purchased with the ESOP Loan will initially be
held in a suspense account within the ESOP. These financed shares will be
released from suspense and allocated to participants' accounts within the ESOP
as of the last day of each plan (calendar) year in proportion to the principal
paid down on the ESOP Loan during the year. The shares released from the ESOP
suspense account will be allocated among participants' accounts on the basis of
each participant's W-2 compensation from the Bank (up to a maximum of $150,000)
for the prior calendar year, plus any elective deferrals made to the Bank's
401(k) plan. The Bank anticipates contributing approximately $137,000 to the
ESOP for its first full year to meet the obligations for principal and interest
under the proposed ESOP Loan. The Bank may prepay a portion of the ESOP Loan, or
contribute additional cash or shares of Bank stock directly to the ESOP in any
year, subject to IRS rules which limit the maximum deductible employer
contributions to employee stock ownership plans. Any such contributions in
excess of the cash required to repay the ESOP Loan will be allocated among
participants on the basis of their compensation in the manner described above.
To receive an allocation, a participant must be credited with at least
1,000 hours of service during the year and be employed by the Bank on the last
day of the year, or have terminated employment during the year as a result of
death, Disability (as defined in the ESOP) or retirement at or after attaining
age 65. A participant becomes vested in his account balance as follows: after 1
year of service - 20%, 2 years - 40%, 3 years - 60%, 4 years - 80%, 5 years or
more - 100%. Full vesting is accelerated upon retirement at or after age 65,
death, Disability, or termination of the ESOP.
A participant is entitled to receive a distribution of his account balance
after the last day of the calendar quarter in which his employment terminates.
If the value of the account exceeds $3,500, a participant may defer distribution
until he attains age 65. ESOP distributions are made in a lump sum in the form
of shares of Bank stock, with the value of fractional shares distributed in
cash. A partially-vested participant who terminates service will forfeit the
nonvested portion of his ESOP account upon the earlier of (i) receiving a
distribution of his vested balance or (ii) after incurring five consecutive
One-Year Breaks in Service. A One-Year Break in Service is a calendar year
during which the participant is not credited with more than 500 hours of
service. Forfeitures are reallocated to remaining participants on the same basis
as Bank contributions to the ESOP (i.e., on the basis of compensation). A
terminated participant who is rehired before incurring five consecutive One-Year
Breaks in Service will have his forfeiture restored if he repays the full amount
of the prior ESOP distribution, without interest, within five years after being
rehired.
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The Board of Directors has appointed the Personnel Committee to administer
the ESOP and to serve as the initial ESOP Trustees. The Personnel Committee is
responsible for administering the ESOP and for instructing the ESOP Trustees
regarding the investment of any ESOP funds which cannot be invested in Bank
stock. The ESOP Trustees must vote ESOP shares which are allocated to a
participant's account in accordance with the instructions of the participant.
Unallocated shares held in the suspense account for which no timely direction is
received will be voted by the ESOP Trustees in the same proportion as allocated
shares for which voting instructions are received, subject to the Trustees'
fiduciary obligations. Allocated shares for which no instruction is received
shall not be voted. The Board of Directors may remove or replace Trustees and
members of the ESOP Committee, and may amend or terminate the ESOP at any time,
except that no amendment may be made which would reduce the interest of an
employee in the ESOP Trust, or divert assets of the ESOP to purposes which would
not benefit employees or their beneficiaries.
Proposed Future Stock Benefit Plans
Stock Option Plan. The Board of Directors of the Company intends to adopt a
stock option plan (the Option Plan) following the Conversion, subject to
approval by you and the Company stockholders, at a stockholders meeting to be
held no sooner than six months after the Conversion. The Option Plan will be in
compliance with the OTS regulations in effect. See "-- Restrictions on Benefit
Plans." 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., 87,500
shares based upon the sale of 875,000 shares at the midpoint of the EVR) would
be reserved for issuance by the Company upon exercise of stock options 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 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 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. Options would be either
"incentive stock options" or non-qualified stock options.
The Company would receive no monetary consideration for the granting of
stock options 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. Shares purchased in the
open market would reduce the percentage of ownership of the conversion shares.
However, no purchases in the open market will be made that would violate
applicable regulations restricting purchases by the Company. The exercise
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of options and payment for the shares received would contribute to the equity of
the Company. The Option Plan we issued to you in the Conversion would be
administered by the Personnel Committee.
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.
Restricted Stock Plan. The Board of Directors intends to adopt the RSP
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 RSP. If the RSP is implemented within one year after the Conversion,
in accordance with applicable OTS regulations, the shares granted under the RSP
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.
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 RSP Trustees. The RSP will be implemented in
accordance with applicable OTS regulations. See "-- Restrictions on Stock
Benefit Plans." 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 RSP would be managed by a committee of
non-employee directors (the "RSP Trustees"). The RSP Trustees would have the
responsibility to invest all funds contributed by us to the trust created for
the RSP (the "RSP Trust").
We expect to contribute sufficient funds to the RSP so that the RSP 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 RSP 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 RSP.
Based upon the sale of 875,000 shares of Common Stock in the offering at the
midpoint of the EVR, the RSP Trust is expected to purchase up to 35,000 shares
of Common Stock.
If the RSP is implemented more than one year after the Conversion, the RSP
will comply with such OTS regulations and policies that are applicable at such
time.
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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, unless an exception is granted by the OTS: (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, the shares
may not exceed 3% of the shares issued in the Conversion (4% for institutions
with 10% or greater tangible capital), (4) no individual employee may receive
more than 25% of the available awards under the Option Plan or the RSP, (5)
directors who are not employees may not receive more than 5% individually or 30%
in the aggregate of the awards under any plan, (6) all plans must be approved by
a majority of the total votes eligible to be cast at any duly called meeting of
the Company stockholders held no earlier than six months following the
Conversion, (7) for stock option plans, the exercise price must be at least
equal to the market price of the stock at the time of grant, (8) for restricted
stock plans, no stock issued in a conversion may be used to fund the plan, (9)
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), (10) the proxy material must clearly
state that the OTS in no way endorses or approves of the plans, and (11) 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.
Certain Related Transactions
We offer loans to our directors and officers. These loans are currently
made in the ordinary course of business with the same collateral, interest rates
and underwriting criteria as those of comparable transactions prevailing at the
time and do not involve more than the normal risk of collectibility or present
other unfavorable features. Under current law, our loans to directors and
executive officers are required to be made on substantially the same terms,
including interest rates, as those prevailing for comparable transactions and
must not involve more than the normal risk of repayment or present other
unfavorable features. Additionally, all loans to such persons must be approved
in advanced by a disinterested majority of the Board of Directors. At June 30,
1997, our loans to directors and executive officers totalled approximately
$400,000, or 6.6% of our retained earnings at that date.
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THE CONVERSION
Our Board of Directors and the OTS have approved the Plan subject to the
Plan's approval by a majority of votes cast by our members at a special meeting
of members to be held on _________________________ 1997 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 June 30, 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. 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 Conversion will be accounted for at historical cost in a manner
similar to a pooling of interests.
The OTS has approved the Company's application to become a savings and loan
holding company and to acquire all of our Common Stock to be issued in the
Conversion. Pursuant to such OTS approval, the Company plans to retain up to 25%
of the net proceeds from the sale of shares of its Common Stock and to use the
remaining proceeds to purchase all of the Common Stock we will issue in the
Conversion in an amount which will cause our tangible capital to reach
approximately 10% of adjusted total assets
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, shares of Common Stock may be offered in a Community
Offering. The Community Offering, if any, may commence anytime subsequent to the
commencement 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 the
Common Stock received in the Community and Syndicated Community Offering. See
"-- Community Offering" and "-- Syndicated Community Offering."
Shares of Common Stock in an amount equal to our pro forma market value as
a stock savings institution must be sold in order for the Conversion to become
effective. The Community Offering must be completed within 45 days after the
last day of the Subscription Offering period unless such period is extended by
us with the approval of the OTS. The Plan provides that the Conversion must be
completed within 24 months after the date of the approval of the Plan by our
members.
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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. No assurance can be given
that the extension would be granted if requested. Due to the volatile nature of
market conditions, no assurances can be given that our valuation would not
substantially change during any such extension. If the EVR of the shares must be
amended, no assurance can be given that such amended EVR would be approved by
the OTS. Therefore, it is possible that if the Conversion cannot be completed
within the requisite period, 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. No sales of the shares may be completed
in the offering unless the Plan is approved by our members.
The completion of the offering is subject to market conditions and other
factors beyond our control. No assurance can be given 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 delays are experienced, significant changes may
occur in our estimated pro forma market value upon Conversion 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 the Conversion is terminated, we
would be required to charge all Conversion expenses against current income and
any funds collected by us in the offering would be promptly returned to each
potential investor, plus interest at the prescribed rate.
Effects of Conversion to Stock Form on Depositors and Borrowers of Ninth
Ward Savings Bank, FSB
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
and all voting rights will be vested in the holders of the Company Common Stock.
Savings Accounts and Loans. Pursuant to our Plan the balances, terms and
FDIC insurance coverage of savings accounts will not be affected by the
Conversion and our depositors will automatically become our depositors after the
Conversion. Furthermore, the amounts and terms of loans and obligations of the
borrowers under their individual contractual arrangements with us will not be
affected by the Conversion.
Tax Effects. Our conversion is conditioned on receiving certain rulings or
opinions on the tax aspects of the Conversion. We have received an opinion from
our counsel, Peabody & Brown, which addresses the federal tax consequences of
the Conversion. The opinion has been filed as an exhibit to the registration
statement of which this prospectus is a part and covers those federal tax
matters that are material to the transaction. The opinion provides, in part,
that: (i) the Conversion will qualify as a Conversion under Section 368(a)(1)(F)
of the Code, and no gain or loss will be recognized by us in either our mutual
form or our stock
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form, or by the Company, by reason of the proposed Conversion; (ii) no gain or
loss will be recognized by us upon the receipt of money from the Company for our
stock, and no gain or loss will be recognized by the Company upon the receipt of
money for the shares; (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) provided that the amount to be paid for the shares pursuant to the
subscription rights is equal to the fair market value of such shares, no gain or
loss will be recognized by Eligible Account Holders, Supplemental Eligible
Account Holders, and Other Members under the Plan upon the distribution to them
of nontransferable subscription rights to purchase shares; (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; (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; (x) we will succeed to and take into account
the earnings and profits or deficit in earnings and profits of us, in our mutual
form, as of the date of Conversion; (xi) immediately after Conversion, we will
succeed to the bad debt reserve accounts of Ninth Ward Savings Bank, FSB in its
mutual form, and the bad debt reserves will have the same character in our hands
after Conversion as if no distribution or transfer had occurred; and (xii) the
creation of the liquidation account will have no effect on our taxable income,
deductions or addition to reserve for bad debts either in our mutual or stock
form.
The opinion from Peabody & Brown is based in part on the assumption that
the exercise price of the subscription rights to purchase shares will be
approximately equal to the fair market value of those shares at the time of the
completion of the proposed Conversion. With respect to the subscription rights,
we have received an opinion of FinPro 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
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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 Delaware income taxes and have received an opinion
from Young, Conaway, Stargatt & Taylor that the Conversion will be treated for
Delaware state tax purposes similar to the Conversion's treatment for federal
tax purposes.
Unlike a private letter ruling from the IRS, the opinions of Peabody &
Brown, FinPro and Young, Conaway, Stargatt & Taylor have no binding effect or
official status, and no assurance can be given that the conclusions reached in
any of those opinions would be sustained by a court if contested by the IRS or
the Delaware tax authorities. Eligible Account Holders, Supplemental Eligible
Account Holders, and Other Members are encouraged 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.
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
$6,086,942, our retained earnings at the date of the latest statement of
financial condition contained in this Prospectus. 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, September 30, 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 December 31 annual closing date commencing
on December 31, 1997 is less than the
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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 in the liquidation account
would cease to exist if the deposit account were closed or reaches zero. 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 and the Plan, 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, subscribers will be
resolicited. All subscriptions will be subject to the availability of stock
after satisfaction of all subscriptions of all persons having prior rights in
the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan and as described below under "-- Limitations on Purchases
of Shares."
The following priorities have been established:
Category 1: Eligible Account Holders. Each depositor of Ninth Ward with
$50.00 or more on deposit as of December 31, 1995 will receive non-transferable
subscription rights on a priority basis to purchase that number of shares of
Common Stock which is equal to the greater of 10,000 shares ($100,000) for a
single or joint account or 20,000 shares ($200,000) in the case of a purchase
with Associates, or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares to be issued by a fraction of
which the numerator is the amount of the qualifying deposit of the Eligible
Account Holder and the denominator is the total amount of qualifying deposits of
all Eligible Account Holders. If such allocation results in an oversubscription,
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 not so
allocated shall be allocated among the subscribing Eligible Account Holders on
an equitable basis, related to the amounts of their respective qualifying
deposits as compared to the total qualifying deposits of all subscribing
Eligible Account Holders. Subscription rights received
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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: Tax-Qualified Employee Benefit Plans. Our tax-qualified
employee benefit plans ("Employee Plans") have been granted non-transferable
subscription rights to purchase up to 8% of the total shares issued in the
Conversion. The ESOP is an Employee Plan.
The right of Employee Plans to subscribe for shares is subordinate to the
right of the Eligible Account Holders to subscribe for shares. However, in the
event the offering results in the issuance of shares above the maximum of the
EVR (i.e., more than 1,006,000 shares), the Employee Plans have a priority right
to fill their subscription. The ESOP is the only Employee Plan and currently
intends to purchase up to 8% of the Common Stock issued in the Conversion. The
Employee Plans may, however, determine to purchase some or all of the shares
covered by their subscriptions after the Conversion in the open market or, if
approved by the OTS, out of authorized but unissued shares in the event of an
oversubscription.
Category 3: Supplemental Eligible Account Holders. Each depositor of Ninth
Ward with $50.00 or more on deposit as of September 30, 1997 who is not an
Eligible Account Holder will receive non-transferable subscription rights to
purchase that number of shares which is equal to the greater of 10,000 shares
($100,000), or 20,000 shares ($200,000) in the case of a purchase with
Associates, or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares to be issued by a fraction of
which the numerator is the amount of the qualifying deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Supplemental Eligible Account Holders. If the allocation made in
this paragraph results in an oversubscription, 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 Employee Plans
to subscribe for shares.
Category 4: Other Members. Each depositor of Ninth Ward as of the Voting
Record Date (November __, 1997) who is not an Eligible Account Holder or
Supplemental Eligible Account Holder, and each borrower with a loan outstanding
on January 1, 1993, which continues to be outstanding on the Voting Record Date
will receive non-transferable
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subscription rights to purchase up to 10,000 shares ($100,000) or 20,000 shares
($200,000) in the case of a purchase with Associates to the extent such shares
are available following subscriptions by Eligible Account Holders, Employee
Plans, and Supplemental Eligible Account Holders. In the event there are not
enough 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 100 share (or whatever lesser amount is available) per
order basis. See "-- Limitations on Purchases and Transfer of Shares."
Expiration Date. The Subscription Offering will expire at Noon, Wilmington
Delaware Time, on December _____, 1997 unless extended for up to 45 additional
days with the approval of the OTS. Subscription rights not used by the time the
offering expires are void.
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. Where the number of persons eligible to subscribe
for shares is small, we will decide whether to offer shares based on a number of
factors. Some of these factors include the size of the accounts held by account
holders in the State, the costs required to be paid to sell shares in that
particular State and the need to register the Company or its employees or
directors under that particular State securities laws. No payments will be made
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.
Subscription rights may be exercised only by the person to whom they are granted
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. Federal 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.
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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.
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 giving preference to natural
persons who are permanent residents of the Local Community -- the State of
Delaware, Chester County and Delaware County, Pennsylvania, Cecil County,
Maryland and Salem County, New Jersey -- 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 may purchase more than 10,000 shares
($100,000) for a single purchaser or 20,000 shares ($200,000) when aggregated
with the purchases by an Associate of such person and persons acting in concert
with such persons. In the event there are not sufficient shares to fill all
orders, the remaining shares would be allocated in the same manner as shares
would be allocated in the "Other Members" category. See "-- Subscription Rights
and the Subscription Offering -- Category 4: Other Members."
The Community Offering may commence at any time after the commencement of
the Subscription Offering. The Community Offering once commenced, may expire at
any time without notice but no later than 12:00 p.m., Eastern Time, on
___________, 1997 unless extended 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, funds received by us
will be promptly refunded 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 Local Community. 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 the Purchase Price. The offering
extensions cannot be provided beyond November ______ 1999.
Syndicated Community Offering
The Plan provides that, if necessary, all shares of Common Stock not
purchased in the Subscription Offering and Community Offering, if any, may be
offered for sale to certain members of the general public in a Syndicated
Community Offering through a syndicate of
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register broker-dealers to be managed by Trident acting as agent for the
Company. The Company has the right to reject orders in whole or part in their
sole discretion in the Syndicated Community Offering. Neither Trident nor any
registered broker-dealer shall have any obligation to take or purchase any of
the Common Stock in the Syndicated Community Offering. However, Trident has
agreed to use its best efforts in the sale of shares in the Syndicated Community
Offering.
Stock sold in the Syndicated Community Offering also will be sold at the
$10.00 Purchase Price. See, "-- Stock Pricing." No person shall be permitted to
subscribe in the Syndicated Community Offering for shares of Common Stock with
an aggregate purchase price of more than $100,000. See, " -- Payment for Shares
and -- Marketing Arrangements" for a description of the commission to be paid to
selected dealers and to Trident.
Ordering and Receiving Shares
Use of Order Forms. 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, facsimiled order forms, payments from private third
parties or payments through electronic transfers of funds will not be accepted.
Our interpretation of the terms and conditions
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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. 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 passbook 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 savings 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. Payments from private third parties or payments through
electronic transfer of funds will not be accepted. 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 event 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 IRAs 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.
Trident may enter into agreements with broker-dealers ("Selected Dealers")
to assist in the sale of the shares in the Syndicated Community Offering. See
also "-- Plan of Distribution" and "-- Marketing Arrangements." No orders may be
placed or filled by or for a
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Selected Dealer during the Subscription Offering. If a Syndicated Community
Offering is utilized after the close of the Subscription Offering, Trident will
instruct Selected Dealers as to the number of shares to be allocated to each
Selected Dealer. Only after the close of the Subscription Offering and upon
allocation of shares to Selected Dealers may Selected Dealers take orders from
their customers. During the Subscription and Community Offerings, Selected
Dealers may only solicit indications of interest from their customers to place
orders with the Company as of a certain date ("Order Date") for the purchase of
shares. When and if Trident and the Company believe that sufficient orders have
not been received in the Subscription and the Community Offerings to consummate
the Conversion, Trident will request, as of the Order Date, Selected Dealers to
submit orders to purchase shares for which they have previously received
indications of interest from their customers. Selected Dealers will send
confirmations of the orders to their customers on the next business day after
the Order Date. Selected Dealers will debit the accounts of their customers on
the "Settlement Date". The Settlement Date will be three business days after the
Order Date. Customers who authorize Selected Dealers to debit their brokerage
accounts are required to have the funds for payment in their account by the
Settlement Date. On the Settlement Date, Selected Dealers will remit funds to
the account established by us for each Selected Dealer. Each customer's funds so
forwarded to us along with all other accounts held in the same title, will be
insured by the FDIC up to $100,000. After payment has been received by us from
Selected Dealers, funds will earn interest at our passbook savings account rate
until the consummation of the Conversion. Funds will be returned promptly, with
interest, in the event the Conversion is not consummated as described above.
However, Selected Dealers who do not hold or receive funds for customers or
carry accounts of, or for, customers will (1) instruct their customers who wish
to subscribe in the offering to make their checks payable to us and (2) will
transmit customer checks directly to us by noon of the next business day after
receipt by such Selected Dealer.
The ESOP may subscribe for shares by submitting its order form along with
evidence of a loan commitment from a financial institution or the Company for
the purchase of the shares during the Subscription Offering and by making
payment for shares on the date of completion of the Conversion.
Federal regulations prohibit us from lending funds or extending credit to
any person to purchase shares in the Conversion.
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 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.
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Plan of Distribution
Materials for the offering have been distributed to eligible subscribers by
mail. Additional copies are available at our main office. Our officers may be
available to answer questions about the Conversion. Responses to questions about
us will be limited to the information contained in this Prospectus. Officers
will not be authorized to render investment advice. All subscribers for the
shares being offered will be instructed to send payment directly to us. The
funds will be held in a segregated special escrow account and will not be
released until the closing of the Conversion or its termination.
Marketing Arrangements
Trident has been engaged as our financial advisor in connection with the
offering. Trident has agreed to exercise its best efforts to assist us in the
sale of the shares in the offering. As compensation, Trident will receive a
commission equal to 1.5% of the aggregate dollar amount of capital stock sold to
investors, except no commissions shall be payable on shares purchased by
officers, directors, employees or their associates or employee benefit plans. If
shares are offered for sale in another form of offering, Trident will organize
and manage the offering for no additional fee. Commissions to be paid to any
such persons for such offering will be at the discretion of the management of
the Company and is not expected to exceed 5%. Fees paid to Trident and to any
other broker-dealer may be deemed to be underwriting fees, and Trident and such
broker-dealers may be deemed to be underwriters. We have agreed to reimburse
Trident for allocable expenses, including legal fees, of up to $27,500 in the
aggregate. Trident will also be reimbursed for out-of-pocket expenses not to
exceed $10,000. Also, we have agreed to indemnify Trident for reasonable costs
and expenses in connection with certain claims or liabilities which might be
asserted against Trident. 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 and us or the omission or alleged omission of a material fact required
to be stated or necessary in the prospectus or other documents. Trident will
also receive a fee of $10,000 for proxy solicitation and Conversion Center
management.
The shares will be offered principally by the distribution of this
Prospectus and through activities conducted at a Stock Information Center
located at our main office. The Stock Information Center is expected to operate
during our normal business hours throughout the offering. A registered
representative employed by Trident will be working at, and supervising the
operation of, the Stock Information Center. Trident 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 with clerical matters and to answer questions related solely to our
business.
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Stock Pricing
FinPro, 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 has been retained by us
to prepare an appraisal of our estimated pro forma market value. FinPro will
receive a fee of $14,000 for preparing the appraisal and $10,000 for its
assistance in connection with the preparation of the business plan required in
connection with the conversion and will be reimbursed reasonable out-of-pocket
expenses. We have agreed to indemnify FinPro 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
FinPro.
The appraisal was prepared by FinPro 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 Delaware which affect the operations of savings institutions, and stock
market values of certain savings institutions. In addition, FinPro 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, FinPro has determined, in its opinion, that as
of ____________, 1997 our estimated aggregate pro forma market value was
$8,750,000. 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,
FinPro has established a range of value from $7,440,000 to $10,060,000 for the
offering (the Estimated Valuation Range or EVR). The Estimated Valuation Range
will be updated by FinPro prior to consummation of the Conversion and the
Estimated Valuation Range may increase to $11,570,000.
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 FinPro must confirm to the OTS that,
to the best of FinPro's knowledge and judgment, nothing of a material nature has
occurred which would cause FinPro to conclude that the Purchase Price on an
aggregate basis was materially incompatible with FinPro'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 and a new Subscription and Community Offering may take place or
such other actions as the Board of Directors may determine or OTS may require.
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The appraisal is not a recommendation of any kind as to the advisability of
purchasing these shares. In preparing the appraisal, FinPro has relied upon and
assumed the accuracy and completeness of financial and statistical information
provided by us. FinPro did not independently verify the financial statements and
other information provided by us, nor did FinPro 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 per
share.
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 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 $7,440,000 or more than
$11,570,000.
In the event market or financial conditions change so as to cause the
aggregate number of shares issued in the Conversion to be below the EVR, or more
than 15% above the maximum of the EVR, if the Plan is not terminated by the
Company and the Bank after consultation with the OTS, purchasers will be
resolicited (i.e., permitted to continue their orders in which case they will
need to affirmatively reconfirm their subscriptions prior to the expiration of
the resolicitation offering or their subscription funds will be promptly
refunded, or permitted to modify or rescind their subscriptions). Any change in
the EVR must be approved by the OTS. If the number of shares issued in the
Conversion increase, persons who subscribe to the maximum number of shares will
not be given to the opportunity to subscribe for an adjusted maximum number of
shares, except for the ESOP which will able to be subscribed for an adjusted
amount.
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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 and
the maximum purchase for any individual person, or group of persons ordering
through a single or joint account, is 10,000 shares or 20,000 shares when the
total purchases of associates is included. No persons, together with associates,
or group of persons acting in concert, may purchase more than 20,000 shares
except for the ESOP which may purchase up to 8% 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 33% of the shares
issued pursuant to the Conversion.
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 EVR of up to 15% (the "Adjusted Maximum"),
the additional shares will be allocated in the following order of priority: (i)
in the event of an oversubscription by Eligible Account Holders to fill the ESOP
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
oversubscription by Eligible Account Holders, to fill unfilled subscriptions of
Eligible Account Holders inclusive of the Adjusted Maximum; (iii) in the event
that there is an oversubscription by Supplemental Eligible Account Holders, to
fill unfilled subscriptions to Supplemental Eligible Account Holders inclusive
of the Adjusted Maximum; (iv) in the event that there is an oversubscription by
Other Members, to fill unfilled subscriptions of Other Members inclusive of the
Adjusted Maximum; and (v) to fill unfilled subscriptions in the Community
Offering to the extent possible, inclusive 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 a trustee 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.
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The term "officer" may include our president, vice presidents in charge of
principal business functions, Secretary and Treasurer and any other officer
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 residing in the Local Community, means any natural person who occupies a
dwelling within the Local Community, has an intention to remain within the Local
Community (manifested by establishing a physical, on-going, non-transitory
presence within the Local Community), and continues to reside in the Local
Community at the time of the Subscription and Community 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 the Local Community. To the extent
the person is a personal benefit plan, the circumstances of the beneficiary
shall be utilized. Such determination will be in our sole discretion.
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.
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. However,
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the OTS may grant special permission to repurchase shares after six months
following the Conversion and to repurchase more than five percent during each of
the second and third years. 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.
Interpretation and Amendment of the Plan
We have the authority 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 Prospectus 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.
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RESTRICTIONS ON ACQUISITION OF THE COMPANY
A number of provisions of the Company's Certificate of Incorporation and
bylaws deal with matters of corporate governance and certain rights of
shareholders. These provisions allow the Board of Directors flexibility to
analyze and consider corporate transactions in order to maximize benefits to
shareholders. However, they may also serve to prevent individual shareholders
from participating in a transaction if the Board does not deem the transaction
to be beneficial to shareholders, even if individual shareholders desire to do
so. The following discussion is a general summary of certain provisions of the
Company's Certificate of Incorporation and Bylaws and certain other statutory
and regulatory provisions relating to stock ownership and transfers, the Board
of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect. Such provisions may have the effect of
rendering the removal of the current Board of Directors of the Company more
difficult. The following description of certain of the provisions of the
Certificate of Incorporation and bylaws of the Company is necessarily general
and reference should be made in each case to such Certificate of Incorporation
and bylaws, which are incorporated herein by reference. See "ADDITIONAL
INFORMATION" for instructions on how to obtain a copy of these Prospectus.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. In addition, no person may directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of equity securities of the Company. Beneficial ownership is
determined pursuant to Rule 13d-3 of the General Rules and Regulations
promulgated pursuant to the Exchange Act, and includes shares beneficially owned
by such person or any of his affiliates (as defined in the Certificate of
Incorporation), shares which such person or his affiliates have the right to
acquire upon the exercise of conversion rights or options and shares as to which
such person and his affiliates have or share investment or voting power, but
shall not include shares beneficially owned by the benefit plans of the Board or
directors, officers and employees of the Bank or the Company as a group or
shares that are subject to a revocable proxy and that are not otherwise
beneficially owned, or deemed by the Company to be beneficially owned, by such
person and his affiliates. The Certificate of Incorporation of the Company
further provides that this provision limiting voting rights may only be amended
upon the vote of 80% of the outstanding shares of voting stock (after giving
effect to the limitation on voting rights).
Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation
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<PAGE>
and bylaws provide that the size of the Board shall be determined by a majority
of the directors. The Certificate of Incorporation and the bylaws provide that
any vacancy occurring in the Board, including a vacancy resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
shall be filled for the remainder of the unexpired term exclusively by a
majority vote of the directors then in office. The classified Board is intended
to provide for continuity of the Board of Directors and to make it more
difficult and time consuming for a shareholder group to fully use its voting
power to gain control of the Board of Directors without the consent of the
incumbent Board of Directors of the Company. The Certificate of Incorporation of
the Company provides that a director may be removed from the Board of Directors
prior to the expiration of his term only for cause, upon the vote of 80% of the
outstanding shares of voting stock. Further, if the director reaches normal
retirement age, and is no longer regularly employed in his trade profession or
business, he shall be deemed to have retired from the Board as well within 120
days of such retirement. Directors who have not reached normal retirement age
and who intend to resume their trade profession or business are not deemed to
have retired from the Board. Directors who were directors of the Company at the
time of its incorporation are not covered by this provision.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of shareholders of the Company may be called
only by the Board of Directors of the Company. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
shareholders of the Company may be taken only at an annual or special meeting
and prohibits shareholder action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the issuance
of 3,000,000 shares of Common Stock and 500,000 shares of preferred stock. The
shares of Common Stock and preferred stock were authorized in an amount greater
than that to be issued pursuant to 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
employee stock options. However, these additional authorized shares may also be
used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board has the power, to the extent consistent with its fiduciary 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
107
<PAGE>
control, and thereby assist management to retain its position. The Company's
Board of Directors currently has no plans for the issuance of additional shares
upon the exercise of stock options.
Shareholder Vote Required to Approve Business Combinations with Principal
Shareholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock to
approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of all or substantially all of the
assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of Common Stock
of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of shareholders is required in connection
with any transaction involving an Interested Shareholder (as defined below)
except (i) in cases where the proposed transaction has been approved in advance
by a majority of those members of the Company's Board of Directors who are
unaffiliated with the Interested Shareholder and were directors prior to the
time when the Interested Shareholder became an Interested Shareholder or (ii) if
the proposed transaction meets certain conditions set forth therein which are
designed to afford the shareholders a fair price in consideration for their
shares in which case, if a shareholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The term
"Interested Shareholder" is defined to include any individual, corporation,
partnership or other entity (other than the Company or its subsidiary) which
owns beneficially or controls, directly or indirectly, 15% or more of the
outstanding shares of voting stock of the Company. This provision of the
Certificate of Incorporation applies to any "Business Combination," which is
defined to include (i) any merger or consolidation of the Company or any of its
subsidiaries with or into any Interested Shareholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Shareholder; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
Interested Shareholder or Affiliate of 10% or more of the assets of the Company
or combined assets of the Company and its subsidiary; (iii) the issuance or
transfer to any Interested Shareholder or its Affiliate by the Company (or any
subsidiary) of any securities of the Company in exchange for any assets, cash or
securities the value of which equals or exceeds 10% of the fair market value of
the Common Stock of the Company; (iv) the adoption of any plan for the
liquidation or dissolution of the Company proposed by or on behalf of any
Interested Shareholder or Affiliate thereof and (v) any reclassification of
securities, recapitalization, merger or consolidation of the Company which has
the effect of increasing the proportionate share of Common Stock or any class of
equity or convertible securities of the Company owned directly or indirectly by
an Interested Shareholder or Affiliate thereof.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to
108
<PAGE>
vote (after giving effect to the provision limiting voting rights) is required
to amend or repeal certain provisions of the Certificate of Incorporation,
including the provision limiting voting rights, the provisions relating to
approval of certain business combinations, calling special meetings, the number
and classification of directors, director and officer indemnification by the
Company and amendment of the Company's bylaws and Certificate of Incorporation.
The Company's bylaws may be amended by its Board of Directors, or by the vote of
a majority of the shares present in person or by proxy and entitled to a vote at
any annual or special meeting except for those instances where the Certificate
of Incorporation requires a vote of 80% of the total votes eligible to be voted
at a duly constituted meeting of shareholders for amendment.
Certain Bylaw Provisions. The Bylaws of the Company also require a
shareholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a shareholder meeting to give at least
120 days advance notice to the Secretary of the Company. The notice provision
requires a shareholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
shareholder and the shareholder's interest in the business matter. Similarly, a
shareholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing shareholder.
Benefit Plans. In addition to the provisions of the Company's certificate
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 NINTH WARD SAVINGS BANK -- Proposed Future Stock Benefit Plans."
Regulatory Restrictions. A federal regulation prohibits any person prior to
the completion of a conversion from transferring, or entering into any agreement
or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. 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% 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.
109
<PAGE>
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.
Delaware Corporate Law
In addition, the state of Delaware has a statute designed to provide
Delaware corporations such as the Company with additional protection against
hostile takeovers. The takeover statute, which is codified in Section 203 of the
Delaware General Corporation law
110
<PAGE>
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Shareholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Shareholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Shareholder, the Board of Directors approved either the business
combination or the transaction which resulted in the shareholder becoming an
Interested Shareholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Shareholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Shareholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Shareholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The Company is authorized to issue 3,000,000 shares of the Common Stock,
$0.01 par value per share, and 500,000 shares of serial preferred stock, $0.01
par value per share. The Company currently expects to issue up to 1,006,000
shares of Common Stock in the Conversion.
Dividends. The Company can pay dividends if and when declared by its Board
of Directors. See "DIVIDEND POLICY" and "REGULATION." The holders of Common
Stock of the Company will be entitled to receive and share equally in such
dividends as may be declared by the Board of Directors of the Company out of
funds legally available therefor. If the Company issues preferred stock, the
holders thereof may have a priority over the holders of the Common Stock with
respect to dividends.
111
<PAGE>
The Company does not intend to issue any shares of serial preferred stock
in the Conversion, nor are there any present plans to issue such preferred stock
following the Conversion. The aggregate par value of the issued shares will
constitute the capital account of the Company. The balance of the purchase price
will be recorded for accounting purposes as additional paid-in capital. See
"CAPITALIZATION." The capital 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 serial 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.
Each share of the Company's Common Stock will have the same relative rights
as, and will be identical in all respects with, each other share of Common
Stock. Upon payment of the purchase price for the Common Stock all such stock
will be duly authorized, fully paid and nonassessable.
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 serial 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.
Restrictions on Acquisition of the Common Stock. See "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.
112
<PAGE>
Issuance of Additional Shares. Except in the Subscription and Community
Offerings and possibly pursuant to the RSP or Option Plan, the Company has no
present plans, proposals, arrangements or understandings to issue additional
authorized shares of the Common Stock. In the future, the authorized but
unissued and unreserved shares of the Common Stock will be available for general
corporate purposes, including, but not limited to, possible issuance: (i) as
stock dividends; (ii) in connection with mergers or acquisitions; (iii) under a
cash dividend reinvestment or stock purchase plan; (iv) in a public or private
offering; or (v) under employee benefit plans. See "RISK FACTORS -- Possible
Dilutive Effect of RSP and Stock Options and Effect of Purchases by the RSP and
ESOP" and "PRO FORMA DATA." Normally no stockholder approval would be required
for the issuance of these shares, except as described herein or as otherwise
required to approve a transaction in which additional authorized shares of the
Common Stock are to be issued.
For additional information, see "DIVIDENDS," "REGULATION" and "TAXATION"
with respect to restrictions on the payment of cash dividends; and "RESTRICTIONS
ON ACQUISITION OF THE COMPANY" for information regarding restrictions on
acquiring Common Stock of the Company.
Serial Preferred Stock
None of the 500,000 authorized shares of serial preferred stock of the
Company will be issued in the Conversion. After the Conversion is completed, the
Board of Directors of the Company will be authorized to issue serial preferred
stock and to fix and state voting powers, designations, preferences or other
special rights of such shares and the qualifications, limitations and
restrictions thereof, 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 Peabody &
Brown, Washington, D.C. Certain legal matters for Trident will be passed upon by
Elias, Matz, Tiernan & Herrick, L.L.P., Washington, D.C. The federal income tax
consequences of the Conversion have been passed upon for us by Peabody & Brown,
Washington, D.C. The Delaware income tax consequences of the Conversion have
been passed upon for us by Young, Conaway, Stargatt & Taylor.
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<PAGE>
EXPERTS
The financial statements of Ninth Ward Savings Bank as of and for the years
ended December 31, 1996 and 1995 included in this Prospectus have been audited
by Deloitte & Touche, LLP, independent auditors, as set forth in their report
appearing herein, and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
FinPro has consented to the publication herein of a summary of its letters
to Ninth Ward Savings Bank 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 Prospectus.
REGISTRATION REQUIREMENTS
The Common Stock of the Company will be registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
prior to completion of the Conversion. The Company will be subject to the
information, proxy solicitation, insider trading restrictions, tender offer
rules, periodic reporting and other requirements of the SEC under the Exchange
Act. The Company may not deregister the Common Stock under the Exchange Act for
a period of at least three years following the Conversion.
ADDITIONAL INFORMATION
The Company and Ninth Ward Savings Bank are not currently subject to the
informational requirements of the Exchange Act.
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 Prospectus. As permitted by the rules and regulations of the
SEC, this Prospectus does not contain all the information set forth in the
registration statement. Such information can be examined without charge at the
public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of such material can be obtained from the SEC
at prescribed rates. The 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 Prospectus as to the contents of any contract or other
document filed as an exhibit to the Form SB-2 are, of necessity, brief
descriptions and are not necessarily complete; each such statement is qualified
by reference to such contract or document.
114
<PAGE>
Ninth Ward 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 Prospectus omits certain information contained in that Application.
The Application may be examined at the principal office of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552 and at the Northeast Regional Office of the
OTS, 10 Exchange Place, 18th Floor, Jersey City, NJ 07302 without charge.
A copy of the Certificate and the Bylaws of the Company are available
without charge from Ninth Ward Savings Bank by contacting Genevieve Marino at
(302) 421-9090.
115
<PAGE>
Ninth Ward Savings
Bank, FSB
Financial Statements for the Years Ended December
31, 1996 and 1995 and Independent Auditors' Report
and Interim Financial Statements for the Six-Month
Periods Ended June 30, 1997 and 1996 (Unaudited)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Ninth Ward Savings Bank, FSB:
We have audited the accompanying statements of financial condition of Ninth Ward
Savings Bank, FSB (the "Bank") as of December 31, 1996 and 1995, and the related
statements of operations, changes in 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, such financial statements present fairly, in all material
respects, the financial position of Ninth Ward Savings Bank, FSB at December 31,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/
- --------------------------
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 7, 1997 (May 21, 1997 as to Note 10)
<PAGE>
NINTH WARD SAVINGS BANK, FSB
STATEMENTS OF FINANCIAL CONDITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
June 30, ------------------
ASSETS 1997 1996 1995
- ------ ---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash and cash equivalents ............ $ 2,838,215 $ 2,643,452 $ 1,060,856
Investment securities held to maturity
(fair value - $11,449,156) .......... 11,488,192
Investment securities available for
sale (amortized cost - 1997,
$5,998,746; 1996, $6,494,860) ....... 5,992,005 6,475,800
Mortgage-backed securities held to
maturity (fair value - $705,680) .... 698,669
Mortgage-backed securities available
for sale (amortized cost - 1997,
$188,666; 1996, $200,666) ........... 190,414 203,147
Loans receivable-net ................. 92,919,385 98,042,118 78,835,306
Loans held for sale .................. 5,547,674 1,020,000
Federal Home Loan Bank stock -
at cost ............................. 1,332,500 1,500,000 727,500
Accrued interest receivable:
Loans ............................... 999,064 975,244 664,189
Investments ......................... 94,666 93,526 180,304
Mortgage-backed securities .......... 1,111 1,171 3,886
Office property and equipment, net ... 1,983,423 2,020,957 2,103,463
Prepaid expenses and other assets .... 86,527 66,012 75,166
Prepaid income taxes ................. 63,564 166,850
Mortgage servicing rights ............ 322,533 317,435 297,969
Deferred taxes taxes ................. 173,618 177,506 221,704
------------ ------------ ------------
TOTAL ASSETS ......................... $112,544,699 $112,683,218 $ 97,377,204
============ ============ ============
LIABILITIES AND RETAINED EARNINGS
Liabilities:
Deposits............................. $ 78,351,363 $ 78,408,793 $ 81,522,249
Advances from Federal Home Loan Bank 25,200,000 25,900,000 7,950,000
Advances by borrowers for taxes
and insurance....................... 1,879,033 812,569 652,533
Accrued interest payable............. 276,461 265,764 220,553
Accrued income taxes................. 135,890
Accounts payable and accrued expenses 750,900 1,338,503 833,073
------------ ------------ -------------
Total liabilities.................. 106,457,757 106,725,629 91,314,298
Commitments
Retained earnings..................... 6,090,170 5,968,365 6,062,906
Unrealized losses on available for
sale securities, net of tax.......... (3,228) (10,776)
----------- ----------- ------------
Total retained earnings............. 6,086,942 5,957,589 6,062,906
----------- ----------- ------------
TOTAL LIABILITIES AND
RETAINED EARNINGS.................... $ 112,544,699 $ 112,683,218 $97,377,204
============= ============= ===========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
NINTH WARD SAVINGS BANK, FSB
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six-Month Period Ended Year Ended
June 30, December 31,
------------------------ --------------------------
1997 1996 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans ................ $ 3,797,982 $ 3346,748 $ 7,092,065 $ 6,408,566
Interest on mortgage-backed
securities ...................... 6,821 22,141 38,982 40,336
Interest and dividends on
investments ..................... 267,555 393,758 791,062 843,845
----------- ----------- ----------- -----------
Total interest income ......... 4,072,358 3,762,647 7,922,109 7,292,747
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits ......................... 2,196,245 2276,637 4,497,657 4,351,008
Federal Home Loan Bank
advances ........................ 780,646 364,473 1,252,482 704,133
----------- ----------- ----------- -----------
Total interest expense ......... 2,976,891 2,641,110 5,750,139 5,055,141
----------- ----------- ----------- -----------
NET INTEREST INCOME ............... 1,095,467 1,121,537 2,171,970 2,237,606
PROVISION FOR LOAN LOSSES ......... 10,000 26,000 47,000 5,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ........ 1,085,467 1,095,537 2,124,970 2,232,606
----------- ----------- ----------- -----------
OTHER INCOME:
Service fees ..................... 47,563 98,840 189,604 51,700
Gain on sale of loans ............ 16,632 48,766 68,629 438,970
Realized market adjustment
on loans ........................ 10,691 11,060
Other ............................ 10,027 9,664 46,543 18,469
----------- ----------- ----------- -----------
Total other income ............. 84,913 157,270 304,776 520,199
----------- ----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits ... 477,953 511,016 916,635 941,086
Advertising ...................... 101,210 142,024 202,825 169,170
Federal insurance premiums ....... 15,265 94,053 187,057 171,097
SAIF Special Assessment .......... 491,992
Occupancy expense ................ 101,425 135,238 214,968 236,687
Data processing expense .......... 69,761 65,703 121,121 103,178
Directors fees ................... 53,738 57,046 105,817 99,036
Other general and administrative
expenses ........................ 141,223 176,881 352,872 347,957
----------- ----------- ----------- -----------
Total other expenses .......... 960,575 1,181,961 2,593,287 2,068,211
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES ....... 209,805 70,846 (163,541) 684,594
----------- ----------- ----------- -----------
PROVISION BENEFIT FOR INCOME TAXES:
Current .......................... 88,000 30,000 (119,000) 214,670
----------- ----------- ----------- -----------
Deferred ......................... 50,000 50,000
----------- ----------- ----------- -----------
Total provision (benefit) for
income taxes ................. 88,000 30,000 (69,000) 264,670
----------- ----------- ----------- -----------
NET INCOME (LOSS) ................. $ 121,805 $ 40,846 $(94,541) $419,924
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
NINTH WARD SAVINGS BANK, FSB
STATEMENTS OF CHANGES IN RETAINED EARNINGS
- --------------------------------------------------------------------------------
Unrealized
Losses on
Available Total
Retained for Sale Retained
Earnings Securities Earnings
-------- ---------- --------
BALANCE, JANUARY 1, 1995 .............. $ 5,642,982 $ 5,642,982
Net income for the year ended
December 31, 1995 ................... 419,924 419,924
----------- -----------
BALANCE, DECEMBER 31, 1995 ............ 6,062,906 6,062,906
Net loss for the year ended
December 31, 1996 ................... (94,541) (94,541)
Unrealized losses on available
for sale securities, net of tax .... $(10,776) (10,776)
----------- --------- ----------
BALANCE, DECEMBER 31, 1996 ............ 5,968,365 (10,776) 5,957,589
Net income for the six-month
period ended June 30, 1997
(unaudited) .......................... 121,805 121,805
Change in unrealized losses
an available for sale securities,
net of tax (unaudited) .............. 7,548 7,548
----------- --------- ---------
BALANCE, JUNE 30, 1997 1997 (UNAUDITED) $ 6,090,170 $(3,228) $6,086,942
=========== ========= =========
See notes to financial statements.
