LOCAL FINANCIAL CORP /NV, DEF 14A, 1999-04-12

LOCAL FINANCIAL CORP /NV
DEF 14A, 1999-04-12
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>

LOCAL FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

The Board of Directors of Registrant
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.

(1) Title of each class of securities to which transaction applies:

------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

------------------------------------------------------------------------

(5) Total fee paid:

------------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

------------------------------------------------------------------------

(3) Filing Party:

------------------------------------------------------------------------

(4) Date Filed:

------------------------------------------------------------------------
<PAGE> 2

[LOCAL FINANCIAL CORPORATION LOGO]
3601 N.W. 63rd Street
Oklahoma City, Oklahoma 73116
Telephone: 405-841-2100
Fax: 405-841-2289

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 26, 1999

To the Stockholders:

Local Financial Corporation ("We" or the "Company") will hold an Annual
Meeting of Stockholders (the "Annual Meeting") on Wednesday, May 26, 1999, at
11:00 a.m., CT, Waterford Marriott Hotel, 6300 Waterford Blvd., Oklahoma City,
Oklahoma. The Stockholders will meet to consider:

(1) Electing three directors, each to serve for a term of three
years;

(2) Approving the Local Financial 1998 Stock Option Plan (the "1998
Plan"); and

(3) Ratifying the selection of KPMG, LLP, as independent auditors of
the Company for the year ending December 31, 1999; and

(4) Transacting other business incident to the Annual Meeting.

The record date for the Annual Meeting is April 6, 1999. Only
Stockholders of record at the close of business on that date can vote at the
Annual Meeting.

We hope you will attend the Annual Meeting. IF YOU DO NOT PLAN TO
ATTEND, PLEASE SIGN AND RETURN THE ENCLOSED PROXY. TO ENCOURAGE THE USE OF
PROXIES, WE HAVE ENCLOSED A SELF-ADDRESSED, POSTAGE-PAID ENVELOPE FOR YOUR USE.

Sincerely,

Alan L. Pollock
Secretary

April 12, 1999

<PAGE> 3

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS
MAY 26, 1999

Local Financial Corporation ("Local Financial", the "Company" or "We")
furnishes this Proxy Statement to inform its Stockholders about the upcoming
Annual Meeting. To encourage Stockholder participation, we are soliciting
proxies to be used at the Annual Meeting.

We are mailing this Proxy Statement and the accompanying proxy card to
Stockholders beginning April 12, 1999.

GENERAL INFORMATION

Who Votes. If you hold shares as of the Record Date, April 6, 1999, you
may vote at the Annual Meeting. On April 6, 1999, the Company had 20,537,209
shares of common stock outstanding. Each share is entitled to one vote.

How To Vote. We will vote your shares for you if you send us a signed
proxy before the Annual Meeting. You can tell us to vote for all, some, or none
of the nominees for director. You can tell us to approve, disapprove, or abstain
from voting on the 1998 Plan or the independent auditors. You can also tell us
to approve, disapprove, or abstain from transacting incidental business at the
Annual Meeting. We have provided information about the director nominees, the
1998 Plan and the independent auditors in the following pages of this proxy
statement.

IF YOU RETURN A SIGNED PROXY, BUT DO NOT TELL US HOW YOU WANT TO VOTE,
WE SHALL VOTE YOUR SHARES "FOR" ALL DIRECTOR NOMINEES, THE 1998 PLAN AND THE
INDEPENDENT AUDITORS.

Canceling Your Proxy. You can cancel your proxy at any time before we
vote your shares in any of three ways:

(1) by giving the Secretary a written cancellation;

(2) by giving a later signed proxy; or

(3) by voting in person at the Annual Meeting.

Counting the Necessary Votes. Directors are elected by a plurality of
votes, which means that the three director nominees (the number of positions to
be filled) receiving the highest number of votes will be elected. To approve the
1998 Plan or ratify the independent auditors, these items must receive a
majority of the votes that could be cast at the Annual Meeting. If any
incidental business is transacted at the Annual Meeting, the incidental business
must receive a majority of the votes that could be cast at the Annual Meeting.

The votes that could be cast are the votes actually cast plus
abstentions. Abstentions are counted as "shares present" at the Annual Meeting
for purposes of determining whether a quorum exists and have the effect of a
vote "against" any proposal. Proxies submitted by brokers that do not indicate a
vote for the proposal (usually because the brokers don't have discretionary
voting authority and haven't received instructions as to how to vote) are not
considered "shares present" and will not affect the outcome of the vote. These
broker proxies are referred to as "broker non-votes".

<PAGE> 4

Incidental Business. Proxies customarily ask for authority to transact
other business that may come before the Annual Meeting. Much of this business is
procedural, such as a vote on adjournment. Except for the election of directors,
approval of the 1998 Plan and ratification of the independent auditors, we do
not know of any substantive business to be presented or acted upon at the Annual
Meeting. Under our Bylaws, no substantive business besides that stated in the
meeting notice may be transacted at any meeting of Stockholders. If any matter
is presented at the Annual Meeting on which a vote may properly be taken, the
designated proxies will vote your shares as they think best unless you otherwise
direct.

ITEM 1
ELECTION OF DIRECTORS

Three directors will be elected at this year's Annual Meeting. Each
director will serve for a three-year term ending at the 2002 annual meeting or
until he is succeeded by another qualified director who has been elected.

We shall vote your shares as you tell us on the enclosed proxy form. If
you sign, date, and return the proxy form, but don't tell us how you want your
shares voted, we shall vote your shares for the election of the following
nominees. If unforeseen circumstances (such as death or disability) make it
necessary for the Board of Directors to substitute another person for any of the
nominees, we will vote your shares for that other person.

Two of the nominees for director are presently members of the Board of
Directors. The third nominee is presently a director of Local Oklahoma Bank, FSB
(formerly Local Federal Bank, FSB), the Company's subsidiary bank ("Local
Oklahoma").

THE COMPANY RECOMMENDS VOTING "FOR" THE NOMINEES.

BIOGRAPHICAL INFORMATION

The following table sets forth the name and age of each director and
director nominee, the year he became a director, and the year his term of
service will end.

DIRECTOR TERM
NAME AGE SINCE EXPIRES POSITION
---- --- -------- ------- --------

<S> <C> <C> <C> <C>
Edward A. Townsend 57 1997 2001 Chairman of the Board
Jan A. Norton 52 1997 2000 Director
Robert A. Kotecki 34 1997 2001 Director
George P. Nigh 71 1997 1999 Director
Kenneth W. Townsend 55 1997 1999 Director
Joseph A. Leone 65 1973 2000 Director
J. David Rosenberg 49 1998 2001 Director
Andrew M. Coats 64 -- -- Director nominee
</TABLE>

The Director Nominees. The Board of Directors has nominated three
candidates for election. If elected, these nominees will serve three-year terms.
A brief summary of each director nominee's principal occupation, business
affiliations and other information follows.

<PAGE> 5

Andrew M. Coats. In October 1997, Mr. Coats was elected as a director
of Local Oklahoma. He served as the District Attorney of Oklahoma
County from 1976 to 1980. He won the Democratic nomination for U.S.
Senate from Oklahoma in 1980. In 1983, Mr. Coats was elected Mayor of
Oklahoma City where he served until April 1987. Mr. Coats served as
President of the law firm of Crowe & Dunlevy in 1987 and 1988 and
served as President of the Oklahoma Bar Association in 1992. He is
currently serving as the President of the American College of Trial
Lawyers. On July 1, 1996, Mr. Coats became the Dean of the University
of Oklahoma College of Law.

George P. Nigh. Governor Nigh was elected as a director of the Company
and Local Oklahoma immediately following the private placement in 1997.
From July 1992 through June 1997, Governor Nigh served as President of
the University of Central Oklahoma, where he had served as
Distinguished Statesman in Residence for the previous five years. From
January 1979 through 1987, Governor Nigh served as Governor of the
State of Oklahoma. Prior to 1979, Governor Nigh served 16 years as Lt.
Governor and eight years in the House of Representatives of the State
of Oklahoma. Governor Nigh currently serves as a consultant for the
Company in the area of community relations.

Kenneth W. Townsend. Mr. Townsend was elected as a director of the
Company and Local Oklahoma immediately following the private placement.
Mr. Townsend has served as Executive Director of the National Cowboy
Hall of Fame, Oklahoma City, Oklahoma, since January 1997. From August
1991 through June 1997, Mr. Townsend served as President of Boatmen's
First National Bank of Oklahoma, Oklahoma City, Oklahoma.

The Continuing Directors. Since the Company's directors serve
staggered, three year terms, a majority of the directors continue their service
each year. The continuing directors and their respective principal occupations,
business affiliations and other information are as follows.

Robert A. Kotecki. Mr. Kotecki was elected as a director of the Company
and Local Oklahoma immediately following the private placement. Since
March 1993, Mr. Kotecki has served as Managing Director of Friedman,
Billings, Ramsey & Co., Inc., an Arlington, Virginia investment banking
firm specializing in financial institutions. From November 1988 through
March 1993, Mr. Kotecki served as an Associate with Trident Financial
Corp., an investment banking firm located in Raleigh, North Carolina.

Joseph A. Leone. Dr. Leone has served as a director of the Company and
Local Oklahoma since 1973. Since 1987, Dr. Leone has served as managing
partner with MBI, Inc., a limited partnership which owns several
commercial real estate properties located within Oklahoma. From 1978
through 1987, Dr. Leone served as Executive Vice Chancellor and
Chancellor of the Oklahoma State System of Higher Education.

Jan A. Norton. Mr. Norton was elected as a director of the Company and
Local Oklahoma immediately upon consummation of the private placement.
At the same time, Mr. Norton became President of the Company and Local
Oklahoma. Mr. Norton served as President of Green Country Bank, FSB,
from May 1994 to February 1998.

J. David Rosenberg. Mr. Rosenberg is a practicing attorney and has been
a partner of Keating, Muething & Klekamp, a Cincinnati, Ohio law firm,
since prior to 1992. Mr. Rosenberg was elected as a director of the
Company in February 1998.

<PAGE> 6

Edward A. Townsend. Mr. Townsend was elected as a director of the
Company and Local Oklahoma immediately upon consummation of the private
placement. At the same time, Mr. Townsend became Chairman and Chief
Executive Officer of the Company and Local Oklahoma. From April 1994 to
February 1998, Mr. Townsend served as Chairman and Chief Executive
Officer of Green Country Bank, FSB, and Chief Executive Officer of its
parent corporation, Green Country Banking Corporation. From January
1993 through March 1994, he served as Senior Vice President of Stifel,
Nicolaus & Company, an investment banking firm located in St. Louis,
Missouri. From October 1988 through September 1992, Mr. Townsend served
as Chairman and President of Local Federal Bank, FSB. From 1967 to
1987, Mr. Townsend was employed in various positions at First National
Bank and later InterFirst Corporation, both in Dallas, Texas.

SERVICE ON THE BOARD

Board Meetings and Committees. The Board of Directors held six meetings
in 1998. Management also periodically conferred with directors between meetings
regarding Company affairs. During 1998, all directors attended 75% or more of
the total aggregate number of meetings of the Board of Directors and meetings of
the committees of the Board on which they served.

The Audit Committee is currently composed of Dr. Joseph A. Leone and
Mr. Kenneth W. Townsend. It met five times in 1998 with all members attending
75% or more of these meetings. The Audit Committee recommends to the whole Board
of Directors the selection of independent certified public accountants to audit
annually the books and records of the Company, reviews the activities and report
of the independent certified public accountants, and reports the results of the
review to the whole Board of Directors. The Audit Committee also monitors the
internal controls of the Company.

The Compensation and Retirement Committee is currently composed of Dr.
Joseph A. Leone, Chairman, Mr. Andrew M. Coats and Mr. Gene C. Howard. It met
seven times in 1998 with all members participating. It sets the compensation
levels of the Chief Executive Officer and the President, establishes a general
framework for the short-term incentive program and administers Local Oklahoma's
defined benefit pension plan.

The Board has not delegated its functions to any other standing
committees, and thus has not created executive, nominating or other similar
committees.

Director Compensation. The Company pays its non-employee directors a
quarterly retainer of $2,500. Those directors who are also a director of Local
Oklahoma receive a per meeting fee of $500 (which includes telephonic board
meetings) for service as a bank director. The Company reimburses all ordinary
and necessary expenses incurred in the conduct of the its business. Non-employee
committee members receive $300 per committee meeting. Mr. George P. Nigh also
serves as public relations consultant to Local Oklahoma, for which he receives
$48,000 per year, an office and an automobile allowance.

Liability of Directors and Officers and Indemnification. As permitted
by the Delaware General Corporation Law (the "DGCL"), the Company's Certificate
of Incorporation eliminates in certain circumstances the monetary liability of
the directors for a breach of their fiduciary duty. These provisions do not
eliminate the liability of a director for (i) a breach of the director's duty of
loyalty to the Company or its Stockholders, (ii) acts or omissions by a director
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) liability arising under Section 174 of the DGCL (relating to the
declaration of dividends and purchase or

<PAGE> 7

redemption of shares in violation of the DGCL) or (iv) any transaction from
which the director derived an improper personal benefit. In addition, these
provisions do not eliminate the liability of a director for violations of
Federal securities laws, nor do they limit the rights of the Company or its
Stockholders, in appropriate circumstances, to seek equitable remedies such as
injunctive or other forms of non-monetary relief. Such remedies may not be
effective in all cases.

The Bylaws provide that the Company shall indemnify its directors and
officers to the fullest extent permitted by the DGCL. Under such provisions, any
director or officer, who in his capacity as such, is made or threatened to be
made, a party to any suit or proceeding, may be indemnified if the Board of
Directors determines such director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the Company. The Bylaws and the DGCL further provide that such indemnification
is not exclusive of any other rights to which such individuals may be entitled
under the Certificate of Incorporation, the Bylaws, any agreement, vote of
Stockholders or disinterested directors or otherwise.