F-4
<PAGE>
NINTH WARD SAVINGS BANK, FSB
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six-Month Period Ended Year Ended
June 30, December 31,
-------------------------- -------------------------------
1997 1996 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ............... $ 121,805 $ 40,846 $ (94,541) 5,419,924
Adjustments to reconcile
net income (loss) to net
cash (used in) provided by
operating activities:
Depreciation ................... 58,079 93,959 121,751 164,780
Provision for loan losses .... 10,000 26,000 47,000 5,000
Gain on sale of investment
and mortgage-backed
securities .................. (6,925)
Gain on sale of loans ........ (12,144) (16,727) (68,629) (438,970)
Realized market adjustment
on loans .................... (19,439) (11,060)
Amortization of:
Deferred loan fees .......... (40,988) (7l,159) (130,226) (126,475)
Discount on investment and
mortgage-backed securities .. (4,048) (3,803) (8,827) (6,782)
Changes in assets and
liabilities which provided
(used) cash:
Accrued interest receivable .. (24,900) (250,824) (221,562) (170,295)
Mortgage servicing rights .... (5,098) 58,868 (19,466) (297,969)
Prepaid expenses and other
assets ...................... (20,515) (2,230) 9,153 (7,296)
Accrued interest payable ..... 10,697 (46,108) 45,211 (24,932)
Accounts payable and
accrued expenses ............ (587,603) 177,515 505,430 28,720
Income taxes ................. 103,286 (340,140) (252,740) 452,205
Deferral of loan fees ........ 57,420 179,484 379,572 564,350
------------ ------------ ------------ ------------
Net cash (used in) provided
by operating activities ... (353,448) (154,319) 305,201 551,200
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of investments
held to maturity ............... 2,996,406
Proceeds from maturity of
investments .................... 500,000 3,999,844 6,998,205 7,500,000
Principal collected on long-term
loans and mortgage-backed
securities ..................... 6,463,211 8,010,488 15,576,441 9,865,735
Long-term loans originated ...... (7,999,170) (20,587,053) (38,236,036) (47,296,058)
Proceeds from sale of loans ..... 1,128,181 1,013,297 4,407,397 29,869,979
Proceeds from sale of
mortgage-backed securities
held to maturity ............... 346,427
Sale of Federal Home Loan
Bank stock .................... 277,300 28,200 263,200 25,700
Purchase of Federal Home
Loan Bank stock .............. (109,800) (435,700) (1,035,700) (104,400)
Purchase of investments ........ (3,997,375) (4,996,281) (6,997,017)
Proceeds from sale of real
estate owned .................. 63,000
Purchases of premises and
equipment ..................... (20,545) (13,304) (39,244) (62,167)
------------ ------------ ------------ ------------
Net cash provided
by (used in) investing
activities ................ 239,177 (11,981,603) (13,719,185) (7,135,228)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Net (decrease) increase in
deposits ....................... (57,430) (2,135,009) (3,113,456) 11,025,699
Increase in advances by
borrowers for taxes and
insurance ...................... 1,066,464 1,125,935 160,036 123,382
Proceeds from Federal Home
Loan Bank advances ............. 38,345,726 41,031,957 79,119,823 26,950,000
Repayments of Federal Home
Loan Bank advances ............ (39,045,726) (26,281,957) (61,169,823) (31,900,000)
------------ ------------ ------------ ------------
Net cash provided by
financing activities ........ 309,034 13,740,926 14,996,580 6,199,081
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ....... 194,763 1,605,004 1,582,596 (384,947)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ............. 2,643,452 1,060,856 1,060,856 1,445,803
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ................... $ 2,838,215 $ 2,665,860 $ 2,643,452 $ 1,060,856
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period
for:
Interest ...................... $ 2,966,194 $ 2,687,219 $ 5,704,928 $ 5,080,072
============ ============ ============ ============
Income taxes .................. $ 9,978 $ 310,140 $ 310,140 $ 31,018
============ ============ ============ ============
</TABLE>
See notes to financial statements
F-5
<PAGE>
NINTH WARD SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Ninth Ward Savings Bank, FSB (the "Bank") is a federally chartered savings
and loan association. The Bank is a member of the Federal Home Loan Bank
System and has its savings accounts insured to the applicable limits by the
Federal Deposit Insurance Corporation ("FDIC").
The Bank's primary market is concentrated in New Castle County, Delaware,
to which it offers mainly conventional residential real estate loans on new
and existing properties and mortgage refinancing. Since 1994, the Bank has
been active in offering equity lines of credit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and Liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Unaudited Financial Statements - The financial statements as of
June 30, 1997 and for the six-month periods ended June 30, 1997 and 1996
are unaudited, but in management's opinion, reflect all adjustments
necessary for a fair presentation.
Interest on Loans - The Bank recognizes interest on loans when earned. The
Bank does not recognize interest on loans deemed to be uncollectible,
generally when a loan is three months or more delinquent. Such interest
ultimately collected is credited to income in the period of recovery.
Investment and Mortgage-Backed Securities - The Bank accounts for debt and
equity securities as follows:
Held to Maturity - Debt securities that management has the positive
intent and ability to hold until maturity are classified as held to
maturity and are carried at their remaining unpaid principal balance,
net of unamortized premiums or unaccreted discounts. Premiums are
amortized and discounts are accreted using a method which produces
results which approximate the interest method over the period
remaining until maturity.
Available for Sale - Debt and equity securities that will be held for
indefinite periods of time, including securities that may be sold in
response to changes in market interest or prepayment rates, needs for
liquidity, and changes in the availability of and the yield of
alternative investments, are classified as available for sale. These
assets are carried at fair value. Fair value is determined using
published quotes as of the close of business. Unrealized gains and
losses are excluded from earnings and are reported net of tax as a
separate component of retained earnings until realized.
F-6
<PAGE>
Office Property and Equipment - Office property and equipment is recorded
at cost. Depreciation is computed using either the straight-line method or
an accelerated method over the expected useful lives of the assets, ranging
from three to fifty years. The costs of maintenance and repairs are
expensed as they are incurred, and renewals and betterments are
capitalized.
Loan Fees - The Bank defers all loan fees, net of certain costs, and
accretes them into income over the contractual life of the loan using the
interest method.
Allowance for Loan Losses - The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is based
on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral, and current
economic conditions.
The Bank has adopted Statement of Financial Accounting Standards ("SFAS")
Nos. 114 and 118, Accounting by Creditors for Impairment of a Loan and
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures, respectively. SFAS No. 114 requires that certain impaired
loans be measured based either on the present value of expected future cash
flows discounted at the loan's effective interest rate, or the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent.
Federal Home Loan Bank Advances - Periodically, the Bank borrows from the
Federal Home Loan Bank of Pittsburgh. These borrowings are collateralized
by Federal Home Loan Bank stock and qualified investments.
Income Taxes - Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and
cash equivalents include cash and interest-bearing accounts.
Interest Rate Risk - The Bank is principally engaged in the business of
attracting deposits from the general public and using these deposits,
together with borrowings and other funds, to make loans secured by real
estate and, to a lesser extent, consumer loans.
At December 31, 1996, the Bank had interest-earning assess of approximately
$108,885,000, haying a weighted average effective yield of 7.47% which have
a weighted average term to maturity greater than the interest-bearing
liabilities of approximately $104,309,000 having a weighted average
effective interest rate of 5.69%. At June 30, 1997, the Bank had interest
earring assets of approximately $108,820,000 having a weighted average
effective yield of 7.41% which have a weighted average term to maturity
greater than the interest-bearing liabilities of approximately $103,551,000
having a weighted average effective interest rate of 5.81%. The shorter
duration of the interest-sensitive liabilities indicates that the Bank is
exposed to interest rate risk because, in a rising rate environment,
liabilities will reprice faster than assets, thereby reducing the market
value of long-term assets and net interest income For this reason,
management regularly monitors the maturity structure of the Bank's assets
and liabilities in order to measure this risk and enact measures to manage
volatility of future interest rate movements.
F-7
<PAGE>
Mortgage Loans Held for Sale - The Bank originates mortgage loans for sale
in the secondary market to provide additional funds for lending. These
loans are carried at the lower of cost or market value, determined on a net
aggregate basis.
Real Estate Owned - Real estate properties acquired through, or in lieu of,
loan foreclosure are to be sold and are initially recorded at fair value at
the date of foreclosure establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost to sell.
Revenue and expenses from operations of foreclosed real estate and changes
in the valuation allowance are included in loss on foreclosed real estate.
Mortgage Servicing Rights - The Bank adopted SFAS No. 122, Accounting for
Mortgage Servicing Rights during 1995. The statement requires the Bank,
which services mortgage loans for others in return for servicing fees, to
recognize these servicing rights as assets, regardless if such assets were
acquired or originated. Additionally, the Bank is required to assess the
fair value of these assets at each reporting date to determine any
potential impairment.
Accounting Principles Issued and Not Adopted - In June 1996, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. The statement, which is effective for transactions occurring
after December 31, 1996, requires an entity to recognize, prospectively,
the financial and servicing assets it controls and the liabilities it has
incurred, derecognize financial assets when control has been surrendered,
and derecognize liabilities when extinguished. It requires that servicing
assets and other retained interests in transferred assets be measured by
allocating the previous carrying amounts between the asset sold, if any,
and retained interest, if any, based on their relative fair values at the
date of transfer. It also provides implementation guidance for servicing of
financial assets, securitizations, loan syndications and participations and
transfers of receivables with recourse. The statement supersedes SFAS No.
122, Accounting for Mortgage Servicing Rights. In December 1996, the FASB
issued SFAS No. 127, Deferral of the Effective Date of Certain Provisions
of FASB Statement No. 125. SFAS No. 127 defers for one year the effective
date of Statement No. 125 as it relates to transactions involving secured
borrowings and collateral, and transfers and servicing of financial assets.
This statement also provides additional guidance on these types of
transactions. Management of the Bank does not believe the statement will
have a material impact on the Bank's results of operations or financial
position when adopted.
Reclassifications - Certain items in the 1995 and 1996 financial statements
have been reclassified to conform with the presentation in the 1997
financial statements.
F-8
<PAGE>
3. INVESTMENT SECURITIES
Investment securities are summarized as follows:
June 30, 1997
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
---------- ---------- ---------- -----------
Available for sale:
Debt securities:
Obligations of U. S.
Government agencies-
Due in one year or less..... $5,998,746 S4,193 $(10,934) $5,992,005
---------- ------ -------- ----------
Total.......................... $5,998,746 $4,193 $(10,934) $5,992,005
========== ====== ======== ==========
December 31, 1996
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
---------- ---------- ---------- -----------
Available for sale:
Debt securities:
Obligations of U.S.
Government agencies:
Due in one year or less..... $2,499,285 $4,520 $(10,870) $2,492,935
Due after one year through
five years................. 3,995,575 2,899 (15,609) 3,982,865
---------- ------ -------- ----------
Total.......................... $6,494,860 $7,419 $(26,479) $6,475,800
========== ====== ======== ==========
F-9
<PAGE>
December 31,1995
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
---------- ---------- ---------- -----------
Held to maturity:
Debt securities:
Obligations of U.S.
Government agencies:
Due in one year or less..... $ 5,499,715 $10,336 $(13,840) $ 5,496,211
Due after one year through
five years................. 5,988,477 16,459 (51,991) 5,952,945
----------- ------- -------- -----------
Total.......................... $11,488,192 $26,795 $(65,831) $11,449,156
Included in investment securities are step-up and floating rate bonds with
various U.S. Government agencies. At June 30, 1997, December 31, 1996 and
1995, the par value of these bonds was $1,500,000, $1,500,000 and
$3,500,000, respectively.
On November 29, 1996, the Bank sold investment securities with a book value
of $2,998,205 from the held to maturity portfolio resulting in a net loss
of $1,798. Included in these securities were investments with a book value
of $998,205 that had a maturity of April 17, 1997, which exceeded the
three-month example as discussed in SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The securities were sold in
order to achieve "well capitalized" regulatory capital levels as defined by
the Office of Thrift Supervision. As a result of the sale, the Bank
transferred all securities previously classified as held to maturity to
available for sale.
4. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31 1996
--------------------------------------- --------------------------------------
Gross Gross
Amortized Unrealized Approximate Amortized Unrealized Approximate
Cost Gain Fair Value Cost Gain Fair Value
--------- ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Availiable for sale-FHLMC
pass-through certificates..... $ 188,666 $ 1,748 $ 190,414 $ 200,666 $ 2,481 $ 203,147
========= ======= ========= ========= ======= =========
December 31, 1995
--------------------------------------
Gross
Amortized Unrealized Approximate
Cost Gain Fair Value
--------- ---------- -----------
Held to maturity-FHLMC
pass-through certificates..... $ 698,669 $ 7,011 $ 705,680
========= ======= =========
</TABLE>
In connection with the sale discussed in Note 3, the Bank sold
mortgage-backed securities with a book value of $335,918 from the held to
maturity portfolio resulting m a net gain of $8,723. Included in these
securites was a mortgage-backed security with a book value of $173,227 that
had a maturity of March 1, 1997 which exceeded three-month example. As a
result of the sale, the Bank transferred all mortgage-backed securities
previously classified as held to maturity to available for sale.
F-10
<PAGE>
5. LOANS RECEIVABLE
Loans receivable consist of the following:
December 31,
June 30, --------------------------
1997 1996 1995
----------- ----------- -----------
First mortgage loans (primarily
one to four-family residential).... $82,625,969 $87,918,256 $67,937,470
Loans on savings accounts........... 710,275 528,198 839,344
Home equity loans-fixed rate........ 7,942,666 8,082,865 8,387,260
Equity lines of credit-variable rate 2,963,299 2,823,273 2,753,989
----------- ----------- -----------
Total........................... 94,242,209 99,352,592 79,918,063
Less:
Allowance for loan losses......... (257,000) (247,000) (200,000)
Deferred loan fees................. (1,065,824) (1,063,474) (882,757)
----------- ----------- -----------
Total........................... $92,919,385 $98,042,118 $78,835,306
=========== =========== ===========
The Bank is servicing loans for the benefit of others totaling
approximately $53,286,000, $54,321,000 and $56,698,000 at June 30, 1997,
December 31, 1996 and 1995, respectively. Serving loans for others
generally consists of collecting mortgage payments, maintaining escrow
accounts, disbursing payments to investors and foreclosure processing. Loan
servicing income is recorded on the cash basis and includes servicing fees
from investors and certain charges collected from borrowers, such as late
payment fees. In connection with these loans serviced for others, the Bank
held borrowers' escrow balances of $710,679, $ 301,325 and $55,373 at June
30,1997, December 31,1996 and 1995, respectively.
At June 30,1997 and December 31,1996, the Bank had outstanding loan
origination commitments of $387,100 and $2,270,200, respectively, for fixed
and adjustable rate loans, with rates ranging from 6.50% to 7.75% and 6.75%
to 8.50%, respectively. These commitments are expected to be funded within
one year. Commitments are issued in accordance with the same loan policies
and underwriting standards as settled loans. Additionally, in November
1994, the Bank entered into an agreement with a community investment
company to purchase $250,000 of loans for low and moderate income housing
over the next three years. At June 30,1997, December 31,1996 and 1995, the
Bank had purchased $120,000, $64,000 and $46,000 of these loans,
respectively.
Certain directors and officers of the Bank have loans with the Bank. Such
loans were made in the ordinary course of business at the Bank's normal
credit terms, including interest rate and collateralization, and do not
represent more than a normal risk of collection. The following is a summary
of loans to these officers and directors:
December 31,
June 30, --------------------------
1997 1996 1995
----------- ----------- -----------
Balance, beginning of period........ $ 367,780 $ 394,195 $ 406,324
Additions........................... 59,300 34,000 25,000
Repayments.......................... (27,372) (60,415) (37,129)
--------- --------- ---------
Balance, end of period.......... $ 399,708 $ 367,780 $ 394,195
========= ========= =========
F-11
<PAGE>
The following is a summary changes in the allowance for loan losses:
Six-Month Period Ended Year Ended
June 30, December 31,
---------------------- ------------------
1997 1996 1996 1995
---- ---- ---- ----
Balance, beginning of period....... $247,000 $200,000 $200,000 $195,000
Provision charged to operations.... 10,000 26,000 47,000 5,000
-------- -------- -------- --------
Balance, end of period............. $257,000 $226,000 $247,000 $200,000
======== ======== ======== ========
Loans delinquent more than 90 days are placed on nonaccrual status.
Interest reserved from these loans amounted to $4,382, $3,123 and $4,351 at
June 30, 1997, December 31, 1996 and 1995, respectively.
The provision for loan losses charged to expense is based upon past loan
and loss experiences and an evaluation of estimated losses in the current
loan portfolio, including the evaluation of impaired loans under SFAS No.
114. A loan is considered to be impaired when, based upon current
information and events, it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the loan. An
insignificant delay or insignificant shortfall in amount of payments does
not require application of SFAS No. 114. For this purpose, delays less than
90 days are considered to be insignificant. As of June 30, 1997, December
31, 1996 and 1995, 100% of the impaired loan balance was measured for
impairment based on the fair value of the loan's collateral. Impairment
losses are included in the provision for loan losses. SFAS No. 114 does not
apply to large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment except for those loans restructured
under a troubled debt restructuring. At June 30, 1997, December 31, 1996
and 1995, the Bank's impaired loans consisted of smaller balance
residential mortgage loans.
Interest income on impaired loans other than nonaccrual loans is recognized
on an accrual basis. Interest income on nonaccrual loans is recognized only
as collected.
6. OFFICE PROPERTY AND EQUIPMENT
Office property and equipment is summarized by major classification as
follows:
June 30, Deccember 31,
---------- ----------------------
1997 1996 1995
---- ---- ----
Land and buildings........... $2,278,764 $2,278,764 $2,268,948
Furniture and equipment..... 976,264 955,720 926,291
---------- ---------- ----------
Total......................... 3,255,028 3,234,484 3,195,239
Accumulated deprecation....... (1,271,605) (1,213,527) (1,091,776)
---------- ---------- ----------
Net........................... $1,983,423 $2,020,957 $2,103,463
=========== ========== ==========
Depreciation expense totaled $ 58,079 and $93,959 for the six-month periods
ended June 30, 1997 and 1996, respectively, and $ 121,751 and $ 164,780 for
the years ended December 31, 1996 and 1995, respectively.
F-12
<PAGE>
7. MORTGAGE SERVICING RIGHTS
The Bank adopted SFAS No. 122 effective January 1, 1995. The effect of
adopting this new statement was an increase of approximately $300,000 to
gain on sale of loans on the 1995 statement of operations, and to mortgage
servicing rights on the 1995 statement of financial condition. For
potential impairment evaluation purposes, the market value of the servicing
portfolio was determined through independent valuation of the aggregate
portfolio.
The Bank's servicing portfolio for which mortgage servicing rights have
been capitalized in accordance with SFAS No. 122 at December 31,1996
consists of fixed rate, predominately conforming mortgage loans, as
follows:
Whole Loans Sold - $25,366,132 - interest rates range from 6.50% to
8.875%; original terms range from 180 to 360 months with a weighted
average coupon of 7.479%, weighted average remaining maturity of 346
months, and an average servicing fee of 0.25%.
Participations Sold - $5,416,805 - interest rates range from 6.75% to
8.00%; original terms range from 120 months to 240 months with a
weighted average coupon of 7.316%, weighted average passthrough rate
of 7.10%, and a weighted average remaining term of 167 months.
The Bank's servicing portfolio for which mortgage servicing rights have
been capitalized at June 30, 1997 consists of fixed rate, predominately
conforming mortgage loans, as follows:
Whole Loans Sold - $25,832,170 - interest rates range from 6.50% to
8.875%; original teens range from 180 to 360 months with a weighted
average coupon of 7.486%, weighted average remaining maturity of 346
months, and an average servicing fee of 0.25%.
Participations Sold - $5,234,976 - interest rates range from 6.75% to
8.00%, original terms range from 120 months to 240 months with a
weighted average coupon of 7.315%, weighted average pass-through rate
of 7.09% and a weighted average remaining term of 163 months.
Evaluation of potential impairment of the carrying value of mortgage
servicing rights is determined based upon market valuation of loans within
specified interest rate ranges. At June 30, 1997, December 31, 1996 and
1995, the fair value of mortgage servicing rights approximates its carrying
value. Mortgage servicing rights are amortized in proportion to projected
net servicing revenue.
F-13
<PAGE>
8. DEPOSITS
Deposits by stated type are summarized as follows:
December 31,
------------------------------------
June 30, 1997 1996 1995
------------------ ----------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Demand deposit accounts:
1997:2.05% $1,124,691 1.4%
1996-2.05% $ 881,302 1.1%
1995-2.05% $ 590,286 0.7%
Passbook accounts:
1997-4.14% 2,537,459 3.2
1996-4.14% 2,536,443 3.2
1995-4.14% 2,866,884 3.5
Money market deposit
accounts:
1997-3.37% 8,903,754 11.4
1996-3.35% 8,246,455 10.5
1995-2.91% 8,724,919 10.7
91-day to five-year money
market certificates:
1997-4.94%-8.33% 65,785,459 84.0
1996-4.82%-8.33% 66,744,593 85.2
1995-4.93%-8.33% 69,340,160 85.1
----------- ----- ----------- ----- ----------- -----
Total $78,351,363 100.0% $78,408,793 100.0% $81,522,249 100.0%
The weighted average cost of funds was 5.64%, 5.62% and 5.87% at June
30,1997, December 31, 1996 and 1995, respectively.
A summary of certificates by maturity is as follows:
June 30, December 31,
1997 1996
----------- ------------
Less than 1 year............. $44,199,404 $41,736,900
1 to 3 years................. 17,952,851 16,073,655
3 years or more.............. 3,633,204 8,934,038
----------- ------------
Total........................ $65,785,459 $66,744,593
=========== ============
F-14
<PAGE>
A summary of interest expense on savings accounts is as follows:
Six-Month Period Ended Year Ended
June 30, December 31,
---------------------- --------------------------
1997 1996 1996 1995
---- ---- ---- ----
Passbooks.............. $ 50,261 $ 56,024 $ 109,303 $ 132,819
Demand deposit
accounts.............. 9,246 6,466 14,534 11,262
Money market deposit
accounts.............. 142,588 140,579 281,797 329,419
Certificates........... 1,994,150 2,073,568 4,092,023 3,877,508
--------- --------- --------- ---------
Total $2,196,245 $2,276,637 $4,497,657 $4,351,008
========= ========= ========= =========
At June 30, 1997, the Bank had $14,320,000 of deposits in denominations of
$ 100,000 or more. Deposits in excess of $100,000 are not federally insured
The Bank does not accept brokered deposits.
9. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consists of the following:
December 31,
June 30, -----------------------------------------
1997 1996 1995
------------------- ------------------ ---------------------
Weighted Weighted Weighted
Interest Interest Interest
Maturing Period Amount Rate Amount Rate Amount Rate
- --------------- ------ ---- ------ ---- ------ ----
Line of credit... $ 400,000 7.23% $1,850,000 6.05%
12 months
or less........ $11,100,000 5.96% 13,600,000 6.05 3,600,000 5.83
13 to 24 months.. 6,100,000 6.41 5,100,000 6.42 600,000 6.38
25 to 36 months.. 3,400,000 6.63 4,000,000 6.55 600,000 6.68
37 to 48 months.. 3,300,000 6.84 300,000 7.11 500,000 6.85
49 to 60 months.. 1,300,000 7.04 2,400,000 7.09 300,000 7.11
Thereafter 100,000 7.35 500,000 7.27
---------- --------- --------
Total $25,200,000 $25,900,000 $7,950,000
========== ========== =========
The weighted average interest rate for these advances at June 30, 1997,
December 31, 1996 and 1995 was 6.34%, 6.33% and 6.19%, respectively.
The advances are collateralized by Federal Home Loan Bank stock, qualified
investments and mortgage loans.
As of June 30, 1997 and December 31, 1996, the Bank had an unused line of
credit of $8,592,000 and $7,363,000, respectively, with the Federal Home
Loan Bank of Pittsburgh.
10. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
admministered by federal and state banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance sheet items as calculated under regulatory
F-15
<PAGE>
accounting practices. The Bank's capital amounts and classifications are
also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
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 tangible and core capital (as defined in the regulations)
to total adjusted assets (as defined), and of risk-based capital (as
defined) to risk-weighted assets (as defined). Management believes, as of
June 30, 1997 and December 31, 1996, that the Bank meets all capital
adequacy requirements to which it is subject.
The most recent notification from the Office of Thrift Supervision (OTS)
(as of September 30, 1996) categorized the Bank as adequately-capitalized
under the regulatory framework for prompt corrective action. To be
categorized as adequately-capitalized, the Bank must maintain minimum
tangible, core and risk-based ratios as set forth in the table. Since the
most recent notification from the OTS, the Bank's ratios have improved. As
a result, management believes that the Bank would be considered
well-capitalized by the OTS at December 31, 1996 and June 30, 1997.
The Bank's actual capital amounts (in thousands) and ratios are presented
in the table below:
To be Considered
Well Capitalized
Required for Under Prompt
Capital Adequacy Correction Action
Actual Purposes Provisions
-------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
AT June 30, 1997:
Tangible............ $6,058 5.38% $1,688 1.5% N/A N/A
Core (Leverage)..... 6,058 5.38 3,375 3.0 $5,626 5.0%
Tier 1 risk-based... 6,058 9.86 N/A N/A 3,687 6.0
Total risk-based.... 6,315 10.28 4,916 8.0 6,145 10.0
At December 31, 1996:
Tangible............ $5,926 5.26% $1,690 1.5% N/A N/A
Core (Leverage)..... 5,926 5.26 3,380 3.0 $5,633 5.0%
Tier 1 risk-based... 5,926 9.63 N/A N/A 3,693 6.0
Total risk-based.... 6,173 10.03 4,924 8.0 6,155 10.0
At December 31, 1995:
Tangible............ $6,033 6.19% $1,461 1.5% N/A N/A
Core (Leverage)..... 6,033 6.19 2,922 3.0 $4,870 5.0%
Tier 1 risk-based... 6,033 11.33 N/A N/A 3,196 6.0
Total risk-based.... 6,233 11.70 4,261 8.0 5,326 10.0
Under the framework, an adequately-capitalized bank's capital levels will
not allow the Bank to accept brokered deposits without prior approval from
regulators.
On May 21, 1997, the Bank entered into a supervisory agreement with the OTS
which requires the Bank to develop, adopt and in some cases modify, certain
policies and procedures relating to interest rate risk management,
improvement of operating performance and capital adequacy.
It is management's opinion, based on the Bank's compliance with all
regulatory capital requirements and compliance with various agreements and
directives, that no further regulatory action will be taken and that no
adjustments to the financial statements will be required.
F-16
<PAGE>
11. INCOME TAXES
In August 1996, the Small Business Job Protection Act (the "Act") was
signed into law. The Act repealed the percentage of taxable income method
of accounting for bad debts for thrift institutions effective for years
beginning after December 31, 1995. The Act will require the Bank, as of
January 1, 1996 to change its method of computing reserves for bad debts to
the experience method. The bad debt deduction allowable under this method
is available to small banks with assets less than $500 million. Generally,
this method will allow the Bank to deduct an annual addition to the reserve
for bad debts equal to the increase in the balance of the Bank's reserve
for bad debts at the end of the year to an amount equal to the percentage
of total loans at the end of the year, computed using the ratio of the
previous six years' net charge-offs divided by the sum of the previous six
years' total outstanding loans at year end.
A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in a method of accounting
determined solely with respect to the "applicable excess reserves" of the
institution. The amount of the applicable excess reserves will be taken
into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after December 31, 1995. The timing of this
recapture may be delayed for a two-year period provided certain residential
lending requirements are met. For financial reporting purposes, the Bank
will not incur any additional tax expense due to previously provided
deferred taxes. At December 31, 1996 under SFAS No. 109, deferred taxes
were provided on the difference between the book reserve at December 31,
1996 and the applicable excess reserve in the amount equal to the Bank's
increase in the tax reserve from December 31, 1987 to December 31, 1996.
Retained earnings at June 30, 1997, December 31, 1996 and 1995 includes
approximately $1,300,000 representing bad debt deductions for which no
deferred income taxes have been provided.
F-17
<PAGE>
Income tax expense consists of the following components
<TABLE>
<CAPTION>
Six-Months Ended June 30, Year Ended December 31,
--------------------------------------------------------------------- -----------------------------------
1997 1996 1996
--------------------------------- --------------------------------- -----------------------------------
Federal State Total Federal State Total Federal State Total
------- ----- ----- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current tax provision $ 72,000 $ 16,000 $ 88,000 $ 26,000 $ 4,000 $ 30,000 $ (96,200) $ (22,800) $(119,000)
Deferred tax provision 50,000 50,000
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total ................ $ 72,000 $ 16,000 $ 88,000 $ 26,000 $ 4,000 $ 30,000 $ (46,200) $ (22,800) $ (69,000)
========= ========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
Year Ended December 31,
---------------------------------
1995
---------------------------------
Federal State Total
------- ----- -----
Current tax provision $ 172,670 $ 42,000 $ 214,670
Deferred tax provision 50,000 50,000
--------- --------- ---------
Total ................ $ 222,670 $ 42,000 $ 264,670
========= ========= =========
The Bank's provision for income taxes differs from the amounts determined by
applying the statutory federal income tax rate to income before income taxes for
the following reasons:
<TABLE>
<CAPTION>
June 30, December 31,
--------------------------------------------- ---------------------------------------------
1997 1996 1996 1995
---------------------- --------------------- ---------------------- ---------------------
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax at federal tax rate ............ $ 73,431 35.0% $ 24,796 35.0% $ (57,239) (35.0)% $ 239,607 35.0%
Increase (decrease)
resulting from:
Benefit of surtax
exemption ....................... (2,098) (1.0) (708) (1.0) 1,635 1.0 (6,845) (1.0)
State income taxes
net of federal income
tax benefit ..................... 10,560 5.0 2,640 3.7 (15,048) (9.2) 27,720 4.1
Other ............................ 6,107 2.9 3,272 4.6 1,652 1.0 4,188 0.6
--------- ---- --------- ---- --------- ---- -------- ----
Total .............................. $ 88,000 41.9% $ 30,000 42.3% $ (69,000) (42.2)% $ 264,670 38.7%
========= ==== ========= ==== ========= ==== ======== ====
</TABLE>
F-18
<PAGE>
Items that give rise to significant portions of the deferred tax accounts at
June 30, 1997, December 31, 1996 and 1995 are as follows:
December 31,
June 30, ------------------------
1997 1996 1995
---- ---- ----
Deferred tax assets:
Deferred loan fees .................. $ 260,120 $ 260,120 $ 240,702
Other ............................... 65,806 73,455 131,215
--------- --------- ---------
Total deferred tax assets ........... 325,926 333,575 371,917
--------- --------- ---------
Deferred tax liabilities:
Reserve for bad debts ............... (28,240) (28,240) (44,220)
Property ............................ (3,417) (3,417) (4,684)
Mortgage servicing rights ........... (120,651) (124,412) (101,309)
--------- --------- ---------
Total deferred tax liabilities ...... (152,308) (156,069) (150,213)
--------- --------- ---------
Net deferred tax assets ............. $ 173,618 $ 177,506 $ 221,704
========= ========= =========
12. PENSION PLAN
The Bank has a noncontributory defined benefit pension plan which covers
all eligible employees. Pension expense totaled $22,649, $18,000, $50,739
and $55,168 for the six-month periods ended June 30, 1997 and 1996 and for
the years ended December 31, 1996 and 1995, respectively.
Net pension expense, based on the latest data available, included the
following components:
December 31,
------------------------
1996 1995
---- ----
Service cost - benefits earned during the year ..... $ 69,168 $ 65,980
Interest cost on projected benefit obligation ...... 59,198 55,891
Actual return on assets ............................ (29,910) (116,479)
Net amortization of transition costs ............... (47,717) 49,776
--------- ---------
Net pension expense ................................ $ 50,739 $ 55,168
========= =========
F-19
<PAGE>
The following table sets forth the aggregate funded status of the pension
plan for the years ended:
December 31,
------------------------
1996 1995
---- ----
Actuarial present value of benefit obligation:
Vested ......................................... $ 545,453 $ 598,066
Nonvested ...................................... 22,727 30,011
--------- ---------
Total-accumulated benefit obligation ............. $ 568,180 $ 628,077
========= =========
Plan assets at fair value ........................ $ 950,845 $ 938,136
Projected benefit obligation ..................... (928,292) (902,284)
--------- ---------
Projected benefit obligation less than plan assets 22,553 35,852
Unrecognized:
Net gain from past experience .................. (95,462) (130,593)
Net transition asset ........................... (22,667) (24,411)
--------- ---------
Accrued pension liability ........................ $ (95,576) $(119,152)
========= =========
The projected benefit obligation was determined using a weighted average
assumed discount rate of 7% and a rate of compensation increase of 4.5%.
The expected weighted average long-term rate of return of plan assets is
7.75%. Assumed average remaining service lives of employees is
approximately 22 years.
The type of assets held by the plan are general trust investments including
rich equivalents, fixed income assets, and group annuities.
Deferred compensation agreements are in effect with certain members of the
Board of Directors. Payment of Director fees is being deferred until
retirement. For the years ended December 31, 1996 and 1995, $11,590 and
$15,348, respectively, of fees were deferred under these agreements. For
the six-month period ended June 30, 1997, $6,144 of fees were deferred
under these agreements.
13. CONCENTRATION OF CREDIT RISK
Most of the Bank's lending activity is with customers located within the
state of Delaware. Generally, the loans are secured by real estate
cosisting of single-family residential properties. The ultimate repayment
of these loans is dependent to a certain degree on the local economy.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Bank using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Bank could realize in a
current market exchange. The use of different market assertions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
F-20
<PAGE>
<TABLE>
<CAPTION>
December 31,
June 30, --------------------------------------------------
1997 1996 1995
---------------------- ------------------- --------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
(in thousands) (in thousands) (in thousands)
---------------------- ------------------- --------------------
Assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ............... $ 2,838 $ 2,838 $ 2,643 $ 2,643 $ 1,061 $ 1,061
Investment securities
held to maturity ....................... 11,488 11,449
Investment securities
available for sale ..................... 5,992 5,992 6,476 6,476
Mortgage-backed securities
held to maturity ....................... 699 706
Mortgage backed securities
available for sale ..................... 190 190 203 203
Loans, net .............................. 92,919 94,549 98,042 99,570 78,835 81,682
Loans held for sale ..................... 5,548 5,548 1,020 1,022
Liabilities:
Demand deposits and
passbook accounts ...................... 3,662 3,662 3,418 3,418 3,457 3,457
Money market accounts ................... 8,904 8,904 8,246 8,246 8,725 8,725
Savings certficates ..................... 65,785 65,876 66,745 67,391 69,340 69,402
Advances from Federal
Home Loan Bank ......................... 25,200 25,186 25,900 26,024 7,950 7,948
</TABLE>
Cash and Cash Equivalents - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Investments and Mortgage-backed Securities - The fair value of investment
securities and mortgage-backed securities (including collateralized
mortgage obligations) is based on quoted market prices or dealer quotes.
Loans Receivable - The fair value of loans is estimated based on present
value using approximate current entry-value interest rates applicable to
each category of such financial instruments.
Loans Held for Sale - The fair value of loans held for sale is based upon
commitment prices from the Federal Home Loan Mortgage Corporation.
Demand Deposits, Passbook Accounts, Money Market Accounts, and Savings
Certificates - The fair value of demand deposits, passbook accounts and
money market accounts is the amount reported in the financial statements.
The fair value of savings certificates is based on a present value estimate
using rates currently offered for deposits of similar remaining maturity.
Advances from Federal Home Loan Bank - The fair value of advances is based
on a present value estimate using rates currently offered for Federal Home
Loan Bank borrowings of similar remaining maturity.
Commitments to Extend Credit and Letters of Credit - The majority of the
Bank's commitments to extend credit and letters of credit carry current
market interest rates if converted to loans. Because commitments to extend
credit and letters of credit are generally unassignable by either the Bank
or the borrower, they only have value to the Bank and the borrower. The
estimated fair value approximates the recorded amounts.
F-21
<PAGE>
The fair value estimates presented herein are based on pertinent
information available to management as of the date indicated. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the dates
indicated and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein
15. SAVINGS ASSOCIATION INSURANCE FUND
On September 30, 1996, an omnibus appropriations bill for fiscal year 1997,
which included recapitalization of the Savings Association Insurance Fund
(SAIF) became law. Accordingly, all SAIF insured depository institutions
were charged a one-time special assessment based on their SAIF-assessable
deposits as of March 31, 1995 at the rate of 65.7 basis points.
Accordingly, the Bank incurred a pre-tax expose of $491,992 during the
third quarter of 1996.
16. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP (UNAUDITED)
On June 30, 1997, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from a federal chartered mutual savings and loan
association to a federal chartered capital stock savings bank with the
concurrent formation of a holding company, subject to approval by
regulatory authorities and depositors of the Bank. The conversion is
elected to be accomplished through amendment of the Bank's federal charter
and the sale of the holding company's common stock. A subscription offering
of the shares of common stock will be offered initially to eligible account
holders, employee benefit plans of the Bank, other members, directors,
officers, and employees of the Bank. Any shares of common stock not sold in
the subscription offering are expected to be sold by the underwriters to
the general public.
At the time of the conversion, the Bank will establish a liquidation
account in an amoums equal to its retained earnings as of the date of the
latest consolidated statement of financial condition appearing in the final
prospectus. The liquidation account will be maintained for the benefit of
eligible account holders who continue to maintain their accounts at the
Bank after the conversion. The liquidation account will be reduced annually
to the extent that eligible account holders have reduced their qualifying
deposits as of each anniversary date. Subsequent increases wil1 not restore
an eligible account holder's interest in the liquidation account. In the
event of a complete liquidation of the Bank, each eligible account holder
will be entitled to receive a distribution from the liquidation account in
an amount proportionate to the current adjusted qualify balances for
accounts then held.
Subsequent to the conversion, the Bank may not declare or pay cash
dividends on, or repurchase any, of its shares of common stock if the
effect thereof would cause equity to be reduced below applicable regulatory
capital maintenance requirements or if such declaration and payment would
otherwise violate regulatory requirements.
Conversion costs will be deferred and reduce the proceeds from the shares
sold in the conversion. If the conversion is not completed, all costs will
be charged as an expense. As of June 30, 1997, conversion costs of
approximately $3,000 have been incurred and are included in other assets in
the statement of financial condition.
* * * * * *
F-22
<PAGE>
GLOSSARY
BIF Bank Insurance Fund of the FDIC
Code Internal Revenue Code of 1986, as amended
Community Offering Offering for sale to certain members of the general public
of any shares of Common Stock not subscribed for in the
Subscription Offering, including the possible offering of
Common Stock in a Syndicated Community Offering
Conversion Simultaneous conversion of Ninth Ward Savings Bank, FSB,
to stock form, the issuance of the Ninth Ward Savings
Bank, FSB's outstanding Common Stock to Delaware First
Financial Corporation and Delaware First Financial
Corporation's offer and sale of Common Stock
Eligible Account Savings account holders of the Savings Bank with account
Holders balances of at least $50 as of the close of business on
December 31, 1995
Employee Plans Tax-qualified employee benefit plans of Ninth Ward Savings
Bank, FSB
ERISA Employee Retirement Income Security of 1974, as amended
ESOP Employee Stock Ownership Plan
EVR or Estimated Estimated pro forma market value of the Common Stock
Valuation Range ranging from $7,440,000 to $10,060,000
Exchange Act Securities Exchange Act of 1934, as amended
Expiration Date 12:00 p.m., Eastern Time, on ___________, 1997
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
G-1
<PAGE>
FNMA Federal National Mortgage Association
FinPro, Inc. Ninth Ward's independent appraiser located in Liberty
Corner, New Jersey
IRA Individual retirement account or arrangement
IRS Internal Revenue Service
NASD National Association of Securities Dealers, Inc.