<PAGE> 8

OTHER INFORMATION ABOUT DIRECTORS, OFFICERS
AND CERTAIN STOCKHOLDERS

BENEFICIAL OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN STOCKHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of February 28, 1999, by
(i) each director of the Company, (ii) each named executive officer in the
Summary Compensation Table, (iii) each person known or believed by the Company
to own beneficially five percent or more of the Common Stock and (iv) all
directors and executive officers as a group. Unless indicated otherwise, each
person has sole voting and dispositive power with respect to such shares.

BENEFICIAL OWNERSHIP(1)
NAME OF DIRECTOR, EXECUTIVE OFFICER -----------------------------
OR STOCKHOLDERS HOLDING 5% OR MORE, NUMBER OF SHARES PERCENT
----------------------------------- ---------------- -------

<S> <C> <C>
Boston Partners Asset Management, L.P. 1,850,300 9.0
100 Drakes Landing, #360
Greenbrae, CA 94904-3122

Financial Stocks Inc. 1,842,300 9.0
5070 Carew Tower
441 Vine St.
Cincinnati, Ohio 45202

Continental Casualty Company 1,600,000 7.8
CNA Plaza
Chicago, Illinois 60685

Thomson Hortstmann & Bryant, Inc. 1,471,000 7.2
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663

Cramer Rosenthal McGlynn, LLC 1,160,000 5.7
707 Worchester Ave.
White Plains, New York 10604

Edward A. Townsend(2) 581,647 3.0

Jan A. Norton(2) 126,455 --*

Robert A. Kotecki(3) 173,200 --*

J. David Rosenberg(4) 82,000 --*

Joseph A. Leone(4) 7,000 --*

Kenneth W. Townsend(4) 4,500 --*

George P. Nigh(4) 4,500 --*

Andrew M. Coats(4) 3,880 --*

Robert L. Vanden(4) 7,000 --*

James N. Young(4) 4,000 --*

Christopher C. Turner(4) 6,000 --*

All directors and named executive
officers as a group (11 persons) 1,000,182 5.0
</TABLE>

- --------------
* Less than one percent.

<PAGE> 9

(1) Shares of Common Stock that are not outstanding but that can be
acquired by a person upon exercise of an option within 60 days are
included in computing the percentage for such person, but are not
included in computing the percentage for any other person.

(2) The number and percentage of shares for Mr. Townsend include 270,547
shares and for Mr. Norton include 101,455 shares under presently
exercisable stock options.

(3) The number of shares for Mr. Kotecki includes 125,000 shares under a
presently exercisable stock warrant. Mr. Kotecki is a Managing Director
of Friedman Billings, Ramsey & Co., Inc., which received stock warrants
from the Company for acting as its placement agent. See "Certain
Transactions" below.

(4) The number shares for the following persons includes presently
exercisable stock options in the amounts shown below.

NAME OPTION SHARES
---- -------------

<S> <C>
Andrew M. Coats 2,000
Joseph A. Leone 2,000
George P. Nigh 2,000
J. David Rosenberg 2,000
Kenneth W. Townsend 2,000
Robert L. Vanden 5,000
James N. Young 4,000
Christopher C. Turner 5,000
</TABLE>

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid or accrued to the
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company, including officers of Local Oklahoma (the
five are sometimes called the "named executive officers") for services performed
in 1998, 1997 and 1996.

Summary Compensation Table

LONG TERM
COMPEN-
SATION
ANNUAL COMPENSATION(1) AWARDS
------------------------------------ ---------
OTHER ALL OTHER
ANNUAL COMPEN-
NAME AND COMPEN- OPTIONS SATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION(2) (#)(3) ($)(4)
- ------------------------------ ---- --------- -------- --------- --------- ---------

<S> <C> <C> <C> <C> <C> <C>
Edward A. Townsend, Chief 1998 320,000 175,000 -- 811,640 --
Executive Officer(5) 1997 100,711 -- -- -- 100,000

Jan A. Norton 1998 240,000 160,000 -- 304,365 --
President(5) 1997 75,533 -- -- -- 50,000

Robert L. Vanden 1998 225,000 175,000 -- 25,000 --
Executive Vice President 1997 212,502 175,000 -- -- --
1996 175,000 140,000 -- -- --

James N. Young 1998 136,347 100,000 -- 25,000 25,858
Executive Vice President(5)

Christopher C. Turner 1998 149,000 50,000 -- 25,000 --
Executive Vice President 1997 118,503 30,000 -- -- --
1996 91,252 35,000 -- -- --
</TABLE>

<PAGE> 10

- --------------
(1) Amounts shown include cash and non-cash compensation earned and
received by the named executive officers as well as amounts earned but
deferred at their election.

(2) The Company provides various perquisites to certain employees including
the named executive officers. In each case, the aggregate value of the
perquisites provided to the named executive officers did not exceed the
lesser of $50,000 or 10% of such named executive officers' annual
salary and bonus.

(3) The options in this column were originally granted in 1997 and were
replaced by options granted under the 1998 Plan. See "Compensation and
Retirement Committee Report - Long-Term Incentive Compensation".

(4) Amounts under this column reflect moving expense/housing allowance paid
when these named executive officers began their service with the
Company. See "Employment Agreements" below.

(5) Mr. Townsend and Mr. Norton became executive officers of the Company in
September 1997. Mr. Young became an executive officer of the Company in
February 1998. They were not employed by the Company or its
subsidiaries during the two years prior to that time.

STOCK OPTIONS GRANTED IN 1998

The following table sets forth information concerning the grant of
stock options during 1998 to the named executive officers.

INDIVIDUAL GRANTS
---------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED OPTION TERMS(1)
OPTIONS EMPLOYEES EXERCISE EXPIRATION --------------------------
NAME GRANTED(#)(2) IN 1998 PRICE ($/SH) DATE(2) 5%($) 10%($)
---- ------------- ---------- ------------ ----------- ---------- ----------

<S> <C> <C> <C> <C> <C> <C>
Edward A. Townsend 811,640 60.8 10.00 9/23/08 5,104,360 12,935,451

Jan A. Norton 304,365 22.8 10.00 9/23/08 1,914,135 4,850,794

Robert L. Vanden 25,000 1.9 10.00 9/23/08 157,224 398,436

James N. Young 25,000 1.9 10.00 9/23/08 157,224 398,436

Christopher C. Turner 25,000 1.9 10.00 9/23/08 157,224 398,436
</TABLE>

- --------------

(1) The assumed annual rates of increase are based on an annually
compounded increase of the exercise price through the ten year option
term.

(2) The options in this column were originally granted in 1997 and were
replaced by options granted under the 1998 Plan. See "Employment
Agreements" regarding Mr. Townsend and Mr. Norton and "Compensation and
Retirement Committee Report - Long-Term Incentive Compensation".

<PAGE> 11

STOCK OPTION HOLDINGS

The following table sets forth the number of unexercised options held
by named executive officers as of December 31, 1998.

NUMBER OF UNEXERCISED
OPTIONS AT 12/31/98(1)
----------------------------------
NAME EXERCISABLE UNEXERCISABLE
- ------------------ -------------- -------------

<S> <C> <C>
Edward A. Townsend 270,547 541,093
Jan A. Norton 101,455 202,910
Robert L. Vanden 5,000 20,000
James N. Young 4,000 21,000
Christopher C. Turner 5,000 20,000
</TABLE>

- --------------

(1) These options are exercisable at $10.00 per share.

RETIREMENT PLAN

Local Oklahoma has a defined benefit pension plan ("Retirement Plan")
for all salaried and hourly employees who have completed one year of service
with Local Oklahoma, its subsidiaries and any acquired company. In general, the
Retirement Plan provides a benefit at an employee's "Normal Retirement Age" (age
65) according to the following formula: (a) 1.0% of Average Monthly Compensation
times Years of Credited Service, plus (b) 0.65% of Average Monthly Compensation
in excess of Covered Compensation, times years of Credited Service up to 35
years. "Average Monthly Compensation" equals the highest average of an
employee's basic rate of compensation for any five consecutive plan
anniversaries (July 1st) preceding retirement. "Covered Compensation" is the
average annual compensation with respect to which Social Security retirement
benefits would be provided at Social Security retirement age.

During the year ended December 31, 1998, Local Oklahoma did not make a
contribution to the Retirement Plan, as the plan was adequately funded and
subject to the IRS "Full Funding Limitation." When subject to the Full Funding
Limitation, no contribution is either required or deductible.

The following table illustrates annual pension benefits for retirement
at age 65 under various levels of compensation and years of Credited Service.

YEARS OF CREDITED SERVICE
--------------------------------------------------------------------------------------
FINAL AVERAGE
COMPENSATION 15 20 25 30 35
------------- -- -- -- -- --

<PAGE> 12

The figures in the above table assume that the Retirement Plan
continues in its present form and that the participants elect a 10-year certain
and life annuity form of benefit.

The maximum annual compensation which may be taken into account under
the Code (as adjusted from time to time by the IRS) for calculating benefits and
contributions under qualified defined benefit plans currently is $160,000 and
the maximum annual benefit permitted under such plans currently is $125,000.

The pension benefits listed in the table are not subject to any
deduction for Social Security or other offset amounts.

At December 31, 1998, Messrs. Townsend, Norton, Vanden, Turner and
Young had 5, 1, 8, 18 and 1 years of Credited Service, respectively, under the
Retirement Plan. Some of Mr. Townsend's years of Credited Service result from
his prior employment by Local Federal Bank, FSB, from 1988 through 1992.

COMPENSATION AND RETIREMENT COMMITTEE REPORT

Background. In September 1997, the Company completed a $277 million
private placement of its senior notes and common stock and redeemed all of the
capital stock of the Company's prior stockholders. At the time of the private
placement and redemption, the Company installed new management, including Edward
A. Townsend as Chief Executive Officer and Jan A. Norton as President. The
Company subsequently registered the senior notes and common stock, which began
trading on the American Stock Exchange on April 22, 1998. When new management
assumed control of the Company, the Company entered into employment agreements
with its CEO and President. These employment agreements generally established
base salaries and provided for the grant of stock options. The Board of
Directors adopted the 1997 Stock Option Plan and granted stock options to
certain other key executive and senior officers. It also formed the Compensation
and Retirement Committee (the "Committee") and delegated to it certain matters
regarding executive compensation. The Committee is composed of one non-employee
director of the Company and two non-employee directors of Local Oklahoma. In
November 1998, the Board replaced the 1997 Plan with the 1998 Stock Option Plan
and replaced the previously granted options with options under the 1998 Plan
(all of which is subject to shareholder approval).

Compensation Approach. The Committee sets the compensation levels of
the Chief Executive Officer and the President, establishes a general framework
for the short-term incentive program and administers the long-term incentive
programs. It uses a set of guiding principles, which are designed to align
executive compensation with management's execution of business strategies and
initiatives as well as the achievement of long-term financial performance and
growth in stockholder values. The principles are as follows:

o The Company's salaries must be competitive with comparable banking
institutions with which the Company competes for highly qualified and
experienced executive and senior officers. The Committee relies on its
members' knowledge of other comparable banking institutions, and may
retain outside consultants for advice, to ensure executive salaries are
competitive.

o The Company maintains annual incentive programs sufficient to provide
motivation to achieve specific operating goals and to generate rewards
that bring total compensation to competitive levels.

10
<PAGE> 13

o The Company provides significant equity-based incentives for executive
and senior officers and other key employees to ensure that they are
motivated over the long term to respond to the Company's business
challenges and opportunities as stockholders as well as employees.

Future compensation will be closely tied to performance and its impact
on the growth in stockholder value. The primary components of executive
compensation are base salary, short-term cash incentives and long-term equity
incentives.

Base Salary. The Company understands that base salaries must remain in
a competitive range to retain capable management. Minimum base salaries for the
Chief Executive Officer and the President are fixed by agreements. The Committee
reviews these salary levels annually based on a subjective mix of the Company's
performance, the executive's experience and contributions, and the levels of
compensation received by similarly situated executives at comparable companies,
and may increase (but not decrease) the base salaries if the Committee deems an
increase is warranted. The salaries of the other executive and senior officers
are established by the CEO, who evaluates these salaries in relationship to the
base salaries of the CEO and President and to their respective levels of
responsibility and contributions to the Company and based on the other criteria
described by the Committee in this report. The beliefs of the CEO and the
Committee regarding base salary levels are based on their collective knowledge
and on formal compensation surveys. Annual adjustments are made to maintain base
salaries at levels competitive with comparable companies and to maintain an
equitable relationship between the base salaries of executive and senior
officers and overall merit increases for the Company's other employees. In the
case of an executive or senior officer joining the Company, base salaries are
also determined as one component of a total compensation package that is
competitive with compensation granted by that officer's prior employer and/or
other opportunities available to that officer.

Annual Incentive Compensation. The Company provides annual incentive
compensation in the form of bonuses. For bonuses paid to the CEO and the
President, the Committee assesses incentives accorded to comparable positions in
other companies, the reporting of pre-tax profits for the year and limitations
on the size of the bonus in relationship to the executive's base salary. It
analyzes the bonus amount in relationship to the Company's broader corporate
performance, its targeted growth objectives, and its results of operations. It
also analyzes the bonus amount for the CEO and the President in relationship to
the individual officer's responsibilities and his importance to the Company's
operating strategy. For bonuses other than those paid to the CEO and the
President, the CEO applies similar criteria to establish bonus amounts for the
other executive and senior officers.