NASDAQ System National Association of Securities Dealers Automated
Quotation System
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 Any person other than an Eligible Account Holder or
Supplemental Eligible Account Holder who is 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
Pink Sheets Trademark name for the pink paper upon which stock data is
published by the National Quotation Bureau
Plan of Conversion Plan of Ninth Ward Savings Bank, FSB to convert from a
federally chartered mutual savings bank to a federally
chartered stock savings bank and the issuance of all of
Ninth Ward Savings Bank, FSB' s outstanding capital stock
to Delaware First Financial Corporation and the issuance
of Delaware First Financial Corporation's stock to the
public
G-2
<PAGE>
Purchase Price $10.00 per share price of the Common Stock
QTI Qualified thrift investment
QTL Qualified thrift lender
RSP Restricted stock plan to be adopted within one year of the
Conversion
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 Ninth Ward Savings Bank, FSB
called for the purpose of approving the Plan
Subscription Offering of non-transferable rights to subscribe for the
Offering Common Stock, in order of priority, to Eligible Account
Holders, tax - qualified employee plans, Supplemental
Eligible Account Holders and Other Members
Supplemental Depositors, who are not Eligible Account Holders of Ninth
Eligible Account Ward Savings Bank, FSB, with account balances of at least
Holders $50 on September 30, 1997
Syndicated Offering of shares of Common Stock remaining after the
Community 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
Voting Record Date The close of business on ______________, 1997, the date for
determining members entitled to vote at the Special
Meeting.
G-3
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this Prospectus in connection
with the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by Ninth Ward
Savings Bank, FSB, Delaware First Financial Corporation, or Trident Securities.
This Prospectus 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 Prospectus by Ninth Ward Savings Bank, FSB, Delaware First
Financial Corporation or Trident Securities nor any sale made hereunder shall in
any circumstances create an implication that there has been no change in the
affairs of Ninth Ward Savings Bank, FSB, since any of the dates as of which
information is furnished herein or since the date hereof.
DELAWARE FIRST FINANCIAL CORPORATION
Up to 1,006,000 Shares
(Anticipated Maximum)
Common Stock
---------------
PROSPECTUS
---------------
TRIDENT SECURITIES, INC.
Dated November _____, 1997
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
Until the later of ________________, 1997, or 25 days after the 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 required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article VI of the Company's Bylaws sets forth circumstances under which
directors, officers, employees and agents may be indemnified against liability
which they may incur in their capacities as follows:
ARTICLE VI
Indemnification
SECTION 1. Indemnification of Directors, Officers and Employees.
The Corporation shall indemnify to the full extent authorized by law any
Director or officer made or threatened to be made a party to an action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a Director or officer
of the Corporation or is or was serving, at the request of the Corporation, as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise.
The Corporation may, at the discretion of the Board of Directors, indemnify
to the full extent authorized by law any employee or agent made or threatened to
be made a party to an action, suit or proceeding, whether criminal, civil,
administrative or investigative by reason of the fact that he, his testator or
intestate is or was an employee or agent of the Corporation or is or was serving
at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
SECTION 2. Expenses Advanced.
Expenses incurred with respect to any claim, action or proceeding of the
character, actual or threatened, described in Section 1 of this Article VI, may
be advanced by the Corporation prior to the final disposition thereof upon
receipt of an undertaking by such person to repay the amount so advanced if and.
to the extent it shall ultimately be determined by a court of competent
jurisdiction that he was not entitled to indemnification under this Bylaw.
SECTION 3. Automatic Conformity to Law.
The intention of this Bylaw is to provide indemnification with the broadest
and most inclusive coverage permitted by law (a) at the time of the act or
omission to be indemnified against, or (b) so permitted at the time of carrying
out such indemnification, whichever of (a) or (b) may be broader or
II-1
<PAGE>
more inclusive and permitted by law to be applicable. If the indemnification
permitted by law at this present time, or at any future time, shall be broader
or more inclusive than the provisions of this Bylaw, then indemnification shall
nevertheless extend to the broadest and most inclusive permitted by law at any
time and this Bylaw shall be deemed to have been amended accordingly. If any
provision or portion of this Article shall be found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and effect of the
remaining parts shall not be affected.
Item 25. Other Expenses of Issuance and Distribution
Underwriting Fees and Expenses........................... $151,000
Legal Fees and Expenses.................................. 125,000
Printing, Postage and Mailing............................ 60,000
Accounting Fees and Expenses............................. 65,000
Appraisal and Business Plan Fees and Expenses............ 24,000
Blue Sky Filing Fees and Expenses
(including legal counsel)............................... 10,000
Federal Filing Fees (OTS and SEC)........................ 18,000
Conversion Agent Fees.................................... 10,000
Stock Certificates....................................... 3,000
Transfer Agent........................................... 3,000
Other Expenses........................................... 50,000
--------
Total.................................................... $519,000
========
Item 26. Recent Sales of Unregistered Securities.
Not applicable.
Item 27. Exhibits:
The exhibits schedules filed as a part of this registration statement are as
follows:
1.1 Engagement Letter with Trident Securities, Inc.
*1.2 Agency Agreement with Trident Securities, Inc.
2. Plan of Conversion (Exhibit A to Proxy Statement filed as Exhibit 99.2)
3.1 Certificate of Incorporation of Delaware First Financial Corporation.
II-2
<PAGE>
3.2 Bylaws of Delaware First Financial Corporation.
*4 Form of Stock Certificate of Delaware First Financial Corporation.
*5.1 Opinion of Peabody & Brown regarding legality of securities being
registered
*8.1 Federal Tax Opinion of Peabody & Brown
*8.2 Delaware Tax Opinion of Young, Conaway, Stargatt & Taylor
8.3 Opinion of FinPro, Inc. as to the value of subscription rights for tax
purposes
10.1 Deferred Compensation Agreements between Delaware First Financial
Corporation and each of Directors Gehrke & Baldt
10.2 Employee Stock Ownership Plan and Trust
23.1 Consents of Peabody & Brown
23.2 Consent of Deloitte & Touche
23.3 Consent of FinPro, Inc.
*23.4 Consent of Young, Conaway, Stargatt & Taylor
24 Power of Attorney (reference is made to the signature page)
*99.1 Proposed Stock Order Form and Form of Certification
99.2 Proxy Statement for Special Meeting of Members of Ninth Ward Savings
Bank, FSB
*99.3 Miscellaneous Solicitation and Marketing Materials
*99.4 Appraisal Report
* To be filed by amendment.
II-3
<PAGE>
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 ("Securities Act").
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii)Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such
II-4
<PAGE>
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Wilmington, State of Delaware, on September 24, 1997.
DELAWARE FIRST FINANCIAL CORPORATION
By: /s/
------------------------------------
Ronald P. Crouch
Director, President and Chief
Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned Directors of Delaware First Financial Corporation.,
hereby severally constitute and appoint Ronald P. Crouch, with full power of
substitution, our true and lawful attorney and agent, to do any and all things
in our names in the capacities indicated below which said Ronald P. Crouch, may
deem necessary or advisable to enable Delaware First Financial Corporation. to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
the registration of Delaware First Financial Corporation. common stock,
including specifically, but not limited to, power and authority to sign for us
in our names in the capacities indicated below, the registration statement and
any and all amendments (including post-effective amendments) thereto; and we
hereby ratify and confirm all that said Ronald P. Crouch shall do or cause to be
done by virtue thereof.
II-5
<PAGE>
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/ President, Chief 9/17/97
- ------------------------ Executive Officer -------
Ronald P. Crouch and Director
/s/ Executive Vice President 9/17/97
- ------------------------ Chief Operating Officer -------
Jerome P. Arrison and Treasurer
/s/ Chairman 9/17/97
- ------------------------ -------
J. Bayard Cloud
/s/ Vice Chairman 9/17/97
- ------------------------ -------
Ernest J. Peoples
/s/ Director 9/17/97
- ------------------------ -------
Dr. William R. Baldt
/s/ Director 9/17/97
- ------------------------ -------
Thomas B. Cloud
/s/ Director 9/17/97
- ------------------------ -------
Larry D. Gehrke
/s/ Director 9/17/97
- ------------------------ -------
Alan B. Levin
/s/ Director 9/17/97
- ------------------------ -------
Dr. Robert L. Schweitzer
II-6
<PAGE>
As filed with the Securities and Exchange Commission on September 29, 1997.
Registration No. 333-__________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
Delaware First Financial Corporation.
(Exact name of registrant as specified in its charter)
Exhibit 1.1
TRIDENT SECURITIES, INC.
4601 SIX FORKS ROAD, SUITE 400
RALEIGH, NORTH CAROLINA 27609
TELEPHONE (919) 781-8900
FACSIMILE (919) 787-1670
June 16, 1997
Board of Directors
Ninth Ward Savings Bank, FSB
400 Delaware Avenue
Wilmington, DE 19801
RE: Conversion Stock Marketing and Proxy Solicitation Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between TRIDENT
Securities, Inc. ("TRIDENT") and Ninth Ward Savings Bank, FSB (the "Bank")
concerning our investment banking services in connection with the conversion of
the Bank from a mutual to a capital stock form of organization.
TRIDENT is prepared to assist the Bank in connection with the offering of its
shares of common stock during the subscription offering and community offering
as such terms are defined in the Bank's Plan of Conversion. The specific terms
of the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the ("Agreement") between TRIDENT and the Bank to be executed
on the date the offering circular/prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the
subscription offering and community offering will be the price established by
the Bank's Board of Directors, based upon an independent appraisal as approved
by the appropriate regulatory authorities, provided such price is mutually
acceptable to TRIDENT and the Bank.
In connection with the subscription offering and community offering, TRIDENT
will act as financial advisor and exercise its best efforts to assist the Bank
in the sale of its common stock during the subscription offering and community
offering. Additionally, TRIDENT may enter into agreements with other National
Association of Securities Dealers, Inc., ("NASD") member firms to act as
selected dealers, assisting in the sale of the common stock. TRIDENT and the
Bank will determine a selected dealers to assist the Bank during the community
offering. At the appropriate time, TRIDENT in conjunction with its counsel, will
conduct an examination of the relevant documents and records of the Bank as
TRIDENT deems necessary and appropriate. The Bank will make all documents,
records and other information deemed necessary by TRIDENT or its counsel
available to them upon request.
For its services hereunder, TRIDENT will receive the following compensation and
reimbursement Film the Bank:
<PAGE>
TRIDENT SECURITIES INC.
Board of Directors
June 16, 1997
Page 2
1. A Proxy Solicitation and Conversion Center Management fee in the
amount of $10,000.
2. A commission equal to one and one half percent (1.5%) of the aggregate
dollar amount of capital stock sold in the subscription and community
offerings, excluding any shares of conversion stock sold to the Bank's
directors, executive officers and the employee benefit plan.
Additionally, commissions will be excluded on those shares sold to
"associates" of the Bank's directors and executive officers. The term
"associates" as used herein shall have the same meaning as that found
in the Bank's Plan of Conversion.
3. For stock sold by other NASD member firms selected dealer's
agreements, the commission shall not exceed a fee to be agreed upon
jointly by TRIDENT and the Bank to reflect market requirements at the
time of the stock allocation in a Syndicated Community Offering.
4. The foregoing fees and commissions are to be payable to TRIDENT at
closing as defined in the Agreement to be entered into between the
Bank and TRIDENT.
5. TRIDENT shall be reimbursed for allocable expenses incurred by them,
including legal fees, whether or not the Agreement is consummated.
TRIDENT 's out-of-pocket expenses will not exceed $10,000 and its
legal fees will not exceed $27,500. The Bank will forward to TRIDENT a
check in the amount of $2,000 as an advance payment to defray the
allocable expenses of TRIDENT.
It further is understood that the Bank will pay all other expenses of the
conversion including but not limited to its attorneys' fees, NASD filing fees,
and filing and registration fees and fees of either TRIDENT's attorneys or the
attorneys relating to any required state securities law filings, telephone
charges, air freight, rental equipment, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
For purposes of TRIDENT's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the Bank
warrants that: (a) the Bank has not privately placed any securities within the
last 18 months; (b) there have been no material dealings within the last 12
months between the Bank and any NASD member or any person related to or
associated with any such member; (c) none of the officers or directors of the
Bank has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with TRIDENT, the Bank has no financial or management
consulting contracts outstanding with any other person; (e) the Bank has not
granted TRIDENT a right of first refusal with respect to the underwriting of any
future offering of the Bank stock; and (f) there has been no intermediary
between TRIDENT and the Bank in connection with the public offering of the
Bank's shares, and no person is being compensated in any manner for providing
such service.
The Bank agrees to indemnify and hold harmless TRIDENT and each person, if any,
who controls the firm against all losses, claims, damages or liabilities, joint
or several and all legal or other
<PAGE>
TRIDENT SECURITIES INC.
Board of Directors
June 16, 1997
Page 3
expenses reasonably incurred by them in connection with the investigation or
defense thereof (collectively, "Losses"), to which they may become subject under
the securities laws or under the common law, that arise out of or are based upon
the conversion or the engagement hereunder of TRIDENT. If the foregoing
indemnification is unavailable for any reason, the Bank agrees to contribute to
such Losses in the proportion that its financial interest in the conversion
bears to that of the indemnified parties. If the Agreement is entered into with
respect to the common stock to be issued in the conversion, the Agreement will
provide for indemnification, which will be in addition to any rights that
TRIDENT or any other indemnified party may have at common law or otherwise. The
indemnification provision of this paragraph will be superseded by the
indemnification provisions of the Agreement entered into by the Bank and
TRIDENT.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (5) above with regard to the obligation to reimburse
TRIDENT for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While TRIDENT
and the Bank agree in principle to the contents hereof and propose to proceed
promptly, and in good faith, to work out the arrangements with respect to the
proposed offering, any legal obligations between TRIDENT and the Bank shall be
only as set forth in a duly executed Agreement. Such Agreement shall be in form
and content satisfactory to TRIDENT and the Bank, as well as their counsel, and
TRIDENT's obligations thereunder shall be subject to, among other things, there
being in TRIDENT's opinion no material adverse change in the condition or
obligations of the Bank or no market conditions which might render the sale of
the shares by the Bank hereby contemplated inadvisable.
Please acknowledge your agreement to the foregoing by signing below and
returning to TRIDENT one copy of this letter along with the advance payment of
$2,000. This proposal is open for your acceptance for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, INC.
By:
--------------------------
R. Lee Burrows, Jr.
Managing Director
Agreed and accepted to this _____ day
of ________ ,1997
Ninth Ward Savings Bank, FSB
By: ________________
Ronald P. Crouch
President
RLB/cs
<PAGE>
NINTH WARD SAVINGS BANK, FSB
Trident's Fee Matrix
Assumptions:
$9.9 Million Offering ( Super-Max )
8% ESOP ($792,000) on which no sales commission is charged
$750,000 Estimated Insider Purchases on which no sales commission is
charged
o No commissions payable on shares purchased by Officers, Directors,
Employees, Employee Benefit Plans (including the ESOP) or such persons
designated as "Associates" as defined in Ninth Ward's Plan of Conversion.
o 1.50% sales commissions payable on shares sold during the subscription
and/or community offerings.
$9,900,000
- - 792,000 ESOP
- - 750,000 Insider Purchases
- ---------
$8,358,000 x 1.5% Sales Commission = $125,370
$125,370 Sales Commission
Total Commission Payable to TRIDENT is $125,370 or 1.27% of the $9.9 million
offering size.
o Management fee of $10,000 for Proxy Solicitation and Conversion Center
Management
o TRIDENT's underwriter's counsel fee and out of pocket expenses will not
exceed $37,500.
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DELAWARE FIRST FINANCIAL CORPORATION
ARTICLE I
Name
The name of the corporation is DELAWARE FIRST FINANCIAL CORPORATION (the
"Corporation").
ARTICLE II
Registered Office
The address of the Corporation's registered office in the State of Delaware
is Corporation Service Company, 1013 Centre Road, Wilmington, County of New
Castle, Delaware 19805. The name of the Corporation's registered agent at such
address is the Corporation Service Company.
ARTICLE III
Purpose and Powers
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
Capital Stock
SECTION 1. Authorized Shares. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 3,500,000 shares,
divided into two classes consisting of 3,000,000 shares of Common Stock, par
value $0.01 per share ("Common Stock"), and 500,000 shares of Preferred Stock,
par value $0.01 per share ("Preferred Stock"). The Board of Directors shall have
authority by resolution to issue shares of Common Stock from time to time on
such terms as it may determine. The Board of Directors shall have authority by
resolution to issue the shares of Preferred Stock from time to time on such
terms as it may determine and to divide the Preferred Stock into one or more
series and, in connection with the creation of any such series, to determine and
fix by the resolution or resolutions providing for the issuance of shares
thereof:
<PAGE>
(a) the distinctive designation of such series, the number of shares
which shall constitute such series, which number may be increased or
decreased (but not below the number of shares then outstanding) from time
to time by action of the Board of Directors, and the stated value thereof,
if different from the par value thereof;
(b) the dividend rate, the times of payment of dividends on the shares
of such series, whether dividends shall be cumulative, and, if so, from
what date or dates, and the preference or relation which such dividends
will bear to the dividends payable on any shares of stock of any other
class or any other series of this class;
(c) the price or prices at which, and the terms and conditions on
which, the shares of such series may be redeemed;
(d) whether or not the shares of such series shall be entitled to the
benefit of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if so entitled the amount of such fund and
the terms and provisions relative to the operation thereof;
(e) whether or not the shares of such series shall be convertible
into, or exchangeable for, any other shares of stock of the Corporation or
any other securities and, if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and any adjustments thereof, at
which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(f) the rights of the shares of such series in the event of voluntary
or involuntary liquidation, dissolution or winding up or upon any
distribution of the assets of the Corporation;
(g) whether or not the shares of such series shall have priority over
or parity with or be junior to the shares of any other class or series in
any respect, or shall be entitled to the benefit of limitations restricting
(i) the creation of indebtedness of the Corporation, (ii) the issuance of
shares of any other class or series having priority over or being on a
parity with the shares of such series in any respect, or (iii) the payment
of dividends on, the making of other distributions in respect of, or the
purchase or redemption of shares of any other class or series on parity
with or ranking junior to the shares of such series as to dividends or
assets, and the terms of any such restrictions, or any other restriction
with respect to shares of any other class or series on parity with or
ranking junior to the share of such series in any respect;
2
<PAGE>
(h) whether such series shall have voting rights, in addition to any
voting rights provided by law, and, if so, the terms of such voting rights,
which may be general or limited; and
(i) any other powers, preferences, privileges, and relative
participating, optional, or other special rights of such series, and the
qualifications, limitations or restrictions thereof, to the full extent now
or hereafter permitted by law.
The powers, preferences and relative participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative.
SECTION 2. Rights of Holders of Common Stock. Each holder of Common Stock
shall be entitled to one vote for each share of Common Stock held of record on
all matters on which stockholders generally are entitled to vote. Subject to the
provisions of law and the rights of the holders of the Preferred Stock and any
other class or series of stock having a preference as to dividends over the
Common Stock then outstanding, dividends may be paid on the Common Stock at such
times and in such amounts as the Board of Directors may determine. Upon the
dissolution, liquidation or winding up of the Corporation, after any
preferential amounts to be distributed to the holders of the Preferred Stock and
any other class or series of stock having a preference over the Common Stock
then outstanding have been paid or declared and set apart for payment, the
holders of the Common Stock shall be entitled to receive all the remaining
assets of the Corporation available for distribution to its stockholders ratably
in proportion to the number of shares held by them, respectively.
There shall be no cumulation of votes for the election of Directors or for
any other purpose.
Every share of Common Stock shall have the same relative rights as, and be
identical in all respects with, all the other shares of Common Stock.
ARTICLE V
Business Combinations
The provisions of Section 203 of the Delaware General Corporation Law or
any successor provision shall govern the Corporation.
3
<PAGE>
ARTICLE VI
Board of Directors
SECTION 1. Number. The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which, subject to any
right of the holders of any series of Preferred Stock then outstanding to elect
additional Directors under specified circumstances, shall consist of not less
than five nor more than 15 persons. The exact number of Directors within the
minimum and maximum limitations specified in the preceding sentence shall be
fixed from time to time by the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors.
SECTION 2. Terms. Beginning with the first annual meeting of stockholders
held after the filing of this Certificate of Incorporation, the Board of
Directors, other than those who may be elected by the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, shall be divided into three classes, class I, class II and
class III, as nearly equal in number as possible. The terms of office of the
classes of Directors elected at the initial annual meeting shall expire as
follows: the term of office of class I will expire at the 1998 Annual Meeting of
Stockholders, the term of office of class II will expire at the 1999 Annual
Meeting of Stockholders and the term of office of class III will expire at the
2000 Annual Meeting of Stockholders. At each Annual Meeting of Stockholders
following such initial classification and election, Directors elected to succeed
those Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding Annual Meeting of Stockholders after their
election.
SECTION 3. Stockholder Nomination of Director Candidates. Stockholder
nominations for the election of Directors shall be given in the manner provided
in the Bylaws of the Corporation.
SECTION 4. Newly Created Directorships and Vacancies. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, Directors
serving in newly created Directorships resulting from any increase in the
authorized number of Directors shall serve until the next Annual Meeting of
Stockholders. Vacancies on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by a majority vote of the Directors then in office, and
Directors so chosen shall hold office for a term expiring at the Annual Meeting
of Stockholders at which the term of the class to which they have been elected
expires. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
SECTION 5 . Removal or Retirement.
(a) Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any Director, or the entire Board of Directors, may
be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the voting power of all
of the shares of the Corporation entitled to vote generally in the election
of Directors, voting together as a single class.
4
<PAGE>
(b) Directors will be deemed to have retired from the Board within 120
days of the date upon which they retire from the trade, profession or
business in which they are principally employed or engaged. This provision
shall not apply to any members of the Board who served as directors of the
Corporation at the time of its incorporation or to directors who have not
reached normal retirement age and who have manifested an intent to become
reemployed or to continue to engage in professional activities.
SECTION 6. Initial Directors. The names and addresses of the persons who
are to serve as Directors until the first annual meeting of stockholders or
until their successors are elected and qualified are as follows:
Name and Address Term
- ---------------- ----
Dr. William R. Baldt 1998
400 Delaware Avenue
Wilmington, DE 19801
J. Bayard Cloud 1999
400 Delaware Avenue
Wilmington, DE 19801
Thomas B. Cloud 2000
400 Delaware Avenue
Wilmington, DE 19801
Ronald P. Crouch 1998
400 Delaware Avenue
Wilmington, DE 19801
Larry D. Gehrke 2000
400 Delaware Avenue
Wilmington, DE 19801
Alan B. Levin 1999
400 Delaware Avenue
Wilmington, DE 19801
Ernest J. Peoples 1998
400 Delaware Avenue
Wilmington, DE 19801
Dr. Robert L. Schweitzer 2000
400 Delaware Avenue
Wilmington, DE 19801
5
<PAGE>
ARTICLE VII
Stockholder Action
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Except as otherwise required by law and subject to
the rights of the holders of any class of preferred stock having a preference
over the Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors.
ARTICLE VIII
Bylaw Amendments
The Board of Directors shall have power to make, alter, amend and repeal
the Bylaws of the Corporation (except so far as the Bylaws of the Corporation
adopted by the stockholders shall otherwise provide). Any Bylaws made by the
Board of Directors under the powers conferred hereby may be altered, amended or
repealed by the Board of Directors or by the stockholders. Notwithstanding the
foregoing and anything contained in this Certificate of Incorporation or the
Bylaws to the contrary, Section 2 of Article I and Sections 1 through 5 of
Article II of the Bylaws shall not be altered, amended or repealed and no
provision inconsistent therewith shall be adopted without the affirmative vote
of the holders of 80% of all votes entitled to be cast in the election of
Directors, voting together as a single class.
ARTICLE IX
Purchase of Equity Securities of the Corporation
SECTION 1. Prevention of "Greenmail". Any direct or indirect purchase or
other acquisition by the Corporation of any Equity Security of any class from
any Substantial Securityholder who has beneficially owned such securities for
less than two years prior to the date of such purchase or any agreement in
respect thereof shall, except as hereinafter expressly provided, require the
affirmative vote of the holders of at least a majority of all votes entitled to
be cast in the election of Directors, excluding Voting Stock beneficially owned
by such Substantial Securityholder, voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or any agreement
with any national securities exchange, or otherwise, but no such affirmative
vote shall be required with respect to any purchase or other acquisition of
securities made as part of a tender or exchange offer by the Corporation to
purchase securities of the same class made on the same terms to all holders of
such securities and complying with the applicable requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations).
6
<PAGE>
SECTION 2. Certain Definitions. For the purposes of this Article IX:
(a) A "Person" shall mean any individual, firm, corporation or other
entity.
(b) "Substantial Securityholder" shall mean any person (other than the
Corporation or any corporation of which a majority of any class of Equity
Security is owned, directly or indirectly, by the Corporation) who or
which:
(i) is the beneficial owner, directly or indirectly, of five
percent or more of the class or securities to be acquired;
(ii) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of five percent or more of
the class of securities to be acquired;
(iii) is an assignee or has otherwise succeeded to any shares of
the class of securities to be acquired which were at any time within
the two-year period immediately prior to the date in question
beneficially owned by a Substantial Securityholder, if such assignment
or succession shall have occurred in the course of a transaction or
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
(c) A person shall be a "beneficial owner" of any security of any
class of the Corporation:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (B) any right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which is beneficially owned, directly or indirectly, by any
such person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing any security of any
class of the Corporation.
7
<PAGE>
(d) For the purposes of determining whether a person is a Substantial
Securityholder pursuant to paragraph (b) of this Section 2, the relevant
class of securities outstanding shall be deemed to comprise all such
securities deemed owned through application of paragraph (c) of this
Section 2, but shall not include other securities of such class which may
be issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1996.
(f) "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on
December 31, 1996.
ARTICLE X
Acquisition of Stock
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary:
SECTION 1. Restriction. No person shall directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10% of any class of any
equity security of the Corporation. This limitation shall not apply to any tax
qualified employee stock benefit plan of the Corporation.
In the event shares are acquired in violation of this Article X, all shares
beneficially owned by any person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to the stockholders for a vote.
SECTION 2. Certain Definitions. For the purposes of this Article X, the
following definitions apply:
(a) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock
company, a trust, and any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding
or disposing of securities of the Corporation.
(b) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for value.
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(c) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(d) The term "acting in concert" means (i) knowing participation in a
joint activity or conscious parallel action towards a common goal whether
or not pursuant to an express agreement, or (ii) a combination or pooling
of voting or other interests in the securities of an issuer or a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.
ARTICLE XI
Director Liability
No Director of officer acting in the capacity of a Director or performing
duties as Director shall be personally liable to the Corporation or any
stockholder for monetary damages for a breach of fiduciary duty as a Director,
except for any matter in respect of which such Director or officer acting as a
Director shall be liable under Section 174 of Title 8 of the Delaware Code
(relating to the Delaware Corporation Law) or any amendment thereto or successor
provision thereto or shall be liable by reason that, in addition to any and all
other requirements for such liability, he (i) shall have breached his duty of
loyalty to the Corporation or its stockholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good faith, (iii)
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law or (iv) shall have derived
an improper personal benefit. Neither the Amendment nor repeal of this Article,
nor the adoption of any provision of the Certificate of Incorporation
inconsistent with this Article, shall eliminate or reduce the effect of this
Article in respect of any matter occurring, or any cause of action, suit or
claim, that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE XII
Amendments to Certificate of Incorporation
Notwithstanding any other provisions of this Certificate of Incorporation
or the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
Bylaws of the Corporation), the affirmative vote of the holders of at least 80%
of all votes entitled to be cast in the election of Directors, voting together
as a single class, shall be required to amend or repeal, or adopt any provisions
inconsistent with, Articles V, VI, VII, VIII, IX or this Article XII of this
Certificate of Incorporation.
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ARTICLE XIII
Certain Business Combinations
SECTION 1. Vote Required for Certain Business Combinations.
(a) Higher Vote for Certain Business Combinations. Unless otherwise
required by law, in addition to any affirmative vote required by law or
this Certificate of Incorporation or the Bylaws of the Corporation, and
except as otherwise expressly provided in Section 2 of this Article XIII, a
Business Combination with, or proposed by or on behalf of, any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder or
any person who after such Business Combination would be an Affiliate or
Associate of such Interested Stockholder, shall require the approval of the
Board of Directors and the affirmative vote of the holders of at least 80%
of the voting power of the then outstanding Voting Stock which is not owned
by the Interested Stockholder or any Affiliate or Associate of such
Interested Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(b) Definition of "Business Combination". The term "Business
Combination" as used in this Article XIII shall mean:
(i) any merger, consolidation or share exchange of the
Corporation or any Subsidiary with (A) any Interested Stockholder or
(B) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be,
an Affiliate or Associate of an Interested Stockholder;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions),
except proportionately as a stockholder of such corporation, to or
with any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder of any assets of the Corporation or any
Subsidiary having an aggregate Market Value equal to 10% or more of
either the aggregate market value of all the assets of the Corporation
determined on a consolidated basis or the aggregate market value of
all of the outstanding stock of the Corporation;
(iii) any transaction which results in the issuance or transfer
by the Corporation or any Subsidiary (in one transaction or a series
of transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate or Associate
of any Interested Stockholder except (A) pursuant to the exercise,
exchange or conversion of securities exercisable for, exchangeable for
or convertible into stock
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of the Corporation or any Subsidiary which securities were outstanding
prior to the time the Interested Stockholder became such, (B) pursuant
to a dividend or distribution paid or made, or the exercise, exchange
or conversion of securities exercisable for, exchangeable for or
convertible into stock of the Corporation or any Subsidiary which
security is distributed pro rata to all holders of a class or series
of stock of the Corporation subsequent to the time the Interested
Stockholder became such, (C) pursuant to an exchange offer by the
Corporation to purchase stock made on the same terms to all holders of
such stock or (D) any issuance or transfer of stock by the
Corporation, provided, however, that in no case under (B) through (D)
above shall there be an increase in the Interested Stockholder's
proportionate share of the stock of any class or series of the
Corporation or of the Voting Stock of the Corporation;
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation or any Subsidiary proposed by or on
behalf of an Interested Stockholder or any Affiliate or Associate of
any Interested Stockholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger,
consolidation or share exchange of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or into or
otherwise involving an Interested Stockholder) which in any such case
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity
or convertible securities of the Corporation or any Subsidiary which
is directly or indirectly owned by any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder;
(vi) any transaction involving the Corporation or any Subsidiary
which has the effect, directly or indirectly, of increasing the
proportionate share of the stock of any class or securities
convertible into the stock of any class or series owned by the
Interested Stockholder of the Corporation or of any Subsidiary, except
as a result of immaterial changes due to fractional share adjustments
or as a result of any purchase or redemption of any shares of stock
not caused, directly or indirectly, by the Interested Stockholder; or
(vii) any receipt by the Interested Stockholder of the benefit,
directly or indirectly (except proportionately as a stockholder of
such corporation) of any loans, advances, guarantees, pledges, or
other financial benefits (other than those expressly permitted in
subparagraphs (i)-(vi) above) provided by or through the Corporation
or any Subsidiary.
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SECTION 2. When Higher Vote is Not Required. The provisions of Section 1 of
this Article XIII shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law and any other provisions of this Certificate of
Incorporation or the bylaws of the Corporation, if all of the conditions
specified in either the following paragraphs (a) or (b) are met:
(a) Approval by Disinterested Directors. The Business Combination
shall have been approved by a majority of the Disinterested Directors.
(b) Price and Procedure Requirements. All of the following conditions
shall have been met:
(1) Minimum Price Requirements. With respect to every class or
series of Voting Stock of the Corporation, whether or not the
Interested Stockholder has previously acquired beneficial ownership of
any shares of such class or series of Voting Stock:
(i) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by holders of Common Stock in such Business Combination
shall be at least equal to the higher of the following:
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Stockholder for any share of Common Stock in
connection with the acquisition by the Interested
Stockholder of beneficial ownership of shares of Common
Stock (1) within the two-year period immediately prior to
the first public announcement of the proposal of the
Business Combination (the "Announcement Date"), or (2) in
the transaction or series of related transactions in which
it became an Interested Stockholder, whichever is higher, in
either case as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect
to Common Stock; and
(B) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article XIII as the
"Determination Date"), whichever is higher, as adjusted for
any subsequent stock split, stock dividend,
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subdivision or reclassification with respect to Common
Stock.
(ii) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by holders of shares of any other class or series of
outstanding Voting Stock shall be at least equal to the highest
of the following (it being intended that the requirements of this
paragraph (b)(ii) shall be required to be met with respect to
every class or series of outstanding Voting Stock, whether or not
the Interested Stockholder has previously acquired any shares of
a particular class or series of Voting Stock):
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Stockholder for any shares of such class or
series of Voting Stock in connection with the acquisition by
the Interested Stockholder of beneficial ownership of such
shares (1) within the two-year period immediately prior to
the Announcement Date, or (2) in the transaction in which it
became an Interested Stockholder, whichever is higher, in
either case as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect
to such class or series of Voting Stock;
(B) (if applicable) the highest preferential amount per
share to which the holders of shares of such class or series
of Voting Stock are entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation; and
(C) the Fair Market Value per share of such class or
series of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher, in either case as
adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to such class
or series of Voting Stock.
(2) Other Requirements.
(i) The consideration to be received by holders of a
particular class or series of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
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Interested Stockholder has previously paid for shares of such
class or series of Voting Stock. If the Interested Stockholder
has paid for shares of any class or series of Voting Stock with
varying forms of consideration, the form of consideration for
such class or series of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class
or series of Voting Stock previously acquired by it.
(ii) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (A) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full periodic
dividends (whether or not cumulative) on any outstanding
Preferred Stock; (B) there shall have been (1) no reduction in
the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except
as approved by a majority of the Disinterested Directors, and (2)
an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual
rate is approved by a majority of the Disinterested Directors;
and (C) such Interested Stockholder shall have not become the
beneficial owner of any additional shares of Voting Stock except
as part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder or by virtue of
proportionate stock splits or stock dividends.
(iii) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation or
any Subsidiary, whether in anticipation of or in connection with
such Business Combination or otherwise.
(iv) A proxy or information statement describing the
proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provisions replacing
such Act, rules or regulations) shall be mailed to the
stockholders of the Corporation at least 30 days prior to the
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consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant
to such Act or subsequent provisions).
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have made any major change in the Corporation's business or
capital structure without the approval of a majority of the
Disinterested Directors.
SECTION 3. Certain Definitions. For the purpose of this Article XIII:
(a) A "person" shall mean any individual or firm, corporation,
partnership, limited partnership, joint venture, trust, unincorporated
association, government or any political subdivision or agency or
instrumentality of a government or other entity and shall include any group
comprised of any person and any other person with whom such person or any
Affiliate or Associate of such person has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring,
holding, voting or disposing of Voting Stock.
(b) "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of Voting
Stock entitled to cast more than 15% of the votes in the election of
Directors; is an Affiliate or Associate of the Corporation and at any
time within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 15% or
more of the combined voting power of the then outstanding Voting
Stock; or
(ii) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act
of 1933.
(c) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
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(ii) which such person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote or direct the voting pursuant to any
agreement, arrangement or understanding, or (C) the right to dispose
of or direct the disposition of pursuant to any agreement, arrangement
or understanding; or
(iii) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(d) For the purpose of determining whether a person is an Interested
Stockholder pursuant to paragraph (b) of this Section 3, the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of paragraph (c) of this Section 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1996, except that the Corporation or any Subsidiary shall not be deemed to
be an Affiliate or an Associate of any Interested Stockholder.
(f) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in paragraph (b) of this Section 3, the
term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
(g) "Disinterested Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior to the time
that the Interested Stockholder became an Interested Stockholder, and any
successor of a Disinterested Director who is not an Affiliate of the
Interested Stockholder and is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then serving on the Board
of Directors.
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(h) "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date
in question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on such exchange, or, if such stock is not listed on such
exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is listed,
or, if such stock is not listed on such exchange, on the National
Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") National Market ("NMS"), or if such stock is not included on
NASDAQ-NMS, the highest closing bid quotation with respect to a share of
such stock during the 30-day period preceding the date in question on the
NASDAQ or any system then in use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock as
determined by the Board of Directors in good faith; and (ii) in the case of
property other than cash or stock, the fair market value of such property
on the date in question as determined by the Board of Directors in good
faith.
(i) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraphs (b)(1)(i) and (ii) of Section 2 of
this Article XIII shall include the shares of Common Stock and/or the
shares of any other class or series of outstanding Voting Stock
retained by the holders of such shares.
(ii) "Voting Stock" means the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
Directors.
SECTION 4. Powers of the Board of Directors. A majority of the Directors of
the Corporation shall have the power and duty to determine for the purposes of
this Article XIII, on the basis of information known to them after reasonable
inquiry (a) whether a person is an Interested Stockholder, (b) the number of
shares of Voting Stock beneficially owned by any persons, (c) whether a person
is an Affiliate or Associate of another, and (d) whether the requirements of
Section 2(b) have been met.
SECTION 5. No Effect on Fiduciary Obligations of Interested Stockholders.
Nothing contained in this Article XIII shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
SECTION 6. Amendment, Repeal, Etc. Notwithstanding any other provision of
this Certificate of Incorporation or the bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage or separate class vote may be
specified by law, this Certificate of Incorporation or the bylaws of the
Corporation), any proposal to amend or repeal this Article XIII or adopt any
provision of this Certificate of Incorporation inconsistent with it which is
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proposed by or on behalf of an Interested Stockholder or any Affiliate or
Associate of such Interested Stockholder shall require the affirmative vote of
the holders of at least 80% of the Voting Stock entitled to be cast at the
election of Directors, excluding Voting Stock beneficially owned by such
Interested Stockholder, unless such amendment, repeal or adoption is declared
advisable by the affirmative vote of two thirds of the entire Board of Directors
and a majority of the Disinterested Directors.
ARTICLE XIV
Indemnification
Indemnification shall be provided for to the fullest extent authorized in
the Bylaws. Any repeal or amendment of this Article XIV shall not effect
indemnification provided under this Article with respect to any state of facts
existing at or before the time of such amendment and any proceeding, whenever
brought, based in whole or in part upon any such state of facts.
ARTICLE XV
Gender
If the context requires, the use of any gender shall also refer to the
other gender.
ARTICLE XVI
Incorporator
The name and mailing address of the incorporator of the Corporation is
Kathleen Crowley, Corporation Services Company, 1013 Centre Road, Wilmington,
Delaware 19805.
The undersigned being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, makes this certificate, hereby declaring and certifying that
this is my act and deed and the facts herein stated are true, and accordingly
have hereunto set my hand this 23rd day of September, 1997.
/s/ _____________________________
18
EXHIBIT 3.2
BYLAWS
OF
DELAWARE FIRST FINANCIAL CORPORATION
ARTICLE I
Name
SECTION 1. Annual Meeting of Shareholders.
(a) The annual meeting of shareholders of the Corporation, for the
purpose of electing Directors and of transacting such other business as may
properly come before the meeting, shall be held on such date, at such place
and such time as shall be designated by the Board of Directors.
(b) To be properly brought before an annual meeting, business must be
either (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the meeting by a
shareholder.
(c) In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed to the Secretary of the Corporation and received at
the principal executive office of the Corporation by the Secretary, not
later than 120 days prior to the anniversary date of the immediately
preceding annual meeting. A shareholder's notice to the Secretary shall set
forth as to each matter the shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at
the annual meeting, (ii) the name and record address of the Shareholder
proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business.
(d) Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with
the procedures set forth in this Article I, provided, however, that nothing
in this Article I shall be deemed to preclude discussion by any shareholder
of any business properly brought before the annual meeting.
(e) The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Article 1, and
if he should so determine, he shall so
<PAGE>
declare to the meeting and any such business not properly brought before
the meeting shall not be transacted.
SECTION 2. Special Meetings of Shareholders.
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation, special
meetings of the shareholders for any purpose may be called only by a majority of
the entire Board of Directors.
SECTION 3. Notice of Meeting.
The Secretary shall cause written notice of the time, place and purposes of
each meeting to be mailed, or delivered personally, not less than 10 nor more
than 60 days before the date of the meeting, to each shareholder of record
entitled to vote at the meeting.
Attendance of a person at a meeting of shareholders, in person or by proxy,
constitutes a waiver of notice of the meeting, except when the shareholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 4. Quorum.
At any meeting of shareholders the holders of a majority of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote, present in person or represented by proxy, shall constitute a quorum of
the shareholders for all purposes unless a greater or lesser quorum shall be
provided by law or by the Certificate of Incorporation and in such case the
representation of the number so required shall constitute a quorum. The
shareholders present in person or by proxy at a meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding
withdrawal of enough shareholders to leave less than a quorum.
Whether or not a quorum is present, the meeting may be adjourned from time
to time by a vote of the shares present. At any such adjourned meeting, at which
a quorum shall be present, any business may be transacted which might have been
transacted at the meeting if held at the time specified in the notice thereof.
SECTION 5. Organization.
The Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors, the President, Executive Vice President or Senior Vice President as
the Chairman of the Board of Directors may designate, shall act as Chairman of
meetings of the shareholders.
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The Secretary of the Corporation shall act as Secretary at all meetings
of the shareholders; but in the absence of the Secretary, the Chairman of the
meeting may appoint any person to act as Secretary of the meeting.
SECTION 6. Voting.
Each holder of Common Stock and any series of Preferred Stock having voting
rights shall be entitled to one vote for each share of Common Stock or such
Preferred Stock held of record on all matters on which shareholders generally
are entitled to vote.