Long-Term Incentive Compensation. The Company provides long-term
incentive compensation primarily in the form of stock options under its 1998
Stock Option Plan. The 1998 Plan provides for awards of up to 1,720,370 shares
of the Company's common stock. In 1997, the Company issued options covering
811,640 and 304,365 shares, respectively, to its Chief Executive Officer and the
President to satisfy requirements under their employment agreements. These
options were exercisable at $10.00 per share, which reflected issue price of the
common stock in the private placement. In September 1998, the Company replaced
these earlier options with stock options issued under the 1998 Plan. The
replacement options cover the same number of shares, have the same exercise
price and have substantially similar terms as the earlier options.

The Company also issued replacement options covering 158,000 shares to
24 of its executive and senior officers and options covering 10,000 shares to
each of six non-employee

11
<PAGE> 14

directors. Like the options granted to the CEO and President, these replacement
options have an exercise price of $10.00 per share. The $10.00 exercise price
was higher than the market price of the common stock at the time of grant, but
lower than the $11.75 per share exercise price of the earlier options.
Therefore, all options granted to date under the 1998 Plan are exercisable at a
price equal to that received from shares sold in the private placement. The
Company issued these replacement options at $10.00 per share to equalize the
exercise prices payable by the holders with the prices payable by the CEO and
President. Initial stock option awards for executive and senior officers are
individually determined at or prior to employment at levels that are designed to
attract qualified executive and senior officers and in certain cases to be
competitive with options granted by their prior employers. The Company granted
the 1997 options for a substantial amount of the available shares to achieve an
immediate and significant alignment of management and stockholder interests.
Prior to the redemption, senior management had no equity interest in the
Company.

Management receives value from option grants only if the common stock
appreciates over the long term. The amount of individual option grants is
determined based in part on competitive practices at comparable companies and on
the Company's philosophy of significantly linking executive compensation with
stockholder interests. In determining the size of individual grants, the Company
also considers the number of shares subject to options previously granted to
each executive or senior officer, including the number of shares that have
vested and that remain unvested. The Company believes that option grants to its
management are comparable to the average range for similarly situated companies.

Section 162(m) of the Code limits the Company to a deduction for
Federal income tax purposes of no more than $1 million of compensation paid to
certain officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code. Gains recognized upon exercise of non-qualified options are treated as
compensation under the Code, and may be subject to this limitation. The stock
options granted to the CEO and the President under the Company's 1998 Plan could
result in compensation of more than $1 million (depending on the market
performance of the common stock). The Company is uncertain whether compensation
resulting from such options will be treated as "performance-based" under the
Treasury regulations promulgated under Section 162(m) of the Code.

For additional information regarding options awards, see the
compensation tables preceding this report.

Corporate Performance and Chief Executive Officer Compensation. Edward
A. Townsend became Chief Executive Officer in September 1997. Under his
employment agreement, Mr. Townsend's annual base salary is $320,000 through
September 8, 2001. In addition, Mr. Townsend was granted an option to purchase
811,640 shares of the Company's common stock under the 1997 Plan at an exercise
price of $10.00. The agreement provides that the Company may increase, but not
decrease, his base salary during the term of the agreement and also provides for
bonuses in amounts to be determined by the Board of Directors (or the
Committee). The agreement was approved by the disinterested members of the Board
of Directors. No bonuses were conferred in 1997.

In 1998, the Board replaced Mr. Townsend's 1997 options with similar
options under the newly adopted 1998 Plan and awarded a cash bonus. The
replacement options cover a like number of shares and have the same exercise
price. The principal difference between the 1997 options and the 1998
replacement options was that a portion of the former options were incentive

12
<PAGE> 15

options while the latter options are all non-qualified under the Code. To
compensate Townsend for the additional tax burdens of the non-qualified options
(and in recognition of the tax benefits to be received by the Company), the
replacement options also include stock appreciation rights and tax gross-up
provisions. In granting these replacement options, the Board believed that the
replacement options offered greater overall benefits to the Company and Townsend
from a financial and tax standpoint than did the earlier options.
Mr. Townsend's bonus for 1998 was $175,000.

In approving the amounts of cash compensation and stock options, the
Board considered Mr. Townsend's experience as an executive officer in the
banking industry, his structuring and implementation of the Company's private
placement, redemption and recapitalization, and his efforts in revamping the
Company's operating strategy and the success of that strategy to date, as
reflected in the Company's steadily increasing earnings. The Board believes the
amount of the cash compensation and the stock option grant is comparable to the
compensation packages of similarly situated chief executive officers in the
banking industry and further believes that the size of the stock option grant
was appropriate in order to align Mr. Townsend's total compensation with the
performance of the Company and, ultimately, the interests of the stockholders.

The stock option grant to Mr. Townsend is the most significant
component of his compensation package. Its value is contingent on Company
performance and the realization of stockholder value. The Company remains
committed to a philosophy of pay for performance.

Dated: January 27, 1999 The Compensation and
Retirement Committee of
Local Financial Corporation

Dr. Joseph A. Leone, Chairman
Mr. Gene C. Howard
Mr. Andrew M. Coats

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No executive officer or employee of the Company participated in Board
decisions about executive compensation. No member of the Board and no employee
of the Company serves or has served on the compensation committee (or board of
directors of a corporation lacking a compensation committee) of a corporation
employing a member of the Board.

EMPLOYMENT AGREEMENTS

The Company and Local Oklahoma (the "Employers") have entered into
employment agreements with Mr. Edward A. Townsend and Mr. Jan A. Norton (the
"Executives"). Under such employment agreements, the Employers will employ the
Executives for a term of three years, which term shall be extended each year
beginning at the end of the first anniversary of the effective date for a
successive additional one-year period upon approval of the Employers' Board of
Directors, unless either party elects, not less than 60 days prior to the annual
anniversary date, not to extend the employment term. In addition, the annual
base salaries for Messrs. Townsend and Norton will be $320,000 and $240,000,
respectively, which is to be paid in monthly installments. The employment
agreements further provide each of the Executives with the same employee
benefits that are provided by Local Oklahoma to executive employees generally,
provide for vacation and participation in Local Oklahoma's benefit plans,
membership in a golf

13
<PAGE> 16

and country club in Oklahoma City, an automobile of a type and kind comparable
to that which Local Oklahoma provides to its other executive officers, and a one
time moving/housing allowance of $100,000 and $50,000 to Messrs. Townsend and
Norton, respectively.

Each of the foregoing employment agreements are terminable with or
without cause by the Employers. The Executives will have no right to
compensation or other benefits pursuant to the employment agreements for any
period after voluntary termination or termination by the Employers for cause.
The employment agreements provide for benefits comparable to those of the
severance agreements described below if the employment agreements are terminated
by the Employers other than for cause or as a result of the Executive's death or
disability.

SEVERANCE AGREEMENTS

Local Oklahoma has entered into severance agreements with Mr. Robert L.
Vanden, Mr. James N. Young and Mr. Christopher C. Turner to encourage their
continued employment. Local Oklahoma also has entered into severance agreements
with three other executive officers and amended the employment agreements of Mr.
Edward A. Townsend and Mr. Jan A. Norton to add comparable severance provisions.
These agreements provide for certain severance benefits if the executive's
employment is terminated by Local Oklahoma without "cause" or by the executive
for "good reason" (as those terms are defined in the severance agreements). Upon
such termination of employment, the executive will be entitled to receive a lump
sum severance payment equal to the executive's base salary. In addition, any
vesting or other restrictions on the executive's stock options or other equity
compensation benefit shall lapse and the option shall become immediately
exercisable. Each severance agreement has a three-year term, which can be
extended for up to two years after a change of control.

CERTAIN TRANSACTIONS

Loans to Directors and Officers. Local Oklahoma provides loans to its
directors and officers in the ordinary course of business, on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons. Such loans do not involve
more than the normal risk of collectibility or present other unfavorable
features. As of December 31, 1998, and combining all loans to directors and
executive officers in excess of $60,000, Local Oklahoma had an amount
outstanding of $716,063. This amount represented 0.6% of the Company's
consolidated stockholders' equity as of that date.

Investment Banking Arrangements. Friedman Billings, Ramsey & Co., Inc.
("FBR") acted as the placement agent for the Company in its 1997 sale of $197.0
million of common stock and $80.0 million of senior notes. For its services, FBR
received placement fees of approximately $18.2 million, reimbursement of its
out-of-pocket expenses, including legal fees, and indemnification against
certain liabilities, including those under the securities laws. FBR also
received warrants to purchase 591,000 shares at $10.00 per share, which equals
the per share price of the common stock in the private placement. FBR has the
right to cause the shares underlying these warrants to be registered for public
sale. In addition, the Company retained FBR as its exclusive financial advisor
in connection with various transactions, such as mergers, acquisitions,
securitizations and tender offers, as well as capital markets financing for an
initial period ending September 1999. It has received fees totaling $75,000 for
these services. Mr. Robert A. Kotecki, a director of the Company, is a Managing
Director of FBR and the recipient of warrants assigned to him from FBR covering
125,000 shares of the Company's common stock.

14
<PAGE> 17

Acquisition of Green Country. On February 16, 1998, the Company
acquired Green Country Banking Corporation in a merger for 837,209 shares of its
common stock. The shares were issued to three Green Country stockholders, two of
whom were Mr. Edward A. Townsend and Mr. Jan A. Norton, the Chairman and Chief
Executive Officer and the President of the Company, respectively. Mr. Townsend
received 415,027 shares and Mr. Norton received 29,052 shares in the merger.
Under an agreement with the three Green Country stockholders, FBR purchased
simultaneously 115,027 shares from Mr. Townsend, 4,052 shares from Mr. Norton
and 273,130 shares from the third stockholder at $10.75 per share. The Company
also agreed to register the shares issued in the merger for public sale. FBR
acted as the Company's financial advisor in the merger and issued its fairness
opinion to the Company.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

The Company is aware of the following filings and transactions that
were not reported timely in 1998:

NUMBER OF NUMBER OF
NAME LATE REPORTS TRANSACTIONS AFFECTED
---- ------------ ---------------------

<S> <C> <C>
Edward A. Townsend 1 1
Robert A. Kotecki 1 1
Robert L. Vanden 1 2
Richard L. Park 1 2
William C. Lee 2 2
Harold A. Bowers 2 1
James N. Young 3 4
</TABLE>

In addition to the above transactions, Edward A. Townsend, Jan A. Norton, George
P. Nigh, Dr. Joseph A. Leone, Kenneth W. Townsend, J. David Rosenberg, Robert L.
Vanden, Christopher C. Turner, Richard L. Park, William C. Lee, Harold A. Bowers
and James N. Young received replacement stock options in September 1998, which
were reported on late Form 5's filed April 2, 1999.

The Company became subject to the Section 16(a) filing requirements in
April 1998. Since compiling the information required for this disclosure, the
Company has taken steps to improve its Section 16(a) compliance program so that
it will not again experience the number of late filings or omitted reports
reflected above. Except as disclosed above, the Company believes that its
officers, directors and greater than ten percent beneficial owners have complied
with all other Section 16(a) filing requirements during the year ended December
31, 1998.

ITEM 2
1998 STOCK OPTION PLAN

On September 23, 1998, the Company's Board of Directors adopted the
Local Financial Corporation 1998 Stock Option Plan (the "1998 Plan"). Under the
1998 Plan, the Company may

15
<PAGE> 18

grant to eligible employees incentive and non-qualified stock options and stock
appreciation rights. The Board adopted the 1998 Plan to align the interest of
its executive management with those of the Company's Stockholders by providing
incentives that are directly linked to the profitability of the Company's
business and increases in Stockholder value. The Company's ability to issue
incentive stock options is subject to approval by the Company's Stockholders.
The 1998 Plan will form an important part of the Company's overall compensation
program, and your Board of Directors recommends a vote "for" this proposal.

The following summary of the main features of the 1998 Plan is
qualified in its entirety by the complete text of the 1998 Plan, copies of which
may be obtained by making a written request to the Company's Secretary and will
be available at the Annual Meeting.

ELIGIBILITY

The Company's Chief Executive Officer, its President, its directors and
directors of its subsidiaries, and other executive and senior management are
eligible for awards under the 1998 Plan. At present, the Company has granted
stock options covering 1,460,005 shares of its Common Stock to 36 officers, four
directors (excluding the Chief Executive Officer and President, who are also
directors) and three directors of Local Oklahoma. The option exercise prices of
the options presently outstanding are at $10.00 per share. The Company has
granted these options believing that the participants are responsible for or
contribute to the management, growth and long-term profitability and value of
the Company.

ADMINISTRATION

The 1998 Plan provides for administration by the Board of Directors or
a committee appointed by the Board and composed of at least two non-employee
members of the Board. The Board has not yet delegated the 1998 Plan's
administration to a committee, but may do so following the Annual Meeting and
the election of an additional non-employee director.

Subject to the express provisions of the 1998 Plan, the Board has broad
authority to administer and interpret the 1998 Plan. It can determine who is
eligible to participate in the 1998 Plan and to which of such persons, and when,
awards are to be granted under the 1998 Plan, the number of shares of Common
Stock subject to awards and the exercise price of such shares under an award,
the extent of satisfaction of any performance goals applicable to awards, the
terms of the agreements evidencing awards made under the 1998 Plan, and such
other determinations deemed necessary or advisable for the administration of the
1998 Plan.