Directors shall be elected by ballot and upon demand of any shareholder the
vote upon any question before the meeting shall be by ballot.
Directors shall be elected by a plurality of the votes cast at an election.
All other action shall be authorized by a majority of the votes cast by the
holders of shares entitled to vote thereon, unless a greater vote is required by
law, by the Certificate of Incorporation or these Bylaws.
A shareholder entitled to vote at a meeting of shareholders may authorize
another person to act for him by written proxy.
SECTION 7. Inspectors of Elections.
The Board of Directors or Chairman of the meeting of shareholders shall
appoint one or more inspectors to count and tabulate the votes and to perform
such other acts or duties as may be required by the Chairman or required by law.
On request of the Chairman of the meeting, or as otherwise required by law, the
inspectors shall make and execute a written report to the Chairman of the
meeting of any facts found by them and matters determined by them. The report is
prima facie evidence of the facts stated and of the vote certified by the
inspectors.
ARTICLE II
Directors
SECTION 1. Number.
The business and affairs of the Corporation shall be managed under the
direction of the Board of Directors which, subject to any right of the holders
of any series of Preferred Stock then outstanding to elect additional directors
under specified circumstances, shall consist of not less than five nor more than
15 persons. The exact number of directors within the minimum and maximum
limitations specified in the preceding sentence shall be fixed from time to time
by the majority of the entire Board of Directors.
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SECTION 2. Terms.
The Directors shall be divided into such classes and shall have such terms
as are set forth in the Certificate of Incorporation.
SECTION 3. Newly Created Directorships and Vacancies.
Newly created Directorships and vacancies in the Board of Directors shall
be filled in the manner set forth in the Certificate of Incorporation.
SECTION 4. Removal.
Removal of Directors shall be effected in the manner set forth in the
Certificate of Incorporation.
SECTION 5. Nominations of Director Candidates.
(a) Nominations of candidates for election as Directors of the Corporation
can only be made at any meeting of shareholders called for election of Directors
and may be made by the Board of Directors or by any shareholder entitled to vote
at such meeting.
(b) Nominations made by the Board of Directors shall be made at a meeting
of the Board of Directors, or by written consent of Directors in lieu of a
meeting, not less than 30 days prior to the date of the meeting of shareholders,
and such nominations shall be reflected in the minute books of the Corporation
as of the date made. At the request of the Secretary of the Corporation each
proposed nominee shall provide the Corporation with such information concerning
himself as is required under the rules of the Securities and Exchange
Commission, to be included in the Corporation's proxy statement soliciting
proxies for his election as a Director.
(c) Not less than 90 days prior to the date of the meeting in the case of
an annual meeting, and not more than seven days following the date of notice of
the meeting in the case of a special meeting, any shareholder who intends to
make a nomination at the meeting shall deliver a notice to the Secretary of the
Corporation setting forth (i) the name, age, business address and residence
address of each nominee proposed in such notice, (ii) the principal occupation
or employment of each such nominee, (iii) the number of shares of capital stock
of the Corporation which are beneficially owned by each such nominee, (iv) a
statement that the nominee is willing to be nominated, (v) a representation that
the shareholder is a holder of record of the capital stock of the Corporation
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice, (vi) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder, and (vii) such other information concerning each such nominee as
would be required, under the rules of the Securities and Exchange Commission, in
a proxy statement soliciting proxies for the election
4
<PAGE>
of such nominees. The presiding officer of the meeting may refuse to acknowledge
the nomination by a shareholder of any person not made in compliance with the
foregoing procedures.
(d) In the event that a person is validly designated as a nominee in
accordance with paragraph (b) or paragraph (c) hereof and shall thereafter
become unable or unwilling to stand for election to the Board of Directors, the
Board of Directors or the shareholder who proposed such nominee, as the case may
be, may designate a substitute nominee.
(e) If the Chairman of the meeting determines that a nomination was not
made in accordance with the procedures as set forth in these Bylaws, such
nomination shall be void.
SECTION 6. Place and Manner of Meeting.
All meetings of the Board of Directors shall be held at the principal
office of the Corporation or at any other place within or without the State of
Delaware as the Board of Directors may from time to time fix therefor. Any
meeting of the Board of Directors, regular or special, may be held by conference
telephone or similar communication equipment so long as all Directors
participating in the meeting can hear one another, and all such Directors shall
be deemed to be present in person at the meeting.
SECTION 7. Regular Meetings.
A regular meeting of the Board of Directors, of which no notice shall be
required to be given, shall be held, if a quorum be present, in each and every
year immediately after the adjournment of the annual meeting of shareholders for
the purpose of electing officers and transacting such other business as might be
transacted at any regular meeting of the Board of Directors. The Board of
Directors may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice, except that the scheduled date
of any meeting may be changed by the Chairman of the Board or the President, in
the discretion of either, provided that notice of such change shall be given to
all Directors personally or by mail, telephone or telegraph at least 24 hours
prior to such scheduled date upon which such meeting is to be held.
SECTION 8. Special Meetings.
Special meetings of the Board of Directors shall be called by the Secretary
at the direction of the Chairman of the Board, the President, or a majority of
the Directors. Notice of the time and place of any special meeting of the Board
of Directors shall be given by serving the same personally or by telephone or by
telegram addressed to each Director at his post office address as the same shall
appear on the books of the Corporation at least two hours before such meeting.
Each member of the Board of Directors shall, by writing filed with the
Secretary, designate his post office address to which notices or meetings of the
Board of Directors of the Corporation shall be directed, and in the event of any
change therein shall likewise designate his new post office address.
5
<PAGE>
SECTION 9. Quorum.
A majority of the members of the Board of Directors then in office, or of a
committee thereof, shall constitute a quorum for the transaction of business,
and the vote of a majority of the members present at a meeting at which a quorum
is present shall be the act of the Board of Directors or of the Committee
thereof, except for the amendment of the Bylaws which shall require a vote of
not less than a majority of the members of the Board of Directors then in
office.
SECTION 10. Action Without a Meeting.
Action required or permitted to be taken at a meeting of the Board of
Directors, or a committee thereof, may be taken without a meeting, if all
members of the Board of Directors or of the committee consent thereto in
writing. The written consent shall be filed with the minutes of the proceedings
of the Board of Directors or Committee. The consent shall have the same effect
as a vote of the Board of Directors or Committee thereof for all purposes.
SECTION 11. Organization.
At all meetings of the Board of Directors, the Chairman of the Board of
Directors, the Vice Chairman of the Board of Directors, the President, a Senior
Vice President or a Vice President or in their absence a member of the Board to
be selected by the members present, shall preside as Chairman of the meeting.
The Secretary or an Assistant Secretary of the Corporation shall act as
secretary of all meetings of the Board, except that in their absence the
Chairman of the meeting may designate any other person to act as secretary.
At meetings of the Board of Directors business shall be transacted in such
order as from time to time the Board may determine.
SECTION 12. Committees of the Board.
The Board of Directors may designate one or more Committees, including an
Executive Committee, each consisting of one or more Directors of the Corporation
as members, with such power and authority as prescribed by the Bylaws or as
provided in a resolution of the Board of Directors. Each Committee, and each
member thereof, shall serve at the pleasure of the Board of Directors.
6
<PAGE>
ARTICLE III
Officers
SECTION 1. Officers.
The officers of the Corporation shall be a President, one or more Executive
Vice Presidents, one or more Senior Vice Presidents, a Secretary, and such
additional officers, if any, as shall be elected by the Board of Directors in
accordance with these Bylaws. The Board of Directors, immediately after each
annual meeting of shareholders, shall select a President and one or more
Executive Vice Presidents and Senior Vice Presidents, and a Secretary. The
failure to hold such election shall not of itself terminate the term of office
of any officer. All officers shall hold office at the pleasure of the Board of
Directors. Any officer may resign at any time upon written notice to the
Corporation. Officers may, but need not, be Directors. Any two or more of the
above offices may be held by the same persons except as prohibited by law, but
no officer shall execute, acknowledge or verify an instrument in more than one
capacity if the instrument is required by law to be acknowledged or verified by
two or more officers. The President shall be the Chief Executive Officer unless
the Board of Directors designates otherwise. The Chief Executive Officer shall
be a member of the Board of Directors.
All officers shall be subject to removal with or without cause at any time
by the affirmative vote of a majority of the members of the Board of Directors
then in office. The removal of an officer without cause shall be without
prejudice to his contract rights, if any. The election or appointment of an
officer shall not of itself create contract rights. All agents and employees
other than officers elected by the Board of Directors shall also be subject to
removal, with or without cause, at any time by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors. In the absence of action by the Board of Directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock.
The certificates for shares of the capital stock of the Corporation shall
be in such form as shall be approved by the Board of Directors. The certificates
shall be signed by the
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<PAGE>
President or any Vice President and also by the Secretary, and may be sealed
with the seal of the Corporation, or a facsimile thereof.
The signatures of the aforesaid officers may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation or its employee. The validity of any stock
certificate of the Corporation signed and executed by or in the name of duly
qualified officers of the Corporation shall not be affected by the subsequent
death, resignation, or the ceasing for any other reason of any such officer to
hold such office, whether before or after the date borne by or the actual
delivery of such certificates.
All certificates for shares of stock shall be consecutively numbered as the
same are issued. The name of the person owning the shares represented thereby,
with the number of such shares and the date of issue, shall be entered on the
Corporation's capital stock records.
Except as hereinafter provided, all certificates surrendered to the
Corporation shall be cancelled, and no new certificates shall be issued until
the former certificate for the same number of shares shall have been surrendered
and cancelled except in case of a lost or destroyed certificate.
The Corporation may treat the holder of record of any share or shares of
stock as the holder in fact thereof, and shall not be bound to recognize any
equitable or other claim to or interest in any such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by law.
SECTION 2. Lost Certificate.
The Corporation may issue a new certificate for shares in place of a
certificate theretofore issued by it, alleged to have been lost or destroyed,
and the Board of Directors may require the owner of the lost or destroyed
certificate, or his legal representative, to give the Corporation a bond in form
satisfactory to the Corporation sufficient to indemnify the Corporation, its
transfer agents and registrars against any claim that may be made against them
on account of the alleged lost or destroyed certificate or the issuance of such
a new certificate.
SECTION 3. Transfer of Shares.
Shares of the capital stock of the Corporation shall be transferable by the
owner thereof in person or by a duly authorized attorney, upon surrender of the
certificates therefor properly endorsed. The Corporation may appoint a transfer
agent and registrar or one or more transfer agents and one or more registrars,
or either, for the stock of the Corporation.
8
<PAGE>
SECTION 4. Regulations.
The Board of Directors shall have power and authority to make all such
rules and regulations as they may deem expedient concerning the issue, transfer
and registration of certificates for shares of the capital stock of the
Corporation.
SECTION 5. Record Date.
In order that the Corporation may determine the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, as the case may be, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days before
the date of such meeting, nor more than sixty (60) days prior to any other such
action.
If no record date is fixed, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; and the record date for determining
shareholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 6. Dividends and Stock Repurchases.
Subject to the provisions of the Certificate of Incorporation, the Board of
Directors shall have the power to declare and pay dividends upon shares of, and
authorize repurchase programs for, stock of the Corporation, but only out of
funds available for the payment of dividends or repurchase of shares as provided
by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a Saturday, Sunday or a
legal holiday, then the dividend payable on such date shall be paid on the next
day not a Saturday, Sunday or a legal holiday.
SECTION 7. Corporate Seal.
The Board of Directors shall provide a suitable seal, containing the name
of the Corporation, which seal shall be kept in the custody of the Secretary. A
duplicate of the seal may be kept and be used by any officer of the Corporation
designated by the Board or the President.
9
<PAGE>
SECTION 8. Fiscal Year.
The fiscal year of the Corporation shall end on December 31 or shall be
such other fiscal year as the Board of Directors from time-to time by resolution
shall determine.
ARTICLE V
Miscellaneous Provisions
SECTION 1. Contracts.
To the extent permitted by law, and except as otherwise prescribed by these
Bylaws with respect to certificates for shares, the Board of Directors may
authorize any officer, employee, or agent of the Corporation to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation. Such authority may be general or confined to specific
instances.
SECTION 2. Loans.
No loans shall be contracted on behalf of the Corporation and no evidence
of indebtedness shall be issued in its name unless authorized by the Board of
Directors. Such authority may be general or confined to specific instances.
SECTION 3. Checks, Drafts, Etc.
All checks, drafts or other order for the payment of money, notes, or other
evidences of indebtedness issued in the name of the Corporation shall be signed
by one or more officers, employees or agents of the Corporation in such manner
as shall from time to time be determined by the Board of Directors.
SECTION 4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in any duly authorized
depositories as the Board of Directors may select.
SECTION 5. Waivers of Notice.
Whenever any notice whatever is required to be given by law, by the
Certificate of Incorporation or by these Bylaws to any person or persons, a
waiver thereof in writing, signed by the person or persons entitled to the
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
10
<PAGE>
SECTION 6. Offices Outside of Delaware.
Except as otherwise required by the laws of the State of Delaware, the
Corporation may have an office or offices and keep its books, documents and
papers outside of the State of Delaware at such place or places as from time to
time may be determined by the Board of Directors or the President.
SECTION 7. Gender.
If the context requires, the use of any gender shall also refer to the
other gender.
ARTICLE VI
Indemnification
SECTION 1. Indemnification of Directors, Officers and Employees.
The Corporation shall indemnify to the full extent authorized by law any
Director or officer made or threatened to be made a party to an action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a Director or officer
of the Corporation or is or was serving, at the request of the Corporation, as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise.
The Corporation may, at the discretion of the Board of Directors, indemnify
to the full extent authorized by law any employee or agent made or threatened to
be made a party to an action, suit or proceeding, whether criminal, civil,
administrative or investigative by reason of the fact that he, his testator or
intestate is or was an employee or agent of the Corporation or is or was serving
at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
SECTION 2. Expenses Advanced.
Expenses incurred with respect to any claim, action or proceeding of the
character, actual or threatened, described in Section 1 of this Article VI, may
be advanced by the Corporation prior to the final disposition thereof upon
receipt of an undertaking by such person to repay the amount so advanced if and.
to the extent it shall ultimately be determined by a court of competent
jurisdiction that he was not entitled to indemnification under this Bylaw.
SECTION 3. Automatic Conformity to Law.
The intention of this Bylaw is to provide indemnification with the broadest
and most inclusive coverage permitted by law (a) at the time of the act or
omission to be indemnified
11
<PAGE>
against, or (b) so permitted at the time of carrying out such indemnification,
whichever of (a) or (b) may be broader or more inclusive and permitted by law to
be applicable. If the indemnification permitted by law at this present time, or
at any future time, shall be broader or more inclusive than the provisions of
this Bylaw, then indemnification shall nevertheless extend to the broadest and
most inclusive permitted by law at any time and this Bylaw shall be deemed to
have been amended accordingly. If any provision or portion of this Article shall
be found, in any action, suit or proceeding, to be invalid or ineffective, the
validity and effect of the remaining parts shall not be affected.
ARTICLE VII
Amendments
The shareholders or the Board of Directors of the Corporation may amend or
repeal the Bylaws or adopt new Bylaws. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, the vote of a majority of the
shares present or represented by proxy and entitled to vote at any annual or
special meeting shall be required to amend or repeal the Bylaws or to adopt new
Bylaws. Except as otherwise required by law, the Certificate of Incorporation or
these Bylaws, such action by the Board of Directors requires an affirmative vote
of not less than a majority of the members of the Board of Directors then in
office.
12
Exhibit 8.3
[ FINPRO LOGO HERE ]
- --------------------------------------------------------------------------------
September 17, 1997
Board of Trustees
Ninth Ward Savings Bank
400 Delaware Avenue
Wilmington, Delaware 19801
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion, as amended (the "Plan") adopted by
the Board of Trustees of Ninth Ward Savings Bank (the "Bank"), whereby the Bank
will convert from a Federal mutual savings bank to a Federal stock savings bank
and issue all of the Bank's outstanding capital stock to Delaware First
Financial Corporation. (the "Company"). Simultaneously the Company will issue
shares of common stock.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Conversion Stock are to be issued to (i) Eligible Account Holders;
and (ii) the ESOP; together collectively referred to as the "Recipients". Based
solely on our observation that the Subscription Rights will be available to such
Recipients without cost, will be legally non-transferable and of short duration,
and will afford the Recipients the right only to purchase shares of Conversion
Stock at the same price as will be paid by members of the general public in the
Community Offering, but without undertaking any independent investigation of
state or federal law or the position of the Internal Revenue Service with
respect to this issue, we are of the belief that:
(1) the Subscription Rights will have no ascertainable market value; and
(2) the price at which the Subscription Rights are excercisable will not
be more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Company's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Conversion Stock in the conversion
will thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
-------------------
Donald J. Musso
President
Exhibit 10.1
406 Owls Nest Road
Wilmington, Delaware 19807
November 1, 1994
Ronald P. Crouch, President
Ninth Ward Savings Bank, FSB
400 Delaware Avenue
Wilmington, DE 19801
RE: Deferred Compensation Agreement
Deferral Election
Dear Ron,
Please be advised that I wish to defer receipt of 100% of all Directors Fees
earned by me on or after November 1, 1994. I understand that my right to payment
of fees deferred pursuant to this election shall be determined under the terms
of the Agreement between Ninth Ward Savings Bank, FSB and me dated November 1,
1994.
I also wish to advise that my designated beneficiary is Joan C. Gehrke.
This election will remain in effect from year to year unless altered or
terminated by my written request.
Yours truly,
/s/ Lary D. Gehrke
- ------------------------
Larry D. Gehrek
Witness Victoria Shawley
----------------
Date November 22, 1994
-----------------
<PAGE>
AGREEMENT
THIS AGREEMENT, made the 1st of November , 1994 by and between NINTH WARD
SAVINGS BANK, FSB, a corporation chartered under the laws of the United States
of America (the "Bank") and Larry D. Gehrke, a Director of the Bank
("Director").
WITNESSETH THAT:
WHEREAS, the Bank desires to provide an unfunded deferred compensation plan
for the benefit of the Director pursuant to which payment of all or part of the
Director's fees earned by the Director on or after the date of this agreement
may be deferred;
NOW THEREFORE, in consideration of the agreements hereinafter contained,
the parties hereto agree as follows:
1. Director will continue to serve on the Board of Directors of the Bank
until such relationship is terminated by either party in accordance with the
By-laws of the Bank.
2. As an inducement to Director to remain in his capacity as a Director of
the Bank, the Bank agrees to permit Director to elect in writing to defer
receipt of all or a specified part of the fees to which he may thereafter become
entitled in his capacity as a Director. An election will remain in effect from
year to year unless Director alters or terminates it by written request.
Alteration or termination of the election shall be effective only with respect
to fees which have not yet been earned.
<PAGE>
Fees which are deferred pursuant to an election under this paragraph will
hereinafter be referred to as "deferred compensation: and shall be paid to
Director or his beneficiary as provided in paragraph 5.
3. The Bank shall keep accurate accounting records in a deferred
compensation account of the amount of deferred compensation accrued in
accordance with paragraph 2 and shall, on not less than an annual basis, credit
the amount in the deferred compensation account with interest at an annual rate
equal to the average of the Bank's weighted average cost of funds on the last
day of October, November and December for the year preceding the year with
respect to which the interest is credited.
4. Title to and beneficial ownership of any assets, whether cash or
investments which the Bank may earmark to pay the deferred compensation
hereunder, shall at all times remain in the Bank and Director and his designated
beneficiary shall not have any property interest whatsoever in any specific
assets of the Bank.
5. Amounts credited to the deferred compensation account shall be paid as
follows:
(a) Commencing on the first day of the month following the earlier of:
(1) the Director's attainment of age 70; or, (2) the Director's resignation
or removal from the Board for any reason other than death, the Bank shall
pay to Director in five (5) annual installments an amount equal to the
total accrued deferred compensation including any increases credited to the
deferred compensation account pursuant to Paragraph (3). If Director should
die prior to payment of all of the annual installments, the unpaid
<PAGE>
installments will continue to be paid to his designated beneficiary in the
manner set forth above.
(b) Commencing on the first day of the month following the Director's
death, the Bank shall make annual installments, in the manner stated in
paragraph 5(a), to his designated beneficiary.
(c) If both Director and his designated beneficiary should die prior
to all of the annual installments being paid, then the amount of the unpaid
installments will be paid as promptly as possible in one lump sum to the
estate of such designated beneficiary.
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Bank and Director, his
designated beneficiary or any other person. Any funds which may be invested
under the provisions of this Agreement shall continue for all purposes to be a
part of the general funds of the Bank and no person other than the Bank shall,
by virtue of the provisions of this Agreement, have any interest in such funds.
To the extent that any person acquires a right to receive payments from the Bank
under this Agreement, such right shall be no greater than the right of any
unsecured general creditor of the Bank.
7. The Bank agrees that it will not voluntarily merge or consolidate with
any other corporation or organization, or when in its power, permit its
activities to be taken over by any other organization, unless and until the
succeeding or continuing corporation or organization shall expressly assume the
rights and obligations of the Bank
<PAGE>
set forth herein. The Bank further agrees that it will not cease its activities
or terminate its existence without having first made adequate provision for the
fulfillment of its obligations hereunder. In the event of any default with
respect to the provisions of this paragraph, the Director (or his designated
beneficiary) shall have a continuing lien on the corporate assets of the Bank
until such default is satisfied; provided, however, that such lien shall create
no preference greater than that enjoyed by any other general creditor of the
Bank.
8. Nothing contained herein shall be construed as conferring upon the
Director the right to continue as a Director of the Bank.
9. The right of Director or any other person to the payment of deferred
compensation or other benefits under this Agreement shall not be assigned,
transferred, pledged or encumbered except by will or by the laws of descent and
distribution.
10. The Board shall have full power and authority to interpret, construe
and administer this Agreement and the Board's interpretations and construction
thereof, and actions thereunder, including any valuation of the deferred
compensation account, or the amount or recipient of the payment to be made
therefrom, shall be binding and conclusive on all persons for all purposes. No
member of the Board shall be liable to any person for any action taken or
omitted in connection with the interpretations and administration of this
Agreement unless attributable to his own willful misconduct or lack of good
faith.
11. In the event the Internal Revenue Service (the "Service") shall at any
time interpret this Agreement to be ineffective with respect to deferral of
Director's fees, and that interpretation becomes final and unappealable, then
those amounts in the
<PAGE>
deferred compensation account that would be treated as taxable income by the
Service at the time of such final interpretation, and only such amount, shall be
paid over to Director. All other amounts credited to the deferred compensation
account shall be paid at such time as originally provided under this Agreement.
In the event any other provision of this Agreement should be held or become
invalid, then all remaining provisions shall continue to be fully effective.
12. This agreement shall be construed in accordance with governed by the
laws of the State of Delaware.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by
its duly authorized officers and Director has hereunto set his hand and seal as
of the date first above written.
Ninth Ward Savings Bank, FSB
By /s/ Ronald Crouch
---------------------------
Ronald Crouch
- ------------------------
Secretary
(CORPORATE SEAL)
/s/ Larry D. Gehrke (SEAL)
---------------------
Larry D. Gehrke
<PAGE>
AGREEMENT
THIS AGREEMENT, made this 8th day of November, 1988 by and between NINTH
WARD SAVINGS & LOAN ASSOCIATION, a Delaware corporation (the "Company") and
William R. Baldt, Director of the Company ("Director").
W I T N E S S E T H T H A T:
WHEREAS, the Company desires to provide an unfunded deferred compensation
plan for the benefit of the Director pursuant to which payment of all or part of
the Director's fees earned by the Director on or after the date of this
Agreement may be deferred;
NOW THEREFORE, in consideration of the agreements hereinafter contained,
the parties hereto agree as follows:
1. Director will continue to serve on the Board of Directors of the Company
until such relationship is terminated by either party in accordance with the
By-laws of the Company.
2. As an inducement to Director to remain in his capacity as a Director of
the Company, the Company agrees to permit Director to elect in writing to defer
receipt of all or a specified part of the fees to which he may thereafter become
entitled in his capacity as a director. An election will remain in effect from
year to year unless Director alters or terminates it by written request.
Alteration or termination of the election shall be effective only with respect
to fees which have not yet been earned.
<PAGE>
Fees which are deferred pursuant to an election under this paragraph will
hereinafter be referred to as "deferred compensation" and shall be paid to
Director or his beneficiary as provided in paragraph 5.
3. The Company shall keep accurate accounting records in a deferred
compensation account of the amount of deferred compensation accrued in
accordance with paragraph 2 and shall, on not less than an annual basis, credit
the amount in the deferred compensation account with interest at an annual rate
equal to the Company's average cost of funds on the last days of October,
November and December for the year preceding the year with respect to which the
interest is credited.
4. Title to and beneficial ownership of any assets, whether cash or
investments which the Company may earmark to pay the deferred compensation
hereunder, shall at all times remain in the Company and Director and his
designated beneficiary shall not have any property interest whatsoever in any
specific assets of the Company.
5. Amounts credited to the deferred compensation account shall be paid as
follows: [Choose option desired]
[(a) Commencing on the first day of the month following the earlier
of: (1) the Director's attainment of age 70; or, (2) the Director's
resignation or removal from the Board for any reason other than death, the
Company shall pay to Director in 1 annual installments an amount equal to
the total accrued deferred compensation including any increases credited to
the deferred compensation account pursuant to Paragraph (3). If
<PAGE>
Director should die prior to payment of all of the annual installments, the
unpaid installments will continue to be paid to his designated beneficiary
in the manner set forth above.
(b) Commencing on the first day of the month following the Director's
death, the Company shall make annual installments, in the manner stated in
paragraph 5(a), to his designated beneficiary.
(c) If both Director and his designated beneficiary should die prior
to all of the annual installments being paid, then the amount of the unpaid
installments will be paid as promptly as possible in one lump sum to the
estate of such designated beneficiary.]
[(a) Upon the first day of the month following the earlier of (1) the
Director's attainment of age 70; or (2) the Director's resignation or
removal from the Board for any reason, the Company shall pay to Director
(or his designated beneficiary in the event of his death), in a lump sum,
an amount equal to the total deferred compensation including any increases
credited to the deferred compensation account pursuant to Paragraph (3).
(b) If the designated beneficiary should die prior to Director,
payment of the deferred compensation and any earnings credited under
Paragraph (3), shall be made in a lump sum to the Director's estate.]
6. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Company and Director, his
designated
<PAGE>
beneficiary or any other person. Any funds which may be invested under the
provisions of this Agreement shall continue for all purposes to be a part of the
general funds of the Company and no person other than the Company shall, by
virtue of the provisions of this Agreement, have any interest in such funds. To
the extent that any person acquires a right to receive payments from the Company
under this Agreement, such right shall be no greater than the right of any
unsecured general creditor of the Company.
7. The Company agrees that it will not voluntarily merge or consolidate
with any other corporation or organization, or when in its power, permit its
activities to be taken over by any other organization, unless and until the
succeeding or continuing corporation or organization shall expressly assume the
rights and obligations of the Company set forth herein. The Company further
agrees that it will not cease its activities or terminate its existence without
having first made adequate provision for the fulfillment of its obligations
hereunder. In the event of any default with respect to the provisions of this
paragraph, the Director (or his designated beneficiary) shall have a continuing
lien on the corporate assets of the Company until such default is satisfied;
provided, however, that such lien shall create no preference greater than that
enjoyed by any other general creditor of the Company.
8. Nothing contained herein shall be construed as conferring upon the
Director the right to continue as a Director of the Company.
<PAGE>
9. The right of Director or any other person to the payment of deferred
compensation or other benefits under this Agreement shall not be assigned,
transferred, pledged or encumbered except by will or by the laws of descent and
distribution.
10. The Board shall have full power and authority to interpret, construe
and administer this Agreement and the Board's interpretations and construction
thereof, and actions thereunder, including any valuation of the deferred
compensation account, or the amount or recipient of the payment to be made
therefrom, shall be binding and conclusive on all persons for all purposes. No
member of the Board shall be liable to any person for any action taken or
omitted in connection with the interpretation and administration of this
Agreement unless attributable to his own willful misconduct or lack of good
faith.
11. In the event the Internal Revenue Service (the "Service") shall at any
time interpret this Agreement to be ineffective with respect to deferral of
Director's fees, and that interpretation becomes final and unappealable, then
those amounts in the deferred compensation account that would be treated as
taxable income by the Service at the time of such final interpretation, and only
such amounts, shall be paid over to Director. All other amounts credited to the
deferred compensation account shall be paid at such time as originally provided
under this Agreement.
<PAGE>
In the event any other provision of this Agreement should be held or become
invalid, then all remaining provisions shall continue to be fully effective.
12. This Agreement shall be construed in accordance with and governed by
the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officers and Director has hereunto set his hand and seal as
of the date first above written.
NINTH WARD SAVINGS & LOAN
ASSOCIATION
By
---------------------
- --------------------------
Secretary
(CORPORATE SEAL)
-----------------(SEAL)
EXHIBIT 10.2
NINTH WARD
EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
NINTH WARD
EMPLOYEE STOCK OWNERSHIP PLAN
Table of Contents
-----------------
Article I. Definitions.............................................. 1
1.1. Account............................................... 1
1.2. Acquisition Loan...................................... 1
1.3. Adoption Date......................................... 1
1.4. Affiliate............................................. 1
1.5. Aggregation Group..................................... 1
1.6. Bank.................................................. 2
1.7. Board................................................. 2
1.8. Code.................................................. 2
1.9. Committee............................................. 2
1.10. Compensation......................................... 2
1.11. Contribution Suspense Account........................ 2
1.12. Disability........................................... 2
1.13. Diversification Election............................. 3
1.14. Effective Date....................................... 3
1.15. Employee............................................. 3
1.16. Employer............................................. 3
1.17. Employer Stock....................................... 3
1.18. Entry Date........................................... 3
1.19. Financed Shares...................................... 3
1.20. Forfeiture........................................... 3
1.21. Hour of Service...................................... 3
1.22. Limitation Year...................................... 5
1.23. Normal Retirement Age................................ 5
1.24. One-Year Break in Service............................ 5
1.25. Participant.......................................... 5
1.26. Plan................................................. 5
1.27. Plan Year............................................ 5
1.28. Qualified Election Period............................ 5
1.29. Qualified Participant................................ 5
1.30. Suspense Account..................................... 5
1.31. Trust................................................ 5
1.32. Trustee.............................................. 5
1.33. Vested............................................... 6
1.34. Year of Service...................................... 6
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Article II. Eligibility............................................. 6
2.1. Eligibility for Participation......................... 6
2.2. Participation of Affiliates, Etc...................... 7
2.3 Termination of Active Participation.................... 7
2.4. Resumption of Active Participation.................... 7
Article III. Contributions.......................................... 7
3.1. Employer Contributions................................ 7
3.2. Limitations on Annual Additions....................... 8
3.3. Overall Limitations................................... 9
3.4. Participant Contributions............................. 10
Article IV. Participants' Accounts................................. 10
4.1 Separate Accounts..................................... 10
4.2. Allocations........................................... 10
4.3. Valuations............................................ 10
4.4. Release from Suspense Account......................... 11
4.5. Stock Dividends, Splits, Etc.......................... 12
Article V. Vesting.................................................. 12
5.1. Vesting Schedule..................................... 12
5.2. Full Vesting.......................................... 13
5.3. Past Service.......................................... 13
5.4. Breaks In Service..................................... 13
5.5. Treatment of Forfeitures.............................. 13
Article VI. Distributions from the Plan............................ 14
6.1. Payment of Benefits................................... 14
6.2. Diversification Election.............................. 16
6.3. Put Option............................................ 17
6.4. Right of First Refusal................................ 17
6.5. Designation of Beneficiary............................ 18
6.6. Proof of Death, Etc................................... 18
Article VII. The Committee......................................... 19
7.1. Organization of the Committee......................... 19
7.2. Operation of the Committee............................ 19
7.3. Responsibility of the Committee....................... 19
7.4. Management of Trust Fund Assets....................... 20
7.5. Expenses.............................................. 20
7.6. Allocation and Delegation of Responsibility........... 20
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7.7. Indemnification....................................... 21
7.8. Service of Process.................................... 21
Article VIII. The Trust............................................. 21
8.1. Establishment of Trust................................ 21
8.2. Interest in Trust..................................... 21
8.3. Accounts.............................................. 21
8.4. Investment of Assets and Voting Rights................ 22
8.5. Dividends on Employer Stock........................... 23
8.6 Acquisition Loans...................................... 23
8.7. Liability of Trustee.................................. 24
8.8. Allocation of Duties.................................. 25
Article IX. General................................................ 25
9.1. Amendment of Plan..................................... 25
9.2. Plan Termination...................................... 26
9.3. Notice of Amendment, Etc.............................. 26
9.4. Non-Alienation of Benefits............................ 26
9.5. Employment Relation................................... 27
9.6. Payments to Minors and Incompetents................... 27
9.7. Missing Persons....................................... 27
9.8. Sole Source of Benefits............................... 27
9.9. Plan Qualification.................................... 27
9.10. Merger Consolidation, Etc............................ 28
9.11. Exclusive Benefit.................................... 28
9.12. Claims for Benefits.................................. 28
9.13. Service of Plan Fiduciaries.......................... 28
9.14. Governing Law........................................ 29
9.15. Gender and Number.................................... 29
9.16. Titles and Headings.................................. 29
Article X. Top-Heavy Provisions..................................... 29
10.1. Definitions.......................................... 29
Aggregated Plans.................................... 29
Compensation........................................ 29
Determination Date.................................. 29
Key Employee........................................ 29
Non-Key Employee.................................... 30
Top-Heavy........................................... 30
Valuation Date...................................... 30
Value of Accumulated Benefits....................... 30
Year of Top-Heavy Service........................... 31
10.2. Minimum Contributions................................ 31
10.3. Vesting.............................................. 32
iii
<PAGE>
Introduction
In order to give its Employees an opportunity to share in its profit and
growth and that of its affiliated companies, enjoy the beneficial incidents of
stock ownership, and to encourage such Employees to work to improve the
performance of Ninth Ward Savings Bank, FSB (the "Bank"), the Bank hereby adopts
on the Adoption Date (as hereinafter defined) an employee stock ownership plan
("ESOP") under Section 4975(e)(7) of the Internal Revenue Code of 1986, as
amended (the "Code"), as hereinafter set forth. The Plan is in the form of a
stock bonus plan intended to qualify under Section 401(a) of the Code and is
designed to invest primarily in qualifying employer securities, as defined in
Section 4975(e)(8) of the Code. It is intended that the Plan and its associated
Trust will give participating Employees an ownership interest in the Bank or in
affiliated companies, while furthering their personal financial goals. At no
time shall any of the funds contributed under the Plan be used for any purpose
other than the exclusive benefit of Plan Participants and their beneficiaries.
Article I. Definitions
Wherever used herein, the following words shall have the following
meanings, unless otherwise stated:
1.1. "Account" means the entire interest of a Participant in the Trust.
1.2. "Acquisition Loan" means any loan to the Plan or Trust described in
Section 404(a)(9) of the Code, not prohibited by Section 4975(c) of the Code,
including a loan which meets the requirements set forth in Section 4975(d)(3) of
the Code and the regulations promulgated thereunder, the proceeds of which are
used to finance the acquisition of Employer Stock or to refinance such a loan.
1.3. "Adoption Date" means the date on which Delaware First Financial
Corporation has successfully completed its public offering of Bank stock
following the Bank's conversion from mutual to stock form. If said offering is
withdrawn or is not successfully concluded for any reason, the Plan shall not
take effect.
1.4. "Affiliate" means a parent, subsidiary, or other corporation which is
a member of the same controlled group of corporations within the meaning of
Section 414(b) of the Code as the Bank. or 414(m) of the Code or the regulations
under Section 414(o) of the Code, except that for purposes of applying the
provisions of Articles III and X with respect to the limitations on benefits,
Section 415(h) of the Code shall apply.
1.5. "Aggregation Group" means the Bank and any corporation which
becomes a member of a controlled group of corporations (as defined in Section
414(b) of the Code) which includes the Bank; any trade or business (whether or
not incorporated) which
1
<PAGE>
becomes under common control (as defined in Section 414(c) of the Code) with the
Bank; any organization (whether or not incorporated) which becomes a member of
an affiliated service group (as defined in Section 414(m) of the Code) which
includes the Bank; and any other entity required to be aggregated with the Bank
pursuant to regulations under Section 414(o) of the Code.
1.6. "Bank" means Ninth Ward Savings Bank, FSB, and any person, firm or
corporation which may hereafter succeed to the business by merger, consolidation
or otherwise, and which by appropriate action shall adopt the Plan.
1.7. "Board" means the Board of Directors of the Bank.
1.8. "Code" means the Internal Revenue Code of 1986 and any amendments
thereto. All citations to Sections of the Code are to such Sections as they may
from time to time be amended or renumbered,
1.9. "Committee" means the ESOP Committee appointed by the Board to serve
at its pleasure to administer the Plan as provided in Article VII.
1.10. "Compensation" means with respect to any Participant, such
Participant's wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer's trade or business)
for a Plan Year for which the Employer is required to furnish the Participant a
written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation
must be determined without regard to any rules under Code Section 3401(a) that
limit the renumeration included in wages based on the nature or location of the
employment or the services performed (such as the exception for agricultural
labor in Code Section 3401(a)(2)).
For purposes of this Section, the determination of Compensation shall be
made by including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457,
and Employee contributions described in Code Section 414(h)(2) that are treated
as Employer contributions.
For a Participant's initial year of participation, Compensation shall be
recognized as of such Employee's effective date of participation pursuant to
Section 2.1.
Compensation in excess of $80,000 shall not be recognized for purposes of
allocating Employer contributions under the Plan.
1.11. "Contribution Suspense Account" means the account comprised of excess
Employer contributions and Forfeitures maintained in accordance with Section
3.2(a).
1.12. "Disability" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months. The disability of a
2
<PAGE>
Participant shall be determined by a licensed physician chosen by the
Administrator. The determination shall be applied uniformly to all Participants.
1.13. "Diversification Election" means an election made in accordance with
Section 6.2.
1.14. "Effective Date" means the first day of the Plan Year in which the
Adoption Date occurs. Upon the Adoption Date, the Plan shall take effect
retroactively to the Effective Date.
1.15. "Employee" means any person employed by an Employer (including an
officer but not a director as such) who receives Compensation from such
Employer; provided, however, that the term "Employee" shall not include any
person who is covered by a collective bargaining agreement pursuant to which
retirement benefits were the subject of good faith bargaining, except to the
extent that such collective bargaining agreement provides for participation in
the Plan. "Employee" shall exclude leased employees within the meaning of
Section 414(n)(2) of the Code.
1.16. "Employer" means the Bank, its successors and assigns, and any
participating Affiliate which is designated by the Board in accordance with the
provisions of Section 2.3 as an Employer under the Plan and whose designation as
such has become effective and continues in effect. An Employer may revoke its
acceptance of such designation at any time, but until such acceptance has been
revoked all the provisions of the Plan shall apply to the Participants of that
Employer and their beneficiaries. Each Employer by adopting this Plan appoints
the Bank and the Committee as its agent to act for it in all matters relating to
the Plan and the Trust, and agrees to furnish the Committee with such
information as may be necessary for the proper administration of the Plan.
1.17. "Employer Stock" means common stock issued by any Employer which is
readily tradable on an established securities market. If there is no common
stock which meets the foregoing requirement, the term "Employer Stock" means
common stock issued by any Employer having a combination of voting power and
dividend rights equal to or in excess of: (A) that class of common stock of an
Employer having the greatest voting power, and (B) that class of common stock of
an Employer having the greatest dividend rights. Noncallable preferred stock
shall be deemed to be "Employer Stock" if such stock is convertible at any time
into stock which constitutes "Employer Stock" hereunder and if such conversion
is at a conversion price which (as of the date of the acquisition by the Trust)
is reasonable. For purposes of the preceding sentence, pursuant to Regulations,
preferred stock shall be treated as noncallable if after the call there will be
a reasonable opportunity for a conversion which meets the requirements of the
preceding sentence.
1.18. "Entry Date" means January 1 and July 1 of each Plan Year.
1.19. "Financed Shares" means any Employer Stock acquired by the Trust with
the proceeds of an Acquisition Loan.
3
<PAGE>
1.20. "Forfeiture" means the part of a Participant's Account which is not
Vested and becomes forfeited upon his termination of employment.
1.21. "Hour of Service" means:
(a) (i) each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for an Employer during the period in
which the duties are performed;
(ii) each hour for which an Employee is paid, or entitled to
payment, by an Employer on account of a period of time during which no
duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, Unless,
incapacity (including Disability), layoff, jury duty, military duty or
leave of absence; and
(iii) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by an Employer.
(b) Hours of Service determined in accordance with Subsection (a)(i)
shall be credited to the period during which the duties were performed.
(c) Hours of Service determined in accordance with Subsection (a)(ii)
shall be credited to the period to which the Employee is compensated for
other than the performance of services.
(d) Hours of Service determined in accordance with Subsection (a)(iii)
shall be credited to the period to which the award or agreement relates.
(e) For purposes of Subsection (a)(ii), a payment shall be deemed to
be made by or due from an Employer regardless of whether such payment is
made by or due from an Employer directly or indirectly through, among
others, a trust fund or insurance company to which an Employer contributes
or pays premiums, and regardless of whether contributions made or due to
the trust fund, insurance company or other entity are for the benefit of
particular Employees or are on behalf of a group of Employees in the
aggregate.
(f) Notwithstanding any provision in this Section 1.21 to the
contrary, (i) no more than 501 Hours of Service for a Plan Year are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such
period occurs in a single computation period); and (ii) no Hour of Service
win be credited to an Employee if payment is made or due under a plan
maintained solely for the purpose of complying with applicable workers'
compensation, unemployment compensation or disability insurance laws.
(g) Hours of Service with a member of the Aggregation Group shall be
recognized, except that simultaneous service with more than one such entity
shall not result in duplication of credited Hours of Service.
4
<PAGE>
(h) Hours of Service shall be computed and credited in accordance with
paragraphs (b) and (c) of Section 2530.200b-2 of the Department of Labor
Regulations.