STOCK SUBJECT TO THE 1998 PLAN

The aggregate number of shares of the Company's Common Stock that can
be issued under the 1998 Plan may not exceed 1,720,370 shares. Presently
outstanding options cover 1,460,005 shares, and 260,365 shares remain available
for issuance under the 1998 Plan. The Plan limits the number of non-qualified
stock options that may be granted to non-employee directors of the Company to no
more than five percent of the shares eligible for grant under the Plan. The
Board of Directors will adjust the number of shares under the 1998 Plan and
under outstanding awards if the Company's Common Stock is affected through a
reorganization, merger, consolidation, recapitalization, restructuring,
reclassification, dividend (other than routine cash dividends) or other
distribution, stock split, spin-off or sale of substantially all of the
Company's assets. For purposes of calculating the aggregate number of shares
issued under the 1998 Plan, only the number of shares of Common Stock actually
issued upon exercise, vesting or settlement of an award and not returned to the
Company upon cancellation, expiration or

16
<PAGE> 19

forfeiture of an award or in payment or satisfaction of the purchase price,
exercise price or tax withholding obligation of an award shall be counted.

AWARDS

The 1998 Plan authorizes the grant and issuance of the following types
of awards: stock options (both incentive and non-qualified) and associated stock
appreciation rights:

Stock Options. Subject to the express provisions of the 1998 Plan and
as discussed in this paragraph, the Board has discretion to determine the
vesting schedule of options, the events causing an option to expire, the number
of shares subject to any option, the restrictions on transferability of an
option, and such further terms and conditions, in each case not inconsistent
with the 1998 Plan, as may be determined from time to time by the Board. No
option granted to a participant subject to Section 16 of the Securities Exchange
Act of 1934 shall become exercisable within six months from the date it was
granted. A participant subject to Section 16 is generally a director, executive
officer or Stockholder having 10% or more of the Common Stock. Options granted
under the 1998 Plan may be either incentive stock options ("Incentive Stock
Options") qualifying under Section 422 of the Internal Revenue Code (the "Code")
or options which are not intended to qualify as Incentive Stock Options
("Non-qualified Options").

The 1998 Plan does not fix the exercise price for options. The Code
requires that options qualifying as Incentive Stock Options must have an
exercise price of at least 100% of the fair market value of the Company's Common
Stock on the date the option is granted. The Board has further determined that
any Non-qualified Options granted under the 1998 Plan will have an exercise
price of at least 100% of the fair market value of the Company's Common Stock on
the date the option is granted. All options previously granted under the 1998
Plan have had exercises prices that were at least 100% of the fair market value
of the Company's Common Stock on the date the option was granted. The Company
may make exceptions to its policy, such as in the case of granting new options
in assumption and substitution of old options held by employees of a company
acquired by the Company. To match the value of the old options, the exercise
price of the new options may be above or below the fair market value of the
Company's Common Stock on the date the new option is granted. In addition, if a
participant is required to pay or forego cash compensation prior to receiving an
option, the Board may reduce the aggregate exercise price of the option by the
amount paid or foregone.

Stock Appreciation Rights. The Board may grant at any time a stock
appreciation right relating to an option. Upon the exercise of a stock
appreciation right, the holder is entitled to receive a cash payment equal to
the excess of the fair market value of a share of Common Stock or the offer
price per share of Common Stock, whichever is higher, over the option price of
the related option.

TRANSFERABILITY OF AWARDS

The Board is responsible for determining the transferability of awards.
Generally, awards granted under the 1998 Plan may not be sold, assigned,
conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner,
other than by will or the laws of descent and distribution. In addition, the
Board may permit the transfer of non-qualified stock options to a holder's
immediate family members, whether directly or through family trusts or
partnerships.

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<PAGE> 20

"CASHLESS EXERCISES" AND FINANCING

The Board may provide financing to participants on such terms as the
Board determines in a principal amount sufficient to pay the exercise or
purchase price under, and the taxes due with respect to, awards under the 1998
Plan. The majority of currently outstanding options provide that the participant
may satisfy his or her option exercise price or tax withholding amounts by
tendering shares of Common Stock or exercisable options for Common Stock. The
shares of Common Stock or exercisable options for Common Stock are valued based
on the previous days' closing trading price. In the case of exercisable options,
the credited value is the excess of the trading price over the exercise price.

AMENDMENTS AND TERMINATION

The Board of Directors may alter, amend, suspend or terminate the 1998
Plan, except that, unless otherwise approved by the Company's Stockholders, no
such action may increase the total number of shares available for awards, reduce
the minimum permissible exercise price, extend the ten-year duration of the 1998
Plan, or alter the class of employees eligible to receive awards under the 1998
Plan. No option granted under the 1998 Plan shall have a term of more than ten
years from the date it is granted, and no awards shall be granted pursuant to
the 1998 Plan after September 23, 2008 (the tenth anniversary of the 1998 Plan's
adoption).

SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS

The following is a brief summary of the principal United States Federal
income tax consequences under current Federal income tax laws related to options
under the 1998 Plan. This summary is not intended to be exhaustive and among
other things, does not describe state or local tax consequences.

Tax Deductibility and Section 162(m). Any payments of cash, shares of
Common Stock or other property in the nature of a dividend that an employee
receives in connection with an award are included in income in the year received
or made available to the employee without substantial limitations or
restrictions. Generally, the Company will be entitled to deduct the amount the
employee includes in income as a business expense in the year of payment.

Section 162(m) places a $1 million annual limit on the deductible
compensation of certain executives of publicly traded corporations. The limit,
however, does not apply to "qualified performance-based compensation". It is
uncertain whether any of the presently outstanding options would qualify for the
performance-based compensation exception to the deductibility limit.

Non-qualified Options. The holder of a Non-qualified Option does not
recognize income at the time the option is granted. When the Non-qualified
Option is exercised, the holder recognizes ordinary income equal to the
difference between the fair market value on the exercise date of the number of
shares of Common Stock issued and their exercise price. The Company receives a
deduction equal to the amount of ordinary income recognized by the holder. The
holder's basis in the shares acquired upon exercise of an option is equal to
their exercise price plus the ordinary income recognized upon exercise. Upon
subsequent disposition of the shares, the holder will recognize capital gain or
loss, which will be short-term or long-term, depending upon the length of time
the shares were held since the date the Non-qualified Option was exercised. In
recognition of the deduction the Company receives upon a holder's exercise, the
Company may undertake to pay the holder an amount equal to his or her income tax
liability.

18
<PAGE> 21

Incentive Stock Options. In general, the holder of an Incentive Stock
Option will not be subject to tax at the time the Incentive Stock Option is
granted or exercised. However, the excess of the fair market value of the shares
of Common Stock received upon exercise of the Incentive Stock Option over their
exercise price is potentially subject to the alternative minimum tax. Upon
disposition of the shares acquired upon exercise of an Incentive Stock Option,
long-term capital gain or loss will be recognized in an amount equal to the
difference between the sales price and the aggregate exercise price for those
shares, provided that the holder has not disposed of the shares within two years
of the date the Incentive Stock Option was granted or within one year from the
date the Incentive Stock Option was exercised. If the holder disposes of the
Shares without satisfying both of the foregoing holding period requirements (a
"Disqualifying Disposition"), the holder will recognize ordinary income at the
time of such Disqualifying Disposition to the extent of the difference between
the option exercise price and the lesser of the fair market value of the shares
on the date the Incentive Stock Option is exercised or the amount realized on
such Disqualifying Disposition. Any remaining gain or loss is treated as a
short-term or long-term capital gain or loss, depending upon how long the shares
have been held. The Company is not entitled to a tax deduction upon either the
exercise of an Incentive Stock Option or upon disposition of the shares acquired
pursuant to such exercise, except to the extent that the holder recognizes
ordinary income in a Disqualifying Disposition.