(i) Solely for purposes of determining whether a One-Year Break in
Service has occurred in a particular Plan Year, an individual who is absent
from work for maternity or paternity reasons shall receive credit for the
Hours of Service which would otherwise have been credited to such
individual but for such absence, or in any case in which such hours cannot
be determined, eight Hours of Service per day of such absence, provided
that the individual timely provides the Committee with such information as
it shall require regarding such absence. For purposes of this Subsection,
an absence from work for maternity or paternity reasons means an absence
(i) by reason of the pregnancy of the individual, (ii) by reason of the
birth of a child of the individual, (iii) by reason of the placement of a
child with the individual in connection with the adoption of such child by
such individual, or (iv) for purposes of caring for such child for a period
beginning immediately following such birth or placement. 'The Hours of
Service credited under this Subsection shall be credited in the Plan Year
in which the absence begins if the crediting is necessary to Prevent a
One-Year Break in Service in that period, or in all other cases, in the
following Plan Year.
(j) With respect to those Employees for whom records of actual Hours
of Service are not kept (e.g. salaried Employees), Hours of Service shall
be credited using an equivalency of 45 Hours of Service for each week for
which an Employee is paid or entitled to payment for at least one Hour of
Service.
1.22. "Limitation Year" means, for purposes of Section 415 of the Code, the
Plan Year.
1.23. "Normal Retirement Age" means an Employee's 65th birthday.
1.24. "One-Year Break in Service" means a Plan Year during which a
Participant does not complete more than 500 Hours of Service.
1.25. "Participant" means any Employee participating in the Plan in
accordance with Article II.
1.26. "Plan" means the Ninth Ward Employee Stock Ownership Plan, as set
forth herein, as the same may be amended from time to time, and includes the
Trust Agreement.
1.27. "Plan Year" means the 12-month period ending on December 31 of each
year.
1.28. "Qualified Election Period" means the six-Plan-Year period beginning
with the first Plan Year in which the Participant first becomes a Qualified
Participant.
1.29. "Qualified Participant" means a Participant who has attained age 55
and who has completed at least 10 years of participation under the Plan.
5
<PAGE>
1.30. "Suspense Account" means the account comprised of unallocated shares
of Employer Stock maintained in accordance with Section 4.4 hereof.
1.31. "Trust" means the Ninth Ward Employee Stock Ownership Trust described
in Article VIII which constitutes part of the Plan.
1.32. "Trustee" means the person or persons appointed by the Board to serve
at its pleasure as trustee(s) of the Trust.
1.33. "Vested" means the portion of the Participant's Account that is
nonforfeitable.
1.34. "Year of Service" means the computation period of 12 consecutive
months during which an Employee has completed at least 1,000 Hours of Service
with an Employer determined as follows:
(a) For purposes of eligibility for participation, the computation
period shall begin with the date on which the Employee first performs or is
credited with an Hour of Service. The participation computation period for
determining a Year of Service shall then commence with the first day of the
Plan Year which includes the first anniversary of the date on which the
Employee first performed an Hour of Service.
(b) For purposes of determining a Participant's Vested interest in his
Account, the computation period shall be the Plan Year.
(c) Service prior to the Effective Date shall be counted solely for
purposes of determining the date as of which an Employee satisfies the
eligibility requirements for participation under Article II. Service for
vesting purposes shall be credited from and after the Effective Date.
(d) A Participant shall be credited with service with which he would
have been credited under this Section had he not been absent from work
because of any period of obligatory or voluntary military service with the
United States armed forces provided and only to the extent that such
service is required to be credited by law and the performance of such
service would entitle such Participant to reemployment rights under Federal
law, and further provided he returns to employment with an Employer within
the period during which he would be requested to be reemployed under
Federal law.
(e) Solely for the purposes of determining the date as of which an
Employee satisfies the eligibility requirements for participation under
Article II and for determining Years of Service for vesting under Article
V, Years of Service shall be computed by taking into account service with
Affiliates whether or not the Affiliate is an Employer. Years of Service
may also include any period of a Participant's prior employment by any
organization upon such terms and conditions
6
<PAGE>
as the Committee may approve (uniformly applicable to Participants
similarly situated), subject to Internal Revenue Service approval.
Article II. Eligibility
2.1. Eligibility for Participation. An Employee shall become a Participant
in the Plan as of the Effective Date, if on such date he has attained age 21 and
completed one Year of Service, and otherwise on the Entry Date coinciding with
or next following the date he has attained age 21 and completed one Year of
Service.
2.2. Participation of Affiliates, Etc. The Bank may at any time and from
time to time by action of its Board (a) authorize an Affiliate to participate in
the Plan with respect to its employees, or (b) provide for the merger into this
Plan, and continuation of as a part of this Plan, any other retirement or
pension plan of the Bank or an Affiliate, and in such event the Board may
determine the extent, if any, for which credit will be granted under the Plan
for service prior to the Effective Date.
2.3 Termination of Active Participation. Active participation in the Plan
for benefit accrual purposes shall cease when a Participant ceases to be an
Employee for any reason. However, the Committee may by written resolution permit
former Participants who were employed by a divested Affiliate to participate in
the Plan for the Plan Year in which the divestiture occurs.
2.4. Resumption of Active Participation. A former active Participant who
resumes employment as an Employee, shall recommence participation in the Plan as
of the date he is credited with his first Hour of Service after reemployment. If
an Employee has become a Participant in the Plan and his status as an Employee
is subsequently terminated due to a transfer of employment to a nonparticipating
Affiliate or to a class of persons not treated as Employees, he shall be
re-enrolled as a Participant upon reemployment with an Employer.
Article III. Contributions
3.1. Employer Contributions.
(a) For each Plan Year, the Employers shall contribute to the Plan, in
cash or shares of Employer Stock, such amount as the Bank in its sole
discretion shall determine, which sum may be zero, subject to the
limitations imposed by Section 3.2 below; provided, however, that the
aggregate contribution for each Plan Year shall not exceed the maximum
deductible contribution for such Plan Year under Section 404(a) of the Code
(unless such contribution is required to make payments of principal and
interest on an Acquisition Loan during the Plan Year). Notwithstanding the
provisions above, the Bank shall not make a contribution to the Plan if, as
a consequence of such a contribution, the net capital requirements of the
Bank would not be fulfilled.
(b) The Bank may contribute all or part of the entire amount due on
behalf of one or more other Employers and charge the amount thereof to the
Employer
7
<PAGE>
responsible therefor. In any Plan Year, the contribution on behalf of
Participants who are Employees of an Employer, when expressed as a
percentage of the aggregate Compensation of such Participants, may, but
need not, be the same as the contribution on behalf of the Participants who
are Employees of another Employer.
(c) Contributions for any Plan Year shall be paid to the Trustee not
later than the due date (including any extensions thereof) for filing the
Bank's Federal income tax return for its taxable year on account of which
such contribution was made.
(d) All or part of the contributions made under Section 3. 1 (a) may
be used to purchase Employer Stock allocated to the Account of any
Participant or beneficiary in order to make a distribution under Article VI
hereof to any other Participant or beneficiary.
3.2. Limitations on Annual Additions.
(a) Notwithstanding any other provision herein, the maximum Annual
Addition that may be contributed or allocated to a Participant's Account
for any Limitation Year shall not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's compensation, within the
meaning of Section 415(c)(3) of the Code for the Limitation Year.
The "Defined Contribution Dollar Limitation" shall mean $30,000 or, if
greater, one fourth of the defined benefit dollar limitation set forth in
Section 415(b)(1) of the Code (as adjusted under Section 415(d) of the
Code) as in effect for the Limitation Year. The compensation limitation
referred to above in (ii) shall not apply to:
(i) any contribution for medical benefits (within the meaning of
Section 419A(f)(2) of the Code) after separation from service which is
otherwise treated as an Annual Addition, or
(ii) any amount otherwise treated as an Annual Addition under
Section 415(l)(1) of the Code.
For purposes of the Plan, "Annual Additions" shall mean, with respect to a
Participant, the total of (i) the Employer contributions (whether or not
used to pay principal or interest on any Acquisition Loans); (ii)
Forfeitures (including any income attributable to Forfeitures); and (iii)
amounts described in Sections 415(l)(1) and 419A(d)(2) of the Code (using
the definitions found in Sections 415(l)(2) and 419A(d)(3) of the Code),
allocated to a Participant's Account for the Limitation Year by the
Employer employing such Participant. Notwithstanding any provision in this
Section 3.2(a) to the contrary, if not more than one-third of the total
Employer contributions for the Plan Year are allocated to the Accounts of
Participants who are highly compensated employees (within the meaning of
Section 414(q) of the Code), then the term "Annual Additions" shall not
include (i) Forfeitures of Employer
8
<PAGE>
Stock if such Employer Stock was acquired with the proceeds of an
Acquisition Loan, or (ii) any amounts contributed to the Trust by an
Employer if applied to the repayment of interest on an Acquisition Loan.
If, as a result of the allocation of Forfeitures, a reasonable error in
estimating a Participant's compensation or other limited facts and
circumstances that the Commissioner of the Internal Revenue Service finds
justifiable under Treasury regulation Section 1.415-6(b)(6), the total
Annual Additions to a Participant's Account would otherwise exceed the
above limitations, the Participant's Employer shall reallocate such excess
from the Participant's Account to a Contribution Suspense Account. The
amount allocated to the Contribution Suspense Account shall be deemed to be
a contribution of the Employer made on account of the Plan for the next
Plan Year.
(b) If any Employer maintains any other defined contribution plan,
each Participant's Annual Additions under the Plan shall be aggregated with
the Participant's annual additions (within the meaning of Section 415(c)(2)
of the Code) under each such other plan for the purposes of applying the
limitations of Section 3.2(a).
3.3. Overall Limitations.
(a) If a Participant participates, or previously participated, in one
or more defined benefit plans (as defined in Section 414 (j) of the Code)
maintained by the Aggregation Group, the sum of the following fractions
shall not exceed 1.0 as of the end of any Plan Year:
(i) Defined Contribution Fraction -- the numerator of which is
the sum of all Annual Additions for the Participant as of the end of
the Plan Year under all defined contribution plans for the current and
all prior Plan Years of the Aggregation Group in which the Participant
participates (including Annual Additions attributable to the
Participant's nondeductible Employee contribution to all defined
benefit plans, whether or not terminated, maintained by the
Aggregation Group, and the Annual Additions attributable to all
welfare benefit funds, as defined in Section 419(e) of the Code, and
individual medical accounts, as defined in 4150 (l)(2) of the Code,
maintained by the Aggregation Group), and the denominator of which is
the sum of the lesser of the following amounts for the current Plan
Year and for each Plan Year in which the Participant was employed by
an Employer:
(A) 125 % of the dollar limitation in effect for such year
under Section 415(c)(1)(A) of the Code, or
(B) 140% of the maximum amount that may be taken into
account for such year pursuant to Section 415(c)(1)(B) of the
Code.
The limits of (A) and (B) shall be applied as though the Plan and
referenced Sections of the Code had been in effect during the entire
period of the Participant's employment with an Employer.
(ii) Defined Benefit Fraction -- the numerator of which is the
aggregate projected annual benefit (determined as of the last day of
the Plan Year)
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for the Participant under all defined benefit plans maintained by the
Aggregation Group, and the denominator of which is the lesser of:
(A) 125% of the dollar limitation in effect for such Plan
Year under Section 415(b)(1)(A) and 415(d) of the Code, or
(B) 140% of the maximum amount that may be taken into
account under Section 415(b)(1)(B) of the Code with respect to
the Participant for such Plan Year.
(b) The 125% applied in Section 3.3(a) shall be reduced to "100%" for
any Plan Year in which either:
(i) the Plan is included in the Aggregated Plans which are
Top-Heavy (as defined in Article X), and the Plan or any other plan
included in the Aggregated Plans fails to provide the minimum benefit
prescribed by Section 416(h) of the Code and the regulations
thereunder; or
(ii) the Plan is included in the Aggregated Plans which would be
Top-Heavy if 90% were substituted for 60% in the definition of
Top-Heavy.
(c) In the event that the combined plan limitations of this Section
3.3 are exceeded, the contributions provided under this Plan shall be
reduced to the extent necessary to achieve compliance with the limitations
of Section 415 of the Code.
3.4. Participant Contributions. No Participant shall be required or
permitted to contribute to the Plan.
Article IV. Participants' Accounts
4. 1 Separate Accounts. The Committee shall maintain an Account for each
Participant of the Plan, to which shall be credited, as of the last day of the
Plan Year, his share of Employer contributions to the Plan, the Forfeitures
under the Plan, if any, and all earnings and/or losses thereon.
4.2. Allocations. Employer Stock contributed to the Plan with respect to a
Plan Year, Employer Stock released from the Suspense Account pursuant to Section
4.4(a) with respect to a Plan Year, and Employer contributions and Forfeitures
(other than Employer contributions and Forfeitures used to pay principal or
interest on an Acquisition Loan) for such Plan Year shall be allocated to the
Accounts of Participants who are employed by an Employer on the last day of the
Plan Year (a " Valuation Date"), or whose employment terminated during such Plan
Year by reason of death, Disability, or the attainment of Normal Retirement Age.
However, the Committee may by written resolution permit Participants who were
employed by a divested Affiliate to receive an allocation for the Plan Year in
which the divestiture occurs. The amount of Employer Stock or cash allocated to
each Participant's Account shall be in the proportion that the Participant's
Compensation for the Plan Year from such Employer bears to the Compensation of
all such Plan
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Participants employed by such Employer for such Plan Year; provided, however,
that Compensation shall only include a Participant's Compensation paid or
accrued while a Participant in this Plan. Allocations of Employer Stock shall be
expressed in terms of the number of whole and fractional interests in Employer
Stock.
4.3. Valuations.
(a) As of the Valuation Date, each Participant's Account shall be
valued at fair market value and credited with his allocable share of any
Forfeitures, earnings, losses or expenses of the Trust.
(b) All valuations of Employer Stock which are not readily tradable on
an established securities market with respect to activities carried on by
the Plan shall be made by an independent appraiser meeting requirements
similar to those contained in Treasury regulations under Section 170(a)(1)
of the Code.
(c) The allocation to a Participant's Account of earnings, losses, or
expenses of the Trust shall be made (i) in the first Plan Year, in the same
proportion as the allocation made pursuant to Section 4.2 hereof, and (ii)
in each succeeding Plan Year, in the proportion that his Account balance at
the close of business as of the last day of the prior Plan Year bore to the
total Account balances of all Plan Participants as of such date.
(d) The allocation to Participants' Accounts of Forfeitures shall be
made after application of the rules set forth in Section 5.5.
4.4. Release from Suspense Account.
(a) Financed Shares shall initially be credited to a Suspense Account
and shall be allocated to the Accounts of Participants only as payments of
principal and interest on the Acquisition Loan are made by the Trustee. The
number of Financed Shares to be released from the Suspense Account for
allocation to Participants' Accounts for each Plan Year shall be based upon
the ratio that the payments of principal and interest on the Acquisition
Loan for the Plan Year bear to the total projected payments of principal
and interest for the Plan Year and over the remainder of the Acquisition
Loan repayment period (determined without any reference to any possible
extensions or renewals thereof). For purposes of computing the above ratio,
if the interest rate on an Acquisition Loan is variable, the interest to be
paid in subsequent Plan Years shall be calculated by assuming that the
interest rate in effect as of the end of the applicable Plan Year will be
the interest rate in effect for the remainder of the term of the
Acquisition Loan. Notwithstanding the foregoing, in the event such
Acquisition Loan shall be repaid with the proceeds of a subsequent
Acquisition Loan (the "Substitute Loan"), such repayment shall not operate
to release all such Employer Stock in the Suspense Account, but, rather,
such release shall be effected pursuant to the foregoing provisions of this
Section 4.4 on the basis of payments of principal and interest on such
Substitute Loan.
(b) At the Bank's option, in lieu of applying the provisions of
Section 4.4(a) with respect to an Acquisition Loan, Employer Stock shall be
released from the
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Suspense Account as the principal amount of such Acquisition Loan is repaid
(without regard to interest payments), provided the following three
conditions are satisfied:
(i) the Acquisition Loan shall provide for annual payments of
principal and interest at a cumulative rate that is not less rapid at
any time than level annual payments of such amounts for ten (10)
years;
(ii) the interest portion of any payment shall be disregarded
only to the extent it would be treated as interest under standard loan
amortization tables; and
(iii) if the Acquisition Loan is renewed, extended or refinanced,
the sum of the expired duration of the Acquisition Loan and the
renewal, extension or new Acquisition Loan period shall not exceed ten
(10) years.
(c) At any time there is more than one Acquisition Loan outstanding,
then separate accounts may be established under the Suspense Account for
each such Acquisition Loan. Each Acquisition Loan for which a separate
account is maintained may be treated separately for purposes of the
provisions governing the release of Employer Stock from the Suspense
Account under this Section 4.4.
(d) It is intended that the provisions of this Section 4.4 shall be
applied and construed in a manner consistent with the requirements and
provisions of Section 54.4975-7(b)(8) of the Treasury regulations, and any
successor regulation thereto. Employer Stock released from the Suspense
Account for a Plan Year in accordance with this Section 4.4 shall be held
in the Trust on an unallocated basis until allocated by the Committee
pursuant to Section 4.2 as of the Valuation Date for that Plan Year. All
Employer Stock released from the Suspense Account during any Plan Year
shall be allocated among Participants in accordance with Section 4.2.
4.5. Stock Dividends, Splits, Etc. Any Employer Stock received by the
Trustee as a result of a stock split, dividend, conversion, or as a result of a
reorganization or other recapitalization of the Bank shall be allocated to the
Suspense Account or to Participant Accounts, as of the day on which the shares
of Employer Stock are received by the Trustee, in the same manner as the
Employer Stock to which they are attributable were then allocated.
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Article V. Vesting
5.1. Vesting Schedule. A Participant's interest in his Account shall become
Vested as follows:
Participant's
Years of Service Vested Percentage
---------------- -----------------
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
5.2. Full Vesting. Notwithstanding the provisions of Section 5.1 above,
each Participant shall be fully Vested in his Account at his Normal Retirement
Age, death or Disability (provided the Participant is employed by an Employer on
or after that date), or the date on which he is required to be fully Vested
under the applicable provisions of the Code on account of the termination or
partial termination of the Plan or the complete discontinuance of contributions
to the Plan.
5.3. Past Service. For purposes of determining a Participant's Vested
interest in his Account, Years of Service shall exclude employment performed
with an Employer before the Effective Date. ------------
5.4. Breaks In Service.
(a) Except as provided in paragraphs (b) and (c) below, all of a
Participant's Years of Service shall be used in determining a Participant's
Vested interest in his Account.
(b) If a Participant terminates employment and incurs five or more
consecutive One-Year Breaks in Service, then in the event that he is
re-employed, all Years of Service after such termination will be
disregarded for the purpose of determining the Participant's Vested
interest in his Account that accrued before such break.
(c) If a Participant had no Vested interest in his Account at the time
he terminated employment, Years of Service prior to any period of
consecutive One-Year Breaks in Service shall not be required to be taken
into account if the number of consecutive One-Year Breaks in Service equals
or exceeds the greater of five, or the aggregate number of his Years of
Service prior to such Breaks in Service.
(d) If necessary, separate accounts will be maintained for the
Participant's pre-break and post-break accruals.
5.5. Treatment of Forfeitures.
(a) If a Participant terminates employment and, pursuant to Section
6.1, receives the value of the Participant's vested interest in his
Account, the nonvested portion
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<PAGE>
will be treated as a Forfeiture. For purposes of this Section 5.5(a), if
the percentage of a Participant's Vested interest in his Account is zero,
the Participant shall be deemed to have received a distribution of such
interest. If a Participant terminates service and does not receive a
distribution or deemed distribution, then any amount credited to the
Participant's Account which is not vested at the time of the Participant's
termination of employment shall be forfeited as of the end of the
Participant's fifth consecutive One-Year Break in Service. If a portion of
a Participant's Account is forfeited, Employer Stock allocated to the
Participant's account shall be forfeited only after other assets.
(b) If a former Participant shall be reemployed by the Employer before
five (5) consecutive One-Year Breaks in Service, and such former
Participant had received, or was deemed to have received, a distribution of
the Participant's Vested interest in his Account prior to his reemployment,
the forfeited amount shall be reinstated if the Participant repays the full
amount of the distribution before the earlier of five (5) years after the
first date on which the Participant is subsequently reemployed by the
Employer or the close of the first period of five (5) consecutive One-Year
Breaks in Service commencing after the distribution, or in the event of a
deemed distribution, upon the reemployment of such former Participant. In
the event the former Participant does repay the full amount distributed to
him, or in the event of a deemed distribution, the undistributed portion of
the Participant's Account must be restored in full, unadjusted by any gains
or losses occurring subsequent to the valuation date coinciding with or
preceding the Participant's termination of employment.
(c) All Forfeitures occurring during any Plan Year shall be used first
to restore any Forfeitures for reemployed individuals pursuant to Section
5.5(b), and any remainder shall be used by the Employer to reduce its
contributions for the Plan Year in which the Forfeiture occurs.
Article VI. Distributions from the Plan
6.1. Payment of Benefits.
(a) If the value of the Vested interest in a Participant's Account is
thirty-five hundred dollars ($3,500) or less, or the value exceeds
thirty-five hundred dollars ($3,500) and the Participant consents in
writing to an immediate distribution, or in the event of a Participant's
death, then the entire value of the Vested interest in the Participant's
Account, determined as of the date of distribution, shall be distributed to
him (or, if deceased, to his beneficiary) as soon as practicable following
the last day of the calendar quarter in which his employment terminates. If
the value of the Vested interest in a Participant's Account exceeds
thirty-five hundred dollars ($3,500) and the Participant does not consent
in writing to an immediate distribution, such Participant shall be deemed
to have elected to defer distribution of said Vested interest. Such a
Participant may elect, in accordance with procedures determined by the
Committee, to receive the value of the Vested interest in his Account at
any time prior to the attainment of age sixty-five (65). The value of the
Vested interest in a Participant's Account shall be distributed to such
Participant as soon after the Participant attains age sixty-five (65) or at
such earlier date selected by the Participant as provided above, as the
Committee shall determine to be administratively practicable. If a
Participant who has deferred receipt of his Account under this Section 6. 1
(a) dies after the termination of employment but prior to the attainment of
age sixty-five (65), the value of the Vested interest in such Participant's
Account shall be paid to such Participant's beneficiary in accordance with
this Section 6.1 (a) and with Sections 6.5 and 6.6.
(b) A Participant shall be eligible to retire and receive the value of
the Vested interest in his Account, subject to the provisions of this
Article VI, when he reaches Normal Retirement Age. A participant who
remains in the employ of the Employer after reaching his Normal Retirement
Date shall not be entitled to receive a distribution of his Account prior
to his termination of employment with the Employer, subject to the
provisions of Section 6.1(g).
(c) Payment of any benefit to which a Participant is entitled due to
termination of employment on account of retirement or Disability will
commence not later than one year after the close of the Plan year in which
the Participant terminates service, unless the Participant elects to defer
distribution, subject to the provisions of Section 6.1(d).
(d) Notwithstanding any other provision in the Plan, unless a
Participant elects otherwise, distribution of the value of the Vested
interest in such Participant's Account must commence not later than the
60th day after the close of the Plan Year in which occurs the latest of:
(i) the date the Participant attains age 65; (ii) the date the
Participant's employment terminates; or (iii) the tenth anniversary of the
date as of which the Participant commenced Plan participation.
(e) Distribution of a Participant's Account will always be made in a
lump sum; provided, however, that in the case of distributions made to a
Qualified Participant pursuant to a Diversification Election in accordance
with the provision of Section 6.2, the distribution may be made in any
manner necessary to fulfill the requirements of Section 401(a)(28) of the
Code and the regulations promulgated thereunder. All distributions shall be
made in the form of Employer Stock, except for the value of fractional
shares, which shall be made in cash. However, if the relevant corporate
charter or bylaw provisions of the Employer restrict ownership of
substantially all outstanding Employer Stock to Employees or to a plan or
trust described in Section 401(a) of the code, then in lieu of distributing
Employer Stock to a Participant or beneficiary, the Trustees shall
distribute all of a Participant's benefit in cash. At the discretion of the
Committee, the balance of a Participant's Account need not include any
Employer Stock acquired with the proceeds of an Acquisition Loan until the
close of the Plan Year in which such loan is repaid in full.
(f) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a Participant's election under this Section 6. l(f),
a Participant may elect , at the time and in the manner prescribed by the
Committee, to have all or any portion of an eligible rollover distribution
paid in a direct rollover directly to an eligible retirement plan specified
by the Participant.
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<PAGE>
An "eligible rollover distribution" is any distribution of all or any
portion of the balance to the credit of the Participant, except that an eligible
rollover distribution does not include: (i) any distribution that is one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and the Participant's
designated beneficiary, or for a specified period of ten years or more; (ii) any
distribution to the extent such distribution is required under Code section
401(a)(9); (iii) the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities); and (iv) other items
designated not to be eligible rollover distributions by regulation, revenue
ruling, notice, or other guidance issued by the Department of the Treasury.
An "eligible retirement plan" is an individual retirement account described
in Code section 408(a), an individual retirement annuity described in Code
section 408(b), an annuity plan described in Code section 403(a), or a qualified
trust described in Code section 401(a), that accepts the Participant's eligible
rollover distribution. However, in the case of an eligible rollover distribution
to a surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity. The Participant's surviving spouse and
the Participant's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code section 414(p), are
considered Participants with regard to the interest of the spouse or former
spouse.
(g) A Participant's benefits shall be distributed to him not later
than April 1st of the calendar year following the later of (i) the calendar
year in which the Participant attains age 70 1/2, or (ii) the calendar year
in which the Participant retires; provided, however, that (A) clause (ii)
shall not apply in the case of a Participant who is a "five (5) percent
owner" at any time during the five (5) Plan Year period ending in the
calendar year in which he attains age 70 1/2, and (B) in the case of
Participant who becomes a "five (5) percent owner" thereafter, clause (ii)
shall cease to apply.
6.2. Diversification Election.
(a) Each Qualified Participant shall be permitted to make a
Diversification Election with respect to 25 percent of the total number of
shares of Employer Stock acquired by or contributed to the Plan that have
ever been allocated to such Qualified Participant's Account (reduced by the
number of shares to which any prior Diversification Election applied)
within 90 days after the last day of each Plan Year during the
Participant's Qualified Election Period. Within 90 days after the close of
the last Plan Year in the Participant's Qualified Election Period, a
Qualified Participant may make a Diversification Election with respect to
50 percent of the total number of shares of Employer Stock acquired by or
contributed to the Plan that have ever been allocated to such Qualified
Participant's Account (reduced by the number of shares previously
distributed pursuant to a Diversification Election). A Participant's
Diversification Election shall be submitted to the Administrator in writing
and shall specify one of the options set forth in Section 6.2(b) or 6.3(c).
16
<PAGE>
(b) If the Diversification Election so directs, the Plan shall
distribute the portion of the Participant's Account that is covered by the
Diversification Election within 90 days after the last day of the period
during which the Diversification Election can be made.
(c) In lieu of a distribution under Section 6.2(b), a Diversification
Election may direct the Plan to transfer the portion of the Participant's
Account that is covered by the Diversification Election to another
qualified plan of an Employer which accepts such transfers, provided that
such plan permits employee-directed investments. Such transfer shall be
made no later than 90 days after the last day of the period during which
the election can be made.
6.3. Put Option. If at the time of distribution, Employer Stock distributed
from the Trust is not treated as "readily tradable on an established market"
within the meaning of Section 409(h) of the Code, a Participant or beneficiary
who receives shares of such Employer Stock pursuant to Section 6.1 or 6.2 shall
have the right (a "put") to require the Employer to purchase the shares of
Employer Stock for their fair market value determined pursuant to Section 4.3.
The put shall be exercisable by written notice to the Committee during the first
60 days after the stock is distributed by the Plan and, if not exercised in that
period, during the first 60 days of the next Plan Year following the year of
distribution. If the put is exercised, the Trustee may, in its sole discretion,
assume the Employer's rights and obligations with respect to purchasing the
stock. If the put is exercised, payment of the fair market value of a
Participant's Account balance shall be made in a lump sum or, in the Employer's
discretion, in five substantially equal annual payments, with the first
installment payable not later than 30 days after the Participant exercises the
put option. The Plan will pay a reasonable rate of interest and provide adequate
security on amounts not paid after 30 days. Nothing contained herein shall be
deemed to obligate an Employer to register any Employer Stock under any Federal
or state securities law or to create a public market to facilitate
transferability of Employer Stock. The put set forth in this Section shall be
nonterminable and shall continue in effect to the extent provided herein even
though all Acquisition Loans may have been repaid or this Plan ceases to be a
qualified ESOP.
6.4. Right of First Refusal. During any period when Employer Stock is not
treated as "readily tradable on an established market" within the meaning of
Section 409(h) of the Code, shares of Employer Stock distributed to Participants
or beneficiaries shall be subject to a "right of first refusal", as described
herein. Any Participant or transferee who desires to transfer (whether by sale,
gift, bequest, or otherwise) any shares of Employer Stock shall first offer in
writing to sell such shares to the Bank at the greater of their fair market
value determined under Section 4.3 or the price and terms offered to such
shareholder by a bona fide prospective purchaser of such shares. The Bank shall
have the option for seven days after its receipt of such written offer to accept
such offer. If, within such seven-day period, the Bank shall fail to accept such
offer in its entirety, its option hereunder as to such offer shall terminate.
Thereupon, immediately following the termination of such offer as to the Bank,
such offer shall be deemed without further writing to have been renewed and
reinstated as to the Trust, and the Trust shall have the
17
<PAGE>
option for seven days after the termination of the Bank's option to purchase all
of the Employer Stock which the offering shareholder desires to transfer.
If the option is not exercised in its entirety within the aforesaid
seven-day periods, then the shareholder so desiring to transfer part or all of
his Employer Stock shall have the right for a period ending on the 30th day
after the expiration of the second seven-day period, to transfer such stock to,
and only to, the donee or, in the case of a sale, to the aforesaid bona fide
prospective purchaser in the same quantity, at the same price, and upon the same
terms as were offered to the Bank and/or the Trust. In the case of death, if the
option is not exercised by the Bank or the Trustee then such shares may be
transferred to the legatees or heirs of the transferor. In case of any transfer
under this Section 6.4, the legatees, heirs, next of kin, donees or other
transferees shall receive and hold such stock subject to the restrictions on
encumbrance and disposition set forth in this Section 6.4.
Prior to the distribution of any such shares of Employer Stock to a
Participant or beneficiary, the Trustee shall have the Bank endorse such shares
as follows:
"The shares represented by this certificate are subject to a Right of First
Refusal as set forth in Section 6.4 of the Ninth Ward Employee Stock
Ownership Plan, restricting the free transferability of said shares. The
Bank will mail to the holder of this certificate, without charge, a copy of
the terms of such Right of First Refusal within five days after receiving a
written request therefor."
6.5. Designation of Beneficiary. Each Participant may designate a
beneficiary or beneficiaries to receive any benefits payable to him under the
Plan upon his death and may change his designation at will. Such beneficiary or
beneficiaries shall receive benefits pursuant to Section 6. 1 (a) of the Plan.
Any designation or change of designation shall be made in writing in the form
and manner prescribed by the Committee and shall be effective upon receipt by
the Committee. Notwithstanding the foregoing, if the Participant is married, his
surviving spouse shall be his designated beneficiary, unless such spouse has
consented in a duly notarized written consent to the designation of another
beneficiary (or unless the Committee determines in accordance with the Code that
no such consent is necessary). If the Participant fails to properly designate a
beneficiary, or if the Committee shall be unable to locate the designated
beneficiary after reasonable efforts have been made, or if no named beneficiary
shall survive the Participant, distribution of the entire value of the deceased
Participant's Account shall be made to the Participant's estate in accordance
with Section 6. 1 (a) above.
6.6. Proof of Death, Etc. The Committee or the Trustee may require the
execution and delivery of such documents, papers and receipts as the Committee
or Trustee may determine necessary or appropriate in order to establish the fact
of death of the Participant and the right and identity of any beneficiary or
other person or persons claiming any benefits under this Plan.
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<PAGE>
Article VII. The Committee
7.1. Organization of the Committee. An ESOP Committee of not less than
three persons, appointed by the Board to serve at its pleasure, shall operate
and administer the Plan. The members of the Committee shall elect a Chairman
from their number, and a Secretary who may, but need not, be a member of the
Committee. Any person may serve on the Committee, and any member of the
Committee, any subcommittee or agent to whom the Committee delegates any
authority, and any other person or group of persons, may serve in more than one
fiduciary capacity with respect to the Plan. A Committee member shall be subject
to removal by the Board at any time and may resign by delivering his written
resignation to the Board and to the Secretary of the Committee. As specified by
the Board, the Committee shall report to the Board with regard to the matters
for which it is responsible under the Plan, but in no event less frequently than
at each annual meeting.
7.2. Operation of the Committee. The Committee may make such rules
regarding the conduct of its business as it may deem necessary or appropriate.
No member of the Committee shall be entitled to act on or decide any matter
relating solely to himself or any of his rights or benefits under the Plan.
7.3. Responsibility of the Committee. The Committee shall be the named
fiduciary of the Plan and shall serve as "Administrator" of the Plan. As
Administrator, the Committee shall have general responsibility for:
(i) Operation and administration of the Plan in accordance with the
terms of the pertinent documents, written resolutions adopted from time to
time governing the Plan and any related funding agreement;
(ii) Determination of benefit eligibility and certification of such
eligibility to other fiduciaries;
(iii) Establishment of procedures and adoption of uniform rules and
regulations as it deems necessary or appropriate for the effective
administration of the Plan;
(iv) Hiring persons and organizations to provide legal, accounting,
investment advisory, actuarial and other services necessary to the Plan;
(v) Issuing directions to the Trustee to pay any fees, taxes, charges
or other costs incidental to the operation and management of the Plan as
provided in Section 7.5;
(vi) Preparation and filing of all reports and returns required to be
filed by the Plan with any government agency and submission of an annual
report of the operations of the Plan to the Board;
(vii) Compliance with all disclosure requirements imposed by state or
federal law;
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(viii) Maintenance of all records of the Plan other than those
required to be maintained by the Trustee or by any fiduciary of the Plan,
including, without limiting the foregoing, records and information with
respect to the employment date, date of participation in the Plan and
Compensation of Employees, elections by Participants, their spouses and
beneficiaries, and consents granted and determinations made under the Plan
and the Trust; and
(ix) Performance of all other acts required by law to be performed by
the Administrator of the Plan.
The Committee shall have, except as otherwise provided herein, all powers
necessary to carry out the provisions of the pertinent documents, shall have the
exclusive right to construe such documents and to determine and resolve any
question that may arise in connection with its funding, application or
administration and may secure all reasonable assistance and advice in the
performance of its duties. The Committee shall be entitled to rely conclusively
upon all tables, valuations, certificates, opinions and reports furnished by any
actuary, accountant, controller, counsel or person who is employed or engaged
for such purposes.
7.4. Management of Trust Fund Assets. The Trustee shall have responsibility
under the Plan for the management and control of the assets of the Trust. In the
event the Trustee cannot invest all assets of the Trust in Employer Stock, the
Committee may direct the Trustee as to the investment of assets other than
Employer Stock, or may appoint one or more investment managers to manage the
assets which cannot be invested in Employer Stock, such appointment to be
effective upon receipt of written notification of such appointment by the
Trustee or on such later date as the Committee may specify in such notice. Each
investment manager shall be either a bank, an insurance company or a registered
investment adviser under the Investment Advisers Act of 1940, as amended, and
shall acknowledge in writing that it is a fiduciary with respect to the Plan,
and the Committee shall periodically review the investment performance and
methods of each investment manager with such authority and discretion.
7.5. Expenses. The Committee shall be reimbursed for any reasonable
expenses incurred in connection with its services. All costs and expenses
incurred in the implementation, administration and operation of the Plan,
including the Trustee's and Committee's expenses, shall be paid by the Plan to
the extent not paid by the Employers. Except as otherwise required by the
Employee Retirement Income Security Act of 1974 ("ERISA"), no bond or other
security shall be required of the Committee or any member thereof in any
jurisdiction.
7.6. Allocation and Delegation of Responsibility. The members of the
Committee may allocate their duties among themselves in any manner they may deem
appropriate, by a written agreement signed by all the members of the Committee.
A copy of any such agreement shall be delivered to the Board and to the Trustee
and a copy shall be maintained with the Plan records. In the event the Committee
should so allocate its duties, each Committee member shall be liable only for
those duties allocated to him and
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for those not allocated to any other Committee member. The Committee may
delegate to any Employee, director or agent its responsibility to perform any
act hereunder, including without limitation those matters involving the exercise
of discretion, provided that such delegation shall be subject to revocation at
any time at its discretion.
7.7. Indemnification, To the maximum extent permitted by law, no member of
the Committee shall be personally liable by reason of any contract or other
instrument executed by him or on his behalf in his capacity as a member of the
Committee nor for any mistake of judgment made in good faith, and the Bank shall
indemnify and hold harmless directly from its own assets (including the proceeds
of any insurance policy, the premiums of which are paid from the Bank's own
assets) each member of the Committee and each other officer, Employee, or
director of the Bank to whom any duty or power relating to the administration or
interpretation of the Plan or to the management and control of the assets of the
Plan may be delegated or allocated, against any cost or expense (including
counsel fees) or liability (including any amount imposed in the form of a money
judgment, civil penalty, excise tax, or any sum paid in settlement of a claim
with the approval of the Bank) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or bad
faith. No such individual shall be liable with respect to a breach of fiduciary
duty if such a breach occurred before he became a fiduciary or after he ceased
to be a fiduciary.
7.8. Service of Process. The Secretary of the Bank or such other person as
may from time to time be designated by the Committee shall be the agent for
service of process under the Plan.
Article VIII. The Trust
8.1. Establishment of Trust. The Bank shall execute a trust agreement with
a Trustee or Trustees appointed by the Board, establishing the Ninth Ward
Employee Stock Ownership Trust into which all contributions to the Plan shall be
paid, and from which all benefits under the Plan and any Plan expenses not paid
directly by the Employers shall be paid. All contributions to the Plan shall be
paid over to the Trustee and held pursuant to the provisions of the Plan and the
trust agreement. No part of the Trust or its income shall be used for, or
diverted to, purposes other than for the exclusive benefit of Plan Participants
and their beneficiaries.
8.2. Interest in Trust. No person shall have any interest in or right to
any part of the earnings or the assets of the Plan, except as and to the extent
provided herein. The Employers shall have no liability for the payment of
benefits under the Plan nor for the administration of funds paid to the Trustee.
8.3. Accounts. The Trustee shall receive Plan contributions, invest and
reinvest Plan assets and earnings thereon and make such disbursements as may be
directed by the Committee in writing. A Participant's interest in the Trust
shall be reflected in his Account. One or more subaccounts may be established
under each Participant's Account for such purposes as the Committee deems
appropriate. Notwithstanding the foregoing, the Trust shall be treated as a
single trust for purposes of investment and administration,
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and nothing contained herein shall require a physical segregation of assets for
any Account. The Trustee shall render an account of the transactions of the
Trust to the Committee and to the Board at least annually and at such other
times as may reasonably be required by the Committee or the Board.
8.4. Investment of Assets and Voting Rights.
(a) To the extent possible, the Trustee shall invest all contributions
to the Plan and any earnings thereon in Employer Stock, provided that no
investment in such stock shall be made at a cost in excess of the fair
market value of stock at the time of purchase. If assets of the Trust
cannot be invested in Employer Stock, they shall be invested as directed by
the Committee, or by an investment manager appointed by the Committee
pursuant to Section 7.4. Employer contributions made in cash, and other
cash received by the Trustee, may be used to acquire Employer Stock from
shareholders of the Bank or directly from the Bank.
(b) All voting and tender offer rights with respect to Employer Stock
held by the Trust shall be exercised by the Trustee in accordance with the
following provisions of this Section 8.4(b):
(i) At least 30 days before each annual or special shareholders'
meeting of the Bank, the Trustee shall furnish to each Participant a
copy of the proxy solicitation material, together with a form
requesting confidential instructions on how such Employer Stock
allocated to such Participant's Account (including fractional shares
to 1/1000th of a share) are to be voted. Upon timely receipt of such
instructions, the Trustee shall vote the Employer Stock as instructed.
The instructions received by the Trustee from Participants shall be
held by the Trustee in strict confidence and shall not be divulged or
released to any person including officers or Employees of any Employer
or Affiliate.
(ii) The Trustee shall not vote any allocated Employer Stock for
which voting instructions are not timely received from Participants
pursuant to paragraph (i) above, The Trustee shall vote unallocated
Employer Stock held in the Trust for or against each proposition set
forth in the proxy solicitation material in the same proportion as the
allocated Employer Stock for which voting instructions are received
from Participants unless the Trustee's fiduciary duty requires it to
vote otherwise.
(iii) The Trustee shall notify each Participant of each tender or
exchange offer and utilize its best efforts to distribute or cause to
be distributed to such Participant in a timely manner all information
distributed to shareholders of the Bank in connection with any such
tender or exchange offer. Each Participant shall have the right from
time to time with respect to the Employer Stock allocated to his
account to instruct the Trustee in writing as to the manner in which
to respond to any pending tender or exchange offer for all such
Employer Stock or any portion thereof. The Trustee shall tender or
exchange such Employer Stock as and to the extent so instructed. The
Trustee shall not sell, convey or transfer any
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allocated Employer Stock for which no directions are timely received
from Participants pursuant to this paragraph. The individual
instructions received by the Trustee from Participants shall be held
in strict confidence by the Trustee and shall not be divulged or
released to any person, including officers or Employees of any
Employer, or of any other Subsidiary; provided, however, that the
Trustee shall advise the Bank, at any time upon request, of the total
number of shares not subject to instructions to tender or exchange.
The Trustee and the Committee shall not make recommendations to
Participants on whether to instruct the Trustee to tender or exchange.
(iv) The Trustee shall sell, convey or transfer any unallocated
Employer Stock held in the Trust in response to a tender or exchange
offer in the same proportion as the allocated Employer Stock for which
written instructions are received from Participants,
(v) If at any time there is no Employer Stock allocated to the
Accounts of Participants under the Plan, the Trustee shall vote
Employer Stock or shall tender or exchange Employer Stock in such
manner as it, in its sole discretion, shall determine to be in the
best interest of Participants and their beneficiaries.
8.5. Dividends on Employer Stock.
(a) Except to the extent otherwise required, it is anticipated that
all cash dividends declared and paid on Employer Stock held in the Suspense
Account will be used for the purpose of repaying one or more Acquisition
Loans and will not be allocated to Participant Accounts; provided, however,
that the Committee may, in its sole discretion and in accordance with
applicable Treasury regulations, determine for any Plan Year that dividends
shall be immediately allocated to Participant Accounts in the same
proportion as dividends payable with respect to allocated Employer Stock,
and used by the Trustee to purchase additional Employer Stock.
(b) If so determined by the Committee, any cash dividends on Employer
Stock allocated to the Accounts of Participants may be paid currently (or
within ninety (90) days after the end of the Plan Year in which the
dividends are paid to the Trust) in cash to such Participant on a
nondiscriminatory basis, or the Employer may pay such dividends directly to
Participants. Such distribution (if any) of cash dividends to Participants
may be limited to Participants who are still Employees, may be limited to
dividends on shares of Employer Stock which are then Vested or may be
applicable to dividends on all shares allocated to Participants' Accounts.
8.6 Acquisition Loans. The Committee may direct the Trustee to incur
Acquisition Loans from time to time to finance the acquisition of Financed
Shares for the Trust, to repay such Acquisition Loan, or to repay a prior
Acquisition Loan. All Acquisition Loans shall satisfy the following
requirements:
(a) The loan must be at a reasonable rate of interest;
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(b) Any collateral pledged to the creditor by the Plan shall consist
only of Employer Stock purchased with the borrowed funds or that were used
as collateral on a prior Acquisition Loan repaid with the proceeds of the
current Acquisition Loan;
(c) Under the terms of the loan, any pledge of Employer Stock shall
provide for the release of shares so pledged on a pro-rata basis pursuant
to Section 4.4;
(d) Under the terms of the loan, the creditor shall have no recourse
against the Plan except with respect to such collateral, earnings
attributable to such collateral, Employer contributions (other than
contributions of Employer Stock) that were made to meet obligations under
the loan, and earnings attributable to such contributions;
(e) The loan must be for a specific term and may not be payable at the
demand of any person, except in the event of default;
(f) In the event of default, the value of Plan assets transferred in
satisfaction of the Acquisition Loan shall not exceed the amount of
default. If the lender is a disqualified person, an Acquisition Loan shall
provide for a transfer of Plan assets upon default only upon and to the
extent of the failure of the Plan to meet the payment schedule of the
Exempt Loan; and
(g) Acquisition Loan payments during a Plan Year must no exceed any
amount equal to: (i) the sum, over all Plan Years, of all contributions and
cash dividends paid by the Employer to the Plan with respect to such
Acquisition Loan and earnings on such Employer contributions and cash
dividends, less (ii) the sum of the Acquisition Loan payments in all
preceding Plan Years. A separate accounting shall be maintained for such
Employer contributions, cash dividends and earnings until the Acquisition
Loan is repaid.
For purposes of this Section, the term "disqualified person: means a person
within the meaning of Section 4975(e)(2) of the Code who is a fiduciary, a
person providing services to the Plan, an Employer any of whose Employees are
covered by the Plan, an employee organization any of whose members are covered
by the Plan, an owner, direct or indirect, of 50% or more of the total combined
voting power of all classes of voting stock or of the total value of all classes
of stock, or an officer, director, 10% or more shareholder, or a highly
compensated Employee.
No Employer Stock, except as provided in Section 6.3 and Section 6.4,
acquired with the proceeds of an Acquisition Loan may be subject to a put, call,
or other option, or buy-sell or similar arrangement when held by and when
distributed from the Trust, whether or not the Plan is then an ESOP. The
protections and rights granted in this section are nonterminable, and such
protections and rights shall continue to exist under the terms of this Plan so
long as any Company Stock acquired with the proceeds of an Acquisition Loan is
held by the Trust or by any Participant or other person for whose benefit such
protections and rights have been created, and neither the repayment of such loan
nor the failure of the Plan to be an ESOP, nor an amendment of the Plan shall
cause a termination of said protections and rights.
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8.7. Liability of Trustee. The Trustee shall administer the Trust, in
accordance with the Plan documents, solely for the benefit of Plan Participants,
with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man familiar with such matters would employ acting in
a like capacity and with like aims, and shall be liable only to the extent the
Trustee fails to act in such manner. In the case of more than one Trustee, each
shall be liable for a breach of such duty by another Trustee only to the extent
he could have prevented such breach, or participated therein, or failed to make
reasonable efforts to remedy such breach after obtaining knowledge thereof No
Trustee shall incur any liability on account of any action taken at the
direction of the Committee or any investment made at the direction of a
Participant or an investment manager appointed by the Committee in the prudent
exercise of its duties.
8.8. Allocation of Duties. In the event more than one Trustee is appointed
by the Board, the Trustees shall have the power to allocate their duties among
themselves by a written instrument signed by all the Trustees, copies of which
are delivered to the Committee and the Board. In the event the Trustees should
so allocate their responsibilities, each Trustee shall be liable only for those
duties specifically allocated to him and for those not specifically allocated to
another Trustee.
8.9. Legal Limitation. Neither the Committee nor the Trustee shall be
required to engage in any transaction, including, without limitation, directing
the purchase or sale of Employer Stock, if either party determines in its sole
discretion that such action might tend to subject itself, its members, the Plan,
any Employer, or any Participant to any liability under Federal or state laws.
Article IX. General
9.1. Amendment of Plan.
(a) The Bank reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate, to conform with
governmental regulations or other policies, to modify or amend in whole or
in part any or all of the provisions of the Plan, without the consent of
any Employer, Participant or beneficiary, provided that no such
modification or amendment shall reduce the balance in any Participant's
Account except to the extent necessary to conform with governmental
regulations, nor shall it make possible the use or diversion of any part of
the funds of the Plan for purposes other than the exclusive benefit of
Participants or their beneficiaries under the Plan or payment of
administrative expenses. Each Employer, by its adoption of the Plan, shall
be deemed to have delegated this authority to the Bank.
(b) In the event the vesting schedule provided in Section 5. 1 is
amended, or changed on account of the Plan becoming or ceasing to be
Top-Heavy, any Participant who has completed at least three (3) Years of
Service may elect to have his Vested interest in his Account determined
under the Plan without regard to such amendment or change by notifying the
Committee in writing within the election period hereinafter described. The
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<PAGE>
election period shall begin on the date such amendment is adopted or the
date such change is effective, as the case may be, and shall end no earlier
than the latest of the following dates:
(i) the date which is 60 days after the day such amendment is
adopted;
(ii) the date which is 60 days after the day such amendment or
change becomes effective; or
(iii) the date which is 60 days after the day the Participant is
given written notice of such amendment or change by the Committee.
Any election made pursuant to this Section 9. 1 (b) shall be irrevocable.
9.2. Plan Termination.
(a) The Bank reserves the right to terminate the Plan in whole or in
part or to discontinue contributions hereto at any time without the consent
of any Employer, Participant or beneficiary. Each Employer, by its adoption
of the Plan, shall be deemed to have delegated this authority to the Bank.
(b) Upon termination of the Plan, no Employer shall make any further
contributions under the Plan and no amount shall thereafter be payable
under the Plan to or in respect of any Participant except as provided in
this Section 9.2. To the maximum extent permitted by ERISA, transfers,
distributions or other dispositions of the assets of the Plan as provided
in this Section 9.2 shall constitute a complete discharge of all
liabilities under the Plan. All of the provisions of the Plan which in the
opinion of the Committee are necessary for the administration of the Plan
and the administration and distribution, transfer or other disposition of
the assets of the Plan in accordance with this Section 9.2 and Section 9.11
shall remain in force. The interest of each Participant in service as of
the date of the termination of the Plan in the amount, if any, allocated to
his Account shall be nonforfeitable as of such date. Upon receipt by the
Committee of the approval of the Internal Revenue Service of such
termination, the value of each such Account shall be determined as of the
Valuation Date coinciding with or immediately preceding the date of
distribution and shall be paid from the Trust to each Participant and
former Participant (or, in the event of the death of a Participant or
former Participant, the beneficiary thereof) in the manner of distribution
specified in Article VI above, including payments which are deferred until
the Participant's termination of service, as the Committee shall determine.
All determinations, approvals and notifications referred to above shall be
in form and substance and from a source satisfactory to counsel for the
Plan.
(c) In the event that any governmental authority, including without
limitation the Internal Revenue Service, determines that a partial
termination (within the meaning of ERISA) of the Plan has occurred then (i)
the interest of each Participant affected thereby in the amount, if any,
allocated to his Account shall be nonforfeitable as of the date of such
partial termination and (ii) the provisions of this Section 9.2 and Section
9.11 which in the opinion of the Committee are necessary for the
administration of the Plan and the allocation and distribution of the
assets of the Plan shall apply.
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9.3. Notice of Amendment, Etc. Notice of any amendment, modification,
suspension or termination of the Plan shall be given by the Board to the
Committee, the Trustee and all Employers.
9.4. Non-Alienation of Benefits. No benefit under the Plan shall be subject
in any manner to alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, encumbrance, attachment, garnishment, levy,, execution, or
other legal or equitable process, except insofar as may be otherwise required by
law or in accordance with a "qualified domestic relations order"(as defined in
Section 414(p) of the Code). Any attempt to do so shall be void and shall
entitle the Committee to suspend such benefit and to hold or apply the same to
or for the benefit of such Participant or his beneficiary, spouse, child, parent
or other blood relative, or any of them.
9.5. Employment Relation. The establishment of the Plan shall have no
effect on the employment rights of any Employee or former Employee of an
Employer. The adoption and maintenance of the Plan shall not constitute a
contract between the Bank and any Employee, or consideration for, or an
inducement to or condition of, the employment of any Employee.
9.6. Payments to Minors and Incompetents. In the event that the Committee
shall determine that a Participant or beneficiary hereunder is a minor, is
unable to care for his affairs due to illness or accident, or is otherwise
incompetent to receive a benefit payable hereunder, the Committee may, in its
discretion, direct that any benefit payment due him, if not claimed by a duly
appointed legal representative, may be held for the Participant or may be paid
to his spouse, child, parent or other blood relative, or to a person with whom
he resides, and any payment so made shall completely discharge the liability of
the Plan therefor.
9.7. Missing Persons. If the Committee cannot ascertain the whereabouts of
any person to whom a payment is due under the Plan, and if after such payment is
due, a notice of such payment due is mailed to the last known address of such
person, as shown on the records of the Committee or the Employer and within
three months after such mailing such person has not made written claim therefor,
the Committee, if it so elects, after receiving advice from counsel to the Plan,
may direct that such payment and all remaining payments otherwise due to such
person be canceled on the records of the Plan and the amount thereof applied to
reduce the contributions of the Employer that had employed the Participant with
respect to whom such payments were due, and upon such cancellation, the Plan and
the Trust shall have no further liability therefor. However, if such person
later notifies the Committee of his whereabouts and requests the payment or
payments due him under the Plan, the payments due shall be paid to him from the
general assets of the Trust.
9.8. Sole Source of Benefits. The Participants of the Plan and their
beneficiaries shall look solely to the assets of the Trust established hereunder
for the benefits payable hereunder, and the Employers shall not be liable
hereunder except to the extent payments are made to the Trust.
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9.9. Plan Qualification. Notwithstanding any other provision of the Plan,
the adoption of the Plan, the execution of the trust agreement and all
contributions to the Trust are conditioned upon the Plan and Trust being
determined initially by the Internal Revenue Service to meet the qualification
requirements of Section 401(a) of the Code, so that the Employers may deduct
currently for Federal income tax purposes their contributions to the Trust and
so that the Participants may exclude the contributions from their gross income
and recognize income only when they receive benefits. In the event that this
Plan is held by the Internal Revenue Service not to qualify initially under
Section 401(a) of the Code, the Plan may be amended retroactively to the
earliest date permitted by Treasury regulations in order to secure qualification
under Section 401(a) of the Code. If this Plan is held by the Internal Revenue
Service not to qualify under Section 401(a) of the Code either as originally
adopted or as amended, each Employer contribution to the Trust under this Plan
(including any earnings thereon) shall be returned to it, without any liability
to any person, within one year after the date of denial of such approval and
this Plan shall be terminated. Contributions made by a mistake of fact may
revert and be paid to the Employer within one year after the payment of such
contribution, but only after timely written demand has been made therefor by the
Committee. In the event that this Plan is amended after its initial
qualification and the Plan as amended is held by the Internal Revenue Service
not to qualify under Section 401(a) of the Code, the amendment may be modified
retroactively to the earliest date permitted by Treasury regulations in order to
secure approval of the amendment under Section 401(a) of the Code.
9.10. Merger Consolidation, Etc. No merger or consolidation with, or
transfer of assets or liabilities to, any other plan shall occur unless,
immediately after such merger, consolidation or transfer each Participant in the
Plan would, if the Plan were then terminated, be entitled to receive a benefit
equal to or greater than the benefit he would have been entitled to receive
immediately before such merger, consolidation, or transfer if the Plan had then
been terminated.
9.11. Exclusive Benefit. Except to the extent required to be used to repay
an Acquisition Loan, and under the circumstances permitted from time to time by
the law governing the requirements applicable to qualified plans, within the
meaning of Section 401 of the Code (or any successor provision), none of the
assets held by the Trustee under the Plan shall, prior to the satisfaction of
all liabilities under the Plan, ever revert to any Employer or otherwise be
diverted to purposes other than the exclusive benefit of the Participants or
their spouses, or beneficiaries. Notwithstanding the foregoing:
(a) any contribution made by an Employer or on behalf of an Employer
because of a mistake of fact may be returned to such Employer within one
year after such contribution is made; and
(b) if a contribution by an Employer or on behalf of an Employer is
conditioned upon its deductibility under Section 404 of the Code, then, to
the extent the deduction is disallowed, such contribution may be returned
to such Employer within one year after the disallowance of the deduction.
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9.12. Claims for Benefits. In the event a claim for benefits under the Plan
is denied, notice of such denial shall be given to the Participant or
beneficiary whose claim has been denied, clearly stating the reason for such
denial and informing such Participant or beneficiary of the procedure for
obtaining a full and fair review of such denial.
9.13. Service of Plan Fiduciaries. Any Trustee, member of the Committee, or
other Plan fiduciary may serve the Plan in more than one such capacity.
9.14. Governing Law. The Plan shall be construed, interpreted, regulated
and administered under the laws of the State of Delaware, except to the extent a
Federal statute supersedes Delaware law.
9.15. Gender and Number. Wherever used herein, the masculine gender shall
include the feminine gender and the singular shall include the plural, unless
the context clearly requires otherwise.
9.16. Titles and Headings. The titles to Articles and headings of Sections
of the Plan are for convenience of reference only. In case of conflict, the text
of the Plan, rather than such titles and headings, shall control.
Article X. Top-Heavy Provisions
10.1. Definitions.
(a) For purposes of this Article X and as otherwise used in the Plan,
the following definitions shall apply in addition to those set forth in
Article I:
"Aggregated Plans" shall mean (i) all plans of the Aggregation Group
which are required to be aggregated with the Plan, and (ii) all plans of
the Aggregation Group which are permitted to be aggregated with the Plan
and which the Bank elects to aggregate with the Plan, for purposes of
determining whether the Plan is Top-Heavy. A plan (including a terminated
plan) shall be required to be aggregated with the Plan if such a plan
during the Plan Year containing the Determination Date or any of the four
preceding Plan Years, includes as a participant a Key Employee or enables a
plan of the Aggregation Group in which a Key Employee participates to
qualify under Section 401(a)(4) or Section 410 of the Code. A plan of the
Aggregation Group shall be permitted to be aggregated with the Plan if such
plan satisfies the requirements of Sections 401(a)(4) and 410 of the Code,
when considered together with the Plan and all plans which are required to
be aggregated with the Plan. No plan shall be aggregated with the Plan
unless it is a qualified plan under Section 401 of the Code. When
aggregating plans, the value of account balances and accrued benefits shall
be calculated with reference to the Determination Dates that fall within
the same calendar year.
"Compensation". For purposes of computing the minimum allocation,
compensation shall mean compensation as defined in Treas.
Reg.ss.1.415-2(d), as limited by Section 401(a)(17) of the Code. For
purposes of determining whether an employee is a Key Employee, compensation
shall mean compensation as defined in Section 415(c)(3) of the
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Code but including employer contributions made pursuant to a salary
reduction arrangement.
"Determination Date" shall mean, with respect to the first Plan Year,
the last day of such Plan Year, and with respect to any subsequent Plan
Year, the last day of the preceding Plan Year.
"Key Employee" shall mean any Employee or former employee who at any
time during the Plan Year containing the Determination Date or the four
preceding Plan Years is or was (i) an officer of the Employer having annual
compensation in excess of 50 percent of the dollar limit in effect under
Section 415(b)(1)(A) for the calendar year in which such Plan Year ends;
(ii) one of ten Employees having annual compensation from the Employer for
a Plan Year in excess of the dollar limitation in effect under Section
415(c)(1)(A) of the code for the calendar year in which such Plan Year ends
and owning (or considered as owning within the meaning of section 318 of
the Code) both more than a one-half percent interest and the largest
interests in the Employer; (iii) a five percent owner of the Employer; or
(iv) a one percent owner of the Employer having annual compensation in
excess of $150,000. The determination of who is a Key Employee will be made
in accordance with section 416(i)(1) of the Codeand the Regulations
thereunder.
"Non-Key Employee" shall mean an individual who is not a Key Employee.
"Top-Heavy" shall mean that as of the Determination Date for a Plan
Year, the Value of Accumulated Benefits for Key Employees under all
Aggregated Plans exceeds 60% of the Value of Accumulated Benefits for all
individuals under all Aggregated Plans as set forth in Section 416(g) of
the Code. Solely for the purpose of determining if the Plan, or any other
plan included in a required Aggregation Group of which this Plan is a part,
is Top-Heavy the accrued benefit of an Employee other than a Key Employee
shall be determined under (a) the method, if any, that uniformly applies
for accrual purposes under all plans maintained by the Aggregation Group,
or (b) if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional
accrual rate of Section 411(b)(1)(C) of the Code.
"Valuation Date" means the annual date on which plan assets must be
valued for the purpose of determining the value of account balances or the
date as of which a defined benefit plan computes plan costs, assets and
liabilities for purposes of minimum funding. The Valuation Date for a
defined contribution plan shall be the most recent Valuation Date for such
plan within the 12-month period ending on the Determination Date.
"Value of Accumulated Benefits" shall mean the sum of:
(i) In the case of a defined benefit plan, the present value of
the accrued benefit determined as of the most recent Valuation Date
which is within a 12-month period ending on the Determination Date and
using the same actuarial assumptions as to interest and mortality as
specified in such defined benefit plan, plus the sum of any amounts
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distributed to the individual during the Plan Year which includes the
Determination Date and during the four (4) immediately preceding Plan
Years.
(ii) In the case of a defined contribution plan, the sum of the
accounts of the individual as of the most recent Valuation Date which
is within a 12-month period ending on the Determination Date, plus the
sum of any amounts distributed to the individual during the Plan Year
which includes the Determination Date and during the four (4)
immediately preceding Plan Years.
"Year of Top-Heavy Service" shall mean a Year of Service of a
Participant which commenced in a Plan Year during which the Plan was
Top-Heavy.
(b) On for purposes of determining a Key Employee's allocation percentage
under Section 10.2(a), any employer matching and salary deferral contributions
will be included. The minimum contributions specified in Section 10.2(a) shall
apply to all Participants under this Plan who are Non-Key Employees except any
such Participant who was not employed by an Employer on the last day of the Plan
Year. In addition, in the case of a Non-Key Employee who is a participant in
both this Plan and in a defined benefit plan that is an Aggregated Plan, the
minimum contribution specified in Section 10.2(a) above shall be 5% of
compensation.
10.2. Minimum Contributions.
(a) Except as otherwise provided in Section 10.2(b) below, if the Plan
is determined to be Top-Heavy with respect to a Plan Year, the Employer
contributions and Forfeitures allocated on behalf of any Participant who is
a Non-Key Employee shall not be less than the lesser of 3 percent of such
Participant's compensation (within the meaning of Section 415 of the Code)
or, in the case where the Employer has no defined benefit plan which
designates this Plan to satisfy Section 401 of the Code, the largest
percentage of Employer contributions and Forfeitures allocated on behalf of
any Key Employee for that year. This minimum allocation is determined
without regard to any social security contribution. The minimum allocation
shall be made even though, under other Plan provisions, the Participant
would not otherwise be entitled to receive an allocation, or would have
received a lesser allocation for the year.
(b) The provision in Section 10.2(a) above shall not apply to any
Participant who was not employed by an Employer on the last day of the Plan
Year. The Plan Administrator shall to the maximum permitted by the Code and
in accordance with the Regulations, apply the provisions of this Section 10
by taking into account the benefits payable and the contributions made
under all other defined contribution and defined benefit plans maintained
by an Employer which are qualified under Section 401(a) of the Code to
prevent inappropriate omissions or required duplication of minimum benefits
or contributions.
31
<PAGE>
10.3. Vesting.
(a) If the Plan is determined to be Top-Heavy with respect to a Plan
Year, the Vested interest of each Participant, who is credited with at
least one Hour of Service on or after the date the Plan becomes Top-Heavy,
in the amount allocated to his Account shall not be less than the
percentage determined in accordance with the following vesting schedule:
Participant's
Years of Service Vested Percentage
---------------- -----------------
less than 2 None
2 20%
3 40%
4 60%
5 80%
6 100%
If in a subsequent Plan Year the Plan is no longer Top-Heavy, the above vesting
provisions shall not apply to the portion of the Participant's Account
attributable to Employer contributions and Forfeitures made on or after the
first day of the first Plan Year in which the Plan is no longer Top-Heavy and
the vesting provisions that were in effect prior to the time the Plan became
Top-Heavy shall be reinstated, provided, however, that portions of a
Participant's Account which were Vested prior to the time the Plan was no longer
Top-Heavy shall remain Vested.
IN WITNESS WHEREOF, Ninth Ward Savings Bank, FSB has adopted this Plan on
the Adoption Date, effective as of the Effective Date.
WITNESS: NINTH WARD SAVINGS
BANK, FSB
_________________________ By____________________________
Authorized Officer
32
EXHIBIT 23.1
CONSENT OF PEABODY & BROWN
The Boards of Directors
Ninth Ward Savings Bank, FSB
Delaware First Financial Corporation
We hereby consent to the use of our firm's name in the Form SB-2,
Registration Statement, and Amendments thereto as filed with the Securities and
Exchange Commission by Delaware First Financial Corporation and to the
references to our opinion therein under the heading "Legal and Tax Matters."
/s/
-------------------------------------
Peabody & Brown
Washington, D.C.
September 23, 1997
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Delaware First Financial
Corporation on Form SB-2 to be filed with the Securities and Exchange Commission
and Form AC to be filed with the Office of Thrift Supervision of our report on
Ninth Ward Savings Bank, FSB dated March 7, 1997, (May 21, 1997 as to Note 10)
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/___________________
DELOITTE & TOUCHE LLP
Philadelphia, PA
September 24, 1997
Exhibit 23.3
[ FINPRO LOGO HERE ]
- --------------------------------------------------------------------------------
September 18, 1997
Board of Trustees
Ninth Ward Savings Bank
400 Delaware Avenue
Wilmington, Delaware 19801
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Application for Conversion on Form 86-AC filed by Ninth Ward Savings Bank, and
any amendments thereto, for permission to convert to a stock savings institution
and references to the Conversion Valuation Appraisal Report ("Report") and the
valuation of Ninth Ward Savings Bank provided by FinPro, and our opinion
regarding subscription rights filed as an exhibit to the applications referred
to below. We also consent to the use of our firm's name and the inclusion of,
summary of and references to our Report in the Form SB-2 Registration Statement
filed by Delaware First Financial Corporation and any amendments thereto, the
Application for Conversion on Form 86-AC filed by Ninth Ward Savings Bank, and
any amendments thereto, and the notice and Application for Conversion for Ninth
Ward Savings Bank, Wilmington, Delaware filed by Ninth Ward Savings Bank and any
amendments thereto.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
-------------------
Donald J. Musso
Liberty Corner, New Jersey
September 18, 1997
EXHIBIT 99.2
NINTH WARD SAVINGS BANK, FSB
400 Delaware Avenue
Wilmington, Delaware 19801
(302) 421-9090
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Ninth Ward Savings Bank, FSB (the "Bank") will be held at
_______________, ___________________, Wilmington, Delaware, on November _____,
1997 at __:__ _.m. Business to be taken up at the Special Meeting shall be:
(1) To consider and vote upon a Plan of Conversion, as amended, providing
for the conversion of the Bank from a federally chartered mutual
savings bank to a federally chartered stock savings bank (the
"Converted Bank") as a wholly owned subsidiary of Delaware First
Financial Corporation (the "Company"), a newly organized Delaware
corporation formed by the Bank for the purpose of becoming the holding
company for the Bank and the related transactions provided for in such
plan, including the adoption of an amended Federal Stock Charter and
Bylaws for the Converted Bank and the adoption of the Certificate of
Incorporation and Bylaws for the Company, pursuant to the laws of the
United States and the Rules and Regulations administered by the Office
of Thrift Supervision.
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice of Special Meeting of
Members, the Board of Directors is not aware of any other matters that
may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those members
of the Bank at the close of business on _____________, 1997, who continue as
members until the Special Meeting and, should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof
BY ORDER OF THE BOARD OF DIRECTORS
-------------------------------------
Secretary
______________________, 1997
Wilmington, Delaware
<PAGE>
----------------------------
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY MATERIAL
AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO
FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO
ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN
PERSON IF YOU ATTEND THE SPECIAL MEETING.
ii
<PAGE>
NINTH WARD SAVINGS BANK, FSB
400 Delaware Avenue
Wilmington, Delaware 19801
(302) 421-9090
PROXY STATEMENT
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
NINTH WARD SAVINGS BANK, FSB FOR USE AT A SPECIAL MEETING OF ITS MEMBERS TO BE
HELD ON ____________________, 1997 AND ANY ADJOURNMENT OF THAT MEETING, FOR THE
PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF
DIRECTORS URGES YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING - SUMMARY
A Special Meeting of Members (the "Special Meeting") of Ninth Ward Savings
Bank, FSB (the "Bank") will be held at ____________________________________,
__________________, Wilmington, Delaware on ____________, _______________, 1997,
at _:_ _.m., Eastern Time, for the purpose of considering and voting upon a Plan
of Conversion (the "Plan"), which was unanimously adopted by the Bank's Board of
Directors and which, if approved by a majority of the total votes eligible to be
cast by the members, will permit the Bank to convert from a federal mutual
savings bank to a federal stock savings bank (the "Converted Bank") as a wholly
owned subsidiary of Delaware First Financial Corporation (the "Company"), a
Delaware corporation formed by the Bank for the purpose of becoming the holding
company for the Bank. The conversion of the Bank to the Converted Bank and the
acquisition of control of the Converted Bank by the Company are collectively
referred to herein as the "Conversion." The Conversion is contingent upon the
members' approval of the Plan at the Special Meeting or any adjournment thereof.
The Plan provides in part that after receiving final authorization from the
Office of Thrift Supervision ("OTS"), the Company will offer for sale shares of
its common stock, par value $.01 per share (the "Common Stock"), through the
issuance of nontransferable subscription rights, first to depositors as of
December 31, 1995 with $50.00 or more on deposit in the Bank on that date
("Eligible Account Holders"), second to the Company's Employee Stock Ownership
Plan (the "ESOP") (a tax-qualified employee stock benefit plan of the Company,
as defined in the Plan), third to depositors with $50.00 or more on deposit in
the Bank on September 30, 1997, the last day of the calendar quarter preceding
approval of the Plan by the OTS ("Supplemental Eligible Account Holders"), and
fourth to other members entitled to vote at the Special Meeting ("Other
Members") (the "Subscription Offering"). Subscription rights received in any of
the foregoing categories will be subordinated to the subscription rights of
those in a prior category, with the exception that any shares of Common Stock
sold in excess of the high end of the estimated value range as established in an
independent appraisal, as discussed below, may be first sold to the ESOP. The
Company may
1
<PAGE>
offer any shares remaining after the Subscription Offering to certain members of
the general public in a community offering (the "Community Offering"). In the
Community Offering, preference will be given to natural persons and trusts of
natural persons who are permanent residents of Delaware or the Pennsylvania
counties of Chester or Delaware, the Maryland county of Cecil or the New Jersey
county of Salem. Any shares of Common Stock not purchased in the Subscription
and Community Offerings may be sold as part of a community offering on a best
efforts basis by a selling group of selected broker-dealers to be managed by
Trident Securities, Inc. (the "Syndicated Community Offering"). The aggregate
price of the Common Stock to be issued by the Company under the Plan is
currently estimated to be between $7,440,000 and $10,060,000, subject to
adjustment, as determined by an independent appraisal of the Bank's estimated
pro forma market value as converted and as a wholly owned subsidiary of the
Company. See "THE CONVERSION -- Stock Pricing" in the accompanying Prospectus.
Adoption of the proposed Charter and Bylaws of the Converted Bank and the
proposed Certificate of Incorporation and Bylaws of the Company is an integral
part of the Plan. Copies of the Plan and the proposed Charter and Bylaws for the
Converted Bank are attached to this Proxy Statement as exhibits. These documents
provide, among other things, for the termination of voting rights of members as
well as their rights to receive any surplus remaining in the event of
liquidation of the Bank. These rights, except for the rights of Eligible Account
Holders and Supplemental Eligible Account Holders in the liquidation account
established for their benefit upon completion of the Conversion, will vest
exclusively in the Company as the sole holder of the Converted Bank's
outstanding capital stock. For further information, see "THE CONVERSION --
Effect of Conversion to Stock Form on Depositors and Borrowers of Ninth Ward
Savings Bank, FSB" in the accompanying Prospectus.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF THE PLAN OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF
CONVERSION WILL NOT OBLIGATE ANY PERSON TO PURCHASE STOCK.
The Conversion will be accomplished through adoption of a new Charter and
Bylaws to authorize the issuance of capital stock by the Bank to the Company.
The Plan of Conversion provides that the Board of Directors has the ability to
elect, at any time, not to proceed with or to delay the Conversion. It is
presently the intent of the Bank's Board of Directors to proceed with the
Conversion. Under the Plan, shares of the Common Stock, subject to adjustment,
are being offered for sale by the Company. Upon completion of the Conversion,
the Converted Bank will issue all of its newly issued shares of capital stock to
the Company in exchange for at least 75% of the net proceeds of the Conversion.
None of the Bank's assets will be distributed in order to effect the Conversion
other than to pay expenses incident thereto.
2
<PAGE>
The net proceeds from the sale of Common Stock in the Conversion will
substantially increase the Bank's capital, which will increase the amount of
funds available for lending and investment, and support current operations and
the continued growth of the Bank's business. The holding company structure will
provide greater flexibility than the Bank alone would have for diversification
of business activities and geographic operations. Management believes that this
increase in capital and operating flexibility will enable the Bank to compete
more effectively with other savings institutions and other types of financial
service organizations. Management also believes that the Conversion will enhance
the future access of the Company to the capital markets.
DELAWARE FIRST FINANCIAL CORPORATION
Delaware First Financial Corporation was incorporated under the laws of the
State of Delaware in September 1997 at the direction of the Board of Directors
of the Bank for the purpose of serving as a savings institution holding company
of the Converted Bank upon the acquisition of all of the capital stock issued by
the Converted Bank in the Conversion. The Company has received approval from the
OTS to acquire control of the Converted Bank, subject to satisfaction of certain
conditions. Prior to the Conversion, the Company has not engaged and will not
engage in any material operations. Upon consummation of the Conversion, the
Company will have no significant assets other than the outstanding capital stock
of the Converted Bank, up to 25% of the net proceeds of the Conversion (after
deducting amounts infused into the Bank and before deducting amount used to fund
the ESOP) and a note receivable from the ESOP. Upon consummation of the
Conversion, the Company's principal business will be overseeing the business of
the Bank and investing the portion of the net Conversion proceeds retained by
it.
As a holding company, the Company will have greater flexibility than the
Bank to diversify its business activities through existing or newly formed
subsidiaries or through acquisition or merger with other financial institutions,
although the Company currently does not have any plans, agreements, arrangements
or understandings with respect to any such acquisitions or mergers. After the
Conversion, the Company will be classified as a unitary savings and loan holding
company and will be subject to regulation by the OTS.
The Company's executive offices are located at 400 Delaware Avenue,
Wilmington, Delaware 19801, and its main telephone number is (302) 421-9090.
NINTH WARD SAVINGS BANK, FSB
The Bank is a federal mutual savings bank operating through a single office
located in Wilmington, Delaware and serving Wilmington, Delaware and surrounding
areas of New Castle County. The Bank was chartered by the State of Delaware in
1922 under the name Ninth Ward Building and Loan Association. The Bank changed
its name to Ninth Ward Savings and Loan Association in 1954. The Bank adopted a
federal charter in 1992, at which
3
<PAGE>
time it adopted its present name of Ninth Ward Savings Bank, FSB. At June 30,
1997, the Bank had total assets of $112.5 million, total deposits of $78.4
million and retained earnings of $6.1 million.
The principal business of the Bank historically has consisted of attracting
deposits from the general public and investing these deposits in loans secured
by first mortgages on one- to four-family ("single-family") residences in the
Bank's market area. The Bank derives its income principally from interest earned
on loans and, to a lesser extent, interest earned on mortgage-backed securities
and investment securities and noninterest income. Funds for these activities are
provided principally by operating revenues, deposits, repayments of outstanding
loans, investment securities and mortgage-backed securities.
Historically, the Bank has operated as a traditional savings association,
emphasizing the origination of loans secured by single-family residences. At
June 30, 1997, $82.6 million, or 88.9% of the Bank's loan portfolio, consisted
of single-family residential mortgage loans in its market area. However, the
Bank's Board of Directors anticipates relatively slow growth in residential loan
demand within the Bank's market area. Further, the Board of Directors believes
that as a result of recent consolidations of financial institutions, there will
be increasing local demand for commercial business and consumer loans. As a
result, the Board of Directors has determined to refocus the Bank's strategy.
Pursuant to this new strategy, while continuing to pursue its existing business
of originating single-family residential mortgage loans, the Bank will also seek
to take advantage of the business opportunities identified by the Board of
Directors by gradually expanding into commercial real estate, small business and
consumer lending. The Board of Directors and management currently are developing
programs for commercial lending and expanding the Bank's existing home equity
lending program.
The Bank's executive offices are located at 400 Delaware Avenue,
Wilmington, Delaware 19801, and its main telephone number is (302) 421-9090.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Bank has fixed the close of business on
______________, 1997 as the record date (the "Voting Record Date') for the
determination of members entitled to notice of and to vote at the Special
Meeting. All holders of the Bank's deposit or other authorized accounts are
members of the Bank under its current mutual charter. Borrowers as of January 1,
1993, are members of the Bank for as long as such borrowings are in existence.
However, borrowers who had borrowings at such date who no longer have such
borrowings, as well as persons who became borrowers after such date, are not
members of the Bank. All members of record as of the close of business on the
Voting Record Date who continue as such until the date of the Special Meeting
will be entitled to vote at the Special Meeting or any adjournment thereof.
4
<PAGE>
Each depositor member will be entitled at the Special Meeting to cast one
vote for each $100, or fraction thereof, of the aggregate withdrawal value of
all of his savings accounts in the Bank as of the Voting Record Date. Borrower
members will be entitled to one vote at the Special Meeting in addition to any
votes such borrower member may have as a result of being a depositor in the
Bank. No member may cast more than 1,000 votes.
Approval of the Plan to be presented at the Special Meeting will require
the affirmative vote of at least a majority of the total outstanding votes of
the Bank's members eligible to be cast at the Special Meeting. As of the Voting
Record Date for the Special Meeting, there were approximately ____________ votes
eligible to be cast, of which ____________ votes constitute a majority.
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. All properly executed proxies received by the Bank will be
voted in accordance with the instructions indicated thereon by the members
giving such proxies. If no contrary instructions are given, such proxies will be
voted in favor of the Plan of Conversion described herein. If any other matters
are properly presented before the Special Meeting and may properly be voted
upon, the proxies solicited hereby will be voted on such matters by the proxy
holders named therein as directed by the Board of Directors of the Bank. Valid,
previously executed general proxies, which typically are obtained from members
when they open their accounts at the Bank, 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.
Any member giving a proxy will have the right to revoke his proxy at any
time before it is voted by delivering written notice or a duly executed proxy
bearing a later date to the Secretary of the Bank, provided that such written
notice is received by the Secretary prior to the Special Meeting or any
adjournment thereof, or by attending the Special Meeting and voting in person.
FAILURE TO RETURN AN EXECUTED PROXY FOR THE SPECIAL MEETING OR TO ATTEND
THE SPECIAL MEETING AND VOTE IN PERSON WOULD HAVE THE SAME EFFECT AS VOTING
AGAINST THE CONVERSION.
Proxies may be solicited by officers, directors or other employees of the
Bank, in person, by telephone or through other forms of communication. Such
persons will be reimbursed by the Bank only for their expenses incurred in
connection with such solicitation.
The proxies solicited hereby will be used only at the Special Meeting and
at any adjournment thereof and will not be used at any other meeting.
5
<PAGE>
DESCRIPTION OF PLAN OF CONVERSION
The OTS has approved the Plan, subject to the Plan's approval by the
members of the Bank entitled to vote on the matter and subject to the
satisfaction of certain other conditions imposed by the OTS in its approval.
Approval by the OTS, however, does not constitute a recommendation or
endorsement of the Plan by the OTS.
Effect of Conversion to Stock Form on Depositors and Borrowers of the Bank
General Each depositor in a mutual savings institution such as the Bank has
both a deposit account and a pro rata ownership interest in the retained
earnings of that institution based upon the balance in his or her deposit
account. However, this ownership interest is tied to the depositor's account and
has no tangible market value separate from such deposit account. Any other
depositor who opens a deposit account obtains a pro rata interest in the
retained earnings of the institution without any additional payment beyond the
amount of the deposit. A depositor who reduces or closes his or her account
receives a portion or all of the balance in the account but nothing for his or
her ownership interest, which is lost to the extent that the balance in the
account is reduced.
Consequently, depositors normally do not have a way to realize the value of
their ownership, which has realizable value only in the unlikely event that the
mutual institution is liquidated. In such event, the depositors of record at
that time, as owners, would share pro rata in any residual retained earnings
after other claims are paid.
Upon consummation of the Conversion, permanent nonwithdrawable capital
stock will be created to represent the ownership of the institution. The capital
stock is separate and apart from deposit accounts and is not and cannot be
insured by the FDIC. Transferable certificates will be issued to evidence
ownership of the stock, which will enable the stock to be sold or traded, if a
purchaser is available, with no effect on any account held in the Bank. Under
the Plan, all of the capital stock of the Converted Bank will be acquired by the
Company in exchange for a portion of the net proceeds from the sale of the
Common Stock in the Conversion. The Common Stock will represent an ownership
interest in the Company and will be issued upon consummation of the Conversion
to persons who elect to participate in the Conversion by purchasing the shares
being offered.
Continuity During the Conversion process, the normal business of the Bank
of accepting deposits and making loans will continue without interruption. The
Converted Bank will continue to be subject to regulation by the OTS and the
FDIC, and FDIC insurance of accounts will continue without interruption. After
the Conversion, the Converted Bank will continue to provide services for
depositors and borrowers under current policies and by its present management
and staff.
The Board of Directors serving the Bank at the time of the Conversion will
serve as the Board of Directors of the Converted Bank after the Conversion. The
Board of Directors of the
6
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Company will consist of the individuals currently serving on the Board of
Directors of the Bank. All officers of the Bank at the time of the Conversion
will retain their positions with the Converted Bank after the Conversion.
Voting Rights. Upon the completion of the Conversion, depositor and
borrower members as such will have no voting rights in the Converted Bank, or
the Company and, therefore, will not be able to elect directors of the Converted
Bank, or the Company or to control their affairs. Currently these rights are
accorded to depositors of the Bank. Subsequent to the Conversion, voting rights
will be vested exclusively in the stockholders of the Company which, in turn,
will own all of the stock of the Converted Bank. Each holder of Common Stock
shall be entitled to vote on any matter to be considered by the stockholders of
the Company, subject to the provisions of the Company's Certificate of
Incorporation.
Deposit Accounts and Loans. The Bank's deposit accounts, the balances of
individual accounts and existing federal deposit insurance coverage will not be
affected by the Conversion. Deposit accounts will remain insured by the FDIC.
Furthermore, the Conversion will not affect the loan accounts, the balances of
these accounts and the obligations of the borrowers under their individual
contractual arrangements with the Bank.
Tax Effects. The Bank has received an opinion from its special counsel,
Peabody & Brown., Washington, D.C., as to the material federal income tax
consequences of the Conversion, and as to the generally applicable material
federal income tax consequences of the Conversion to the Bank's account holders
and to persons who purchase Common Stock in the Conversion. The opinion provides
that the Conversion will constitute one or more reorganizations for federal
income tax purposes under Section 368(a)(1)(F) of the Internal Revenue Code of
1986, as amended ("Internal Revenue Code"). Among other things, the opinion also
provides that: (i) no gain or loss will be recognized by the Bank in its mutual
or stock form by reason of the Conversion; (ii) no gain or loss will be
recognized by its account holders upon the issuance to them of accounts in the
Converted Bank in stock form immediately after the Conversion, in the same
dollar amounts and on the same terms and conditions as their accounts at the
Bank immediately prior to the Conversion; (iii) the tax basis of each account
holder's interest in the liquidation account will be equal to the value, if any,
of that interest; (iv) the tax basis of the Common Stock purchased in the
Conversion will be equal to the amount paid therefor increased, in the case of
Common Stock acquired pursuant to the exercise of Subscription Rights, by the
fair market value, if any, of the Subscription Rights exercised; (v) the holding
period for the Common Stock purchased in the Conversion will commence upon the
exercise of such holder's Subscription Rights and otherwise on the day following
the date of such purchase; and (vi) gain or loss will be recognized to account
holders upon the receipt of liquidation rights or the receipt or exercise of
Subscription Rights in the Conversion, to the extent such liquidation rights and
Subscription Rights are deemed to have value, as discussed below.
The opinion of Peabody & Brown is based in part upon, and subject to
the continuing validity in all material respects through the date of the
Conversion of, various representations
7
<PAGE>
of the Bank and upon certain assumptions and qualifications, including that the
Conversion is consummated in the manner and according to the terms provided in
the Plan. Such opinion is also based upon the Internal Revenue Code, regulations
now in effect or proposed thereunder, current administrative rulings and
practice and judicial authority, all of which are subject to change and such
change may be made with retroactive effect. Unlike private letter rulings
received from the Internal Revenue Service ("IRS"), an opinion is not binding
upon the IRS and there can be no assurance that the IRS will not take a position
contrary to the positions reflected in such opinion, or that such opinion will
be upheld by the courts if challenged by the IRS.
Peabody & Brown has advised the Bank that an interest in a liquidation
account has been treated by the IRS, in a series of private letter rulings which
do not constitute formal precedent, as having nominal, if any, fair market value
and therefore it is likely that the interests in the liquidation account
established by the Bank as part of the Conversion will similarly be treated as
having nominal, if any, fair market value. Accordingly, it is likely that such
depositors of the Bank who receive an interest in such liquidation account
established by the Bank pursuant to the Conversion will not recognize any gain
or loss upon such receipt.
Peabody & Brown has further advised the Bank that the federal income tax
treatment of the receipt of Subscription Rights pursuant to the Conversion is
uncertain, and recent private letter rulings issued by the IRS have been in
conflict. For instance, the IRS adopted the position in one private ruling that
Subscription Rights will be deemed to have been received to the extent of the
minimum pro rata distribution of such rights, together with the rights actually
exercised in excess of such pro rata distribution, and with gain recognized to
the extent of the combined fair market value of the pro rata distribution of
Subscription Rights plus the Subscription Rights actually exercised. Persons who
do not exercise their Subscription Rights under this analysis would recognize
gain upon receipt of rights equal to the fair market value of such rights,
regardless of exercise, and would recognize a corresponding loss upon the
expiration of unexercised rights that may be available to offset the previously
recognized gain. Under another IRS private ruling, Subscription Rights were
deemed to have been received only to the extent actually exercised. This private
ruling required that gain be recognized only if the holder of such rights
exercised such rights, and that no loss be recognized if such rights were
allowed to expire unexercised. There is no authority that clearly resolves this
conflict among these private rulings, which may not be relied upon for
precedential effect. However, based upon express provisions of the Internal
Revenue Code and in the absence of contrary authoritative guidance, Peabody &
Brown has provided in its opinion that gain will be recognized upon the receipt
rather than the exercise of Subscription Rights. Further, also based upon a
published IRS ruling and consistent with recognition of gain upon receipt rather
than exercise of the Subscription Rights, Peabody & Brown has provided in its
opinion that the subsequent exercise of the Subscription Rights will not give
rise to gain or loss. Regardless of the position eventually adopted by the IRS,
the tax consequences of the receipt of the Subscription Rights will depend, in
part, upon their valuation for federal income tax purposes.
If the Subscription Rights are deemed to have a fair market value, the
receipt of such rights will be taxable to Eligible Account Holders, Supplemental
Eligible Account Holders and
8
<PAGE>
other eligible members who exercise their Subscription Rights, even though such
persons would have received no cash from which to pay taxes on such taxable
income. The Bank could also recognize a gain on the distribution of such
Subscription Rights in an amount equal to their aggregate value. In the opinion
of FinPro, Inc., an independent appraisal firm retained by the Bank to prepare
an appraisal of the Bank, whose opinion is not binding upon the IRS, the
Subscription Rights do not have any value, based on the fact that such fights
are acquired by the recipients without cost, are non-transferable and of short
duration and afford the recipients the fight only to purchase shares of the
Common Stock at a price equal to its estimated fair market value, which will be
the same price as the price paid by purchasers in the Community Offering for
unsubscribed shares of Common Stock. Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are encouraged to consult with their
own tax advisors as to the tax consequences in the event that the Subscription
Rights are deemed to have a fair market value. Because the fair market value, if
any, of the Subscription Rights issued in the Conversion depends primarily upon
the existence of certain facts rather than the resolution of legal issues,
Peabody & Brown., has neither adopted the opinion of FinPro, Inc. as its own nor
incorporated such opinion of FinPro, Inc. in its opinion issued in connection
with Conversion.
THE FEDERAL AND STATE INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT
PURPORT TO CONSIDER ALL ASPECTS OF FEDERAL AND STATE INCOME TAXATION WHICH MAY
BE RELEVANT TO EACH ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ACCOUNT HOLDER AND
OTHER MEMBER ENTITLED TO SPECIAL TREATMENT UNDER THE INTERNAL REVENUE CODE, SUCH
AS TRUSTS, INDIVIDUAL RETIREMENT ACCOUNTS, OTHER EMPLOYEE BENEFIT PLANS,
INSURANCE COMPANIES AND ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS AND OTHER MEMBERS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH ELIGIBLE ACCOUNT
HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER AND OTHER MEMBER IS URGED TO
CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISOR AS TO THE EFFECT OF SUCH
FEDERAL AND STATE INCOME TAX CONSEQUENCES ON HIS OR HER OWN PARTICULAR FACTS AND
CIRCUMSTANCES, INCLUDING THE RECEIPT AND EXERCISE OF SUBSCRIPTION RIGHTS, AND
ALSO AS TO ANY OTHER TAX CONSEQUENCES ARISING OUT OF THE CONVERSION.
Liquidation Account. In the unlikely event of a complete liquidation of the
Bank in its present mutual form, each holder of a deposit account in the Bank
would receive his pro rata share of any assets of the Bank remaining after
payment of claims of all creditors (including the claims of all depositors to
the withdrawal value of their accounts). His pro rata share of such remaining
assets would be the same proportion of such assets as the value of his deposit
account was to the total of the value of all deposit accounts in the Bank at the
time of liquidation.
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After the Conversion, each deposit account holder on a complete liquidation
would have a claim of the same general priority as the claims of all other
general creditors of the Bank. Therefore, except as described below, his claim
would be solely in the amount of the balance in his deposit account plus accrued
interest. He would have no interest in the value of the Bank above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the net worth of the Bank as of the date of its latest statement of financial
condition contained in the final Prospectus. Each Eligible Account Holder (a
person with a qualifying deposit in the Bank on December 31, 1995) and each
Supplemental Eligible Account Holder (a person with a qualifying deposit in the
Bank on September 30, 1997) would be entitled, on a complete liquidation of the
Converted Bank after completion of the Conversion, to an interest in the
liquidation account. Each Eligible Account Holder would have an initial interest
in such liquidation account for each qualifying deposit held in the Bank on
December 31, 1995 and each Supplemental Eligible Account Holder would have an
initial interest in such liquidation account for each qualifying deposit held in
the Bank on September 30, 1997. The interest as to each qualifying deposit
account would be in the same proportion of the total liquidation account as the
balance of such qualifying deposit account was to the balance in all deposit
accounts of Eligible Account Holders and Supplemental Eligible Account Holders
on such date. However, if the amount in the qualifying deposit account on any
annual closing date (December 31) of the Bank subsequent to the relevant
eligibility date is less than the amount in such account on the relevant
eligibility date, or any subsequent closing date, then the Eligible Account
Holder's or Supplemental Eligible Account Holder's interest in the liquidation
account would be reduced from time to time by an amount proportionate to any
such reductions, and such interest would cease to exist if he ceases to maintain
an account at the Converted Bank that has the same Social Security number as
appeared on his account(s) at the relevant eligibility date. The interest in the
liquidation account would never be increased, notwithstanding any increase in
the related deposit account after the Conversion.
Any assets remaining after the above liquidation rights of Eligible Account
Holders and Supplemental Eligible Account Holders were satisfied would be
distributed to the entity or persons holding the Bank's capital stock at that
time.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with an FDIC-insured institution in which the Bank is not the
surviving insured institution would not be considered to be a "liquidation"
under which distribution of the liquidation account could be made. In such a
transaction, the liquidation account would be assumed by the surviving
institution.
The creation and maintenance of the liquidation account will not restrict
the use or application of any of the capital accounts of the Bank, except that
the Bank may not declare or pay a cash dividend on, or repurchase any of, its
capital stock if the effect of such dividend or repurchase would be to cause its
10
<PAGE>
retained earnings to be reduced below the aggregate amount then required for the
liquidation account.
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by the Bank
will be final. The Plan provides that the Bank's Board of Directors shall have
the sole discretion to interpret and apply the provisions of the Plan to
particular facts and circumstances and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to giving preference in the Community Offering to natural persons
and trusts of natural persons who are permanent residents of the Local
Community, and any and all interpretations, applications and determinations made
by the Board of Directors in good faith and on the basis of such information and
assistance as was then reasonably available for such purpose shall be conclusive
and binding upon the Bank and its members and subscribers in the Subscription
and Community Offerings, subject to the authority of the OTS.
The Plan provides that, if deemed necessary or desirable by the Board of
Directors, the Plan may be substantively amended by a two-thirds vote of the
Board of Directors at any time prior to submission of the Plan and proxy
materials to the Bank's members. After submission of the Plan and proxy
materials to the members, the Plan may be amended by a two-thirds vote of the
Board of Directors at any time prior to the Special Meeting and at any time
following the Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors may modify or terminate the Plan upon the
order of the regulatory authorities without a resolicitation of proxies or
another Special Meeting. However, any modification of the Plan resulting in a
material change in the terms of the Conversion would require a resolicitation of
proxies and another meeting of stockholders.
The Plan further provides that in the event that mandatory new regulations
pertaining to conversions are adopted by the OTS or any successor agency prior
to completion of the Conversion, the Plan will be amended to conform to such
regulations without a resolicitation of proxies or another Special Meeting. In
the event that such new conversion regulations contain optional provisions, the
Plan may be amended to utilize such optional provisions at the discretion of the
Board of Directors without a resolicitation of proxies or another Special
Meeting. By adoption of the Plan, the Bank's members will be deemed to have
authorized amendment of the Plan under the circumstances described above.
11
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Conditions and Termination
Completion of the Conversion requires the approval of the Plan by the
affirmative vote of not less than a majority of the total outstanding votes of
the members of the Bank and the sale of all shares of the Common Stock within 24
months following approval of the Plan by the members. If these conditions are
not satisfied, the Plan will be terminated, and the Bank will continue its
business in the mutual form of organization. The Plan may be terminated by the
Board of Directors at any time prior to the Special Meeting and, with the
approval of the OTS, by the Board of Directors at any time thereafter.
Review By Administrative and Judicial Authorities
Federal law provides (i) that persons aggrieved by a final action of the
OTS which approves, with or without conditions, a plan of conversion may obtain
review of such final action only by filing a written petition in the United
States Court of Appeals for the circuit in which the principal office or
residence of such person is located, or in the United States Court of Appeals
for the District of Columbia Circuit, requesting that the final action of the
OTS be modified, terminated or set aside, and (ii) that such petition must be
filed within 30 days after publication of notice of such final action in the
Federal Register, or 30 days after the date of mailing of the notice and proxy
statement for the meeting of the converting institution's members at which the
conversion is to be voted on, whichever is later.
Other
All statements made in this Proxy Statement are hereby qualified by the
contents of the Plan which is attached hereto as Exhibit A and should be
consulted for further information. In addition, attention is directed to the
section entitled "THE CONVERSION" in the accompanying Prospectus for a more
detailed discussion of various aspects of the Plan. Adoption of the Plan by the
Bank's members shall be deemed approval of the authority of the Board of
Directors to amend or terminate the Plan in accordance with its terms.
CHARTER AND BYLAWS
The following is a summary of certain provisions of the Charter and Bylaws
which will become effective upon the conversion of the Bank into a federally
chartered stock savings bank Complete copies of the Charter and Bylaws of the
Converted Bank are attached as Exhibits B and C, respectively, to this Proxy
Statement.
The Converted Bank will be authorized to issue 3,000,000 shares of common
stock with a par value of $0.01 per share. The Converted Bank's common stock
will not be insured by the FDIC. All of the Converted Bank's outstanding common
stock will be owned by the Company. Accordingly, exclusive voting rights with
respect to the affairs of the Bank after the Conversion will be vested in the
Board of Directors of the Company.
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The Converted Bank's Charter will provide that the number of Directors
shall be not fewer than five or more than 15, with the exact number to be fixed
in the Converted Bank's Bylaws. The proposed Bylaws provide that the number of
the Converted Bank's directors shall be 7. Directors generally will serve for
terms of three years, and the terms of Directors will be staggered so that
approximately one-third of the Board is elected each year.
In addition to the common stock, the Converted Bank will be authorized to
issue 500,000 shares of serial preferred stock, par value $0.01 per share. The
Board of Directors will be permitted, without further stockholder approval, to
authorize the issuance of preferred stock in series and to fix the voting
powers, designations, preferences and relative, participating, optional,
conversion and other special rights of the shares of each series of the
preferred stock and the qualifications, limitations and restrictions thereof.
Preferred stock may rank prior to common stock in dividend fights, liquidation
preferences, or both, and may have voting fights.
Neither the Charter nor the Bylaws of the Converted Bank provide for
indemnification of officers and directors. However, the Converted Bank will be
required by OTS regulations (as the Bank currently is) to indemnify its
Directors, officers and employees against legal and other expenses incurred in
defending lawsuits brought against them by reasons of the performance of their
official duties. Indemnification may be made to any such person only if final
judgment on the merits is in his favor or, in case of (i) settlement, (ii) final
judgment against him or (iii) final judgment in his favor, other than on the
merits, if a majority of the Directors of the Converted Bank determines that he
was acting in good faith within the scope of his employment or authority as he
could reasonably have perceived it under the circumstances and for a purpose he
could have reasonably believed under the circumstances was in the best interest
of the Converted Bank or its stockholders. If a majority of the Directors of the
Converted Bank concludes that in connection with an action any person ultimately
may become entitled to indemnification, the Directors may authorize payment of
reasonable costs and expenses arising from defense or settlement of such action.
HOW TO ORDER STOCK
The accompanying Prospectus contains information about the business and
financial condition of the Bank and additional information about the Conversion
and the Subscription Offering and the Community Offering. Enclosed is a Stock
Order Form to be used to subscribe for stock. You are not obligated to subscribe
for stock, and voting to approve the Conversion will not obligate you to
subscribe for stock.
All Subscription Rights are nontransferable and will expire if not
exercised by returning the accompanying stock Order Form with full payment (or
appropriate instructions authorizing withdrawal from a savings or certificate
account at the Bank) for all shares for which subscription is made to the
Company by 12:00 Noon, Eastern Time, on _________________ , 1997, unless
extended by the Bank. A postage-paid reply envelope is provided for this
purpose. Provided that not all of the shares are subscribed for in the
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Subscription Offering by members of the Bank, the remaining shares may be
offered to certain members of the general public in the Community Offering with
preference given to natural persons and trusts of natural persons who reside in
the Local Community. Any shares of Common Stock not purchased in the
Subscription and Community Offerings 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 broker-dealers to be
managed by Trident Securities, Inc.
The information contained in this Proxy Statement is limited in its scope
to use in the solicitation of proxies for the Special Meeting to vote on the
Plan of Conversion. It is not intended for use in the offering of the Common
Stock. Such offering is made only by the Prospectus.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a more
detailed description of the Plan, is intended to help you evaluate the
Conversion and is incorporated herein by reference.
All persons eligible to vote at the Special Meeting should review both this
Proxy Statement and the accompanying Prospectus.
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY MATERIAL
AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO
FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO
ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN
PERSON IF YOU ATTEND THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN
INSTRUMENT DELIVERED TO THE SECRETARY OF THE BANK AT ANY TIME PRIOR TO OR AT THE
SPECIAL MEETING OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
----------------------------------
Secretary
________________, 1997
Wilmington, Delaware
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AMENDED PLAN OF CONVERSION
DATED AS OF
SEPTEMBER 17, 1997
----------
NINTH WARD SAVINGS BANK, FSB
Wilmington, Delaware
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
II. Definitions............................................................. 2
III. Steps Prior to Submission of the Plan to the Members for Approval...... 7
IV. Meeting of Members...................................................... 8
V. Summary Proxy Statement.................................................. 8
VI. Offering Documents...................................................... 9
VII. Consummation of Conversion............................................. 9
VIII. Stock Offering........................................................ 10
A. General............................................................... 10
B. Independent Evaluation and Purchase Price of Shares................... 10
C. Subscription Offering................................................. 11
D. Community Offering.................................................... 15
E. Other Offering........................................................ 16
F. Limitations Upon Purchases of Shares of Conversion Stock.............. 16
G. Restrictions on and Other Characteristics of Stock Being Sold......... 18
H. Mailing of Offering Materials and Collation of Subscriptions.......... 20
I. Method of Payment..................................................... 20
J. Undelivered, Defective or Late Order Forms, Insufficient Payment...... 21
K. Members in Non-Qualified States or in Foreign Countries............... 22
L. Sales Commissions..................................................... 22
IX. Charter, Articles of Incorporation and Bylaws........................... 22
X. Registration and Market Making........................................... 23
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XI. Status of Savings Accounts and Loans Subsequent to Conversion........... 23
XII. Effect of Conversion................................................... 23
XIII. Liquidation Account................................................... 24
XIV. Restrictions on Acquisition of Holding Company......................... 25
XV. Interpretation and Amendment or Termination of the Plan................. 26
XVI. Expenses of the Conversion............................................. 26
XVII. Contributions to Tax-Qualified Employee Stock Benefit Plans.......... 27
Exhibit A - Federal Stock Charter........................................... A-1
Exhibit B - Bylaws.......................................................... B-1
ii
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NINTH WARD SAVINGS BANK, FSB
Wilmington, Delaware
Plan of Conversion
From Mutual to Stock Organization
and Holding Company Formation
I. General.
On June 30, 1997, the Board of Directors of Ninth Ward Savings Bank, FSB,
Wilmington, Delaware (the "Bank"), after careful study and consideration,
adopted by unanimous vote this Plan of Conversion (the "Plan"), which provides
for (i) the conversion of the Bank from a federally chartered mutual savings
bank to a federally chartered stock savings bank (the "Converted Bank"), and
(ii) the concurrent formation of a holding company for the Converted Bank (the
"Holding Company") The conversion of the Bank to the Converted Bank and the
acquisition of control of the Converted Bank by the Holding Company are
collectively referred to herein as the "Stock Conversion."
Now, pursuant to Section XV hereof, the Board of Directors Amends and
Restates the Plan as follows. Pursuant to the Plan, shares of Conversion Stock
in the Holding Company will be offered as part of the Stock Conversion in a
Subscription Offering pursuant to non-transferable Subscription Rights at a
predetermined and uniform price first to Eligible Account Holders of record as
of December 31, 1995 second to Tax-Qualified Employee Stock Benefit Plans, third
to Supplemental Eligible Account Holders of record as of the last day of the
calendar quarter preceding OTS approval of the Bank's application to convert to
stock form (September 30, 1997), and fourth to Other Members of the Bank.
Concurrently with the Subscription Offering, shares not subscribed for in the
Subscription Offering may be offered as part of the Stock Conversion to the
general public in a Community Offering, Shares remaining will then be offered to
the general public in an underwritten public offering or otherwise. The
aggregate Purchase Price of the Conversion Stock will be based upon an
independent appraisal of the Bank and will reflect the estimated pro forma
market value of the Converted Bank, as a subsidiary, of the Holding Company.
The Stock Conversion is subject to regulations of the Director of the
Office of Thrift Supervision of the United States Department of the Treasury
("OTS") pursuant to Section 5(i) of the Home Owners' Loan Act, and Part 563b of
the Rules and Regulations Applicable to All Savings Associations.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by Members of the Bank at a special meeting of the
Members to be called to consider the Conversion by the greater of (i) the
affirmative vote of Members of the Bank holding not less than a majority of the
total votes eligible to be cast, or (ii) 51% of the votes cast at the special
meeting.
<PAGE>
It is the desire of the Board of Directors to attract new capital to the
Bank to increase its net worth, to support future savings growth, to increase
the amount of funds available for other lending and investment, to provide
greater resources for the expansion of customer services and to facilitate
future expansion. In addition, the Board of Directors intends to implement stock
option plans and other stock benefit plans following the Conversion in order to
better attract and retain qualified directors and officers.
No change will be made in the Board of Directors or management of the Bank
as a result of the Conversion.
II. Definitions.
Acting in Concert: The term "Acting in Concert" means: (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, joint account, agreement or other arrangement, whether written or
otherwise. Any person (as defined by 12 C.F.R. ss 563b.2(a)(26)) Acting in
Concert with another person ("other party") shall also be deemed to be Acting in
Concert with any person who is also Acting in Concert with that other party,
except that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to
be Acting in Concert with its trustee or a person who serves in a similar
capacity solely for the purpose of determining whether stock held by the trustee
and stock held by the Tax-Qualified Employee Benefit Plan will be aggregated.
Associate: The term "Associate," when used to indicate a relationship with
any person, means: (i) any corporation or organization (other than the Bank, the
Holding Company, or a majority-owned subsidiary of the Bank or Holding Company)
of which such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities; (ii) any
trust or other estate in which such person has a substantial beneficial interest
or as to which such person serves as trustee or in a similar fiduciary capacity,
except that, for purposes of Paragraphs VIII.F. and VIII.G.4. hereof, such term
shall not include a Tax-Qualified Employee Stock Benefit Plan in which a person
has a substantial beneficial interest or serves as a trustee in a similar
fiduciary capacity, and, for purposes of Paragraph VIII.G. and I. hereof, such
term shall not include any Tax-Qualified Employee Stock Benefit Plan; and (iii)
any relative or spouse of such person, or any relative of such spouse, who has
the same home as such person or who is a director of the Bank or the Holding
Company, or any of their subsidiaries.
Bank: The term "Bank" means Ninth Ward Savings Bank, FSB, in its form as a
federal mutual savings bank.
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Capital Stock: The term "Capital Stock" means any and all authorized shares
of stock of the Converted Bank after the Stock Conversion.
Community Offering: The term "Community Offering" means the offering of
shares of Conversion Stock to the general public by the Holding Company
concurrently with the Subscription Offering, giving preference to natural
persons and trusts of natural persons (including individual retirement and Keogh
retirement accounts and personal trusts in which such natural persons have
substantial interests) who permanently reside in the Bank's Local Community.
Conversion: The term "Conversion" means the Stock Conversion.
Conversion Stock: The term "Conversion Stock" means the shares of common
stock to be issued and sold by the Holding Company pursuant to the Plan in
connection with the Stock Conversion.
Converted Bank: The term "Converted Bank" means Ninth Ward Savings Bank,
FSB in its form as a federal capital stock savings bank resulting from the
conversion of the Bank to the stock form of organization in connection with the
Stock Conversion.
Eligibility Record Date: The term "Eligibility Record Date" means the close
of business on December 31, 1995.
Eligible Account Holder: The term "Eligible Account Holder" means the
holder of a Qualifying Deposit in the Bank on the Eligibility Record Date.
FDIC: The term "FDIC" means the Federal Deposit Insurance Corporation or
any successor federal agency which insures deposit accounts held in savings
associations.
Form AC Application: The term "Form AC Application" means the application
submitted to the OTS for approval of the Stock Conversion.
H-(e)1 Application: The term "H-(e)1 Application" means the application to
the OTS on OTS Application H-(e)l, or OTS Application H-(e)1-S if applicable,
for approval of the Holding Company's acquisition of all of the Capital Stock.
Holding Company: The term "Holding Company" means a corporation to be
incorporated by the Bank under state law for the purpose of becoming a savings
and loan holding company for the Converted Bank through the issuance and sale of
Conversion Stock under the Plan and the concurrent acquisition of 100% of the
Capital Stock to be issued and sold pursuant to the Plan in connection with the
Stock Conversion.
Holding Company Stock: The term "Holding Company Stock" means any and all
authorized shares of stock of the Holding Company.
3
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Independent Appraiser: The term "Independent Appraiser" means a person
independent of the Bank, experienced and expert in the area of corporate
appraisal, and acceptable to the OTS, retained by the Bank to prepare an
appraisal of the pro forma market value of the Converted Bank, as a subsidiary
of the Holding Company.
Local Community: The term "Local Community" means the State of Delaware and
the Pennsylvania counties of Chester and Delaware, the Maryland county of Cecil,
and the New Jersey county of Salem.
Market Maker: The term "Market Maker" means a dealer (i.e., any person who
engages, either for all or part of such person's time, directly or indirectly as
agent, broker or principal in the business of offering, buying, selling, or
otherwise dealing or trading in securities issued by another person) who, with
respect to a particular security: (i)(a) regularly publishes bona fide,
competitive bid and offer quotations in a recognized interdealer quotation
system or (b) furnishes bona fide competitive bid and offer quotations on
request; and (ii) is ready, willing and able to effect transactions in
reasonable quantities at its quoted prices with other brokers or dealers.
Member: The term "Member" means any person or entity who qualifies as a
member of the Bank under its federal mutual charter and bylaws prior to
Conversion.
Officer: The term "Officer" means an executive officer of the Holding
Company or the Bank (as applicable), including the Chairman of the Board, Vice
Chairman of the Board, [RAY] President, Executive Vice Presidents, Senior Vice
Presidents in charge of principal business functions, Secretary and Treasurer.
Order Form: The term "Order Form" means the order form or forms to be used
by Eligible Account Holders, Supplemental Eligible Account Holders and other
persons eligible to purchase Conversion Stock pursuant to the Plan.
Other Member: The term "Other Member" means any person, other than an
Eligible Account Holder or a Supplemental Eligible Account Holder, who is a
Member as of the Voting Record Date.
OTS: The term "OTS" means the Office of Thrift Supervision of the United
States Department of the Treasury or any successor agency having jurisdiction
over the Conversion.
OTS Notice: The term "OTS Notice" means the notice of intent to convert to
a federal stock bank submitted to the OTS.
Plan: The term "Plan" means this Plan of Conversion which provides for the
conversion of the Bank from a federally chartered mutual savings bank to a
federally chartered stock savings bank (i.e., the Converted Bank), and the
concurrent formation of a holding company for the Converted Bank.
4
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Qualifying Deposit: The term "Qualifying Deposit" means a savings balance
in any Savings Account in the Bank as of the close of business on the
Eligibility Record Date or the Supplemental Eligibility Record Date, as
applicable, which is equal to or greater than $50.00.
Registration Statement: The term "Registration Statement" means the
Registration Statement on Form S-1 or SB-2 or other applicable form and any
amendments thereto filed by the Holding Company with the SEC pursuant to the
Securities Act of 1933, as amended, to register shares of Conversion Stock.
Resident: The term "Resident," as used in this Plan in relation to the
preference afforded natural persons and trusts of natural persons in the Local
Community, means any natural person who occupies a dwelling within the Local
Community, has an intention to remain within the Local Community for a period of
time (manifested by establishing a physical, ongoing, non-transitory presence
within the Local Community) and continues to reside therein at the time of the
Subscription and Community Offerings. The Bank may utilize deposit or loan
records or such other evidence provided to it to make the determination as to
whether a person is residing in the Local Community. To the extent the "person"
is a corporation or other business entity, the principal place of business or
headquarters shall be within the Local Community. To the extent the "person" is
a personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
In all cases, such determination shall be in the sole discretion of the Bank.
Sale: The terms "sale" and "sell" mean every contract to sell or otherwise
dispose of a security or an interest in a security for value, but such terms do
not include an exchange of securities in connection with a merger or acquisition
approved by the OTS or any other federal agency having jurisdiction.
Savings Account: The term "Savings Account" means a withdrawable deposit in
the Bank, a withdrawable deposit in the Converted Bank after the Stock
Conversion.
SEC: The term "SEC" means the Securities and Exchange Commission or any
successor agency.
Special Meeting: The term "Special Meeting" means the Special Meeting of
Members to be called for the purpose of submitting the Plan to the Members for
their approval.
Stock Conversion: The term "Stock Conversion" means: (i) the amendment of
the Bank's federal mutual charter and bylaws to authorize issuance of shares of
Capital Stock by the Converted Bank and to conform to the requirements of a
federal capital stock savings bank under the laws of the United States and
applicable regulations; (ii) the issuance and sale of Conversion Stock by the
Holding Company in the Subscription and Community Offerings
5
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and/or in an underwritten public offering or otherwise; and (iii) the purchase
by the Holding Company of all the Capital Stock of the Converted Bank to be
issued in the Stock Conversion immediately following or concurrently with the
close of the sale of the Conversion Stock.
Subscription Offering: The term "Subscription Offering" means the offering
of shares of Conversion Stock to the Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other
Members under the Plan, giving preference to natural persons and trusts of
natural persons (including individual retirement and Keogh retirement accounts
and personal trusts in which such natural persons have substantial interests)
who are permanent Residents of the Bank's Local Community if permitted by
applicable law and approved by the Bank's Board of Directors in its sole
discretion.
Subscription and Community Prospectus: The term "Subscription and Community
Prospectus" means the final prospectus to be used in connection with the
Subscription and Community Offerings.
Subscription Rights: The term "Subscription Rights" means non-transferable,
non-negotiable, personal rights of Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders) and Other
Members to purchase Conversion Stock offered under the Plan in connection with
the Stock Conversion.
Supplemental Eligibility Record Date: The term "Supplemental Eligibility
Record Date" means the last day of the calendar quarter preceding the approval
of the Plan by the OTS.
Supplemental Eligible Account Holder: The term "Supplemental Eligible
Account Holder" means the holder of a Qualifying Deposit in the Bank (other than
Officers and directors and their Associates) on the Supplemental Eligibility
Record Date.
Tax-Qualified Employee Stock Benefit Plan: The term "Tax-Qualified Employee
Stock Benefit Plan" means any defined benefit plan or defined contribution plan
of the Bank or Holding Company, such as an employee stock ownership plan, stock
bonus plan, profit sharing plan or other plan, which, with its related trust,
meets the requirements to be "qualified" under section 401 of the Internal
Revenue Code of 1986, as amended. A "non tax qualified employee stock benefit
plan" means any defined benefit plan or defined contribution plan which is not
so qualified.
Voting Record Date: The term "Voting Record Date" means the date fixed by
the Board of Directors of the Bank to determine Members of the Bank entitled to
vote at the Special Meeting.
6
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III. Steps Prior to Submission of the Plan to the Members for Approval.
Prior to submission of the Plan to its Members for approval, the Bank must
receive approvals from the appropriate regulatory authorities for consummation
of the Conversion in accordance with applicable laws and regulations. The
following steps must be taken prior to receipt of such regulatory approvals:
A. The Board of Directors shall adopt the Plan by not less than a
two-thirds vote.
B. Promptly after adoption of the Plan by the Board of Directors, the
Bank shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in
each community in which the Bank maintains an office and/or by mailing
a letter to each of its Members.
C. A press release relating to the proposed Conversion may be submitted
to the local media.
D. Copies of the Plan adopted by the Board of Directors shall be made
available for inspection at the Bank's office.
E. The Bank shall cause the Holding Company to be incorporated under
state law, and the Board of Directors of the Holding Company shall
concur in the Plan by at least a two-thirds vote.
F. Also promptly following the adoption of this Plan, the Bank shall file
the OTS Notice and the Holding Company shall file an H-(e)1
Application.
G. As soon as practicable following the adoption of this Plan, the Bank
shall file the Form AC Application, and the Holding Company shall file
the Registration Statement and the H-(e)1 Application. Upon receipt of
notification from the OTS that the Form AC Application is properly
executed and not materially incomplete, the Bank shall publish notice
of the filing of the Form AC Application in a newspaper having a
general circulation in each community in which the Bank maintains an
office and/or by mailing a letter to each of its Members, and shall
publish such other notices of the Conversion as may be required in
connection with the H-(e)l Application and by the regulations and
policies of the OTS.
H. The Bank shall obtain an opinion of its tax advisors or a favorable
ruling from the United States Internal Revenue Service which shall
state that the Stock Conversion will not result in any gain or loss
for federal income tax purposes to the Bank. Receipt of a favorable
opinion or ruling, is a condition precedent to completion of the
Conversion.
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IV. Meeting of Members.
Upon receipt of all regulatory approvals required for consummation of the
Stock Conversion, the Bank shall convene the Special Meeting scheduled in
accordance with the Bank's Bylaws to vote on the Plan. Promptly after receipt of
OTS approval of the Form AC Application and at least 30 days but not more than
45 days prior to the Special Meeting, the Bank will distribute proxy
solicitation materials to all voting Members as of the Voting Record Date
established for voting at the Special Meeting. Proxy materials will also be sent
to each beneficial holder of an Individual Retirement Account where the name of
the beneficial holder is disclosed on the Bank's records. The proxy solicitation
materials will include a copy of the Proxy Statement and other documents
authorized for use by the regulatory authorities and may also include a
Subscription and Community Prospectus as provided in Paragraph VI below. The
Bank will also advise each Eligible Account Holder and Supplemental Eligible
Account Holder not entitled to vote at the Special Meeting of the proposed
Conversion and the scheduled Special Meeting and provide a postage paid card on
which to indicate whether he or she wishes to receive the Subscription and
Community Prospectus, if the Subscription Offering is not held concurrently with
the proxy solicitation of Members for the Special Meeting.
Pursuant to applicable regulations, an affirmative vote of at least a
majority of the total outstanding votes of the Members will be required for
approval of the Plan. Voting may be in person or by proxy.
By voting in favor of the adoption of the Plan and the Conversion, the
Members will be voting in favor of (i) the Stock Conversion and the adoption by
the Bank of the Federal Stock Charter and Bylaws in the forms attached as
Exhibits A and B to this Plan.
The OTS shall be notified of the actions of the Members at the Special
Meeting promptly following the Special Meeting.
V. Summary Proxy Statement.
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-faced type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage paid
card or other written communication requesting a supplemental information
statement. Without prior approval from the OTS, the Special Meeting shall not be
held fewer than 20 days after the last day on which the supplemental information
statement is mailed to Members requesting the same. The supplemental information
statement may be combined with the Subscription and Community Prospectus if the
Subscription Offering is commenced concurrently with the proxy solicitation of
Members for the Special Meeting.
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VI. Offering Documents.
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Community
Offering concurrently with or during the proxy solicitation of Members and may
close the Subscription and Community Offerings before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting.
The Bank may require Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members to return to the Bank by a reasonable date
certain a postage-paid written communication requesting receipt of a
Subscription and Community Prospectus in order to be entitled to receive a
Subscription and Community Prospectus, provided that the Subscription Offering
shall not be closed until the expiration of 30 days after mailing a proxy
solicitation materials to voting Members and a postage-pai written communication
to non-voting Eligible Account Holders and Supplemental Eligible Account
Holders. If the Subscription Offering is commenced within 45 days after the
Special Meeting, the Bank shall transmit, no more than 30 days prior to the
commencement of the Subscription Offering, to each voting Member who had been
furnished with proxy solicitation materials and to each non-voting Eligible
Account Holder and Supplemental Eligible Account Holder written notice of the
commencement of the Subscription Offering which shall state that the Bank is not
required to furnish a Subscription and Community Prospectus to them unless they
return by a reasonable date certain a postage-paid written communication
requesting the receipt of the Subscription and Community Prospectus.
Prior to commencement of the Subscription and Community Offerings, the
Holding Company shall file the Registration Statement with the SEC pursuant to
the Securities Act of 1933, as amended. The Holding Company shall not distribute
the Subscription and Community Prospectus until the Registration Statement
containing the same has been declared effective by the SEC and the
aforementioned documents have been declared effective by the OTS. The
Subscription and Community Prospectus may be combined with the Proxy Statement
for the Special Meeting.
VII. Consummation of Conversion.
The date of consummation of the Stock Conversion will be the effective date
of the amendment of the Bank's federal mutual charter to read in the form of a
federal stock charter, which shall be the date of the issuance and sale of the
Conversion Stock. After receipt of all orders for Conversion Stock, and
concurrently with the execution thereof, the amendment of the Bank's federal
mutual charter and bylaws to authorize the issuance of shares of Capital Stock
and to conform to the requirements of a federal capital stock savings and loan
association will be declared effective by the OTS, the amended bylaws approved
by the Members will become effective and the Bank will thereby be and become the
Converted Bank.
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At such time, the Conversion Stock will be issued and sold by
the Holding Company, the Capital Stock to be issued in the Conversion will be
issued and sold to the Holding Company, and the Converted Bank will become a
wholly owned subsidiary of the Holding Company. The Converted Bank will issue to
the Holding Company 100 shares of its common stock, or such shares of common
stock as the Board of Directors shall determine, representing all of the shares
of Capital Stock to be issued by the Converted Bank in the Stock Conversion, and
the Holding Company will make payment to the Converted Bank of that portion of
the aggregate net proceeds realized by the Holding Company from the sale of the
Conversion Stock under the Plan as is necessary to increase the Converted Bank's
tangible capital to at least 10% of its adjusted total assets, or such other
portion of the aggregate net proceeds as may be authorized or required by the
OTS in excess of or less than 10% of its adjusted total assets.
VIII. Stock Offering.
A. General.
The aggregate purchase price of all shares of Conversion Stock which
will be offered and sold will be equal to the estimated pro forma market
value of the Converted Bank, as a subsidiary of the Holding Company, as
determined by an independent appraisal within the meaning of the
regulations of the OTS. The exact number of shares of Conversion Stock to
be offered will be determined by the Board of Directors of the Bank and the
Board of Directors of the Holding Company, or their respective designees,
in conjunction with the determination of the Purchase Price (as that term
is defined in Paragraph VIII.B. below). The number of shares to be offered
may be subsequently adjusted prior to completion of the Stock Conversion as
provided below.
B. Independent Evaluation and Purchase Price of Shares.
All shares of Conversion Stock sold in the Stock Conversion will be
sold at a uniform price per share referred to in this Plan as the "Purchase
Price." The Purchase Price and the total number of shares of Conversion
Stock to be offered in the Stock Conversion will be determined by the Board
of Directors of the Bank and the Board of Directors of the Holding Company,
or their respective designees, immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Converted Bank, as a subsidiary of
the Holding Company, at such time. The estimated pro forma market value of
the Converted Bank, as a subsidiary of the Holding Company, will be
determined for such purpose by an Independent Appraiser on the basis of
such appropriate factors as are not inconsistent with applicable
regulations. Immediately prior to the Subscription and Community Offerings,
a subscription price range of shares for the offerings will be established
(the "Valuation Range"), which will vary from 15% above to 15% below the
midpoint of such range. The number of shares of Conversion Stock ultimately
issued and sold will be determined at the close of the Subscription and
Community
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Offerings and any other offering. The subscription price range and the
number of shares to be offered may be changed subsequent to the
Subscription and Community Offerings as the result of any appraisal updates
prior to the completion of the Stock Conversion, without notifying eligible
purchasers in the Subscription and Community Offerings and without a
resolicitation of subscriptions, provided the aggregate Purchase Price is
not below the low end or more than 15 percent above the high end of the
Valuation Range previously approved by the OTS or if, in the opinion of the
Boards of Directors of the Bank and the Holding Company, the new Valuation
Range established by the appraisal update does not result in a materially
different capital position of the Converted Bank.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Bank and Holding Company and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing, of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the
Conversion Stock at the Purchase Price is incompatible with its estimate of
the aggregate consolidated pro forma market value the Converted Bank, as a
subsidiary of the Holding Company. If such confirmation is not received,
the Bank may cancel the Subscription and Community Offerings and/or any
other offering, extend the Stock Conversion, establish a new Valuation
Range, extend, reopen or hold new Subscription and Community Offerings
and/or other offerings or take such other action as the OTS may permit.
C. Subscription Offering.
Non-transferable Subscription Rights to purchase shares of Conversion
Stock will be issued at no cost to Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders and
Other Members of the Bank pursuant to priorities established by applicable
regulations. All shares must be sold, and, to the extent that Conversion
Stock is available, no subscriber will be allowed to purchase fewer than 25
shares of Conversion Stock, provided that this number shall be decreased if
the aggregate purchase price exceeds $500. The priorities established by
applicable regulations for the purchase of shares are as follows:
1. Category No. 1: Eligible Account Holders.
a. Each Eligible Account Holder shall receive, without payment,
non-transferable Subscription Rights to purchase Conversion
Stock in an amount equal to the greater of the maximum
purchase limitation in the Community Offering, e.g. $100,000
for a single account whether held jointly or individually or
$200,000 when aggregated with purchases by an Associate of
that person or 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number
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<PAGE>
of shares of Conversion Stock to be issued by a fraction of
which the numerator is the amount of the Qualifying Deposit
of the Eligible Account Holder and the denominator is the
total amount of Qualifying Deposits of all Eligible Account
Holders in the Bank in each case on the Eligibility Record
Date.
b. Non-transferable Subscription Rights to purchase Conversion
Stock received by Officers and directors of the Bank and
their Associates based on their increased deposits in the
Bank in the one year period preceding the Eligibility Record
Date shall be subordinated to all other subscriptions
involving the exercise of non-transferable Subscription
Rights to purchase shares pursuant to this Category.
c. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock
shall be allocated among subscribing Eligible Account
Holders as follows:
(i) Shares of Conversion Stock shall be allocated among
subscribing Eligible Account Holders so as to permit
each such Eligible Account Holder, to the extent
possible, to purchase a number of shares of Conversion
Stock sufficient to make its total allocation equal to
100 shares or the total amount of its subscription,
whichever is less.
(ii) Any shares not so allocated shall be allocated among
the subscribing Eligible Account Holders 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.
2. Category No. 2: Tax-Qualified Employee Stock Benefit Plans.
a. Tax-Qualified Employee Stock Benefit Plans of the Converted
Bank shall receive, without payment, non-transferable
Subscription Rights to purchase up to 10% of the shares of
Conversion Stock issued in the Stock Conversion.
b. Subscription rights received in this Category shall be
subordinated to the Subscription Rights received by Eligible
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<PAGE>
Account Holders pursuant to Category No. 1, provided that
any shares of Conversion Stock sold in excess of the high
end of the Valuation Range may be first sold to
Tax-Qualified Employee Stock Benefit Plans.
3. Category No. 3: Supplemental Eligible Account Holders.
a. In the event that the Eligibility Record Date is more than
15 months prior to the date of the latest amendment of the
Form AC Application filed prior to OTS approval, then each
Supplemental Eligible Account Holder shall receive, without
payment, non-transferable Subscription Rights to purchase
Conversion Stock in an amount equal to the greater of the
maximum purchase limitation in the Community Offering, e.g.
$100,000 for a single account whether held jointly or
individually or $200,000 when aggregated with purchases by
an Associate of that person or 15 times the product (rounded
down to the next whole number) obtained by multiplying the
total number of the shares of Conversion Stock to be issued
by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Supplemental Eligible Account
Holder and the denominator is the total amount of the
Qualifying Deposits of all Supplemental Eligible Account
Holders on the Supplemental Eligibility Record Date.
b. Subscription Rights received pursuant to this Category shall
be subordinated to the Subscription Rights received by the
Eligible Account Holders and by Tax-Qualified Employee Stock
Benefit Plans pursuant to Category Nos. 1 and 2.
c. Any non-transferable Subscription Rights to purchase shares
received by an Eligible Account Holder in accordance with
Category No. I shall reduce to the extent thereof the
Subscription Rights to be distributed to such Eligible
Account Holder pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock
shall be allocated among the subscribing Supplemental
Eligible Account Holders as follows:
(i) Shares of Conversion Stock shall be allocated among
subscribing Supplemental Eligible Account Holders so as
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<PAGE>
to permit each such Supplemental Eligible Account
Holder, to the extent possible, to purchase a number of
shares of Conversion Stock sufficient to make its total
allocation (including the number of shares of
Conversion Stock, if any, allocated in accordance with
Category No. 1) equal to 100 shares of Conversion Stock
or the total amount of its subscription, whichever is
less.
(ii) Any shares of Conversion Stock not allocated in
accordance with subparagraph (1) above shall be
allocated among the subscribing Supplemental Eligible
Account Holders on an equitable basis, related to the
amounts of their respective Qualifying Deposits on the
Supplemental Eligibility Record Date as compared to the
total Qualifying Deposits of all subscribing,
Supplemental Eligible Account Holders in each case on
the Supplemental Eligibility Record Date.
4. Category No. 4: Other Members.
a. Each Other Member, other than those Members who are Eligible
Account Holders or Supplemental Eligible Account Holders,
shall receive, without payment, non-transferable
Subscription Rights to purchase Conversion Stock in an
amount equal to the greater of the maximum purchase
limitation in the Community Offering, e.g. $100,000 for a
single account whether held jointly or individually or
$200,000 when aggregated with purchases by an Associate of
that person or one-tenth of one percent of the total
offering of shares of Conversion Stock.
b. Subscription Rights received pursuant to this Category shall
be subordinated to the Subscription Rights received by
Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans and Supplemental Eligible Account Holders
pursuant to Category Nos. 1, 2 and 3.
c. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, the shares of Conversion
Stock available shall be allocated among subscribing Other
Members as to permit each subscribing Other Member, to the
extent possible, to purchase a number of shares sufficient
to make his or her total allocation of Conversion Stock
equal to the lesser of 100 shares or the number of shares
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<PAGE>
subscribed for by the Other Member. The shares remaining
thereafter will be allocated among subscribing Other Members
whose subscriptions remain unsatisfied on an equitable basis
as determined by the Board of Directors in its sole
discretion.
Order Forms may provide that the maximum purchase limitation shall be based
on the midpoint of the Valuation Range. In the event the aggregate Purchase
Price of the Conversion Stock issued and sold is below the midpoint of the
Valuation Range, that portion of subscriptions in excess of the maximum purchase
limitation will be refunded. In the event the aggregate Purchase Price of
Conversion Stock issued and sold is above the midpoint of the Valuation Range,
persons who have subscribed for the maximum purchase limitation may be given the
opportunity to increase their subscriptions so as to purchase the maximum number
of shares subject to the availability of shares. The Bank will not otherwise
notify subscribers of any change in the number of shares of Conversion Stock
offered.
D. Community Offering.
1. Any shares of Conversion Stock not purchased through the
exercise of Subscription Rights in the Subscription Offering
may be sold in a Community Offering, which may commence
concurrently with the Subscription Offering. Shares of
Conversion Stock will be offered in the Community Offering
to the general public, giving preference to natural persons
and the trusts of natural persons (including individual
retirement and Keogh retirement accounts and personal trusts
in which such natural persons have substantial interests)
who are permanent Residents of the Local Community. The
Community Offering may commence concurrently with or as soon
as practicable after the completion of the Subscription
Offering and must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the
Holding Company with the approval of the OTS. The offering
price of the Conversion Stock to the general public in the
Community Offering will be the same price paid for such
stock by Eligible Account Holders and other persons in the
Subscription Offering. If sufficient shares are not
available to satisfy all orders in the Community Offering,
the shares available will be allocated by the Holding
Company in its discretion. The Holding Company shall have
the right to accept or reject orders in the Community
Offering in whole or in part.
2. Notwithstanding the above, orders accepted in the Community
Offering shall be filled up to a maximum of 2% of the
Conversion Stock, and thereafter remaining shares shall be
allocated on an equal number of shares basis per order until
all orders have been filled.
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<PAGE>
3. The Conversion Stock to be offered in the Community Offering
will be offered and sold in a manner that will achieve the
widest distribution of the Conversion Stock.
E. Syndicated Community Offering.
Subject to such terms, conditions and procedures as may be
determined by the Bank, all shares of conversion stock not subscribed
for in the Subscription Offering or ordered in the Community Offering,
may be sold by a syndicate of broker-dealers to the general public in
a Syndicated Community Offering. Each order for conversion stock in
the Syndicated Community Offering shall be subject to the absolute
right of the Bank to accept or reject such order in whole or in part
either at the time of receipt of an order or as soon as practical
after the receipt of the Syndicated Community Offering. Orders for
conversion stock and Syndicated Community Offering shall first be
filled to a maximum of 2% of the total number of shares of conversion
stock sold in the offerings and thereafter any remaining shares shall
be allocated on an equal number of shares basis order until all orders
have been filled. The Bank may commence the Syndicated Community
Offering concurrently with, at any time during or as soon as
practicable after the end of the Subscription Offering and/or
Community Offering and the Syndicated Community Offering must be
completed within 45 days after the completion of the Subscription
Offering unless extended by the Bank with any required regulatory
approval. If for any reason a Syndicated Community Offering of shares
of conversion stock not sold in the Subscription Offering and the
Community Offering cannot be affected, or in the event any
insignificant residue of shares of conversion stock is not sold in a
Subscription Offering, Community Offering or Syndicated Community
Offering, the Bank shall use its best efforts to obtain other
purchases for such shares in such manner and upon such conditions as
may be satisfactory to the OTS.
F. Limitations Upon Purchases of Shares of Conversion Stock.
The following additional limitations and exceptions shall apply
to all purchases of Conversion Stock:
1. No Person may purchase fewer than 25 shares of Conversion
Stock in the Stock Conversion, to the extent such shares are
available, subject to the provisions of Paragraph VIII.C
herein.
2. Purchases of Conversion Stock in the Community Offering by
any person shall not exceed $100,000 for a single purchaser
or $200,000 when aggregated with purchases by an Associate
of that person, or a group of persons Acting in Concert,
except that Tax-Qualified Employee Stock Benefit Plans may
purchase up to 10% of the total shares of Conversion Stock
to be issued in the Stock Conversion, and shares to be held
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<PAGE>
by the Tax-Qualified Employee Stock Benefit Plans and
attributable to a participant thereunder shall not be
aggregated with shares of Conversion Stock purchased by such
participant or any other purchaser of Conversion Stock in
the Stock Conversion.
3. Officers and directors of the Bank and the Holding Company,
and Associates thereof, may not purchase in the aggregate
more than 33% of the shares of Conversion Stock issued in
the Conversion.
4. Directors of the Holding Company and the Bank shall not be
deemed to be Associates or a group Acting in Concert with
other directors solely as a result of membership on the
Board of Directors of the Holding Company or the Bank or any
of their subsidiaries.
5. Purchases of shares of Conversion Stock in the Stock
Conversion by any person shall not exceed $100,000 for a
single purchaser or $200,000 when aggregated with purchases
by an Associate of that person, or a group of persons Acting
in Concert, except that Tax Qualified Employee Stock Benefit
Plans may purchase up to 10% of the total shares of
Conversion Stock to be issued in the Stock Conversion, and
shares purchased by the Tax-Qualified Employee Stock Benefit
Plans and attributable to a participant thereunder shall not
be aggregated with shares purchased by such participant or
any other purchaser of Conversion Stock in the Stock
Conversion.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations the Holding Company and the Bank may increase or
decrease any of the purchase limitations set forth herein at any time. In the
event that the individual purchase limitation is increased after commencement of
the Subscription and Community Offerings, the Holding Company and the Bank shall
permit any person who subscribed for the maximum number of shares of Conversion
Stock to purchase an additional number of shares, such that such person shall be
permitted to subscribe for the then maximum number of shares permitted to be
subscribed for by such person, subject to the rights and preferences of any
person who has priority Subscription Rights. In the event that either the
individual purchase limitation or the number of shares of Conversion Stock to be
sold in the Stock Conversion is decreased after commencement of the Subscription
and Community Offerings, the orders of any person who subscribed for the maximum
number of shares of Conversion Stock shall be decreased by the minimum amount
necessary so that such person shall be in compliance with the then maximum
number of shares permitted to be subscribed for by such person.
Each person purchasing Conversion Stock in the Stock Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation. In
the event that such purchase limitations are violated by any person (including,
any Associate or group of persons affiliated or otherwise
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<PAGE>
Acting in Concert with such person), the Holding Company shall have the right to
purchase from such person at the actual Purchase Price per share all shares
acquired by such person in excess of such purchase limitations or, if such
excess shares have been sold by such person, to receive the difference between
the actual Purchase Price per share paid for such excess shares and the price at
which such excess shares were sold by such person. This right of the Holding
Company to purchase such excess shares shall be assignable by the Holding
Company.
G. Restrictions on and Other Characteristics of Stock Being Sold.
1. Transferability.
Except as provided in Paragraph XIV below, Conversion Stock
purchased by persons other than directors and Officers of the
Bank and directors and Officers of the Holding Company will be
transferable without restriction. Conversion Stock purchased by
such directors or Officers shall not be sold or transferred for a
period of one year from the effective date of the Stock
Conversion except for any sale or transfer of such shares (i)
following the death of the original purchaser, or (ii) resulting
from an exchange of securities in a merger or acquisition
approved by the applicable regulatory authorities.
The Conversion Stock issued by the Holding Company to such
directors and Officers shall bear the following legend giving
appropriate notice of the one-year holding period restriction:
"The shares of stock evidenced by this Certificate are
restricted as to transfer for a period of one year from the
date of this Certificate pursuant to applicable regulations
of the Office of Thrift Supervision of the United States
Department of the Treasury. Except in the event of the death
of the registered holder, the shares represented by this
Certificate may not be sold prior thereto without a legal
opinion of counsel for the Holding Company that said sale is
permissible under the provisions of applicable laws and
regulations."
In addition, the Holding, Company shall give appropriate
instructions to the transfer agent for the Holding Company Stock
with respect to the applicable restrictions relating to the
transfer of restricted stock. Any shares of Holding Company Stock
subsequently issued as a stock dividend, stock split or
otherwise, with respect to any such restricted stock, shall be
subject to the same holding period restrictions for such
directors and Officers as may be then applicable to such
restricted stock.
2. Repurchase and Dividend Rights.
For a period of three years following the consummation of
the Conversion, any repurchases of Holding Company Stock by the
Holding Company from any Person shall be subject to the then
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applicable rules and regulations and policies of the OTS. The
Converted Bank may not declare or pay a cash dividend on or
repurchase any of its Capital Stock if the result thereof would
be to reduce the category capital of the Converted Bank below the
amount required for the liquidation account described in
Paragraph XIII. Further, any dividend declared or paid on the
Capital Stock shall comply with the then applicable rules and
regulations of the OTS.
Present regulations also provide that the Converted Bank may
not declare or pay a cash dividend on or repurchase any of its
Capital Stock if the result thereof would be to reduce the
regulatory capital of the Converted Bank below the amount
required for the Liquidation Account. Further, any dividend
declared or paid on, or repurchase of, the Capital Stock shall be
in compliance with the Rules and Regulations of the OTS, or other
applicable regulations. The above limitations shall not preclude
payment of dividends on, or repurchases of, Holding Company Stock
in the event applicable federal regulatory limitations are
liberalized subsequent to the Stock Conversion.
3. Voting Rights.
After the Stock Conversion, holders of Savings Accounts in
and obligors on loans of the Bank will not have voting rights in
the Converted Bank. Exclusive voting rights with respect to the
Holding Company shall be vested in the holders of Holding Company
Stock. Holders of Savings Accounts in and obligors on loans of
the Converted Bank will not have voting rights in the Holding
Company except and to the extent that such persons become
stockholders of the Holding Company, and the Holding Company will
have exclusive voting rights with respect to the Converted Bank's
Capital Stock. Each stockholder of the Holding Company will be
entitled to vote on any matters coming before the stockholders of
the Holding Company for consideration and will be entitled to one
vote for each share of Holding Company Stock owned by said
stockholder.
4. Purchases by Officers. Directors and Associates Following,
Stock Conversion.
Without the prior written approval of the OTS, Officers and
directors of the Converted Bank and Officers and directors of the
Holding Company, and their Associates, shall be prohibited for a
period of three years following completion of the Stock
Conversion from purchasing outstanding shares of Holding Company
Stock, except from a broker or dealer registered with the SEC.
Notwithstanding the preceding sentence, this restriction shall
not apply to (i) negotiated transactions involving more than 1%
of the total outstanding shares of Holding Company Stock, and
(ii) purchases made and shares held by a Tax-Qualified Employee
Stock Benefit Plan or non-tax-qualified employee stock benefit
plans which may be attributable to Officers or directors may be
made without OTS permission or the use of a broker or dealer.
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<PAGE>
H. Mailing of Offering Materials and Collation of Subscriptions.
The sale of all shares of Conversion Stock offered pursuant to the
Plan must be completed within 24 months after approval of the Plan at the
Special Meeting. After approval of the Plan by the appropriate regulatory
authorities and the declaration of the effectiveness of the Subscription
and Community Prospectus by the SEC, the Holding Company shall distribute
such Subscription and Community Prospectus and Order Forms for the purchase
of shares in accordance with the terms of the Plan.
The recipient of an Order Form will be provided neither fewer than 20
days nor more than 45 days from the date of mailing, unless extended, to
complete, execute and return properly the Order Form to the Holding Company
or the Bank. Self-addressed, postage paid return envelopes will accompany
these forms when mailed. The Bank or Holding Company will collate the
returned executed Order Forms upon completion of the Subscription Offering.
Failure of any eligible subscriber to return a properly completed and
executed Order Form within the prescribed time limits shall be deemed a
waiver and a release by such person of any rights to purchase shares of
Conversion Stock hereunder.
The sale of all shares of Conversion Stock shall be completed within
45 days after the last day of the Subscription Offering unless extended by
the Holding Company and the Bank with the approval of the OTS.
I. Method of Payment.
Payment for all shares of Conversion Stock subscribed for in the
Subscription and Community Offerings must be received in full by the Bank
or the Holding Company, together with properly completed and executed Order
Forms, indicating thereon the number of shares being subscribed for and
such other information as may be required thereon. and, in the case of
orders submitted at an office of the Bank, executed Forms of Certification
as required by OTS regulations, on or prior to the expiration date
specified on the Order Form, unless such date is extended by the Holding
Company and the Bank; provided, however, that payment by Tax-Qualified
Employee Stock Benefit Plans for Conversion Stock may be made to the Bank
concurrently with the completion of the Stock Conversion.
Payment for all shares of Conversion Stock may be made in cash (if
delivered in person) or by check or money order, or, if the subscriber has
a Savings Account in the Bank (including a certificate of deposit), the
subscriber may authorize the Bank to charge the subscriber's Savings
Account for the purchase amount. The Bank shall pay interest at not less
than the passbook rate on all amounts paid in cash or by check or money
order to purchase shares of Conversion Stock in the Subscription and
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Community Offerings from the date payment is received until the Stock
Conversion is completed or terminated. The Bank shall not knowingly loan
funds or otherwise extend credit to any person for the purpose of
purchasing Conversion Stock.
If a subscriber authorizes the Bank to charge its Savings Account, the
funds may remain in the subscriber's Savings Account and continue to earn
interest, but may not be used by the subscriber until all Conversion Stock
has been sold or the Stock Conversion is terminated, whichever is earlier.
The withdrawal will be given effect only concurrently with the sale of all
shares of Conversion Stock in the Stock Conversion and only to the extent
necessary to satisfy the subscription at a price equal to the Purchase
Price. The Bank will allow subscribers to purchase shares of Conversion
Stock by withdrawing funds from certificate accounts without the assessment
of early withdrawal penalties. In the case of early withdrawal of only a
portion of such account, the certificate evidencing such account shall be
cancelled if the remaining balance of the account is less than the
applicable minimum balance requirement. In that event, the remaining
balance will earn interest at the passbook rate. This waiver of the early
withdrawal penalty is applicable only to withdrawals made in connection
with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting, an Order Form, and in the case of an employee stock ownership
plan together with evidence of a loan commitment from the Holding Company
or an unrelated financial institution for the purchase of the shares of the
Conversion Stock, during the Subscription Offering and by making payment
for the shares of Conversion Stock on the date of the closing of the Stock
Conversion.
J. Undelivered, Defective or Late Order Forms, Insufficient Payment.
In the event an Order Form: (i) is not delivered and is returned to
the Holding Company or the Bank by the United States Postal Service (or the
Holding Company or the Bank is unable to locate the addressee); (ii) is not
received by the Holding Company or the Bank, or is received by the Holding
Company or the Bank after termination of the date specified thereon; (iii)
is defectively completed or executed; (iv) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for
(including cases in which the subscribers' Savings Accounts are
insufficient to cover the authorized withdrawal for the required payment);
or (v) is delivered by facsimile or with payment by wire transfer the
Subscription Rights of the person to whom such rights have been granted
will not be honored and will be treated as though such person failed to
return the completed Order Form within the time period specified therein.
Alternatively, the Holding Company or the Bank may, but will not be
required to, waive any irregularity relating to any Order Form or require
the submission of a corrected Order Form or the remittance of full payment
for subscribed shares of Conversion Stock by such date as the Holding
Company or the Bank may specify. Subscription orders, once tendered, cannot
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be revoked. The Holding Company's and Bank's interpretation of the terms
and conditions of this Plan and acceptability of the Order Forms will be
final and conclusive.
K. Members in Non-Qualified States or in Foreign Countries.
The Holding Company will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons
entitled to subscribe for Conversion Stock pursuant to the Plan reside.
However, no such person will be offered or receive any Conversion Stock
under this Plan who resides in a foreign country or who resides in a state
of the United States with respect to which any or all of the following
apply: (i) a small number of persons otherwise eligible to subscribe for
shares of Conversion Stock under this Plan reside in such state or foreign
country; (ii) the granting of Subscription Rights or the offer or sale of
shares of Conversion Stock to such person would require the Holding Company
or the Bank or their employees to register, under the securities laws of
such state, as a broker, dealer, salesman or agent or to register or
otherwise qualify its securities for sale in such state or foreign country,
and (iii) such registration or qualification would be impracticable for
reasons of cost or otherwise. No payments will be made in lieu of the
granting of Subscription Rights to any such person.
L. Sales Commissions.
Sales commissions may be paid as determined by the Boards of Directors
of the Bank and the Holding, Company or their designees to securities
dealers assisting subscribers in making purchases of Conversion Stock in
the Subscription Offering or in the Community Offering, if the securities
dealer is named by the subscriber on the Order Form. In addition, a sales
commission may be paid to a securities dealer for advising and consulting
with respect to, or for managing the sale of Conversion Stock in, the
Subscription Offering, the Community Offering or any other offering.
IX. Charter, Articles of Incorporation and Bylaws.
As part of the Stock Conversion, a federal stock charter and bylaws will be
adopted to authorize the Converted Bank to operate as a federal capital stock
savings bank. By approving the Plan, the Members of the Bank will thereby
approve amending the Bank's federal mutual charter and bylaws to read in the
form of a federal stock charter and bylaws. Prior to completion of the Stock
Conversion, the proposed federal stock charter and bylaws may be amended in
accordance with the provisions and limitations for amending the Plan under
Paragraph XV below. The effective date of the amendment of the Bank's federal
mutual charter and bylaws to read in the form of a federal stock charter and
bylaws shall be the date of the issuance of the Conversion Stock, which shall be
the date of consummation of the Stock Conversion.
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X. Registration and Market Making.
In connection and concurrently with the Stock Conversion, the Holding
Company shall register the Holding Company Stock with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, and shall undertake not to
deregister the Holding Company Stock for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the Holding Company
Stock. The Holding Company shall also use its best efforts to have the Holding
Company Stock quoted on the National Association of Securities Dealers, Inc.
Automated Quotation System or listed on a national or regional securities
exchange.
XI. Status of Savings Accounts and Loans Subsequent to Conversion.
All Savings Accounts in the Bank will retain the same status after
Conversion as these accounts had prior to the Conversion. Subject to Paragraph
VIII.I. hereof, each holder of a Savings Account in the Bank shall retain,
without payment, a withdrawable Savings Account or Savings Accounts in the
Converted Bank, equal in dollar amount and on the same terms and conditions
(except with respect to voting and liquidation rights) as in effect prior to
consummation of the Stock Conversion. All Savings Accounts will continue to be
insured by the Savings Association Insurance Fund of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after the Conversion as these loans had prior to Conversion.
After the Stock Conversion, holders of Savings Accounts in and obligors on
loans of the Bank will not have voting rights in the Converted Bank. Exclusive
voting rights with respect to the Holding Company shall be vested in the holders
of the Conversion Stock. Holders of Savings Accounts in and obligors on loans of
the Converted Bank will not have any voting rights in the Holding Company except
and to the extent that such persons become stockholders of the Holding Company,
and the Holding Company will have exclusive voting rights with respect to the
Converted Bank's Capital Stock.
XII. Effect of Conversion.
Upon consummation of the Stock Conversion, the corporate existence of the
Bank shall not cease, but the Converted Bank shall be deemed to be a
continuation of the Bank, and shall succeed to all the rights, interests, duties
and obligations of the Bank as in existence as of immediately prior to the
consummation of the Stock Conversion as described in Paragraph VII.A. herein,
including but not limited to all rights and interests of the Bank in and to its
assets and properties, whether real, personal or mixed.
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XIII. Liquidation Account.
After the Conversion, holders of Savings Accounts will not be entitled to
share in the residual assets after liquidation of the Converted Bank. However,
pursuant to applicable regulations, the Bank shall, at the time of the Stock
Conversion, establish a Liquidation Account in an amount equal to its net worth
as of the date of the latest statement of financial condition contained in the
final prospectus to be used in connection with the Stock Conversion. The
function of the Liquidation Account is to establish a priority on liquidation,
and, except as provided in Paragraph VIII.G.2. above, the existence of the
Liquidation Account shall not operate to restrict the use or application of any
of the net worth accounts of the Converted Bank.
The Liquidation Account shall be maintained by the Converted Bank
subsequent to the Stock Conversion for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders who retain their Savings Accounts in
the Converted Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to each Savings Account held, have a related
inchoate interest in a portion of the Liquidation Account ("subaccount
balance").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the Liquidation Account by a fraction of
which the numerator is the amount of the qualifying deposit in the related
Savings Account and the denominator is the total amount of the qualifying
deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders in the Bank. Such initial subaccount balance shall not be increased but
shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder to which the subaccount relates at the
close of business on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date is less than the lesser of
(i) the deposit balance in such Savings Account at the close of business on any
annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date, or (ii) the amount of the Qualifying
Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
savings account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related Savings
Account. If any such Savings Account is closed, the related subaccount balance
shall be reduced to zero.
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In the event of a complete liquidation of the Converted Bank (and only in
such event), each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
Liquidation Account in the amount of the then-current adjusted subaccount
balances for Savings Accounts then held before any liquidation distribution may
be made to stockholders. No merger, consolidation, sale of bulk assets or
similar combination or transaction with another institution insured by the FDIC
shall be considered to be a complete liquidation for these purposes. In such
transactions, the Liquidation Account shall be assumed by the surviving
institution.
XIV. Restrictions on Acquisition of Holding Company.
A. Present regulations provide that for a period of three years
following completion of the Stock Conversion, no person (i.e., an
individual, a group Acting in Concert, a corporation, a partnership, an
association, a joint stock company, a trust or any unincorporated
organization or similar company, a syndicate or any other group formed for
the purpose of acquiring, holding or disposing of securities of an insured
institution or its holding company) shall directly, or indirectly, offer to
purchase or actually acquire the beneficial ownership of more than 10% of
any class of Holding Company Stock without the prior approval of the OTS.
However, approval is not required for purchases directly from the Holding
Company or underwriters or a selling group acting on their behalf with a
view towards public resale, for purchases not exceeding 1% per annum of the
shares outstanding or for the acquisition of securities by one or more
Tax-Qualified Employee Stock Benefit Plans of the Holding Company or the
Converted Bank, provided that the plan or plans do not have beneficial
ownership in the aggregate of more than 25% of any class of Holding Company
Stock. Civil penalties may be imposed by the OTS for willful violation or
assistance of any violation. Where any person, directly or indirectly,
acquires beneficial ownership of more than 10% of any class of Holding
Company Stock within such three-year period, without the prior approval of
the OTS, Holding Company Stock beneficially owned by such person in excess
of 10% shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any
matter submitted to the stockholders for a vote.
B. The Holding Company may provide in its articles of incorporation a
provision that, for a specified period of up to five years following the
date of the completion of the Stock Conversion, no person shall directly or
indirectly offer to acquire or actually acquire the beneficial ownership of
more than 10% of any class of Holding Company Stock except with respect to
purchases by one or more Tax-Qualified Employee Stock Benefit Plans of the
Holding Company or Converted Bank. The Holding Company may provide in its
articles of incorporation for such other provisions affecting the
acquisition of Holding Company Stock as shall be determined by its Board of
Directors.
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XV. Interpretation and Amendment or Termination of the Plan.
The Bank's Board of Directors shall have the sole discretion to interpret
and apply the provisions of the Plan to particular facts and circumstances and
to make all determinations necessary or desirable to implement such provisions,
including but not limited to matters with respect to giving preference to
natural persons and trusts of natural persons who are permanent Residents of the
Bank's Local Community, and any and all interpretations, applications and
determinations made by the Board of Directors in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the Bank and its Members and
subscribers in the Subscription and Community Offerings, subject to the
authority of the OTS.
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to submission of the Plan and proxy materials to the Members by a
two-thirds vote of the Bank's Board of Directors. After submission of the Plan
and proxy materials to the Members, the Plan may be amended by a two-thirds vote
of the Bank's Board of Directors at any time prior to the Special Meeting and at
any time following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors may modify or terminate the Plan upon the
order of the regulatory authorities without a resolicitation of proxies or
another Special Meeting
In the event that mandatory new regulations pertaining to the Conversion
are adopted by the OTS, or any successor agency, prior to the completion of the
Conversion, the Plan will be amended to conform to the new mandatory regulations
without a resolicitation of proxies or another Special Meeting. In the event
that new conversion regulations adopted by the OTS, or any successor agency,
prior to completion of the Conversion contain optional provisions, the Plan may
be amended to utilize such optional provisions at the discretion of the Board of
Directors without a resolicitation of proxies or another Special Meeting.
By adoption of the Plan, the Bank's Members authorize the Board of
Directors to amend and/or terminate the Plan under the circumstances set forth
above.
XVI. Expenses of the Conversion.
The Holding Company and the Bank will use their best efforts to assure that
expenses incurred in connection with the Conversion shall be reasonable.
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XVII. Contributions to Tax-Qualified Employee Stock Benefit Plans.
The Holding Company, the Converted Bank may make scheduled discretionary
contributions to their Tax-Qualified Employee Stock Benefit Plans, provided such
contributions does not cause the Converted Bank to fail to meet then-applicable
regulatory capital requirements.
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Exhibit A
NINTH WARD SAVINGS BANK, FSB
FEDERAL STOCK CHARTER
Section 1. Corporate title. The full corporate title of the Bank is Ninth Ward
Savings Bank, FSB (the "Bank").
Section 2. Office. The home office shall be located in Wilmington, Delaware or
such other location in Delaware as the Board shall designate.
Section 3. Duration. The duration of the Bank is perpetual.
Section 4. Purpose and powers. The purpose of the Bank is to pursue any or all
of the lawful objectives of a Federal association chartered under section 5 of
the Home Owners' Loan Act and to exercise all of the express, implied, and
incidental powers conferred thereby and by ail acts amendatory thereof and
supplemental thereto, subject to the Constitution and laws of the United States
as they are now in effect, or as they may hereafter be amended, and subject to
all lawful and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("Office").
Section 5. Capital stock. The total number of shares of all classes of the
capital stock which the Bank has authority to issue is 3,500,000, of which
3,000,000 shares shall be common stock of par value of $1.00 per share and of
which 500,000 shares shall be serial preferred stock of par value of $1.00 per
share. The shares may be issued from time to time as authorized by the board of
directors without further approval of shareholders, except as otherwise provided
in this Section 5 or to the extent that such approval is required by governing
law, rule, or regulation. The consideration for the issuance of the shares shall
be paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Bank. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct investment
in such property would be permitted to the Bank), labor or services actually
performed for the Bank, or any combination of the foregoing. In the absence of
actual fraud in the transaction, the value of such property, labor, or services,
as determined by the board of directors of the Bank, shall be conclusive. Upon
payment of such consideration, such shares shall be deemed to be fully paid and
nonassessable. In the case of a stock dividend, that part of the surplus of the
Bank which is transferred to stated capital upon the issuance of shares as a
share dividend shall be deemed to be the consideration for their issuance.
Except for shares issuable in connection with the conversion of the Bank
from the mutual to the stock form of capitalization, no shares of capital stock
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(including shares issuable upon conversion, exchange or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the Bank other than as part of a general public offering
or as qualifying shares to a director, unless the issuance or the plan under
which they would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulating of votes for the election of directors: Provided, that this
restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in the
payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred
stock. voting as a class or series, to approve the merger or consolidation
of the Bank with another corporation or the sale, lease, or conveyance
(other than by mortgage or pledge) of properties or business in exchange
for securities of a corporation other than the Bank if the preferred stock
is exchanged for securities of such other corporation: Provided, That no
provision may require such approval for transactions undertaken with the
assistance or pursuant to the direction of the Office, the Federal Deposit
Insurance Corporation, or the Resolution Trust Corporation;
(iii) To any amendment which would adversely change the specific terms
of any class or series of capital stock as set forth in this Section 5 (or
in any supplementary sections hereto), including any amendment which would
create or enlarge any class or series ranking prior thereto in rights and
preferences. An amendment which increases the number of authorized shares
of any class or series of capital stock, or substitutes the surviving
association in a merger or consolidation for the Bank, shall not be
considered to be such an adverse change.
A description of the different classes and series (if any) of the Bank's
capital stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class of and series (if any)
of capital stock are as follows:
A. Common stock. Except as provided in this Section 5 (or in any
supplementary sections thereto), the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder, except as to the
cumulating of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
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dividends and of sinking fund, retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class or series
of stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the Bank,
the holders of the common stock (and the holders of any class or series of stock
entitled to participate with the common stock in the distribution of assets)
shall be entitled to receive, in cash or in kind, the assets of the Bank
available for distribution remaining after: (i) payment or provision for payment
of the Bank's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii) distributions
or provisions for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution, or
winding up of the Bank. Each share of common stock shall have the same relative
rights as and be identical in all respects with all the other shares of common
stock.
B. Preferred stock. The Bank may provide in supplementary sections to its
charter for one or more classes of preferred stock, which shall be separately
identified. The shares of any class may be divided into and issued in series,
with each series separately designated so as to distinguish the shares thereof
from the shares of all other series and classes. The terms of each series shall
be set forth in a supplementary section to the charter. All shares of the same
class shall be identical except as to the following relative rights and
preferences, as to which there may be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date(s) the payment date(s) for dividends, and the participating
or other special rights, if any, with respect to dividends;
(c) The voting powers, fall or limited, if any, of shares of such
series,
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding up of the
Bank;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption
of such shares, and if so entitled, the amount of such fund and the manner
of its application, including the price(s) at which such shares may be
redeemed or purchased through the application of such fund;
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(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the Bank
and, if so, the conversion price(s) or the rate(s) of exchange, and the
adjustments thereof, if any, at which such conversion or exchange may be
made, and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any
other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections. any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Bank shall
file with the Secretary to the Office a dated copy of that supplementary section
of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
Section 6. Preemptive rights. Holders of the capital stock of the Bank shall not
be entitled to preemptive rights with respect to any shares of the Bank which
may be issued.
Section 7. Liquidation account. Pursuant to the requirements of the Office's
regulations (12 C.F.R. Subchapter D), the Bank shall establish and maintain a
liquidation account for the benefit of its savings account holders as of
December 31, 1996 and as of the last day of the calendar quarter preceding the
Office's approval of the Bank's Plan of Conversion dated as of June 30, 1997
(collectively, "eligible savers"). In the event of a complete liquidation of the
Bank, it shall comply with such regulations with respect to the amount and the
priorities on liquidation of each of the Bank's eligible savers' inchoate
interest in the liquidation account, to the extent it is still in existence;
Provided, that an eligible saver's inchoate interest in the liquidation account
shall not entitle such eligible saver to any voting rights at meetings of the
Bank's stockholders.
Section 8. Directors. The Bank shall be under the direction of a board of
directors. The authorized number of directors, as stated in the Bank's bylaws,
shall not be fewer than five nor more than fifteen except when a greater number
is approved by the Director of the Office.
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Section 9. Amendment of charter. Except as provided in Section 5, no amendment,
addition, alteration. chance, or repeal of this charter shall be made, unless
such is first proposed by the board of directors of the Bank, then preliminarily
approved by the Office, which preliminary approval may be granted by the Office
pursuant to regulations specifying preapproved charter amendments and thereafter
approved by the stockholders by a majority of the total votes eligible to be
cast at a legal meeting. Any amendment, addition, alteration. change, or repeal
So acted upon shall be effective upon filing with the Office in accordance with
regulatory procedures or on such other date as the Office may specify in its
preliminary approval.
Ninth Ward Savings Bank, FSB
Attest: ____________________________ By: ____________________________
__________________ Ronald P. Crouch
Secretary President
Ninth Ward Savings Bank, FSB
Declared effective as of _______, 1997.
Director of the Office of Thrift
Supervision
Attest: ___________________________ By: ____________________________
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Exhibit B
BYLAWS
NINTH WARD SAVINGS BANK, FSB
ARTICLE I - HOME OFFICES
The home office of Ninth Ward Savings Bank, FSB (the "Bank") shall be 400
Delaware Avenue, Wilmington, Delaware or such location as designated by the
Board of Directors.
ARTICLE II - SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Bank or at such other place
in the State of Delaware in which the principal place of business of the Bank is
located as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Bank for
the election of directors and for the transaction of any other business of the
Bank shall be held annually within 120 days after the end of the Bank's fiscal
year on the third Wednesday of April, if not a legal holiday, and, if a legal
holiday, then on the next day following which is not a legal holiday, at 3:00
p.m., or at such other date and time within such 120 day period as the board of
directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office") may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Bank addressed to the chairman
of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
or such other reasonable procedural process as the Chairman of the Board may
prescribe unless otherwise prescribed by regulations of the Office or these
bylaws. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer
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than 10 nor more than 50 days before the date of the meeting, either personally
or by mail, by or at the direction of the chairman of the board, the president,
or the secretary, or the directors calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the mail, addressed to the shareholder at the
address as it appears on the stock transfer books or records of the Bank as of
the record date prescribed in Section 6 of this Article II with postage prepaid.
When any shareholders' meeting, either annual or special. is adjourned for 30
days or more, notice of the adjourned meeting shall be given as in the case of
an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than 30 days or of the business to
be transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders. not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Bank shall make a complete list of the shareholders entitled to
vote at such meeting, or any adjournment, arranged in alphabetical order, with
the address and the number of shares held by each. This list of shareholders
shall be kept on file at the home office of the Bank and shall be subject to
inspection by any shareholder at any time during usual business hours for a
period of 20 days prior to such meeting. Such list shall also be produced and
kept open at the time and place of the meeting, and shall be subject to
inspection by any shareholder during the entire time of the meeting. The
original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders. In lieu of making the shareholder list available for
inspection by shareholders as provided in the preceding paragraph, the board of
directors may elect to follow the procedures prescribed in ss.552.6(d) of the
Office's regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the Bank
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
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transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his or her duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Bank to the contrary, at any meeting of the shareholders of
the Bank, any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
Section 11. Voting of Shares of Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, Guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her, without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Bank nor shares held
by another corporation. if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the Bank. shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting
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Section 12. Cumulative Voting. Unless otherwise provided in the Bank's
charter, every shareholder entitled to vote at an election for directors shall
have the right to vote, in person or by proxy, the number of shares owned by the
shareholder for as many persons as there are directors to be elected and for
whose election the shareholder has a right to vote, or to cumulate the votes by
giving one candidate as many votes as the number of such directors to be elected
multiplied by the number of shares shall equal or by distributing such votes on
the same principle among any number of candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote: counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Bank at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
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Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the Bank at
least five days before the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders may be taken without a meeting if consent in
writing, setting a forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Bank shall be
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings. The Board of Directors may at its
discretion designate any of its former members as Director Emeritus.
Section 2. Number and Term. The board of directors shall consist of eight
(8) members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place, within the Bank's normal lending
territory, for the holding of additional regular meetings without other notice
than such resolution.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Bank unless
the Bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the chairman of the board, the president, or
one-third of the directors.
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The persons authorized to call special meetings of the board of directors may
fix any place, within the Bank's normal lending territory, as the place for
holding any special meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 12 of this Article.
Section 6. Notice. Written notice of any special meeting shall be given to
each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice of waiver of notice of such-meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the board of directors; but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to be
taken by the board of directors at a meeting may be taken without a meeting, if
a consent in writing, setting forth the action so taken. shall be signed by all
of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Bank addressed to
the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
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Section 11. Vacancies. Any vacancy occurring on the board of directors may
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Bank who is present at
a meeting of the board of directors at which action on any association matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention shall be entered in the minutes of the meeting or unless
he or she shall file a written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Bank within five days
after the date a copy of the minutes of the meeting is received. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose. any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
Section 15. Age Limitation. No person (other than those directors serving
at the time of the adoption of these bylaws) shall be eligible for election,
reelection, appointment, or reappointment to the board of directors if such
person is then more than 72 years of age. No director shall serve beyond the
annual meeting of the Bank immediately following his attainment of 72 years of
age. This limitation may be waived by agreement of the directors.
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ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board. may designate the chief executive officer and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Bank, or recommending to the stockholders a plan of merger,
consolidation. or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the Bank otherwise than in the
usual and regular course of its business; a voluntary dissolution of the Bank; a
revocation of any of the foregoing; or the approval of a transaction in which
any member of the executive committee, directly or indirectly, has any material
beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee.
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Section 7. Vacancies. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the Bank. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit. loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Bank and may prescribe the duties. constitution, and procedures thereof.
ARTICLE V - OFFICERS
Section 1. Positions. The officers of the Bank shall be a president, one or
more vice presidents, a secretary, and a treasurer. each of whom shall be
elected by the board of directors. The board of directors may also designate the
chairman and vice chairman of the board as officers. The president shall be the
chief executive officer unless the board of directors designates the chairman of
the board as chief executive officer. The president shall be a director of the
Bank. The offices of the secretary and treasurer may be held by the same person
and a vice president may also be either the secretary or the treasurer. The
board of directors may designate one or more vice presidents as executive vice
president or senior vice president. The board of directors may also elect or
authorize the appointment of such other officers as the business of the Bank may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors. the officers shall have such powers and
duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Bank shall be
elected annually at the first meeting of the board of directors held after each
annual meeting of the stockholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected and qualified
or until the officer's death, resignation, or removal in the manner hereinafter
provided. Election or appointment of an officer, employee, or agent shall not of
itself create contractual rights. The board of directors may authorize the Bank
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to enter into an employment contract with any officer in accordance with
regulations of the Office, but no such contract shall impair the right of the
board of directors to remove any officer at any time in accordance with Section
3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Bank will be served thereby,
but such removal, other than for cause, shall be without prejudice to any
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the Office,
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee, or agent
of the Bank to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Bank. Such authority may be general or confined
to specific instances.
Section 2. Loans. No loans shall be contacted on behalf of the Bank and no
evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Bank shall be signed by one or more officers, employees, or agents of the
Bank in such manner as shall from time to time be determined by the board of
directors.
Section 4. Deposits. All funds of the Bank not otherwise employed shall be
deposited from time to time to the credit of the Bank in any duly authorized
depositories as the board of directors may select.
ARTICLE VII- CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the Bank shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other
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officer of the Bank authorized by the board of directors, attested by the
secretary or an assistant secretary, and sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar other than the Bank itself or one of its employees. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Bank. All certificates surrendered to the Bank for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
cancelled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Bank as the board
of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
Bank shall be made only on its stock transfer books. Authority for such transfer
shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Bank. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the Bank shall be deemed by the Bank to be the owner for
all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Bank shall end on the 31st day of December of each
year. The Bank shall be subject to an annual audit as of the end of its fiscal
year by independent public accountants appointed by and responsible to the board
of directors. The appointment of such independent accountants shall be subject
to annual ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the Bank's charter and the regulations and orders
of the Office, the board of directors may, from time to time, declare, and the
Bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE X - CORPORATE SEAL
The board of directors shall provide a association seal which shall be two
concentric circles between which shall be the name of the Bank. The year of
incorporation or an emblem may appear in the center.
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ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office at any time by a majority vote of the full board of directors or by a
majority of the votes cast by the stockholders of the Bank at any legal meeting.
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