Special Rules. To the extent a holder pays all or part of the option
exercise price of a Non-qualified Stock Option by tendering shares of Common
Stock already owned by the holder, the tax consequences described above apply
except that the number of shares received upon such exercise which is equal to
the number of shares surrendered in payment of the option exercise price shall
have the same basis and tax holding period as the shares surrendered. If the
shares of Common Stock surrendered had previously been acquired upon the
exercise of an Incentive Stock Option, the surrender of such shares may be a
Disqualifying Disposition if the holding period requirements described above
have not been satisfied with respect to such shares at the time of such
exercise. The additional shares of Common Stock received upon such exercise have
a tax basis equal to the amount of ordinary income recognized on such exercise
and a holding period which commences on the date of exercise. Under proposed
Treasury regulations, if a holder exercises an Incentive Stock Option by
tendering shares previously acquired on the exercise of an Incentive Stock
Option, a Disqualifying Disposition may occur if the holding period requirements
described above have not been satisfied with respect to such shares at the time
of such exercise, and the holder may recognize income and be subject to other
basis allocation and holding period requirements.

STOCKHOLDER APPROVAL

The affirmative vote of a majority of shares of Common Stock present
and entitled to vote at the Annual Meeting is required to enable the grant of
Incentive Stock Options under the 1998 Plan. If the 1998 Plan does not receive a
majority vote, the presently outstanding Incentive Stock Options will become
Non-qualified Options and no further Incentive Stock Options will be issued.

YOUR BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL

ITEM 3
RATIFICATION OF AUDITORS

On the recommendation of the Audit Committee, the Board of Directors
appointed KPMG, LLP, independent certified public accountants, to audit the
consolidated financial

19
<PAGE> 22

statements of the Company for the year ended December 31, 1999. The Company is
advised that no member of KPMG, LLP, has any direct or material indirect
financial interest in the Company or, during the past three years, has had any
connection with the Company in the capacity of promoter, underwriter, voting
trustee, director, officer or employee. Ratification of the Board's appointment
shall be effective upon receiving the affirmative vote of the holders of a
majority of the common stock present or represented by proxy and entitled to
vote at the Annual Meeting.

THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL.

If the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. A representative from
KPMG, LLP, is expected to be present at the Annual Meeting, will be offered the
opportunity to make a statement, and will be available to respond to appropriate
questions.

PERFORMANCE GRAPH

The following graph compares the market values of the Company's Common
Stock to the AMEX US Index and the SNL AMEX Thrift Index. The graph assumes an
investment of $100 on April 22, 1997 (the date the Common Stock began trading),
and that all dividends were reinvested and are weighted on a market
capitalization basis.

GRAPH DOLLAR VALUES 4/22/97 4/30/98 6/30/98 8/31/98 10/31/98 12/31/98
------------------- ------- ------- ------- ------- -------- --------

<S> <C> <C> <C> <C> <C> <C>
Local Financial Corporation 100 91.8 94.6 62.7 65.9 65.5
Amex US Index 100 100.4 102.9 76.7 86.4 94.7
SNL Amex Thrift Index 100 97.8 90.8 69.6 70.2 70.6
</TABLE>

As permitted by SEC rules, this section of the Proxy Statement is not
deemed "filed" with the SEC and is not incorporated by reference into the
Company's Annual Report on Form 10-K.

OTHER INFORMATION ABOUT THE ANNUAL MEETING

OTHER MATTERS COMING BEFORE THE MEETING

As of the date of this Proxy Statement, the Company knows of no
business to come before the Annual Meeting other than that referred to above.
The Company's rules of conduct

20
<PAGE> 23

for the Annual Meeting prohibit the introduction of substantive matters not
previously presented to the Stockholders in a proxy statement. As to other
business, such as procedural matters, that may come before the meeting, the
person or persons holding proxies will vote those proxies in the manner they
believe to be in the best interests of the Company and its Stockholders.

STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING

Any Stockholder who wishes to present a proposal at the Company's 2000
Annual Meeting of Stockholders must deliver such proposal to the Secretary of
the Company by January 31, 2000, for inclusion in the Company's proxy, notice of
meeting, and proxy statement for the 2000 Annual Meeting.

ADDITIONAL INFORMATION

The Company will bear the cost of soliciting proxies. Officers and
regular employees of the Company may solicit proxies by further mailings,
personal conversations, or by telephone, facsimile or other electronic
transmission. They will do so without compensation other than their regular
compensation. The Company will, upon request, reimburse brokerage firms and
others for their reasonable expenses in forwarding solicitation material to the
beneficial owners of stock.

THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO, FOR THE YEAR ENDED DECEMBER 31, 1998, WHEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE FURNISHED WITHOUT
CHARGE TO ANY STOCKHOLDER UPON REQUEST TO MR. RICHARD L. PARK, CHIEF FINANCIAL
OFFICER, LOCAL FINANCIAL CORPORATION, 3601 N.W. 63RD STREET, OKLAHOMA CITY,
OKLAHOMA 73116. STOCKHOLDERS REQUESTING EXHIBITS TO THE FORM 10-K WILL BE
PROVIDED THE SAME UPON PAYMENT OF REPRODUCTION EXPENSES.

By Order of the Board of Directors

Alan L. Pollock
Secretary
April 12, 1999

<PAGE> 24
P
R
O
X
Y

LOCAL FINANCIAL CORPORATION
3601 N.W. 63RD STREET
OKLAHOMA CITY, OKLAHOMA 73116

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Edward A. Townsend, Jan A. Norton and
Richard L. Park as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of common stock of Local Financial Corporation held of record by the
undersigned on April 6, 1999, at the Annual Meeting of Shareholders to be held
on May 26, 1999, or any adjournment thereof.

1. ELECTION OF DIRECTORS

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[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY to
(except as marked to the vote for all nominees
contrary below) listed below
</TABLE>

(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE STRIKE
THROUGH THE NOMINEE'S NAME BELOW.)

Andrew M. Coats George P. Nigh Kenneth W. Townsend

2. APPROVAL OF THE LOCAL FINANCIAL 1998 STOCK OPTION PLAN

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. RATIFICATION OF KPMG, LLP, AS INDEPENDENT AUDITORS FOR 1999

[ ] FOR [ ] AGAINST [ ] ABSTAIN

(over)

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(Continued from other side)

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR EACH OF THE DIRECTOR NOMINEES, FOR APPROVAL OF THE 1998 PLAN AND
FOR RATIFICATION OF THE INDEPENDENT AUDITORS.

Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.

Dated:
-----------------, 1999

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(Signature)

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(Signature if held jointly)

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE