<PAGE>
As filed with the Securities and Exchange Commission on January 5, 1998
Registration No. 333-40057
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
CAVALRY BANCORP, INC.
-----------------------------------------------------
(Exact name of registrant as specified in charter)
Tennessee 6035 62-1721072
- ------------------------------- --------------------- -------------------
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
114 WEST COLLEGE STREET
MURFREESBORO, TENNESSEE 37130
(615) 893-1234
-----------------------------------------------------------------
(Address and telephone number of principal executive offices)
John F. Breyer, Jr., Esquire
Victor L. Cangelosi, Esquire
BREYER & AGUGGIA
Suite 470 East
1300 I Street, N.W.
Washington, D.C. 20005
--------------------------------------------
(Name and address of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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. [_]
<TABLE>
<CAPTION>
========================================================================================================================
Calculation of Registration Fee
========================================================================================================================
Title of Each Class of Securities Proposed Maximum Proposed Offering Proposed Maximum Amount of
Being Registered Amount Being Price(1) Aggregate Offering Registration Fee
Registered(1) Price(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, No Par Value 7,538,250 $10.00 $75,382,500 $22,844(2)
Participation interests 50,000 -- -- --(3)
========================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee. As
described in the Prospectus, the actual number of shares to be issued and
sold is subject to adjustment based upon the estimated pro forma market
value of the registrant and market and financial conditions.
(2) Previously paid.
(3) The securities of Cavalry Bancorp, Inc., to be purchased by the Cavalry
Banking 401(k) Plan are included in the amount shown for Common Stock.
Accordingly, pursuant to Rule 457(h) of the Securities Act of 1933, as
amended, no separate fee is required for the participation interests.
Pursuant to such rule, the amount being registered has been calculated on
the basis of the number of shares of Common Stock that may be purchased
with the current assets of such Plan.
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>
Cross Reference Sheet showing the location in the Prospectus
of the Items of Form S-1
<TABLE>
<S> <C> <C>
1. Forepart of the Registration Forepart of the Registration Statement;
Statement and Outside Front Outside Front Cover Page
Cover of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back
Cover Pages of Prospectus Cover Page
3. Summary Information, Risk Factors Prospectus Summary; Risk Factors
and Ratio of Earnings
to Fixed Charges
4. Use of Proceeds Use of Proceeds; Capitalization
5. Determination of Offering Price Market for Common Stock
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution The Conversion
9. Description of Securities to be Description of Capital Stock
Registered
10. Interests of Named Experts and Legal and Tax Opinions; Experts
Counsel
11. Information with Respect to the
Registrant
(a) Description of Business Business of the Holding Company;
Business of the Bank
(b) Description of Property Business of the Bank -- Properties
(c) Legal Proceedings Business of the Bank -- Legal
Proceedings
(d) Market Price of and Dividends Outside Front Cover Page; Market for
on the Registrant's Common Equity Common Stock; Dividend Policy
and Related Stockholder Matters
(e) Financial Statements Financial Statements; Pro Forma Data
(f) Selected Financial Data Selected Financial and Other Data
(g) Supplementary Financial *
Information
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(h) Management's Discussion and Management's Discussion and Analysis of
Analysis of Financial Condition Financial Condition and Results of
and Results of Operations Operations
(i) Changes in and Disagreements *
with Accountants on Accounting
and Financial Disclosure
(j) Directors and Executive Management of the Holding Company; Management of
Officers the Bank
(k) Executive Compensation Management of the Holding Company; Management of
the Bank -- Benefits -- Executive Compensation
(l) Security Ownership of Certain *
Beneficial Owners and Management
(m) Certain Relationships and Management of the Bank -- Transactions with
Related Transactions the Bank
12. Disclosure of Commission Position Part II - Item 17
on Indemnification for Securities
Act Liabilities
</TABLE>
_____________
*Item is omitted because answer is negative or item inapplicable.
<PAGE>
PROSPECTUS SUPPLEMENT
CAVALRY BANCORP, INC.
CAVALRY BANKING
401(K) SAVINGS PLAN
This Prospectus Supplement relates to the offer and sale to participants
("Participants") in the Cavalry Banking 401(k) Savings Plan ("Plan" or "401(k)
Plan") of participation interests and shares of Cavalry Bancorp, Inc. common
stock, par value $.01 per share ("Common Stock"), as set forth herein.
In connection with the proposed conversion of Cavalry Banking ("Bank" or
"Employer") from a federally chartered mutual savings bank to a federally
chartered stock savings bank and thereafter, to a Tennessee-chartered commercial
bank, a holding company, Cavalry Bancorp, Inc. ("Holding Company"), has been
formed. The simultaneous conversion of the Bank to stock form, the issuance of
the Bank's common stock to the Holding Company and the offer and sale of the
Holding Company's Common Stock to the public are herein referred to as the
"Conversion." Applicable provisions of the 401(k) Plan permit the investment of
the Plan assets in Common Stock of the Holding Company at the direction of a
Plan Participant. This Prospectus Supplement relates to the election of a
Participant to direct the purchase of Common Stock in connection with the
Conversion.
The Prospectus, dated _________, 1998, of the Holding Company
("Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information with respect to the Conversion, the Common Stock and the
financial condition, results of operations and business of the Bank and the
Holding Company. This Prospectus Supplement, which provides detailed information
with respect to the Plan, should be read only in conjunction with the
Prospectus. Terms not otherwise defined in this Prospectus Supplement are
defined in the Plan or the Prospectus.
A PARTICIPANT'S ELIGIBILITY TO PURCHASE COMMON STOCK IN THE CONVERSION
THROUGH THE PLAN IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE
SHARES OF COMMON STOCK IN THE CONVERSION AND THE MAXIMUM AND MINIMUM LIMITATIONS
SET FORTH IN THE PLAN OF CONVERSION. SEE "THE CONVERSION" AND "-- LIMITATIONS
ON PURCHASES OF SHARES" IN THE PROSPECTUS.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" IN THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT SUPERVISION ("OTS"), THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER FEDERAL OR STATE
AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR
ANY OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus Supplement is ____________, 1998.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Bank or the Plan. This Prospectus
Supplement does not constitute an offer to sell or solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstances create any implication that there has been no change in
the affairs of the Bank or the Plan since the date hereof, or that the
information herein contained or incorporated by reference is correct as of any
time subsequent to the date hereof. This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached herein and should be
retained for future reference.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Offering
Securities Offered...................................... S-1
Election to Purchase Common Stock in the Conversion..... S-1
Value of Participation Interests........................ S-1
Method of Directing Transfer............................ S-1
Time for Directing Transfer............................. S-2
Irrevocability of Transfer Direction.................... S-2
Direction Regarding Common Stock After the Conversion... S-2
Purchase Price of Common Stock.......................... S-2
Nature of a Participant's Interest in the Common Stock.. S-2
Voting and Tender Rights of Common Stock................ S-3
Description of the Plan
Introduction............................................ S-3
Eligibility and Participation........................... S-4
Contributions Under the Plan............................ S-4
Limitations on Contributions............................ S-5
Investment of Contributions............................. S-7
The Employer Stock Fund................................. S-7
Benefits Under the Plan................................. S-8
Withdrawals and Distributions from the Plan............. S-8
Administration of the Plan.............................. S-9
Reports to Plan Participants............................ S-9
Plan Administrator...................................... S-10
Amendment and Termination............................... S-10
Merger, Consolidation or Transfer....................... S-10
Federal Income Tax Consequences......................... S-10
Restrictions on Resale.................................. S-13
Legal Opinions............................................. S-14
Investment Form............................................ S-15
</TABLE>
i
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and
up to _______ shares, at the actual purchase price of $10.00 per share, of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Holding Company is the issuer of the Common
Stock. Only employees and former employees of the Bank and their beneficiaries
may participate in the Plan. Information with regard to the Plan is contained
in this Prospectus Supplement and information with regard to the Conversion and
the financial condition, results of operation and business of the Bank and the
Holding Company is contained in the attached Prospectus. The address of the
principal executive office of the Bank is 114 W. College, Murfreesboro,
Tennessee 37130. The Bank's telephone number is (615) 893-1234.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Bank's Conversion, each Participant in the 401(k)
Plan may direct the trustees of the Plan (collectively, the "Trustees") to
transfer up to 100% of a Participant's account balance to a newly created
Employer Stock Fund and to use such funds to purchase Common Stock issued in
connection with the Conversion. Amounts transferred may include salary
deferral, matching and profit sharing contributions. The Employer Stock Fund
may consist of investments in the Common Stock made on or after the effective
date of the Conversion. Funds not transferred to the Employer Stock Fund will
continue to be invested by the trustees of the Plan (the "Trustees"). See
"DESCRIPTION OF THE PLAN -- INVESTMENT OF CONTRIBUTIONS" below. A PARTICIPANT'S
ABILITY TO TRANSFER FUNDS TO THE EMPLOYER STOCK FUND IN THE CONVERSION IS
SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON
STOCK IN THE CONVERSION. FOR GENERAL INFORMATION AS TO THE ABILITY OF THE
PARTICIPANTS TO PURCHASE SHARES IN THE CONVERSION, SEE "THE CONVERSION -- THE
SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS" IN THE
ATTACHED PROSPECTUS.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan on at
least an annual basis. This value represents the market value of past
contributions to the Plan by the Bank and by the Participants and earnings
thereon, less previous withdrawals, and transfers from other plans.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund ("Investment Form"). If a Participant
wishes to transfer funds to the Employer Stock Fund to purchase Common Stock
issued in connection with the Conversion, the
S-1
<PAGE>
Participant should indicate that decision in Part 2 of the Investment Form. If
a Participant does not wish to make such an election, he or she does not need to
take any action.
TIME FOR DIRECTING TRANSFER
THE DEADLINE FOR SUBMITTING A DIRECTION TO TRANSFER AMOUNTS TO THE EMPLOYER
STOCK FUND IN ORDER TO PURCHASE COMMON STOCK ISSUED IN CONNECTION WITH THE
CONVERSION IS ___________, 1998. The Investment Form should be returned to
_________ at the Bank no later than the close of business on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the sale of Common
Stock, as explained below.
DIRECTION REGARDING COMMON STOCK AFTER THE CONVERSION
It is currently anticipated that Participants may be permitted to transfer
additional funds from their existing account balances to the Employer Stock Fund
following the Conversion. In addition, it is anticipated that a Participant
will, on a periodic basis, direct the purchase of Common Stock with new
Participant and employer contributions or direct the sale of Common Stock. If
Common Stock is sold, the proceeds will be credited to the Participant's account
and may be reinvested in the other investment options available under the Plan.
In addition, cash dividends, if any, paid on the Common Stock may be invested in
the Plan's other investment options but may not be used to purchase additional
shares of Common Stock. Special restrictions may apply to purchases or sales
directed by those Participants who are executive officers, directors and
principal stockholders of the Holding Company who are subject to the provisions
of Section 16(b) of the Securities and Exchange Act of 1934, as amended
("Exchange Act"), or applicable OTS regulations.
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustees to purchase
shares of Common Stock. The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion.
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock purchased for an account of a Participant will be held in
the name of the Trustees of the Plan in the Employer Stock Fund. Any earnings,
losses or expenses with
S-2
<PAGE>
respect to the Common Stock, including dividends and appreciation or
depreciation in value, will be credited or debited to the account and will not
be credited to or borne by any other accounts.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustees generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with an
interest in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.
DESCRIPTION OF THE PLAN
INTRODUCTION
The Bank adopted the Plan effective January 1, 1993 as an amendment and
restatement of the Bank's prior defined contribution retirement plan. The Plan
is a cash or deferred arrangement established in accordance with the
requirements under Section 401(a) and Section 401(k) of the Internal Revenue
Code of 1986, as amended ("Code").
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank will
adopt any amendments to the Plan that may be necessary to ensure the qualified
status of the Plan under the Code and applicable Treasury Regulations. The Bank
has received a determination from the Internal Revenue Service ("IRS") that the
Plan is qualified under Section 401(a) of the Code and that it satisfies the
requirements for a qualified cash or deferred arrangement under Section 401(k)
of the Code.
EMPLOYEE RETIREMENT INCOME SECURITY ACT. The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA, which by their terms do not apply to an
individual account plan (other than a money purchase pension plan). The Plan is
not subject to Title IV (Plan Termination Insurance) of ERISA. Neither the
funding requirements contained in Title IV of ERISA nor the plan termination
insurance provisions contained in Title IV will be extended to Participants or
beneficiaries under the Plan.
S-3
<PAGE>
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS
MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, UNLESS A PARTICIPANT
RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF WHETHER SUCH A WITHDRAWAL
OCCURS DURING HIS OR HER EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.
REFERENCE TO FULL TEXT OF PLAN. THE FOLLOWING STATEMENTS ARE SUMMARIES OF
THE MATERIAL PROVISIONS OF THE PLAN. THEY ARE NOT COMPLETE AND ARE QUALIFIED IN
THEIR ENTIRETY BY THE FULL TEXT OF THE PLAN, WHICH IS FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT FILED WITH THE SEC. COPIES OF THE PLAN ARE AVAILABLE TO
ALL EMPLOYEES BY FILING A REQUEST WITH THE PLAN ADMINISTRATOR. EACH EMPLOYEE IS
URGED TO READ CAREFULLY THE FULL TEXT OF THE PLAN.
ELIGIBILITY AND PARTICIPATION
Any employee of the Bank is eligible to participate and will become a
Participant in the Plan following completion of one year of service with the
Bank and the attainment of age 21. The Plan year is the calendar year ("Plan
Year"). Directors who are not employees of the Bank are not eligible to
participate in the Plan.
During 1996, approximately __ employees participated in the Plan.
CONTRIBUTIONS UNDER THE PLAN
PARTICIPANT CONTRIBUTIONS. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to a
salary reduction agreement in amounts ranging from 1% to 15% of Compensation and
have that amount contributed to the Plan on such Participant's behalf. Such
amounts are credited to the Participant's deferral contributions account. For
purposes of the Plan, "Compensation" means a Participant's total amount of
earnings reportable W-2 wages for federal income tax withholding purposes plus a
Participant's elective deferrals pursuant to a salary reduction agreement under
the Plan or any elective deferrals to a Section 125 plan. Due to recent
statutory changes, the annual Compensation of each Participant taken into
account under the Plan is limited to $160,000 (as adjusted under applicable Code
provisions). A Participant may elect to modify the amount contributed to the
Plan under the participant's salary reduction agreement during the Plan Year.
Deferral contributions are transferred by the Bank to the Trustees of the Plan
on a periodic basis as required by applicable law.
EMPLOYER CONTRIBUTIONS. For employees with one or more years of service,
the Bank currently matches employee deferral contributions dollar-for-dollar up
to 3% of Compensation.
S-4
<PAGE>
Additional contributions may also be made on a discretionary basis in proportion
to each Participant's Compensation.
LIMITATIONS ON CONTRIBUTIONS
LIMITATIONS ON ANNUAL ADDITIONS AND BENEFITS. Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Account during any Plan Year may not exceed the lesser of 25%
of the Participant's "Section 415 Compensation" for the Plan Year or $30,000 (as
adjusted under applicable Code provisions). A Participant's "Section 415
Compensation" is a Participant's Compensation, excluding any amount contributed
to the Plan under a salary reduction agreement or any employer contribution to
the Plan or to any other plan or deferred compensation or any distributions from
a plan of deferred compensation. In addition, annual additions are limited to
the extent necessary to prevent the limitations for the combined plans of the
Bank from being exceeded. To the extent that these limitations would be
exceeded by reason of excess annual additions to the Plan with respect to a
Participant, the excess must be reallocated to the remaining Participants who
are eligible for an allocation of Employer contributions for the Plan Year.
LIMITATION ON 401(K) PLAN CONTRIBUTIONS. The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax-deferred annuity) may not exceed $10,000 (as adjusted under
applicable Code provisions). Contributions in excess of this limitation
("excess deferrals") will be included in the Participant's gross federal income
tax purposes in the year they are made. In addition, any such excess deferral
will again be subject to federal income tax when distributed by the Plan to the
Participant, unless the excess deferral (together with any income allocable
thereto) is distributed to the Participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
Participant in the taxable year in which the excess deferral is made.
LIMITATION ON PLAN CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES.
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
contributed by or on behalf of all other employees eligible to participate in
the Plan. Specifically, the actual deferral percentage for a Plan Year (i.e.,
----
the average of the ratios, calculated separately for each eligible employee in
each group, by dividing the amount of salary reduction contributions credited to
the salary reduction contribution account of such eligible employee by such
employee's compensation for the Plan Year) of the Highly Compensated Employees
may not exceed the greater of (a) 125% of the actual deferred percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual deferred
percentage of all other eligible employees, or (ii) the actual deferral
percentage of all other eligible employees plus two percentage points. In
addition, the actual contribution percentage for a Plan Year (i.e., the average
----
of the ratios calculated separately for each eligible employee in each
S-5
<PAGE>
group, by dividing the amount of employer contributions credited to the Matching
contributions account of such eligible employee by each eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (a) 125% of the actual contribution percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual
contributions percentage of all other eligible employees, or (ii) the actual
contribution percentage of all other eligible employees plus two percentage
points.
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
----
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
Employer) or, (2) during the preceding Plan Year, received Section 415
Compensation in excess of $80,000 (as adjusted under applicable Code provisions)
and, if elected by the Bank, was in the top paid group of employees for such
Plan Year.
In order to prevent disqualification of the Plan, any amounts contributed
by Highly Compensated Employees that exceed the average deferral limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the Bank will be subject to a 10%
excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of the first 2 1/2 months following the Plan Year
to which such excess contributions relate. In addition, in order to avoid
disqualification of the Plan, any contributions by Highly Compensated Employees
that exceed the average contribution limitation in any Plan Year ("excess
aggregate contributions") together with any income allocable thereto, must be
distributed to such Highly Compensated Employees before the close of the
following Plan Year. However, the 10% excise tax will be imposed on the Bank
with respect to any excess aggregate contributions, unless such amounts, plus
any income allocable thereto, are distributed within 2 1/2 months following the
close of the Plan Year in which they arose.
TOP-HEAVY PLAN REQUIREMENTS. If, for any Plan Year, the Plan is a Top-
Heavy Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions would apply with respect to the
combination of annual additions to the Plan and projected annual benefits under
any defined plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year, if as of the last day of the preceding Plan Year, the aggregate balance of
the accounts of all Participants who are key Employees exceeds 60% of the
aggregate balance of the Accounts of the Participants. "Key Employees"
generally include any employee, who at any time during the Plan Year or any
other the four preceding Plan Years, if (1) an officer of the Bank having annual
compensation in excess of $60,000 who is in an administrative or policy-making
capacity, (2) one of the ten employees having annual compensation in excess of
$30,000 and owing, directly or indirectly, the largest interest in the employer,
(3) a 5% owner of the employer (i.e., owns
----
S-6
<PAGE>
directly or indirectly more than 5% of the stock of the employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
employer), or (4) a 1% owner of the employer having compensation in excess of
$150,000.
INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participant's Accounts under the Plan are held in
the Trust which is administered by the Trustees who are appointed by the Bank's
Board of Directors. Currently, the investment of all Plan assets is directed by
the Trustees in their discretion in a manner consistent with the Plan's
investment policy.
In connection with the Conversion, a Participant may elect to have prior
contributions and additions to the Participant's Account invested either in the
Employer Stock Fund. Any amounts credited to a Participant's Accounts for which
investment directions are not given will continue to be invested on a
discretionary basis by the Trustees.
The net gain (or loss) in the Accounts from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust) are determined on a periodic basis. For purposes
of such allocation, all assets of the Trust are valued at their fair market
value.
THE EMPLOYER STOCK FUND
The Employer Stock Fund will consist of investments in Common Stock made on
and after the effective date of the Conversion.
Following the Conversion, when Common Stock is sold, the cost or net
proceeds will be charged or credited to the Accounts of Participants affected by
the purchase or sale. A Participant's Account will also be adjusted to reflect
changes in the value of shares of Common Stock resulting from stock dividends,
stock splits and similar changes.
To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will consist
only of the market value appreciation of the Common Stock subsequent to its
purchase. Declarations and payments of any dividends (regular and special) by
the Board of Directors will depend upon a number of factors, including the
amount of the net proceeds retained by the Holding Company, capital
requirements, regulatory limitations, the Bank's and the Holding Company's
financial condition and results of operations, tax considerations and general
economic conditions.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund.
S-7
<PAGE>
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN RISK FACTORS
ASSOCIATED WITH INVESTMENTS IN COMMON STOCK OF THE HOLDING COMPANY. FOR A
DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
BENEFITS UNDER THE PLAN
VESTING. A Participant has, at all times, a fully vested, nonforfeitable
interest in all of his or her Participant and Employer contributions and the
earnings thereon under the Plan.
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2
UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE BANK.
DISTRIBUTION UPON RETIREMENT, DEATH, DISABILITY OR TERMINATION OF
EMPLOYMENT. The normal form of distribution under the 401(k) Plan to a married
Participant who retires, incurs a disability, or otherwise terminates employment
is an joint-and-50% annuity payable over the life of the Participant and his
surviving spouse. The normal form of distribution to an unmarried participant
is an annuity for the life of the Participant. Optional forms of distribution
include a lump-sum payment or installment periods over a specified period.
Distributions generally commence as soon as practicable following the
Participant's termination of employment. At the request of the Participant, the
distribution may include an in-kind distribution of Common Stock of the Holding
Company credited to the Participant's Account. Benefits payments ordinarily
must begin not later than 60 days following the end of the Plan Year in which
occurs later of the Participant's: (i) termination of employment; (ii)
attainment of age 65; or (iii) tenth anniversary of commencement of
participation in the Plan; but in no event later than April 1 following the
calendar year in which the Participant attains age 70 1/2 (if the Participant is
retired). However, if the vested portion of the Participant's Account balances
exceeds $5,000, no distribution will be made from the Plan prior to the
Participant's attaining age 65 unless the Participant consents to an earlier
distribution. Special rules may apply to the distribution of Common Stock of
the Holding Company to those Participants who are executive officers, directors
and principal shareholders of the Holding Company who are subject to the
provisions of Section 16(b) of the Exchange Act.
IN-SERVICE WITHDRAWALS AND LOANS. The Plan provides for distributions of
Participant deferral contributions prior to termination of employment in the
form of hardship withdrawals. Such withdrawals are permitted where the funds
are applied to (i) uninsured medical expenses, (ii) the purchase of a principal
residence, (iii) the payment of tuition and other education expenses or (iv)
payments necessary to prevent eviction from a principal residence or foreclosure
on a
S-8
<PAGE>
mortgage. In order to qualify for a hardship withdrawal, the Participant must
satisfy certain requirements relating to his or her financial resources and the
amount of the withdrawal may not exceed the Participant's immediate and heavy
financial need.
The Plan does not provide for other in-service withdrawals or loans.
NONALIENATION OF BENEFITS. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
TRUSTEES. The Trustees with respect to Plan assets are currently N. Gary
Brown, Frank Crosslin and W. Henry Huddleston, all directors of the Bank.
Pursuant to the terms of the Plan, the Trustees receive and hold
contributions to the Plan in trust and have exclusive authority and discretion
to manage and control the assets of the Plan pursuant to the terms of the Plan
and to manage, invest and reinvest the Trust and income therefrom. The Trustees
have the authority to invest and reinvest the Trust and may sell or otherwise
dispose of Trust investments at any time and may hold trust funds uninvested.
The Trustees have authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
The Trustees have full power to vote any corporate securities in the Trust
in person or by proxy; provided, however, that the Participants will direct the
Trustees as to voting and tendering of all Common Stock held in the Employer
Stock Fund.
The Trustees receive no compensation for their services. The expenses of
the Trustees are paid out of the Trust except to the extent such expenses and
compensation are paid by the Bank.
The Trustees must render at least annual reports to the Bank and to the
Participants in such form and containing such information that the Trustees deem
necessary.
REPORTS TO PLAN PARTICIPANTS
The Plan Administrator furnishes to each Participant a statement at least
quarterly showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to such Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any).
S-9
<PAGE>
PLAN ADMINISTRATOR
The Bank currently serves as the Plan Administrator. The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, beneficiaries and others under Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
The Bank may terminate the Plan at any time. If the Plan is terminated in
whole or in part, then regardless of other provisions in the Plan, each employee
who ceases to be a Participant shall have a fully vested interest in his or her
Account. The Bank reserves the right to make, from time to time, any amendment
or amendments to the Plan which do not cause any part of the Trust to be used
for, or diverted to, any purpose other than the exclusive benefit of the
Participants or their beneficiaries.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN. THE
SUMMARY IS NECESSARILY GENERAL IN NATURE AND DOES NOT PURPORT TO BE COMPLETE.
MOREOVER, STATUTORY PROVISIONS ARE SUBJECT TO CHANGE, AS ARE THEIR
INTERPRETATIONS, AND THEIR APPLICATION MAY VARY IN INDIVIDUAL CIRCUMSTANCES.
FINALLY, THE CONSEQUENCES UNDER APPLICABLE STATE AND LOCAL INCOME TAX LAWS MAY
NOT BE THE SAME AS UNDER THE FEDERAL INCOME TAX LAWS.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.
S-10
<PAGE>
The Plan has received a determination from the IRS that it is qualified
under Sections 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code. A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which include
the following: (1) the sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan of each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the Plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments. The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law. The Bank expects to timely adopt any
amendments to the Plan that may be necessary to maintain the qualified status of
the Plan under the Code. Following such an amendment, the Plan will be
submitted to the IRS for a determination that the Plan, as amended, continues to
qualify under Sections 401(a) and 501(a) of the Code and that it continues to
satisfy the requirements for a qualified cash or deferred arrangement under
Section 401(k) of the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:
(a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan.
Special tax treatment may apply to the taxable portion of any distribution that
includes Common Stock or qualified as a "Lump Sum Distribution" (as described
below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
LUMP SUM DISTRIBUTION. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it
is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59 1/2; and (iii) consists of the balance to the
credits of the Participant under the Plan and all other profit sharing plans, if
any, maintained by the Bank. The portion of any Lump Sum Distribution that is
required to be included in the Participant's or beneficiary's taxable income for
federal income tax purposes ("total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the amount of after-tax contributions,
if any, made by the Participant to any other profit sharing plans maintained by
the Bank which is included in such distribution.
AVERAGING RULES. The portion of the total taxable amount of a Lump Sum
Distribution ("ordinary income portion") will be taxable generally as ordinary
income for federal income tax purposes. However, for distributions occurring
prior to January 1, 2000, a Participant who has completed at least five years of
participation in the Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in the Plan or any other profit sharing plan maintained by the Employer), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year
S-11
<PAGE>
averaging"). The election of the special averaging rules may apply only to one
Lump Sum Distribution received by the Participant or beneficiary, provided such
amount is received on or after the Participant turns 59 1/2 and the recipient
elects to have any other Lump Sum Distribution from a qualified plan received in
the same taxable year taxed under the special averaging rule. The special five-
year averaging rule has been repealed for distributions occurring after December
31, 1999. Under a special grandfather rule, individuals who turned 50 by 1986
may elect to have their Lump Sum Distribution taxed under either the five-year
averaging rule (if available) or the prior law ten-year averaging rule. Such
individuals also may elect to have that portion of the Lump Sum Distribution
attributable to the Participant's pre-1974 participation in the Plan taxed at a
flat 20% rate as gain from the sale of a capital asset.
COMMON STOCK INCLUDED IN LUMP SUM DISTRIBUTION. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
- ----
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations by the IRS.
DISTRIBUTIONS: ROLLOVERS AND DIRECT TRANSFERS TO ANOTHER QUALIFIED PLAN OR
TO AN IRA. Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustees transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA. If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan of to an IRA, the
distribution will be subject to a mandatory federal withholding tax equal to 20%
of the taxable distribution. An "eligible rollover distribution" means any
amount distributed from the Plan except: (1) a distribution that is (a) one of
a series of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life of the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law. The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled
S-12
<PAGE>
over or transferred, i.e., forward averaging, capital gains tax treatment and
----
the nonrecognition of net unrealized appreciation, discussed earlier.
ADDITIONAL TAX ON EARLY DISTRIBUTIONS. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part 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 his or her
beneficiary, (iv) made to the Participant after separation from service on
account of early retirement under the Plan after attainment of age 55, (v) made
to pay medical expenses to the extent deductible for federal income tax
purposes, (vi) pursuant to a qualified domestic relations order, or (vii) made
to effect the distribution of excess contributions or excess deferrals.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving shares of the Common Stock under the Plan who is an
"affiliate" of the Bank or the Holding Company as the term "affiliate" is used
in Rules 144 and 405 under the Securities Act of 1933, as amended ("Securities
Act") (e.g., directors, officers and substantial shareholders of the Bank) may
reoffer or resell such shares only pursuant to a registration statement filed
under the Securities Act (the Holding Company and the Bank having no obligation
to file such registration statement) or, assuming the availability thereof,
pursuant to Rule 144 or some other exemption from the registration requirements
of the Securities Act. Any person who may be an "affiliate" of the Bank or the
Holding Company may wish to consult with counsel before transferring any Common
Stock owned by him or her. In addition, Participants who are officers of the
Bank or the Holding Company are advised to consult with counsel as to the
applicability of the reporting and short-swing profit liability rules of Section
16 of the Exchange Act which may affect the purchase and sale of the Common
Stock where acquired or sold under the Plan or otherwise.
S-13
<PAGE>
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Breyer & Aguggia, Washington, D.C., which firm is acting as special counsel for
the Holding Company in connection with the Conversion.
S-14
<PAGE>
Investment Form
(Employer Stock Fund)
CAVALRY BANKING
401(K) SAVINGS PLAN
Name of Participant:______________________________
Social Security Number:___________________________
1. Instructions. In connection with the proposed conversion of Cavalry
Banking ("Bank") to a stock savings bank and the simultaneous formation of a
holding company ("Conversion"), participants in the Cavalry Banking 401(k)
Savings Plan ("Plan") may elect to direct the investment of up to 100% of their
account balance into the Employer Stock Fund ("Employer Stock Fund"). Amounts
transferred at the direction of Participants into the Employer Stock Fund will
be used to purchase shares of the common stock of Cavalry Bancorp, Inc. ("Common
Stock"), the proposed holding company for the Bank. A PARTICIPANT'S ELIGIBILITY
TO PURCHASE SHARES OF COMMON STOCK IS SUBJECT TO THE PARTICIPANT'S GENERAL
ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION AND THE MAXIMUM
AND MINIMUM LIMITATIONS SET FORTH IN THE PLAN CONVERSION. SEE THE PROSPECTUS
FOR ADDITIONAL INFORMATION.
You may use this form to direct a transfer of funds credited to your
account to the Employer Stock Fund, to purchase Common Stock in the Conversion.
To direct such a transfer to the Employer Stock Fund, you should complete this
form and return it to _________ at the Bank, NO LATER THAN THE CLOSE OF BUSINESS
ON _______________, 1998. The Bank will keep a copy of this form and return a
copy to you. (If you need assistance in completing this form, please contact
_________).
2. Transfer Direction. I hereby direct the Plan Administrator to
transfer $__________ (in increments of $10) to the Employer Stock Fund to be
applied to the purchase of Common Stock in the Conversion. Please transfer this
amount from my Prudential Money Market Fund account.
3. Effectiveness of Direction. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan and the terms
and conditions of the Conversion. I acknowledge that I have received a copy of
the Prospectus and the Prospectus Supplement.
______________________________ ___________________________
Signature Date
* * * * *
4. Acknowledgement of Receipt. This Investment Form was received by the
Plan Administrator and will become effective on the date noted below.
______________________________ ___________________________
Plan Administrator Date
S-15
<PAGE>
PROSPECTUS CAVALRY BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR CAVALRY BANKING)
UP TO 6,555,000 SHARES OF COMMON STOCK
$10.00 PURCHASE PRICE PER SHARE
Cavalry Bancorp, Inc. ("Holding Company"), a Tennessee corporation, is
offering between 4,845,000 and 6,555,000 shares of its common stock, no par
value per share ("Common Stock"), in connection with the conversion of Cavalry
Banking ("Bank") from a federally chartered mutual savings bank to a federally
chartered capital stock savings bank and the simultaneous issuance of all of the
Bank's outstanding capital stock to the Holding Company pursuant to the Bank's
plan of conversion, as amended ("Plan of Conversion"). The conversion of the
Bank to a federally chartered capital stock savings bank and its acquisition by
the Holding Company are collectively referred to herein as the "Stock
Conversion." Following the completion of the Stock Conversion, the Bank may
convert from a federally chartered capital stock savings bank to a Tennessee-
chartered commercial bank as a subsidiary of the Holding Company ("Bank
Conversion"). All references to the "Bank" shall include its operation as a
federally chartered mutual savings bank, a federally chartered capital stock
savings bank, or a Tennessee-chartered commercial bank, as indicated by the
context. The Stock Conversion and the Bank Conversion are collectively referred
to herein as the "Conversion." As of the date of this Prospectus, neither the
Holding Company nor the Bank has filed any of the applicable regulatory
applications necessary to undertake the Bank Conversion. Under the Plan of
Conversion, the decision whether or not to undertake the Bank Conversion is in
the sole discretion of the Bank's Board of Directors. The Board of Directors
does not expect to make this decision until after the consummation of the Stock
Conversion. No assurance can be given that the Bank Conversion will be
undertaken. The decision whether or not to undertake the Bank Conversion will
depend on the economic and regulatory climate at that time, among other factors.
See "PROSPECTUS SUMMARY -- The Conversion -- Bank Conversion."
Pursuant to the Plan of Conversion, nontransferable rights to subscribe
for the Common Stock ("Subscription Rights") have been granted, in order of
priority, to (i) depositors with $50.00 or more on deposit at the Bank as of
June 30, 1996 ("Eligible Account Holders"), (ii) the Bank's employee stock
ownership plan ("ESOP"), a tax-qualified employee benefit plan, (iii) depositors
with $50.00 or more on deposit at the Bank as of December 31, 1997
("Supplemental Eligible Account Holders"), and (iv) depositors of the Bank as of
______________, 1998 ("Voting Record Date") and borrowers of the Bank with loans
outstanding as of January 24, 1991, which continue to be outstanding as of the
Voting Record Date ("Other Members"), subject to the priorities and purchase
limitations set forth in the Plan of Conversion ("Subscription Offering").
SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE
TRANSFERRING THEIR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION
OFFERING OR SUBSCRIBING FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON WILL BE
SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OFFICE OF THRIFT SUPERVISION ("OTS") OR ANOTHER AGENCY
OF THE U.S. GOVERNMENT. THE SUBSCRIPTION OFFERING WILL EXPIRE AT 12:00 NOON,
CENTRAL TIME, ON FEBRUARY __, 1998 ("EXPIRATION DATE"), UNLESS EXTENDED BY THE
BANK AND THE HOLDING COMPANY FOR UP TO __ DAYS TO ____________ __, 1998. SUCH
EXTENSION MAY BE GRANTED WITHOUT ADDITIONAL NOTICE TO SUBSCRIBERS. See "THE
CONVERSION -- The Subscription, Direct Community and Syndicated Community
Offerings" and "-- Limitations on Purchases of Shares."
FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK,
CALL THE STOCK INFORMATION CENTER AT (615) ___-____.
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 1.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE SAVINGS
ASSOCIATION INSURANCE FUND ("SAIF") OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OTS, THE FDIC OR ANY OTHER FEDERAL AGENCY OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY
OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
(cover continued on following page)
TRIDENT SECURITIES, INC.
The date of this Prospectus is ____________ __, 1998.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Estimated Underwriting
Purchase Commissions and Estimated Net
Price(1) Other Fees and Expenses(2) Proceeds(3)
------------------------- -------------------------- ----------------
<S> <C> <C> <C>
Minimum Price Per Share.................. $ 10.00 $ 0.21 $ 9.79
Midpoint Price Per Share................. $ 10.00 $ 0.20 $ 9.80
Maximum Price Per Share.................. $ 10.00 $ 0.19 $ 9.81
Maximum Price Per Share, as adjusted(4).. $ 10.00 $ 0.18 $ 9.82
Minimum Total(5)......................... $48,450,000 $1,002,000 $47,448,000
Midpoint Total(6)........................ $57,000,000 $1,120,000 $55,880,000
Maximum Total(7)......................... $65,550,000 $1,238,000 $64,312,000
Maximum Total, as adjusted(4)(8)......... $75,382,500 $1,373,000 $74,009,500
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by Ferguson
& Company ("Ferguson") as of November 7, 1997, which states that the
estimated aggregate pro forma market value of the Holding Company and the
Bank as converted ranged from $48,450,000 to 65,550,000, with a midpoint of
$57,000,000 ("Estimated Valuation Range"). See "THE CONVERSION -- Stock
Pricing and Number of Shares to be Issued."
(2) Includes estimated expenses to the Holding Company and the Bank arising
from the Conversion, including fees to be paid to Trident Securities, Inc.
("Trident Securities") in connection with the Offerings. Trident
Securities' fees amount to $414,000, $532,000, $650,000 and $785,000 at the
minimum, midpoint, maximum and 15% above the Estimated Valuation Range,
respectively. Such fees may be deemed to be underwriting fees and Trident
Securities may be deemed to be an underwriter. Expenses, other than fees
to be paid to Trident Securities, are estimated to total approximately
$588,000 at each of the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Valuation Range. Actual expenses may be more or
less than estimated amounts. The Holding Company and the Bank have agreed
to indemnify Trident Securities against certain liabilities, including
liabilities that might arise under the Securities Act of 1933, as amended
("Securities Act"). See "USE OF PROCEEDS" and "THE CONVERSION -- Plan of
Distribution for the Subscription, Direct Community and Syndicated
Community Offerings."
(3) Actual net proceeds can vary substantially from the estimated amounts
depending upon actual expenses and the relative number of shares sold in
the Offerings. See "USE OF PROCEEDS" and "PRO FORMA DATA."
(4) Gives effect to an increase in the number of shares that could be sold in
the Offerings due to an increase in the pro forma market value of the
Holding Company and the Bank as converted up to 15% above the maximum of
the Estimated Valuation Range, without the resolicitation of subscribers or
any right of cancellation. The ESOP shall have a first priority right to
subscribe for such additional shares up to an aggregate of 8% of the Common
Stock issued in the Conversion; however, the ESOP may purchase all or part
of its shares in the open market after the consummation of the Conversion.
The issuance of such additional shares will be conditioned on a
determination by Ferguson that such issuance is compatible with its
determination of the estimated pro forma market value of the Holding
Company and the Bank as converted. See "THE CONVERSION -- Stock Pricing
and Number of Shares to be Issued."
(5) Assumes the issuance of 4,845,000 shares at $10.00 per share.
(6) Assumes the issuance of 5,700,000 shares at $10.00 per share.
(7) Assumes the issuance of 6,555,000 shares at $10.00 per share.
(8) Assumes the issuance of 7,538,250 shares at $10.00 per share.
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale to members of the general public through a direct
community offering ("Direct Community Offering") with preference being given to
natural persons and trusts of natural persons who are permanent residents of
Rutherford and Bedford Counties, Tennessee ("Local Community"), subject to the
right of the Holding Company to accept or reject orders in the Direct Community
Offering in whole or in part. The Direct Community Offering, if one is held, is
expected to begin immediately after the Expiration Date, but may begin at any
time during the Subscription Offering. The Direct Community Offering may
terminate on or after the Expiration Date, but not later than ____________ __,
1998 (or _________ __, 1998 if the Subscription Offering is fully extended),
unless further extended with the consent of the OTS. It is anticipated that
shares of Common Stock not subscribed for or purchased in the Subscription
Offering
<PAGE>
and the Direct Community Offering will be offered to eligible members of the
general public on a best efforts basis by a selling group of broker-dealers
managed by Trident Securities in a syndicated offering ("Syndicated Community
Offering"). The Subscription Offering, Direct Community Offering and Syndicated
Community Offering are referred to collectively as the "Offerings." If the
Conversion is not consummated within 45 days after the last day of the
Subscription Offering (which date will be no later than ________ __, 1998,
assuming a fully extended Subscription Offering) and the OTS consents to an
extension of time to complete the Conversion, subscribers will be given the
right to increase, decrease or rescind their orders. Such extensions may not go
beyond ___________ __, 1999.
With the exception of the ESOP, which is expected to subscribe for 8% of
the shares of Common Stock issued in the Stock Conversion, the Plan of
Conversion provides that no person (including all persons on a joint account),
either alone or together with associates of or persons acting in concert with
such person, may purchase in the Stock Conversion shares of Common Stock with an
aggregate purchase price of more than 655,500. If market conditions are such
that an increase in the maximum purchase limitation is necessary to sell a
number of shares in excess of the minimum of the Estimated Valuation Range, the
maximum purchase limitation may be increased at the sole discretion of the Bank
and the Holding Company subject to any required regulatory approval. See "THE
CONVERSION -- The Subscription, Direct Community and Syndicated Community
Offerings," "-- Limitations on Purchases of Shares" and "-- Procedure for
Purchasing Shares in the Subscription and Direct Community Offerings" for other
purchase and sale limitations. The minimum order is 25 shares.
The Holding Company must receive a properly completed and signed stock
order form and certification ("Order Form") along with full payment (or
appropriate instructions authorizing a withdrawal of the full payment from a
deposit account at the Bank) of $10.00 per share for all shares subscribed for
or ordered. Funds so received will be placed in segregated accounts created for
this purpose at the Bank and will earn interest at the Bank's passbook rate from
the date payment is received until the Stock Conversion is consummated or
terminated; these funds will be otherwise unavailable to the depositor until
such time. Payments authorized by withdrawals from deposit accounts will
continue to earn interest at the contractual rate until the Stock Conversion is
consummated or terminated, although such funds will be unavailable for
withdrawal until the Stock Conversion is consummated or terminated. ONCE
TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT THE CONSENT OF THE BANK
AND THE HOLDING COMPANY. The Holding Company is not obligated to accept orders
submitted on photocopied or telecopied Order Forms.
The Bank and the Holding Company have engaged Trident Securities as their
financial advisor and to assist the Holding Company in the sale of the Common
Stock in the Offerings. Trident Securities is a registered broker-dealer and a
member of the National Association of Securities Dealers, Inc. ("NASD").
Neither Trident Securities nor any other registered broker-dealer is obligated
to take or purchase any shares of Common Stock in the Offerings. The Holding
Company and the Bank reserve the right, in their absolute discretion, to accept
or reject, in whole or in part, any or all orders in the Direct Community or
Syndicated Community Offerings either at the time of receipt of an order or as
soon as practicable following the termination of the Offerings. See "THE
CONVERSION -- Plan of Distribution for the Subscription, Direct Community and
Syndicated Community Offerings."
Offering materials for the Subscription Offering initially will be
distributed to certain persons by mail, with copies also available by request or
at the Stock Information Center. The Bank has established the Stock Information
Center for purposes of coordinating the Offerings, including tabulating orders
and answering questions about the Offerings by telephone. See "THE CONVERSION -
- - Description of Sales Activities."
Prior to the Offerings, the Holding Company has not issued any capital
stock and accordingly there has been no market for the shares offered hereby.
There can be no assurance that an active and liquid trading market for the
Common Stock will develop or, if developed, will be maintained. The Holding
Company has received conditional approval to list the Common Stock on the Nasdaq
National Market under the symbol "CAVB." See "RISK FACTORS -- Absence of Prior
Market for the Common Stock" and "MARKET FOR COMMON STOCK."
<PAGE>
CAVALRY BANKING
MURFREESBORO, TENNESSEE
[Map depicting State of Tennessee and Rutherford, Bedford and Williamson
Counties]
THE STOCK CONVERSION IS CONTINGENT UPON APPROVAL OF THE BANK'S PLAN OF
CONVERSION BY AT LEAST A MAJORITY OF THE BANK'S ELIGIBLE VOTING MEMBERS, THE
SALE OF AT LEAST 4,845,000 SHARES OF COMMON STOCK PURSUANT TO THE PLAN OF
CONVERSION, AND RECEIPT OF ALL APPLICABLE REGULATORY APPROVALS.
<PAGE>
- --------------------------------------------------------------------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED OR GUARANTEED BY THE FDIC, THE SAIF OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and is
qualified in its entirety by the more detailed information and Consolidated
Financial Statements (including the Notes thereto) presented elsewhere in this
Prospectus. The purchase of Common Stock is subject to certain risks. See
"RISK FACTORS."
CAVALRY BANCORP, INC.
The Holding Company was organized on November 5, 1997 under Tennessee law
at the direction of the Bank to acquire all of the capital stock that the Bank
will issue upon its conversion from the mutual to stock form of ownership. The
Holding Company has only engaged in organizational activities to date. The
Holding Company has received conditional OTS approval to become a savings and
loan holding company through the acquisition of 100% of the capital stock of the
Bank. Immediately following the Stock Conversion, the only significant assets
of the Holding Company will be the outstanding capital stock of the Bank, 50% of
the net proceeds of the Offerings as permitted by the OTS to be retained by it
and a note receivable from the ESOP evidencing a loan to enable the ESOP to
purchase 8% of the Common Stock issued in the Stock Conversion. Funds retained
by the Holding Company will be used for general business activities. See "USE
OF PROCEEDS." Upon consummation of the Stock Conversion, the Holding Company
will be classified as a unitary savings and loan holding company subject to OTS
regulation. See "REGULATION -- Savings and Loan Holding Company Regulations."
If the Bank Conversion is undertaken, the Holding Company's principal business
would become the business of the Bank as a Tennessee-chartered commercial bank
and it would register with the Board of Governors of the Federal Reserve System
("Federal Reserve") as a bank holding company under the Bank Holding Company
Act, as amended ("BHCA"). See "-- The Conversion -- Bank Conversion" and
"REGULATION -- Bank Holding Company Regulation." Management believes that the
holding company structure and retention of proceeds could facilitate possible
geographic expansion and diversification through future acquisitions of other
financial institutions and also enable the Holding Company to diversify, should
it decide to do so, into a variety of commercial banking-related activities.
There are no present plans, arrangements, agreements, or understandings, written
or oral, regarding any such acquisitions or activities. The holding company
structure will also facilitate the repurchase of shares in the open market,
subject to the discretion of the Holding Company's Board of Directors,
regulatory restrictions and market conditions. The main office of the Holding
Company is located at 114 West College Street, Murfreesboro, Tennessee 37130 and
its telephone number is (615) 893-1234.
CAVALRY BANKING
The Bank is a federally chartered mutual savings bank located in
Murfreesboro, Tennessee, which is approximately 30 miles southeast of Nashville,
Tennessee. Chartered in 1929 as a Tennessee-chartered mutual building and loan
association under the name "Murfreesboro Building and Loan Association," the
Bank converted to a federal charter and adopted the name "Murfreesboro Federal
Savings and Loan Association," in 1936. In 1984, the Bank adopted the name
"Cavalry Banking Federal Savings and Loan Association." In 1991, the Bank
adopted the name "Cavalry Banking, A Federal Savings Bank," and in 1996 the Bank
amended its mutual charter to adopt its current name. As a result of the
Conversion, the Bank will convert to a federal capital stock savings bank and
will become a wholly-owned subsidiary of the Holding Company. The Bank is
regulated by the OTS, its primary regulator, and by the FDIC, the insurer of its
deposits. The Bank's deposits have been federally-insured since 1936 and are
currently insured by the FDIC under the SAIF. The Bank has been a member of the
Federal Home Loan Bank ("FHLB") System since 1936. At September 30, 1997, the
Bank had total assets of $275.9 million, total deposits of $242.0 million and
total equity of $29.5 million on a consolidated basis.
(i)
<PAGE>
The Bank is a community-oriented financial institution whose primary
business is attracting deposits from the general public and using those funds to
originate a variety of loans to individuals residing within its primary market
area, and to businesses owned and operated by such individuals. The Bank
considers Rutherford, Bedford and Williamson Counties in Central Tennessee as
its primary market area.
The Bank believes that its operations more closely resemble those of a
traditional commercial bank than a traditional thrift institution. Unlike a
traditional thrift institution that primarily originates long-term residential
mortgage loans funded primarily with long term certificates of deposits, a
traditional commercial bank primarily originates commercial business, consumer
and other short term non-real estate loans funded primarily by non-interest
bearing demand deposit accounts and other short term liabilities. The Bank's
one- to- four family mortgage loan portfolio, as a percent of the total loan
portfolio, has decreased from 50.6% at December 31, 1992 to 32.7% at September
30, 1997. In addition, the Bank's certificates of deposit, as a percentage of
deposit accounts, have decreased from 60.7% at December 31, 1994 to 54.6% at
September 30, 1997. In addition to the change in its asset and liability mix,
the Bank is one of the few thrift institutions in its primary market area that
offers trust services. See "BUSINESS OF THE BANK -- Lending Activities," "--
Deposit Activities and Other Sources of Funds --Deposit Accounts" and "-- Trust
Department."
The Bank's lending activities are diverse. The Bank originates both
adjustable rate mortgage ("ARM") loans and fixed-rate mortgage loans.
Generally, ARM loans are retained in the Bank's portfolio and long-term fixed-
rate mortgage loans are originated for sale in the secondary market. In
addition, the Bank actively originates construction and acquisition and
development loans. At September 30, 1997, construction loans totalled $68.8
million, or 26.7% of total loans receivable, and acquisition and development
loans totalled $10.6 million, or 4.1% of total loans receivable. The Bank also
originates commercial real estate, commercial business, and consumer and other
non-real estate loans. At September 30, 1997, commercial real estate loans
totalled $37.1 million, or 14.4% of total loans receivable, commercial business
loans totalled $22.1 million, or 8.6% of total loans receivable, and consumer
and other non-real estate loans totalled $33.3 million, or 12.9% of total loans
receivable. See "BUSINESS OF THE BANK -- Lending Activities." The Bank invests
its excess liquidity in short-term U.S. Government and agency securities. See
"BUSINESS OF THE BANK -- Investment Activities."
The Bank conducts its operations from its main office and four branch
offices located in Murfreesboro, Tennessee, a branch office in Shelbyville,
Tennessee (Bedford County) and three offices in Smyrna, Tennessee (Rutherford
County). The Bank also operates a mortgage loan origination office in Franklin,
Tennessee (Williamson County). See "BUSINESS OF THE BANK -- Properties." The
main office is located at 114 West College Street, Murfreesboro, Tennessee 37130
and its telephone number is (615) 893-1234.
THE CONVERSION
STOCK CONVERSION. Pursuant to the Stock Conversion, the Bank is converting
from a federally chartered mutual savings bank to a federally chartered capital
stock savings bank as a wholly owned subsidiary of the Holding Company. Upon
consummation of the Stock Conversion, the Bank will issue all of its outstanding
capital stock to the Holding Company in exchange for 50% of the net proceeds
raised by the Holding Company in the Offerings. Simultaneously, the Holding
Company will sell its Common Stock in the Offerings. The Conversion has been
conditionally approved by the OTS, subject to approval by the Bank's members at
a special meeting to be held on ___________ __, 1998. AFTER CONSUMMATION OF THE
CONVERSION, DEPOSITORS AND BORROWERS OF THE BANK WILL HAVE NO VOTING RIGHTS IN
THE HOLDING COMPANY UNLESS THEY BECOME STOCKHOLDERS.
The Plan of Conversion requires that the aggregate purchase price of the
Common Stock to be issued in the Conversion be based upon an independent
appraisal of the estimated pro forma market value of the Holding Company and the
Bank, as converted. Ferguson has advised the Bank that in its opinion, at
November 7, 1997, the aggregate estimated pro forma market value of the Holding
Company and the Bank, as converted, ranged from $48,450,000 to $65,550,000 or
from 4,845,000 shares to 6,555,000 shares, assuming a $10.00 per share Purchase
Price. The appraisal of the pro forma market value of the Holding Company and
the Bank as converted is based on a number
(ii)
<PAGE>
of factors and should not be considered a recommendation to buy shares of the
Common Stock or any assurance that after the Conversion shares of Common Stock
will be able to be resold at or above the Purchase Price. The appraisal will be
updated or confirmed prior to consummation of the Conversion.
The Board of Directors and management believe that the Conversion is in the
best interests of the Bank, its members and the communities it serves. The
capital raised in the Conversion is intended to support the Bank's current
lending and investment activities and may also support possible future expansion
and diversification of operations, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any such expansion or
diversification. The Conversion is also expected to afford the Bank's members
and others the opportunity to become stockholders of the Holding Company and
participate more directly in, and contribute to, any future growth of the
Holding Company and the Bank. The Conversion will also enable the Holding
Company and the Bank to raise additional capital in the public equity or debt
markets should the need arise, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any such financing
activities. As a mutual institution, the Bank is unable to raise equity capital
or issue debt instruments (other than by accepting deposits). See "THE
CONVERSION -- Purposes of Conversion."
BANK CONVERSION. If the Bank Conversion is undertaken, the Bank would
operate as a Tennessee-chartered commercial bank and succeed to all of the
assets and liabilities of the Bank immediately prior to the Bank Conversion.
The Bank Conversion would have to be approved by the Commissioner of the
Department of Financial Institutions of the State of Tennessee ("Commissioner")
and the OTS. The Holding Company would also have to file an application with
the Federal Reserve to become the bank holding company for the Bank upon
consummation of the Bank Conversion. As of the date of this Prospectus, neither
the Holding Company nor the Bank has filed any of the required regulatory
applications to undertake the Bank Conversion.
Under the Plan of Conversion, the decision whether or not to undertake the
Bank Conversion is in the sole discretion of the Bank's Board of Directors. The
Board of Directors does not expect to make this decision until after the
consummation of the Stock Conversion, and no assurances can be given that the
Bank Conversion will be undertaken. In deciding whether or not to undertake the
Bank Conversion, the Board of Directors will consider, among other things, the
economic and regulatory climate at the time, particularly the status of proposed
federal legislation providing for a common "unified charter" for banks and
thrifts. Although no assurances can be given whether or not such legislation
will be passed; if passed, it would likely eliminate the banking and thrift
industries as separate industries. See "RISK FACTORS -- Recent Legislation and
the Future of the Thrift Industry." As a Tennessee-chartered commercial bank,
the Bank would have broader investment and lending authorities than it now has
as a federally chartered savings bank, particularly in the areas of commercial
real estate and commercial business lending. See "REGULATION -- Regulation of
the Bank as a Tennessee Chartered Commercial Bank."
Upon consummation of the Bank Conversion, the deposits of the Bank would
continue to be insured by the FDIC under the SAIF and the Bank would continue to
be regulated and supervised by the FDIC. The Commissioner, however, would
replace the OTS as the Bank's primary regulator. The Bank Conversion would not
result in any change in the Bank's management, directors, employees or office
locations.
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
The Holding Company is offering up to 6,555,000 shares of Common Stock at
$10.00 per share to holders of Subscription Rights in the following order of
priority: (i) Eligible Account Holders; (ii) the Bank's ESOP; (iii) Supplemental
Eligible Account Holders; and (iv) Other Members. In the event the number of
shares offered in the Stock Conversion is increased above the maximum of the
Estimated Valuation Range, the Bank's ESOP shall have a priority right to
purchase any such shares exceeding the maximum of the Estimated Valuation Range
up to an aggregate of 8% of the Common Stock. ONCE TENDERED, ORDERS ARE
IRREVOCABLE WITHOUT THE CONSENT OF THE BANK AND THE HOLDING COMPANY. Any shares
of Common Stock not subscribed for in the Subscription Offering may be offered
in the Direct Community Offering to the general public with preference being
given to natural persons and trusts of natural persons who are permanent
residents of the Local Community (Rutherford and Bedford
(iii)
<PAGE>
Counties of Tennessee). The Bank has engaged Trident Securities to consult with
and advise the Holding Company and the Bank in the Offerings, and Trident
Securities has agreed to use its best efforts to assist the Holding Company with
the solicitation of subscriptions and purchase orders for shares of Common Stock
in the Offerings. Trident Securities is not obligated to take or purchase any
shares of Common Stock in the Offerings. If all shares of Common Stock to be
issued in the Stock Conversion are not sold through the Subscription Offering
and the Direct Community Offering, then the Holding Company expects to offer the
remaining shares in a Syndicated Community Offering managed by Trident
Securities, which would occur as soon as practicable following the close of the
Subscription and Direct Community Offerings. All shares of Common Stock will be
sold at the same price per share in the Syndicated Community Offering as in the
Subscription Offering and the Direct Community Offering. See "USE OF PROCEEDS,"
"PRO FORMA DATA" and "THE CONVERSION -- Stock Pricing and Number of Shares to be
Issued." The Subscription Offering will expire at 12:00 Noon, Central Time, on
the Expiration Date, unless extended by the Bank and the Holding Company for up
to __ days. The Direct Community Offering and Syndicated Community Offering, if
any, may terminate on the Expiration Date or on any date thereafter; however, in
no event later than ____________ __, 1998, unless further extended with the
consent of the OTS.
BENEFITS OF THE CONVERSION TO MANAGEMENT
GENERAL. Management of the Holding Company and the Bank will participate
in the ESOP, and in the Cavalry Bancorp, Inc. 1998 Management Recognition Plan
and Trust ("MRP') and the Cavalry Bancorp, Inc. Stock Option Plan ("Stock Option
Plan") assuming the MRP and Stock Option Plan are approved by the Holding
Company's stockholders subsequent to the Stock Conversion. Based on the
issuance of 6,555,000 shares of Common Stock at the maximum of the Estimated
Valuation Range in the Stock Conversion, an aggregate of 1,441,700 shares of
Common Stock would be available for issuance under the ESOP, MRP and Stock
Option Plan with an aggregate value of approximately $14.4 million based on the
Purchase Price.
In addition, the Holding Company and the Bank intend to enter into
employment and severance agreements with certain members of senior management,
as well as establish an employee severance plan for members of management and
other key employees that provide for cash severance payments in the event of a
change in control of the Holding Company or the Bank. Assuming a change of
control had occurred at September 30, 1997, the maximum aggregate payment under
such employment and severance arrangements and severance plan would have been
approximately $1.9 million.
ESOP. In connection with the Stock Conversion, the Bank will adopt the
ESOP, a tax-qualified employee benefit plan for officers and employees of the
Holding Company and the Bank, which intends to purchase 8% of the shares of
Common Stock issued in the Offerings (524,400 shares of Common Stock, based on
the issuance of the maximum of the Estimated Valuation Range). In the event the
number of shares offered in the Stock Conversion is increased above the maximum
of the Estimated Valuation Range, the Bank's ESOP shall have a priority right to
purchase any such shares exceeding the maximum of the Estimated Valuation Range
up to an aggregate of 8% of the Common Stock. In the event that the ESOP's
subscription is not filled in its entirety, the ESOP may purchase additional
shares in the open market or may purchase authorized but unissued shares with
cash contributed to it by the Bank. See "MANAGEMENT OF THE BANK -- Benefits --
Employee Stock Ownership Plan." As a result of the adoption of the ESOP, the
Holding Company will recognize compensation expense in an amount equal to the
fair market value of the ESOP shares when such shares are committed to be
released to participants' accounts. See "RISK FACTORS -- New Expenses
Associated With ESOP and MRP" and "PRO FORMA DATA."
MRP. The Holding Company expects to seek stockholder approval of the MRP.
The MRP will reserve a number of shares equal to 4% of the number of shares
issued in the Stock Conversion. Under current OTS regulations, the approval of a
majority vote of the Holding Company's outstanding shares of Common Stock is
required prior to the implementation of the MRP within one year of the
consummation of the Stock Conversion. If stockholder approval of the MRP is
obtained, it is expected that awards of up to 262,200 shares of Common Stock
(based on the issuance of the maximum of the Estimated Valuation Range) will be
made to key employees and directors of the Holding Company and the Bank
(iv)
<PAGE>
at no cost to the recipient. Although no specific award determinations have
been made at this time, the Holding Company and the Bank anticipate that if
stockholder approval is obtained it would provide awards to its directors,
officers and employees to the extent permitted by applicable regulations. Under
current OTS regulations, if the MRP is implemented within one year of the
consummation of the Stock Conversion, (i) no officer or employee could receive
an award covering in excess of 25%, (ii) no nonemployee director may receive in
excess of 5% and (iii) nonemployee directors, as a group, could not receive in
excess of 30% of the number of shares reserved for issuance under the MRP. In
addition, all awards would be subject to vesting at a minimum rate of 20% per
year. The size of individual awards will be determined prior to submitting the
MRP for stockholder approval, and disclosure of anticipated awards will be
included in the proxy materials for such meeting. See "PRO FORMA DATA" and
"MANAGEMENT OF THE BANK -- Benefits -- Management Recognition Plan."
STOCK OPTION PLAN. The Holding Company expects to seek stockholder approval
of the Stock Option Plan The Stock Option Plan will reserve a number of shares
equal to 10% of the number of shares issued in the Stock Conversion. Under
current OTS regulations, the approval of a majority vote of the Holding
Company's outstanding shares of Common Stock is required prior to the
implementation of the Stock Option Plan within one year of the consummation of
the Stock Conversion. If stockholder approval of the Stock Option Plan is
obtained, it is expected that options to acquire up to 655,500 shares of Common
Stock of the Holding Company will be awarded to key employees and directors of
the Holding Company and the Bank (based on the issuance of the maximum of the
Estimated Valuation Range). The exercise price of such options will be 100% of
the fair market value of the Common Stock on the date the option is granted.
Although no specific award determinations have been made at this time, the
Holding Company and the Bank anticipate that if stockholder approval is obtained
it would provide awards to its directors, officers and employees to the extent
permitted by applicable regulations. Under current OTS regulations, if the Stock
Option Plan is implemented within one year of the consummation of the Stock
Conversion, (i) no officer or employees could receive an award of options
covering in excess of 25%, (ii) no nonemployee director could receive in excess
of 5% and (iii) nonemployee directors, as a group, could not receive in excess
of 30% of the number of shares reserved for issuance under the Stock Option
Plan. In addition, all awards would be subject to vesting at a minimum rate of
20% per year. The size of individual awards will be determined prior to
submitting the Stock Option Plan for stockholder approval, and disclosure of
anticipated awards will be included in the proxy materials for such meeting.
Options are valuable only to the extent that they are exercisable and the market
price for the underlying share of Common Stock is in excess of the exercise
price. An option effectively eliminates the market risk of holding the
underlying securities since no consideration is paid for the option until it is
exercised. Therefore, the recipient may, within the limits of the term of the
option, wait to exercise the option until the market price exceeds the exercise
price. See "MANAGEMENT OF THE BANK -- Benefits -- Stock Option Plan."
EMPLOYMENT AND SEVERANCE AGREEMENTS. The Holding Company and the Bank have
agreed to enter into employment agreements with two of the Bank's executive
officers, which provide certain benefits in the event of their termination
following a change in control of the Holding Company or the Bank. In the event
of a change in control of the Holding Company or the Bank, as defined in the
agreement, each executive officer will be entitled to a package of cash and/or
benefits with a maximum value equal to 2.99 times their average annual
compensation during the five-year period preceding the change in control.
Assuming a change of control occurred as of September 30, 1997 the aggregate
value of the severance benefits payable to these executive officers under the
employment agreements would have been approximately $1.1 million. See
"MANAGEMENT OF THE BANK -- Executive Compensation -- Employment Agreements."
The Holding Company and the Bank also have agreed to enter into severance
agreements with seven of the Bank's senior officers, none of whom will be
covered by an employment agreement. The severance agreements provide certain
benefits in the event of their termination following a change in control of the
Holding Company or the Bank. In the event of a change in control of the Holding
Company or the Bank, as defined in the agreement, each senior officer will be
entitled to a package of cash and/or benefits with a maximum value equal to 2.99
times their average annual compensation during the five-year period preceding
the change in control. Assuming a change of control occurred as of September
30, 1997, the aggregate value of the severance benefits payable to these senior
(v)
<PAGE>
officers under the severance agreements would have been approximately $650,000.
See "MANAGEMENT OF THE BANK -- Executive Compensation -- Severance Agreements."
KEY EMPLOYEE SEVERANCE COMPENSATION PLAN. In connection with the Stock
Conversion, the Board of Directors of the Bank intends to adopt a key Employee
Severance Compensation Plan ("Severance Plan") to provide benefits to eligible
key employees in the event of a change in control of the Holding Company or the
Bank. Officers who enter into separate employment or severance agreements with
the Holding Company and the Bank will not be eligible to participate in the
Severance Plan. The Severance Plan provides that, in the event of a change in
control of the Holding Company or the Bank, eligible key employees who are
terminated or who terminate employment (but only upon the occurrence of events
specified in the Severance Plan) within 12 months of the effective date of a
change in control will be entitled to a payment based on years of service with
the Bank, subject to certain limits. Assuming that a change in control had
occurred at September 30, 1997 and the termination of all eligible employees,
the maximum aggregate payment due under the Severance Plan would be
approximately $116,000. See "MANAGEMENT OF THE BANK -- Executive Compensation -
- - Employee Severance Compensation Plan."
For information concerning the possible voting control of officers,
directors and employees following the Stock Conversion, see "RISK FACTORS --
Anti-takeover Considerations -- Voting Control by Insiders."
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING COMMON STOCK
To ensure that each purchaser receives a Prospectus at least 48 hours prior
to the Expiration Date, in accordance with Rule 15c2-8 under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), no Prospectus will be mailed
later than five days or hand delivered any later than two days prior to the
Expiration Date. Execution of the Order Form will confirm receipt or delivery
of a Prospectus in accordance with Rule 15c2-8. Order Forms will be distributed
only with a Prospectus. Neither the Holding Company, the Bank nor Trident
Securities is obligated to deliver a Prospectus and an Order Form by any means
other than the U.S. Postal Service.
To ensure that Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members are properly identified as to their stock purchase
priorities, such parties must list all deposit accounts, or in the case of Other
Members who are only borrowers, loans held at the Bank, on the Order Form giving
all names on each deposit account and/or loan and the account and/or loan
numbers at the applicable eligibility date.
Full payment by check, cash (except by mail), money order, bank draft or
withdrawal authorization (payment by wire transfer will not be accepted) must
accompany an original Order Form. THE HOLDING COMPANY IS NOT OBLIGATED TO
ACCEPT ORDERS SUBMITTED ON PHOTOCOPIED OR TELECOPIED ORDER FORMS. ORDERS CANNOT
AND WILL NOT BE ACCEPTED WITHOUT THE EXECUTION OF THE CERTIFICATION APPEARING ON
THE REVERSE SIDE OF THE ORDER FORM. See "THE CONVERSION -- Procedure for
Purchasing Shares in the Subscription and Direct Community Offering."
PURCHASE LIMITATIONS
With the exception of the ESOP, which is expected to subscribe for 8% of
the shares of Common Stock issued in the Stock Conversion, the Plan of
Conversion provides that no person (including all persons on a joint account),
either alone or together with associates of or persons acting in concert with
such person, may purchase in the Stock Conversion shares of Common Stock with an
aggregate purchase price of more than 655,500. THIS MAXIMUM PURCHASE LIMITATION
MAY BE INCREASED CONSISTENT WITH OTS REGULATIONS IN THE SOLE DISCRETION OF THE
HOLDING COMPANY AND THE BANK SUBJECT TO ANY REQUIRED REGULATORY APPROVAL. The
minimum purchase is 25 shares.
(vi)
<PAGE>
The term "acting in concert" is defined in the Plan of Conversion to mean:
(i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. The Holding Company and the Bank may presume that certain persons
are acting in concert based upon, among other things, joint account
relationships and the fact that such persons have filed joint Schedules 13D with
the Securities and Exchange Commission ("SEC") with respect to other companies.
The term "associate" of a person is defined in the Plan of Conversion to mean:
(i) any corporation or organization (other than the Bank or a majority-owned
subsidiary of the Bank) 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 (excluding tax-qualified employee plans); and
(iii) any relative or spouse of such person, or any relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Bank or any of its parents or subsidiaries. THE HOLDING COMPANY AND THE BANK
MAY PRESUME THAT CERTAIN PERSONS ARE ACTING IN CONCERT BASED UPON, AMONG OTHER
THINGS, JOINT ACCOUNT RELATIONSHIPS AND THE FACT THAT SUCH PERSONS HAVE FILED
JOINT SCHEDULES 13D WITH THE SEC WITH RESPECT TO OTHER COMPANIES.
Stock orders received either through the Direct Community Offering or the
Syndicated Community Offering, if held, may be accepted or rejected, in whole or
in part, at the discretion of the Holding Company and the Bank. See "THE
CONVERSION -- Limitations on Purchases of Shares." If an order is rejected in
part, the purchaser does not have the right to cancel the remainder of the
order. In the event of an oversubscription, shares will be allocated in
accordance with the Plan of Conversion. See "THE CONVERSION -- The
Subscription, Direct Community and Syndicated Community Offerings."
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE STOCK CONVERSION
The Purchase Price in the Subscription Offering is a uniform price
established by the Board of Directors for all subscribers, including members of
the Holding Company's and the Bank's Boards of Directors, their management and
tax-qualified employee plans. The number of shares to be offered at the
Purchase Price is based upon an independent appraisal of the aggregate pro forma
market value of the Holding Company and the Bank, as converted. The aggregate
pro forma market value was estimated by Ferguson to range from $48,450,000 to
$65,550,000 as of November 7, 1997, or from 4,845,000 to 6,555,000 shares based
on the Purchase Price. See "THE CONVERSION -- Stock Pricing and Number of
Shares to be Issued." The appraisal of the pro forma value of the Holding
Company and the Bank, as converted, will be updated or confirmed at the
completion of the Offerings. The maximum of the Estimated Valuation Range may
be increased by up to 15% and the number of shares of Common Stock to be issued
in the Stock Conversion may be increased to 7,538,250 shares due to material
changes in the financial condition or results of operations of the Bank or
changes in market conditions or general financial, economic or regulatory
conditions. No resolicitation of subscribers will be made and subscribers will
not be permitted to modify or cancel their subscriptions unless the gross
proceeds from the sale of the Common Stock are less than the minimum or more
than 15% above the maximum of the current Estimated Valuation Range. THE
APPRAISAL IS NOT INTENDED TO BE AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION
OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON STOCK IN THE OFFERINGS
NOR CAN ASSURANCE BE GIVEN THAT PURCHASERS OF THE COMMON STOCK IN THE OFFERINGS
WILL BE ABLE TO SELL SUCH SHARES AFTER CONSUMMATION OF THE CONVERSION AT A PRICE
THAT IS EQUAL TO OR ABOVE THE PURCHASE PRICE. Furthermore, the pro forma
stockholders' equity is not intended to represent the fair market value of the
Common Stock and may be greater than amounts that would be available for
distribution to stockholders in the event of liquidation.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock are estimated to range
from $47.4 million to $64.3 million, or to $74.0 million if the Estimated
Valuation Range is increased by 15%, depending upon the number of shares sold
and the expenses of the Stock Conversion. The Holding Company has received
conditional OTS approval
(vii)
<PAGE>
to purchase all of the capital stock of the Bank to be issued in the Stock
Conversion in exchange for 50% of the net proceeds of the Offerings. This will
result in the Holding Company retaining approximately $23.7 million to $32.2
million of the net proceeds, or up to $37.0 million if the Estimated Valuation
Range is increased by 15%, from which the Holding Company will fund a loan to
the ESOP, and the Bank receiving an equal amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Bank's capital and will support the expansion of the Bank's
existing business activities. The Bank will use the funds contributed to it for
general corporate purposes, including, initially, lending and investment in
short-term U.S. Government and agency obligations.
A portion of the net proceeds retained by the Holding Company will be used
for a loan by the Holding Company to the ESOP to enable it to purchase 8% of the
shares of Common Stock issued in the Stock Conversion. Such loan would fund the
entire purchase price of the ESOP shares ($5,244,000 at the maximum of the
Estimated Valuation Range) and would be repaid principally from the Bank's
contributions to the ESOP and from dividends payable on the Common Stock held by
the ESOP. The remaining proceeds retained by the Holding Company initially will
be invested primarily in short-term U.S. Government and agency obligations.
Such proceeds will be available for additional contributions to the Bank in the
form of debt or equity, to support future growth and diversification activities,
as a source of dividends to the stockholders of the Holding Company and for
future repurchases of Common Stock (including possible repurchases to fund the
MRP or to provide shares to be issued upon exercise of stock options) to the
extent permitted under Tennessee law and OTS regulations. The Holding Company
will consider exploring opportunities to use such funds to expand operations
through acquiring or establishing additional branch offices and the acquisition
of other financial institutions. Currently, there are no specific plans,
arrangements, agreements or understandings, written or oral, regarding any such
activities.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Common Stock. The Holding
Company has received conditional approval to have the Common Stock listed on the
Nasdaq National Market System under the symbol "CAVB." Trident Securities has
agreed to act as a market maker for the Holding Company's Common Stock following
consummation of the Stock Conversion. No assurance can be given that an active
and liquid trading market for the Common Stock will develop. Further, no
assurance can be given that purchasers will be able to sell their shares at or
above the Purchase Price after the Stock Conversion. See "RISK FACTORS --
Absence of Prior Market for the Common Stock" and "MARKET FOR COMMON
STOCK."
DIVIDEND POLICY
The Holding Company's Board of Directors anticipates paying quarterly cash
dividends on the Common Stock at an annual rate of $0.20 per share, commencing
in the first full quarter following the consummation of the Conversion.
Declarations and payments of dividends by the Board of Directors will depend
upon a number of factors, including the amount of the net proceeds retained by
the Holding Company, capital requirements, regulatory limitations, the Bank's
and the Holding Company's financial condition and results of operations, tax
considerations and general economic conditions. In order to pay any cash
dividends, however, the Holding Company must have available cash either from the
net proceeds raised in the Offerings and retained by the Holding Company,
dividends received from the Bank or earnings on Holding Company assets. There
are certain limitations on the payment of dividends from the Bank to the Holding
Company. See "REGULATION." In addition, from time to time in an effort to
manage capital to a reasonable level, the Board of Directors may determine to
pay periodic special cash dividends in addition to, or in lieu of, regular cash
dividends. No assurances can be given that any dividends (regular or special)
will be declared or, if declared, what the amount of dividends will be or
whether such dividends, once declared, will continue. See "DIVIDEND POLICY."
(viii)
<PAGE>
OFFICERS' AND DIRECTORS' COMMON STOCK PURCHASES AND BENEFICIAL OWNERSHIP
Officers and directors of the Bank (30 persons) are expected to subscribe
for an aggregate of approximately 1,331,750 shares of Common Stock, or 27.5% and
20.3% of the shares based on the minimum and the maximum of the Estimated
Valuation Range, respectively. See "SHARES TO BE PURCHASED BY MANAGEMENT
PURSUANT TO SUBSCRIPTION RIGHTS." In addition, purchases by the ESOP,
allocations under the MRP, and the exercise of stock options issued under the
Stock Option Plan, will increase the number of shares beneficially owned by
directors, officers and employees. Assuming (i) implementation of the MRP and
the Stock Option Plan, (ii) the open market purchase of shares on behalf of the
MRP, (iii) the purchase by the ESOP of 8% of the Common Stock sold in the
Offerings, and (iv) the exercise of stock options equal to 10% of the number of
shares of Common Stock issued in the Conversion, directors, officers and
employees of the Holding Company and the Bank would have voting control, on a
fully diluted basis, of 45.0% and 38.5% of the Common Stock, based on the
issuance of the minimum and maximum of the Estimated Valuation Range,
respectively. See "RISK FACTORS -- Anti-takeover Considerations -- Voting
Control by Insiders." The MRP and Stock Option Plan are subject to approval by
the stockholders of the Holding Company at a meeting to be held no earlier than
six months following consummation of the Stock Conversion.
RISK FACTORS
See "RISK FACTORS" beginning on page 1 for a discussion of certain risks
related to the Offerings that should be considered by all prospective investors.
(ix)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Bank and its
subsidiaries at the dates and for the periods indicated. Information at
September 30, 1997 and for the nine months ended September 30, 1997 and 1996 are
unaudited, but, in the opinion of management, reflect all adjustments (none of
which are other than normal recurring entries) necessary for a fair
presentation. The results of operations for the nine months ended September 30,
1997 are not necessarily indicative of the results of operations that may be
expected for the entire fiscal year. This information is qualified in its
entirety by reference to the detailed information contained in the Consolidated
Financial Statements and Notes thereto presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At September 30, At December 31,
----------------------------------------------------
1997 1996 1995 1994 1993 1992
----------------- ---- ---- ---- ---- -----
(Unaudited) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets.............................. $275,925 $244,964 $223,882 $208,844 $206,078 $198,600
Loans receivable, net..................... 216,410 200,600 159,943 165,481 154,139 162,537
Loans held-for-sale....................... 4,149 5,253 3,689 1,452 4,804 7,378
Investment securities held-to-maturity.... 3,700 7,705 35,550 19,898 13,535 7,522
Investment securities available-for sale.. 10,107 -- -- -- -- --
Mortgage-backed securities held-
to-maturity............................. 1,333 1,419 1,541 1,665 2,108 2,446
Cash, federal funds sold and overnight
interest-bearing deposits............... 26,691 19,519 13,935 11,978 22,660 9,954
Deposit accounts.......................... 241,950 214,533 196,734 180,283 185,174 180,294
Borrowings................................ -- -- -- 5,000 -- --
Total equity, substantially restricted.... 29,501 27,250 24,436 21,236 18,778 16,155
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
---------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- -----
(Unaudited) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income........................... $ 16,160 $ 14,380 $ 19,584 $ 17,222 $ 15,394 $ 14,963 $15,849
Interest expense.......................... 6,815 6,117 8,268 7,696 6,299 6,317 8,116
-------- -------- -------- -------- -------- -------- -------
Net interest income....................... 9,345 8,263 11,316 9,526 9,095 8,646 7,733
Provision for loan losses................. 700 90 120 80 113 690 366
-------- -------- -------- -------- -------- -------- -------
Net interest income
after provision for loan losses.......... 8,645 8,173 11,196 9,446 8,982 7,956 7,367
Gains from sale of loans.................. 674 733 890 882 530 1,552 945
Gains from sale of securities............. -- -- -- -- -- -- 46
Other income.............................. 1,840 1,580 2,268 2,082 1,485 1,618 1,418
Other expenses............................ 7,354 7,517 9,786 7,498 7,001 7,000 6,263
-------- -------- -------- -------- -------- -------- -------
Earnings before income taxes
and extraordinary item.................. 3,805 2,969 4,568 4,912 3,996 4,126 3,513
Provision for income taxes................ 1,547 1,129 1,754 1,711 1,538 1,913 1,272
-------- -------- -------- -------- -------- -------- -------
Earnings before extraordinary item........ 2,258 1,840 2,814 3,201 2,458 2,213 2,241
Cumulative effect of change in
accounting principle..................... -- -- -- -- -- 409 --
-------- -------- -------- -------- -------- -------- -------
Net earnings $ 2,258 $ 1,840 $ 2,814 $ 3,201 $ 2,458 $ 2,622 $ 2,241
======== ======== ======== ======== ======== ======== =======
</TABLE>
(x)
<PAGE>
<TABLE>
<CAPTION>
At September 30, At December 31,
--------------
1997 1996 1995 1994 1993 1992
--------- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Number of:
Real estate loans outstanding............ 4,816 4,693 4,559 4,690 5,912 5,469
Deposit accounts......................... 22,772 20,687 18,891 17,812 17,610 16,960
Full-service offices..................... 9 7 7 6 6 6
</TABLE>
<TABLE>
<CAPTION>
At or For
Nine Months
Ended At or For the
September 30, Year Ended December 31,
------------- ---------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
KEY FINANCIAL RATIOS(1):
Performance Ratios:
Return on average assets(2).............. 1.16% 1.05% 1.20% 1.48% 1.18% 1.30% 1.15%
Return on average equity(3).............. 10.61 9.68 10.89 14.02 12.29 15.01 14.91
Interest rate spread(5).................. 4.84 4.50 4.50 4.11 4.28 4.17 3.85
Net interest margin(6)................... 4.75 4.83 4.83 4.44 4.54 4.38 4.07
Average interest-earning assets
as a percentage of average
interest-bearing liabilities............ 108.45 109.04 109.31 109.11 108.20 106.52 105.29
Noninterest expense as a
percent of average total assets......... 2.82 3.22 4.17 3.47 3.37 3.46 3.23
Efficiency ratio(7)...................... 62.01 71.08 67.61 60.03 63.02 59.24 61.75
Asset Quality Ratios:
Nonaccrual and 90 days or more
past due loans as a percent
of total loans, net..................... 0.03 0.02 0.02 0.07 0.22 0.49 0.84
Nonperforming assets as a
percent of total assets................. 0.02 0.01 0.02 0.05 0.22 0.72 1.23
Allowance for losses as a
percent of gross
loans receivable........................ 1.09 1.04 0.87 1.00 0.93 0.92 0.81
Allowance for losses as a
percent of nonperforming loans.......... 4,747.46 6,953.33 4,160.78 1,866.36 476.14 217.18 106.37
Net (charge-offs) recoveries to average
outstanding loans....................... (0.01) -- -- 0.09 (0.01) (0.31) (0.13)
Capital Ratios:
Total equity-to-assets ratio(4).......... 10.69 10.83 11.12 10.91 10.17 9.11 8.13
Average equity to average assets......... 10.90 10.98 11.02 10.55 9.64 8.63 7.74
</TABLE>
________________
(1) Annualized, where appropriate, for the nine months ended September 30, 1997
and 1996.
(2) Net earnings divided by average total assets.
(3) Net earnings divided by average equity.
(4) Average total equity divided by average total assets.
(5) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(6) Net interest income as a percentage of average interest-earning assets.
(7) Other expenses divided by the sum of net interest income and other income.
(xi)
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered hereby, prospective
investors should carefully consider the matters presented below, in addition to
matters discussed elsewhere in this Prospectus.
CERTAIN LENDING RISKS
CONSTRUCTION AND LAND LENDING RISKS. The Bank is an active originator of
construction loans and acquisition and development ("land A&D") loans. At
September 30, 1997, the Bank had $79.4 million of such loans, representing 30.8%
of its total loan portfolio. Of the $79.4 million of such loans, $7.3 million
were commercial A&D loans, $10.6 million were residential A&D loans, and $61.5
million were residential construction loans, of which $28.8 million were
speculative construction loans, meaning that at the time the loan was originated
there was no commitment for permanent financing for the finished property. Land
A&D loans are loans to real estate developers for the acquisition and
infrastructure development (i.e., installing roads, sewers and other utilities,
----
etc.) of raw or unimproved land so that individual improved lots are available
on which to construct a single family home.
At September 30, 1997, the Bank's portfolio of construction and land A&D
loans was concentrated among approximately 25 builders and at that time the Bank
had 14 borrowers whose aggregate speculative construction and land A&D loans
outstanding in such projects exceeded $500,000.
Construction and land A&D lending involves greater credit risk than one-
to-four family mortgage lending. Construction and land A&D loans generally have
higher loan balances than one- to- four family mortgage loans. In addition, the
potential for cost overruns because of the inherent difficulties in estimating
construction costs and, therefore, collateral values and the difficulties and
costs associated with monitoring construction progress, among other things, are
major contributing factors to this greater credit risk. Speculative construction
loans have the added risk that there is not an identified buyer for the
completed home when the loan is originated, with the risk that the builder will
have to service the construction loan debt and finance other carrying costs of
the completed property for an extended time period until a buyer is identified.
Furthermore, the demand for construction loans and the ability of construction
loan borrowers to service their debt depends highly on the state of the general
economy, including market interest rate levels, and the state of the economy of
the Bank's primary market area. A material downturn in economic conditions would
be expected to have a material adverse effect on the credit quality of the
construction and land A&D loan portfolio, and may require management to reassess
the adequacy of the Bank's allowance for loan losses and to establish additional
provisions for loan losses, which would have a material adverse effect on net
income. See "BUSINESS OF THE BANK -- Lending Activities -- Construction Lending"
and "--Allowance for Loan Losses."
COMMERCIAL REAL ESTATE LENDING. At September 30, 1997, the Bank's
commercial real estate loan portfolio amounted to $37.1 million, or 14.4% of
total net loans receivable. Commercial real estate lending generally involves
greater credit risk than one- to- four family mortgage lending. Because payments
on loans secured by commercial properties often depend upon the successful
operation and management of the properties, repayment of such loans may be
affected by adverse conditions in the real estate market or the economy, among
other things. See "BUSINESS OF THE BANK -- Lending Activities -- Commercial Real
Estate Lending."
COMMERCIAL BUSINESS LENDING. At September 30, 1997, the Bank's commercial
business loan portfolio amounted to $22.1 million, or 8.6% of total net loans
receivable. Subject to market conditions and other factors, the Bank intends to
expand its commercial business lending activities within its primary market
area. Commercial business lending generally involves greater credit risk than
one- to- four family mortgage lending. Although commercial business loans are
often collateralized by equipment, inventory, accounts receivable or other
business assets, the liquidation value of these assets in the event of a
borrower default is often an insufficient source of repayment because accounts
receivable may be uncollectible and inventories and equipment may be obsolete or
of limited use. See "BUSINESS OF THE BANK -- Lending Activities -- Commercial
Business Lending."
1
<PAGE>
CONSUMER LENDING RISKS. At September 30, 1997, the Bank's consumer loan
portfolio amounted to $33.2 million, or 15.4% of loans receivable, net.
Consumer lending is also generally viewed to involve greater credit risk than
one- to- four family mortgage lending. Collateral such as automobiles, boats
and other personal property depreciate rapidly and are often an inadequate
repayment source if a borrower defaults. In addition, consumer loan repayments
depend on the borrower's continuing financial stability and are more likely to
be adversely affected by job loss, divorce, illness, personal bankruptcy and
other financial hardship. See "BUSINESS OF THE BANK --Lending Activities --
Consumer Lending."
GEOGRAPHIC CONCENTRATION OF CREDIT RISK. The Bank has no significant
concentration of credit risk other than that a substantial portion of its loan
portfolio is secured by real estate, either as primary or secondary collateral,
located in its primary market area. The economy of the Bank's primary market
area is generally stable and diverse, however, no assurances can be given that
such favorable economic conditions will continue. Accordingly, this geographic
concentration of credit risk could have a material adverse effect on the Bank's
financial condition and results of operations to the extent there is a material
deterioration in that area's economy and real estate values. See "BUSINESS OF
THE BANK -- Market Area" and "BUSINESS OF THE BANK -- Lending Activities."
INTEREST RATE RISK
GENERAL. Like all financial institutions, the Bank's financial condition
and operations are influenced significantly by general economic conditions, the
related monetary and fiscal policies of the federal government and government
regulations. Deposit flows and the cost of funds are influenced by interest
rates of competing investments and general market interest rates. Lending
activities are affected by the demand for mortgage financing and for consumer
and other types of loans, which in turn is affected by the interest rates at
which such financing may be offered and by other factors affecting the supply of
housing and the availability of funds. The Bank's profitability, like that of
most financial institutions, depends largely on its net interest income, which
is the difference between the interest income received from its interest-earning
assets and the interest expense incurred in connection with its interest-bearing
liabilities. To better control the impact of changes in interest rates, the Bank
has sought to improve the match between asset and liability maturities or
repricing periods and rates by emphasizing the origination of adjustable-rate
mortgage ("ARM") loans and shorter term construction, commercial real estate,
and consumer loans.
POTENTIAL ADVERSE IMPACT ON RESULTS OF OPERATIONS. The Bank's results of
operations would be adversely affected by a material prolonged increase in
market interest rates. At September 30, 1997, assuming, for example, an
instantaneous 200 basis point increase in market interest rates, the Bank's net
portfolio value ("NPV") (the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts) would decrease by approximately
$1.7 million. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Asset and Liability Management."
POTENTIAL ADVERSE IMPACT ON FINANCIAL CONDITION. Changes in the level of
interest rates also affect the volume of loans originated or purchased by the
Bank and, thus, the amount of loan and commitment fees, as well as the market
value of the Bank's investment securities and other interest-earning assets.
Changes in interest rates also can affect the average life of loans. Decreases
in interest rates may result in increased prepayments of loans, as borrowers
refinance to reduce borrowing costs. Under these circumstances, the Bank is
subject to reinvestment risk to the extent that it is not able to reinvest such
prepayments at rates which are comparable to the rates on the maturing loans or
securities. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away from savings institutions into
direct investments, such as U.S. Government and corporate securities and other
investment vehicles which, because of the absence of federal insurance premiums
and reserve requirements, generally pay higher rates of return than savings
institutions.
At September 30, 1997, out of total gross loans of $257.3 million in the
Bank's portfolio, $74.8 million were ARM loans, the majority of which reprice
every year. Furthermore, the Bank's ARM loans contain periodic and lifetime
interest rate adjustment limits which, in a rising interest rate environment,
may prevent such loans from
2
<PAGE>
repricing to market interest rates. While management anticipates that ARM loans
will better offset the adverse effects of an increase in interest rates as
compared to fixed-rate mortgages, the increased mortgage payments required of
ARM borrowers in a rising interest rate environment could potentially cause an
increase in delinquencies and defaults. The Bank has not historically had an
increase in such delinquencies and defaults on ARM loans, but no assurance can
be given that such delinquencies or defaults would not occur in the future. The
marketability of the underlying property also may be adversely affected in a
high interest rate environment. Moreover, the Bank's ability to originate or
purchase ARM loans may be affected by changes in the level of interest rates and
by market acceptance of the terms of such loans. In a relatively low interest
rate environment, as currently exists, borrowers generally tend to favor fixed-
rate loans over ARM loans to hedge against future increases in interest rates.
NEW EXPENSES ASSOCIATED WITH ESOP AND MRP
The Bank will recognize additional material employee compensation and
benefit expenses assuming the ESOP and the MRP are implemented. The actual
aggregate amount of these new expenses cannot be currently predicted because
applicable accounting practices require that they be based on the fair market
value of the shares of Common Stock when the expenses are recognized, which
would occur when shares are committed to be released in the case of the ESOP and
over the vesting period of awards made to recipients in the case of the MRP.
These expenses have been reflected in the pro forma financial information under
"PRO FORMA DATA" assuming the Purchase Price ($10.00 per share) as fair market
value. Actual expenses, however, will be based on the fair market value of the
Common Stock at the time of recognition, which may be higher or lower than the
Purchase Price. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Impact of Accounting Pronouncements and Regulatory
Policies --Accounting for Employee Stock Ownership Plans," "-- Accounting for
Stock-Based Compensation," "MANAGEMENT OF THE BANK -- Benefits -- Employee Stock
Ownership Plan" and "-- Benefits -- Management Recognition Plan."
POSSIBLE DILUTIVE EFFECT OF BENEFIT PROGRAMS
The MRP intends to acquire an amount of Common Stock of the Holding Company
equal to 4% of the shares issued in the Stock Conversion. Such shares of Common
Stock of the Holding Company may be acquired by the Holding Company in the open
market or from authorized but unissued shares of Common Stock of the Holding
Company. In the event that the MRP acquires authorized but unissued shares of
Common Stock from the Holding Company, the voting interests of existing
stockholders will be diluted and net income per share and stockholders' equity
per share will be decreased. See "PRO FORMA DATA" and "MANAGEMENT OF THE BANK -
- - Benefits -- Management Recognition Plan." The MRP is subject to approval by
the Holding Company's stockholders.
The Stock Option Plan will provide for options for up to a number of shares
of Common Stock of the Holding Company equal to 10% of the shares issued in the
Stock Conversion. Such shares may be authorized but unissued shares of Common
Stock of the Holding Company and, upon exercise of the options, will result in
the dilution of the voting interests of existing stockholders and may decrease
net income per share and stockholders' equity per share. See "MANAGEMENT OF THE
BANK -- Benefits -- Stock Option Plan." The Stock Option Plan is subject to
approval ny the Holding Company's stockholders.
If the ESOP is not able to purchase 8% of the shares of Common Stock issued
in the Offerings, the ESOP may purchase newly issued shares from the Holding
Company. In such event, the voting interests of existing stockholders will be
diluted and net income per share and stockholders' equity per share will be
decreased. See "MANAGEMENT OF THE BANK -- Benefits -- Employee Stock Ownership
Plan."
3
<PAGE>
ANTI-TAKEOVER CONSIDERATIONS
PROVISIONS IN THE HOLDING COMPANY'S GOVERNING INSTRUMENTS AND TENNESSEE
LAW. Certain provisions included in the Holding Company's Charter and in the
Tennessee Business Corporation Act, as amended ("TBCA") might discourage
potential proxy contests and other potential takeover attempts, particularly
those that have not been negotiated with the Board of Directors. As a result,
these provisions might preclude takeover attempts that certain stockholders may
deem to be in their best interest and might tend to perpetuate existing
management. These provisions include, among other things, a provision limiting
voting rights of beneficial owners of more than 10% of the Common Stock,
supermajority voting requirements for certain business combinations, staggered
terms for directors, non-cumulative voting for directors, the removal of
directors without cause only upon the vote of holders of 80% of the outstanding
voting shares, limitations on the calling of special meetings, and specific
notice requirements for stockholder nominations and proposals. Certain
provisions of the Holding Company's Charter cannot be amended by stockholders
unless an 80% stockholder vote is obtained. The existence of these anti-takeover
provisions could result in the Holding Company being less attractive to a
potential acquiror and in stockholders receiving less for their shares than
otherwise might be available in the event of a takeover attempt. Furthermore,
federal regulations prohibit for three years after consummation of the
Conversion the ownership of more than 10% of the Bank or the Holding Company
without prior OTS approval. Federal law also requires OTS approval prior to the
acquisition of "control" (as defined in OTS regulations) of an insured
institution. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
VOTING CONTROL BY INSIDERS. Directors and officers of the Bank and the
Holding Company (and their associates) expect to purchase 1,331,750 shares of
Common Stock, or 27.5% and 20.3% of the shares issued in the Offerings at the
minimum and the maximum of the Estimated Valuation Range, respectively.
Directors and officers are also expected to control indirectly the voting of
approximately 8% of the shares of Common Stock issued in the Stock Conversion
through the ESOP (assuming shares have been allocated under the ESOP). Under the
terms of the ESOP, the unallocated shares will be voted by the ESOP trustees in
the same proportion as the votes cast by participants with respect to the
allocated shares. Three, current, non-employee directors of the Holding Company
and the Bank will serve as the ESOP trustees.
At a meeting of stockholders to be held no earlier than six months
following the consummation of the Stock Conversion, the Holding Company expects
to seek approval of the Holding Company's MRP, which is a non-tax-qualified
restricted stock plan for the benefit of key employees and directors of the
Holding Company and the Bank. The Holding Company expects to acquire common
stock of the Holding Company on behalf of the MRP in an amount equal to 4% of
the Common Stock issued in the Stock Conversion, or 193,800 and 262,200 shares
at the minimum and the maximum of the Estimated Valuation Range, respectively.
These shares will be acquired either through open market purchases through a
trust established in conjunction with the MRP or from authorized but unissued
shares of Common Stock. A committee of the Board of Directors of the Holding
Company will administer the MRP, the members of which would also serve as
trustees of the MRP trust, if formed. Under the terms of the MRP, the MRP
committee or the MRP trustees, will have the power to vote unallocated and
unvested shares. In addition, the Holding Company intends to reserve for future
issuance pursuant to the Stock Option Plan a number of authorized shares of
Common Stock equal to 10% of the Common Stock issued in the Stock Conversion
(484,500 and 655,500 shares at the minimum and the maximum of the Estimated
Valuation Range, respectively). The Holding Company also intends to seek
approval of the Stock Option Plan at a meeting of stockholders to be held no
earlier than six months following the consummation of the Stock Conversion.
Assuming (i) the implementation of the MRP and the Stock Option Plan, (ii)
the open market purchase of shares on behalf of the MRP, (iii) the purchase by
the ESOP of 8% of the Common Stock sold in the Offerings, and (iv) the exercise
of stock options equal to 10% of the number of shares of Common Stock issued in
the Stock Conversion, directors, officers and employees of the Holding Company
and the Bank would have voting control, on a fully diluted basis, of an 45.0%
and 38.5% of the Common Stock, based on the issuance of the minimum and maximum
of the Estimated Valuation Range, respectively. Management's potential voting
control
4
<PAGE>
alone, as well as together with additional stockholder support, might preclude
or make more difficult takeover attempts that certain stockholders deem to be in
their best interest and might tend to perpetuate existing management.
PROVISIONS OF EMPLOYMENT AND SEVERANCE AGREEMENTS AND SEVERANCE PLAN. The
proposed employment and severance agreements with certain senior officers of the
Holding Company and the Bank provide for cash severance payments and/or the
continuation of health, life and disability benefits in the event of their
termination of employment following a change in control of the Holding Company
or the Bank. Assuming a change of control occurred as of September 30, 1997,
the aggregate value of the severance benefits available to these executive
officers under the agreements would have been approximately $1.8 million. In
addition, assuming that a change in control had occurred at September 30, 1997
and the termination of all eligible key employees, the maximum aggregate payment
due under the Severance Plan would be approximately $116,000. These agreements
and plan may have the effect of increasing the costs of acquiring the Holding
Company, thereby discouraging future attempts to take over the Holding Company
or the Bank.
See "MANAGEMENT OF THE BANK -- Benefits," "RESTRICTIONS ON ACQUISITION OF
THE HOLDING COMPANY" and "DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY."
RETURN ON EQUITY AFTER CONVERSION
Return on equity (net income for a given period divided by average equity
during that period) is a ratio used by many investors to compare the performance
of a particular financial institution to its peers. The Bank's return on equity
for the nine months ended September 30, 1997 and the year ended December 31,
1996 was, and the Holding Company's post-Conversion return on equity will be,
less than the average return on equity for publicly traded thrift institutions
and their holding companies. See "SELECTED CONSOLIDATED FINANCIAL INFORMATION"
for numerical information regarding the Bank's historical return on equity and
"CAPITALIZATION" for a discussion of the Holding Company's estimated pro forma
consolidated capitalization as a result of the Conversion. In order for the
Holding Company to achieve a return on equity comparable to the historical
levels of the Bank, the Holding Company either would have to increase net income
or reduce stockholders' equity, or both, commensurate with the increase in
equity resulting from the Conversion. Reductions in equity could be achieved
by, among other things, the payment of regular or special cash dividends
(although no assurances can be given as to their payment or, if paid, their
amount and frequency), the repurchase of shares of Common Stock subject to
applicable regulatory restrictions, or the acquisition of branch offices, other
financial institutions or related businesses (neither the Holding Company nor
the Bank has any present plans, arrangements, or understandings, written or
oral, regarding any repurchase or acquisitions). See "DIVIDEND POLICY" and "USE
OF PROCEEDS." Achievement of increased net income levels will depend on several
important factors outside management's control, such as general economic
conditions, including the level of market interest rates, competition and
related factors, among others. In addition, the expenses associated with the
ESOP and the MRP (see "-- New Expenses Associated with ESOP and MRP"), along
with other post-Conversion expenses, as well as operating expenses associated
with the new branch offices, are expected to contribute initially to reduced
earnings levels. Subject to market conditions, initially the Bank intends to
deploy the net proceeds of the Offerings to support its core lending activities
to increase earnings per share and book value per share, without assuming undue
risk, with the goal of achieving a return on equity comparable to the average
for publicly traded thrift institutions and their holding companies. This goal
will likely take a number of years to achieve and no assurances can be given
that this goal can be attained. Consequently, for the foreseeable future,
investors should not expect a return on equity which will meet or exceed the
average return on equity for publicly traded thrift institutions, many of which
are not newly converted institutions and have had time to deploy their
conversion capital.
COMPETITION
The Bank has faced, and will continue to face, intense competition both in
making loans and attracting deposits. The Bank's primary market area of
Rutherford and Bedford Counties has a high density of financial institutions,
many of which are branches of large Southeastern bank holding companies which
have greater financial
5
<PAGE>
resources than the Bank and all of which compete with the Bank in varying
degrees. Competition for loans principally comes from commercial banks, thrift
institutions, credit unions, mortgage banking companies and insurance companies.
Historically, commercial banks, thrift institutions and credit unions have been
the Bank's most direct competition for deposits. The Bank also competes with
short-term money market funds and with other financial institutions, such as
brokerage firms and insurance companies, for deposits. In competing for loans,
the Bank may be forced to offer lower loan interest rates periodically.
Conversely, in competing for deposits, the Bank may be forced to offer higher
deposit interest rates periodically. Either case or both cases could adversely
affect net interest income. See "BUSINESS OF THE BANK -- Competition."
ABSENCE OF PRIOR MARKET FOR THE COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the Common Stock. Although the Holding Company has
received conditional approval to list the Common Stock on the Nasdaq National
Market under the symbol "CAVB," there can be no assurance that an active and
liquid trading market for the Common Stock will develop, or once developed, will
continue. Furthermore, there can be no assurance that purchasers will be able to
sell their shares at or above the Purchase Price. See "MARKET FOR COMMON
STOCK."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The Estimated Valuation Range may be increased up to 15% to reflect
material changes in the financial condition or results of operations of the Bank
or changes in market conditions or general financial, economic or regulatory
conditions following the commencement of the Offerings. If the Estimated
Valuation Range is increased, it is expected that the Holding Company would
increase the Estimated Price Range so that up to 7,538,250 shares of Common
Stock at the Purchase Price would be issued for an aggregate price of up to
$75,382,500. This increase in the number of shares would decrease a subscriber's
pro forma net earnings per share and stockholders' equity per share, increase
the Holding Company's pro forma consolidated stockholders' equity and net
earnings, and increase the Purchase Price as a percentage of pro forma
stockholders' equity per share and net earnings per share. See "PRO FORMA DATA."
POTENTIAL DELAY IN CONSUMMATING THE STOCK CONVERSION
Once tendered, subscription orders cannot be revoked during the Offerings
without the consent of the Holding Company and the Bank, unless the Stock
Conversion is terminated or there is a resolicitation offering. If the Stock
Conversion is not completed by ______ __, 1998 as a result of changes that lead
to a material revision in the Estimated Valuation Range and the OTS consents to
an extension of time to complete the Stock Conversion, there would be a
resolicitation offering. OTS regulations permit the OTS to grant one or more
time extensions, none of which shall exceed 90 days. In the resolicitation
offering, all subscribers would be mailed a supplement to this Prospectus and
given the opportunity to confirm, modify or cancel their subscriptions. Failure
to confirm affirmatively or modify would be deemed a cancellation and all
subscription funds, together with accrued interest, would be returned to the
subscriber, or if the subscriber authorized payment by withdrawal of funds on
deposit at the Bank, that authorization would terminate. If a subscriber
affirmatively confirms his subscription order during the resolicitation
offering, the Holding Company and the Bank would continue to hold all
subscription orders and all subscription funds until the expiration of the
resolicitation offering. All subscriptions held by the Holding Company and the
Bank when the resolicitation offering expires would be irrevocable without the
consent of the Holding Company and the Bank until the completion or termination
of the Stock Conversion.
RECENT LEGISLATION AND THE FUTURE OF THE THRIFT INDUSTRY
The Bank is, and the Holding Company upon consummation of the Conversion
will be, subject to extensive government regulation designed primarily to
protect the federal deposit insurance fund and depositors. Such regulation often
has a material impact on the Bank's financial condition and results of
operations. For example,
6
<PAGE>
recent legislation required the Bank to pay a one-time assessment of $1.2
million, pre-tax, to the FDIC to recapitalize the SAIF. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Comparison of Operating Results for the Nine Months Ended September 30, 1997 and
1996."
The U.S. Congress is considering several versions of proposed legislation
designed to modernize the financial institutions industry. Currently, these
various legislative measures are in the committee stage and there is no
definitive timetable for considering any of them on the floor of either the
House or Senate. Principal among the various measures is the House measure
(H.R. 10), which, among other things, includes in its current form provisions
calling for the elimination of the thrift charter and the elimination of the
absence of restrictions on non-banking activities applicable to unitary thrift
holding companies. If the thrift charter is eliminated, alternatives under
consideration are requiring thrifts to convert to a bank charter or adopt a
common financial institutions charter. The Bank cannot predict whether such
legislation will be passed or, if passed, what the attributes of any common
charter would be. However, it is possible that the common charter may not offer
all the advantages that the Bank now enjoys (e.g., unrestricted nationwide
----
branching) or that the Holding Company, as a unitary savings and loan holding
company, will enjoy upon consummation of the Conversion (e.g., the absence of
----
restrictions on non-banking activities). See "REGULATION."
In deciding whether or not to undertake the Bank Conversion after the
consummation of the Stock Conversion, the Bank will consider the economic and
regulatory climate at that time, among other factors. The status of
Congressional legislation regarding the common "unified charter" is expected to
be a significant factor in its decision making.
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
If the Subscription Rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members of the Bank are deemed
to have an ascertainable value, receipt of such rights may be a taxable event
(either as capital gain or ordinary income), to those Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members who receive and/or
exercise the Subscription Rights in an amount equal to such value. Additionally,
the Bank could be required to recognize a gain for tax purposes on such
distribution. Whether Subscription Rights are considered to have ascertainable
value is an inherently factual determination. The Bank has been advised by
Ferguson that such rights have no value; however, Ferguson's conclusion is not
binding on the Internal Revenue Service ("IRS"). See "THE CONVERSION -- Effects
of Conversion to Stock Form on Depositors and Borrowers of the Bank -- Tax
Effects."
CAVALRY BANCORP, INC.
The Holding Company was incorporated on November 5, 1997 under Tennessee
law at the direction of the Bank to acquire all of the capital stock that the
Bank will issue upon its conversion from the mutual to stock form of ownership.
The Holding Company has received conditional OTS approval to become a savings
and loan holding company through the acquisition of 100% of the capital stock of
the Bank. Prior to the Conversion, the Holding Company will not engage in any
material operations. After the Conversion, the Holding Company will be
classified as a unitary savings and loan holding company subject to regulation
by the OTS, and its principal business will be the ownership of the Bank.
Immediately following the Conversion, the only significant assets of the Holding
Company will be the capital stock of the Bank, 50% of the net proceeds of the
Offerings as permitted by the OTS to be retained by it and a note receivable
from the ESOP evidencing a loan to enable the ESOP to purchase 8% of the Common
Stock issued in the Conversion. See "BUSINESS OF THE HOLDING COMPANY."
The holding company structure will permit the Holding Company to expand the
financial services currently offered through the Bank. Management believes that
the holding company structure and retention of a portion of the proceeds of the
Offerings will, should it decide to do so, facilitate the expansion and
diversification of its operations. The holding company structure will also
enable the Holding Company to repurchase its stock without
7
<PAGE>
adverse tax consequences, subject to applicable regulatory restrictions,
including waiting periods. There are no present plans, arrangements,
agreements, or understandings, written or oral, regarding any such activities or
repurchases. See "REGULATION -- Savings and Loan Holding Company Regulations."
CAVALRY BANKING
The Bank is a federally chartered mutual savings bank located in
Murfreesboro, Tennessee, which is approximately 30 miles southeast of Nashville,
Tennessee. Chartered in 1929 as a Tennessee-chartered mutual building and loan
association under the name "Murfreesboro Building and Loan Association," the
Bank converted to a federal charter and adopted the name "Murfreesboro Federal
Savings and Loan Association," in 1936. In 1984, the Bank adopted the name
"Cavalry Banking Federal Savings and Loan Association." In 1991, the Bank
adopted the name "Cavalry Banking, A Federal Savings Bank," and in 1996 the Bank
amended its mutual charter to adopt its current name. As a result of the
Conversion, the Bank will convert to a federal capital stock savings bank and
will become a wholly-owned subsidiary of the Holding Company. The Bank is
regulated by the OTS, its primary regulator, and by the FDIC, the insurer of its
deposits. The Bank's deposits have been federally-insured since 1936 and are
currently insured by the FDIC under the SAIF. The Bank has been a member of the
FHLB System since 1936. At September 30, 1997, the Bank had total assets of
$275.9 million, total deposits of $242.0 million and total equity of $29.5
million on a consolidated basis.
The Bank is a community-oriented financial institution whose primary
business is attracting deposits from the general public and using those funds to
originate a variety of loans to individuals residing within its primary market
area, and to businesses owned and operated by such individuals. The Bank
considers Rutherford, Bedford and Williamson Counties in Central Tennessee as
its primary market area.
The Bank believes that its operations more closely resemble those of a
traditional commercial bank than a traditional thrift institution. Unlike a
traditional thrift institution that primarily originates long-term residential
mortgage loans funded primarily with long term certificates of deposits, a
traditional commercial bank primarily originates commercial business, consumer
and other short term non-real estate loans funded primarily by non-interest
bearing demand deposit accounts and other short term liabilities. The Bank's
one- to- four family mortgage loan portfolio, as a percent of the total loan
portfolio, has decreased from 50.6% at December 31, 1992 to 32.7% at September
30, 1997. In addition, the Bank's certificates of deposit, as a percentage of
deposit accounts, have decreased from 60.7% at December 31, 1994 to 54.6% at
September 30, 1997. In addition to its shifting asset and liability mix, the
Bank is one of the few thrift institutions in its primary market area that
offers trust services. See "BUSINESS OF THE BANK -- Lending Activities," "--
Deposit Activities and Other Sources of Funds -- Deposit Accounts" and "-- Trust
Department."
The Bank's lending activities are diverse. The Bank originates both ARM
loans and fixed-rate mortgage loans. Generally, ARM loans are retained in the
Bank's portfolio and long-term fixed-rate mortgage loans are originated for sale
in the secondary market. In addition, the Bank actively originates construction
and acquisition and development loans. At September 30, 1997, construction loans
totalled $68.8 million, or 26.7% of total loans receivable, and acquisition and
development loans totalled $10.6 million, or 4.1% of total loans receivable. The
Bank also originates commercial real estate, commercial business, and consumer
and other non-real estate loans. At September 30, 1997, commercial real estate
loans totalled $37.1 million, or 14.4% of total loans receivable, commercial
business loans totalled $22.1 million, or 8.6% of total loans receivable, and
consumer and other non-real estate loans totalled $33.3 million, or 12.9% of
total loans receivable. See "BUSINESS OF THE BANK -- Lending Activities." The
Bank invests its excess liquidity in short-term U.S. Government and agency
securities. See "BUSINESS OF THE BANK -- Investment Activities."
If the Bank Conversion is undertaken, the Bank, as a Tennessee-chartered
commercial bank, would succeed to all of the assets and liabilities of the Bank
(which, pursuant to the Stock Conversion will have succeeded to all of the
assets and liabilities of the Bank), and would initially continue to conduct
business in substantially the same manner as the Bank prior to the Bank
Conversion. Over time, however, management anticipates an increase in the
8
<PAGE>
percentage of commercial loans in the Bank's loan portfolio. It is anticipated
that the Bank will continue to diversify its loan and deposit mix and add other
services in connection with the Bank Conversion.
The deposits of the Bank would continue to be insured by the FDIC under the
SAIF upon consummation of the Bank Conversion. Accordingly, FDIC regulation and
supervision would continue. However, the Commissioner would replace the OTS as
the Bank's primary regulator upon consummation of the Bank Conversion.
The Bank conducts its operations from its main office and four branch
offices located in Murfreesboro, Tennessee, a branch office in Shelbyville,
Tennessee (Bedford County) and three offices in Smyrna, Tennessee (Rutherford
County). The Bank also operates a mortgage loan origination office in Franklin,
Tennessee (Williamson County). See "BUSINESS OF THE BANK -- Properties."
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to range from $47.4 million to $64.3 million, or up to $74.0 million
if the Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA" for
the assumptions used to arrive at such amounts. The Holding Company has
received conditional OTS approval to purchase all of the capital stock of the
Bank to be issued in the Stock Conversion in exchange for 50% of the net
proceeds of the Offerings. This will result in the Holding Company retaining
approximately $23.7 million to $32.2 million of net proceeds, or up to $37.0
million if the Estimated Valuation Range is increased by 15%, from which it will
fund a loan to the ESOP, and the Bank receiving an equal amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Bank's capital and will support the expansion of the Bank's
existing business activities. The Bank will use the funds contributed to it for
general corporate purposes, including, initially, lending and investment in
short-term U.S. Government and agency obligations.
In connection with the Conversion and the establishment of the ESOP, the
Holding Company intends to loan the ESOP the amount necessary to purchase 8% of
the shares of Common Stock sold in the Stock Conversion. The Holding Company's
loan to fund the ESOP may range from $3,876,000 to $5,244,000 based on the sale
of 387,600 shares to the ESOP (at the minimum of the Estimated Valuation Range)
and 524,400 shares (at the maximum of the Estimated Valuation Range),
respectively, at $10.00 per share. If 15% above the maximum of the Estimated
Valuation Range, or 7,538,250 shares, are sold in the Stock Conversion, the
Holding Company's loan to the ESOP would be approximately $6,030,600 (based on
the sale of 603,060 shares to the ESOP). It is anticipated that the ESOP loan
will have a 12-year term with interest payable at the prime rate as published in
The Wall Street Journal on the closing date of the Stock Conversion. The loan
will be repaid principally from the Bank's contributions to the ESOP and from
any dividends paid on shares of Common Stock held by the ESOP.
The remaining net proceeds retained by the Holding Company initially will
be invested primarily in short-term U.S. Government and agency obligations. Such
proceeds will be available for additional contributions to the Bank in the form
of debt or equity, to support future diversification or acquisition activities,
as a source of dividends to the stockholders of the Holding Company and for
future repurchases of Common Stock to the extent permitted under Tennessee law
and federal regulations. The Holding Company will consider exploring
opportunities to use such funds to expand operations through acquiring or
establishing additional branch offices or acquiring other financial
institutions. Currently, there are no specific plans, arrangements, agreements
or understandings, written or oral, regarding any diversification activities.
Following consummation of the Stock Conversion, the Board of Directors will
have the authority to adopt plans for repurchases of Common Stock, subject to
statutory and regulatory requirements. Since the Holding Company has not yet
issued stock, there currently is insufficient information upon which an
intention to repurchase stock could be based. The facts and circumstances upon
which the Board of Directors may determine to repurchase
9
<PAGE>
stock in the future would include but are not limited to: (i) market and
economic factors such as the price at which the stock is trading in the market,
the volume of trading, the attractiveness of other investment alternatives in
terms of the rate of return and risk involved in the investment, the ability to
increase the book value and/or earnings per share of the remaining outstanding
shares, and the ability to improve the Holding Company's return on equity; (ii)
the avoidance of dilution to stockholders by not having to issue additional
shares to cover the exercise of stock options or to fund employee stock benefit
plans; and (iii) any other circumstances in which repurchases would be in the
best interests of the Holding Company and its stockholders. Any stock
repurchases will be subject to a determination by the Board of Directors that
both the Holding Company and the Bank will be capitalized in excess of all
applicable regulatory requirements after any such repurchases and that capital
will be adequate, taking into account, among other things, the level of
nonperforming and classified assets, the Holding Company's and the Bank's
current and projected results of operations and asset/liability structure, the
economic environment and tax and other regulatory considerations. For a
discussion of the regulatory limitations applicable to stock repurchases and
current OTS policy with respect thereto, see "THE CONVERSION -- Restrictions on
Repurchase of Stock."
DIVIDEND POLICY
GENERAL
The Holding Company's Board of Directors anticipates paying quarterly cash
dividends on the Common Stock at an annual rate of $0.20 per share, commencing
in the first full quarter following the consummation of the Conversion.
Declarations or payments of dividends will be subject to determination by the
Holding Company's Board of Directors, which will take into account the amount of
the net proceeds retained by the Holding Company, the Holding Company's
financial condition, results of operations, tax considerations, capital
requirements, industry standards, economic conditions and other factors,
including the regulatory restrictions that affect the payment of dividends by
the Bank to the Holding Company discussed below. In addition, from time to time
in an effort to manage capital to a reasonable level, the Board of Directors may
determine to pay periodic special cash dividends in addition to, or in lieu of,
regular cash dividends. No assurances can be given that any dividends, either
regular or special, will be declared or, if declared, what the amount of
dividends will be or whether such dividends, once declared, will continue. In
order to pay any cash dividends (regular and special), however, the Holding
Company must have available cash either from the net proceeds raised in the
Offerings and retained by the Holding Company, dividends received from the Bank
or earnings on Holding Company assets.
CURRENT RESTRICTIONS
The Holding Company has committed to the OTS not to make any tax-free
distributions to stockholders in the form of a return of capital, or take any
action in contemplation of any such distributions, within the first year
following the consummation of the Stock Conversion.
Dividends from the Holding Company may depend, in part, upon receipt of
dividends from the Bank because the Holding Company initially will have no
source of income other than dividends from the Bank and earnings from the
investment of the net proceeds from the Offerings retained by the Holding
Company. OTS regulations require the Bank to give the OTS 30 days' advance
notice of any proposed declaration of dividends to the Holding Company, and the
OTS has the authority under its supervisory powers to prohibit the payment of
dividends to the Holding Company. The OTS imposes certain limitations on the
payment of dividends from the Bank to the Holding Company which utilize a three-
tiered approach that permits various levels of distributions based primarily
upon a savings association's capital level. The Bank currently meets the
criteria to be designated a Tier 1 association, as hereinafter defined, and
consequently could at its option (after prior notice to and no objection made by
the OTS) distribute up to 100% of its net income during the calendar year plus
50% of its surplus capital ratio at the beginning of the calendar year less any
distributions previously paid during the year. In additional, the Bank may not
declare or pay a cash dividend on its capital stock if the effect thereof would
be to reduce the regulatory capital of the Bank below the amount required for
the liquidation accounts to be established pursuant to the Bank's Plan of
Conversion. See "REGULATION -- Federal Regulation of Savings Associations --
Limitations on Capital
10
<PAGE>
Distributions," "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Bank -- Liquidation Account" and Note 14 of
Notes to the Consolidated Financial Statements included elsewhere herein.
Subsequent to the Bank Conversion, dividends from the Holding Company would
continue to depend primarily upon the receipt of dividends from the Bank and the
payment of such dividends would be subject to the restrictions under Tennessee
law, which generally limit dividend declarations to not more than once each
calendar quarter from undivided profits, less any required transfers to surplus.
See "REGULATION."
Dividend payments by the Holding Company will be governed by Tennessee law,
which prohibits dividend payments that would either render the Holding Company
unable to pay its debts as they came due in the normal course of business or
cause the Holding Company's total liabilities to exceed its total assets. If the
Bank Conversion is undertaken, the Holding Company would also be subject to
Federal Reserve policy governing dividend payments by bank holding companies.
See "REGULATION -- Bank Holding Company Regulation -- Dividends."
TAX CONSIDERATIONS
In addition to the foregoing, retained earnings of the Bank appropriated to
bad debt reserves and deducted for federal income tax purposes cannot be used by
the Bank to pay cash dividends to the Holding Company without the payment of
federal income taxes by the Bank at the then current income tax rate on the
amount deemed distributed, which would include the amount of any federal income
taxes attributable to the distribution. See "TAXATION -- Federal Taxation" and
Note 11 of Notes to the Consolidated Financial Statements included elsewhere
herein. The Holding Company does not contemplate any distribution by the Bank
that would result in a recapture of the Bank's bad debt reserve or create the
above-mentioned federal tax liabilities.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the Common Stock. Although the Holding Company has
received conditional approval to list the Common Stock on the Nasdaq National
Market System under the symbol "CAVB" there can be no assurance that the Holding
Company will meet Nasdaq National Market System listing requirements, which
include a minimum market capitalization, at least two market makers and a
minimum number of record holders. Trident Securities has agreed to make a market
for the Common Stock following consummation of the Stock Conversion and will
assist the Holding Company in seeking to encourage at least two additional
market makers 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 laws and other regulatory requirements. The Holding
Company anticipates that prior to the completion of the Stock Conversion it will
be able to obtain the commitment from at least two additional broker-dealers to
act as market maker for the Common Stock. Additionally, the development of a
liquid public market depends on the existence of willing buyers and sellers, the
presence of which is not within the control of the Holding Company, the Bank or
any market maker. There can be no assurance that an active and liquid trading
market for the Common Stock will develop or that, if developed, it will
continue. The number of active buyers and sellers of the Common Stock at any
particular time may be limited. Under such circumstances, investors in the
Common Stock could have difficulty disposing of their shares on short notice and
should not view the Common Stock as a short-term investment. Furthermore, there
can be no assurance that purchasers will be able to sell their shares at or
above the Purchase Price or that quotations will be available on the Nasdaq
National Market System as contemplated.
11
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
September 30, 1997, and the pro forma consolidated capitalization of the Holding
Company after giving effect to the assumptions set forth under "PRO FORMA DATA,"
based on the sale of the number of shares of Common Stock at the minimum,
midpoint, maximum and maximum, as adjusted, of the Estimated Valuation Range.
The shares that would be issued at the maximum, as adjusted, of the Estimated
Valuation Range would be subject to receipt of OTS approval of an updated
appraisal confirming such valuation. A CHANGE IN THE NUMBER OF SHARES TO BE
ISSUED IN THE STOCK CONVERSION MAY MATERIALLY AFFECT PRO FORMA CONSOLIDATED
CAPITALIZATION.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
----------------------------------------------------------
4,845,000 5,700,000 6,555,000 7,538,250
Capitalization Shares at Shares at Shares at Shares at
as of $10.00 $10.00 $10.00 $10.00
September 30,1997 Per Share(1) Per Share(1) Per Share(1) Per Share(2)
----------------- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3)............................ $ 241,950 $ 241,950 $ 241,950 $ 241,950 $ 241,950
FHLB advances.......................... -- -- -- -- --
--------- ----------- ----------- ----------- ----------
Total deposits and
borrowed funds........................ $ 241,950 $ 241,950 $ 241,950 $ 241,950 $ 241,950
========= =========== =========== =========== ==========
Stockholders' equity:
Preferred stock:
250,000 shares, no
par value per share,
authorized; none issued
or outstanding....................... $ -- $ -- $ -- $ -- $ --
Common Stock:
49,750,000 shares, no par
value per Share, authorized;
specified number of shares
assumed to be issued and
outstanding(4)....................... -- 47,448 55,880 64,312 74,010
Additional paid-in capital -- -- -- -- --
Retained earnings(5).................. 29,508 29,508 29,508 29,508 29,508
Less:
Common Stock acquired
by ESOP(6).......................... -- (3,876) (4,560) (5,244) (6,031)
Common Stock to be acquired
by MRP(7)........................... -- (1,938) (2,280) (2,622) (3,015)
Net unrealized losses on available
for sale securities.................. (7) (7) (7) (7) (7)
--------- ----------- ----------- ----------- ----------
Total stockholders' equity............. $ 29,501 $ 71,135 $ 78,541 $ 85,947 $ 94,465
========= =========== =========== =========== ==========
</TABLE>
(footnotes on following page)
12
<PAGE>
___________________
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or results of operations
of the Bank or changes in market conditions or general financial, economic
and regulatory conditions, or the issuance of additional shares under the
Stock Option Plan.
(2) This column represents the pro forma capitalization of the Holding Company
in the event the aggregate number of shares of Common Stock issued in the
Stock Conversion is 15% above the maximum of the Estimated Valuation Range.
See "PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of Common Stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) The Bank's authorized capital will consist solely of 1,000 shares of common
stock, par value $1.00 per share, 1,000 shares of which will be issued to
the Holding Company, and 9,000 shares of preferred stock, no par value per
share, none of which will be issued in connection with the Stock Conversion.
(5) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Bank will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of the
Bank's Eligible Account Holders and Supplemental Eligible Account Holders at
the time of the Stock Conversion and adjusted downward thereafter as such
account holders reduce their balances or cease to be depositors. See "THE
CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank -- Liquidation Account."
(6) Assumes that 8% of the Common Stock sold in the Stock Conversion will be
acquired by the ESOP in the Stock Conversion with funds borrowed from the
Holding Company. Under generally accepted accounting principles ("GAAP"),
the amount of Common Stock to be purchased by the ESOP represents unearned
compensation and is, accordingly, reflected as a reduction of capital. As
shares are released to ESOP participants' accounts, a corresponding
reduction in the charge against capital will occur. Since the funds are
borrowed from the Holding Company, the borrowing will be eliminated in
consolidation and no liability will be reflected in the consolidated
financial statements of the Holding Company. See "MANAGEMENT OF THE BANK --
Benefits -- Employee Stock Ownership Plan."
(7) Assumes the purchase in the open market at the Purchase Price, pursuant to
the proposed MRP, of a number of shares equal to 4% of the shares of Common
Stock issued in the Stock Conversion at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range. The issuance of an
additional 4% of the shares of Common Stock for the MRP from authorized but
unissued shares of Holding Company Common Stock would dilute the ownership
interest of stockholders by 3.85%. The shares are reflected as a reduction
of stockholders' equity. See "RISK FACTORS -- Possible Dilutive Effect of
Benefit Programs," "PRO FORMA DATA" and "MANAGEMENT OF THE BANK -- Benefits
-- Management Recognition Plan." The MRP is subject to stockholder approval,
which is expected to be sought at a meeting to be held no earlier than six
months following consummation of the Stock Conversion.
13
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following tables set forth as of September 30, 1997, in order of
presentation, (i) the Bank's historical and pro forma capital compliance under
OTS regulatory capital requirements (ii) the Bank's historical and pro forma
capital compliance under FDIC regulatory capital requirements that would apply
upon consummation of the Bank Conversion, and (iii) the Holding Company's pro
forma capital compliance under Federal Reserve regulatory capital requirements
that would apply upon consummation of the Banks Conversion. For purposes of the
following tables, (i) the amount of capital infused into the Bank is 50% of the
proceeds of the Offerings and (ii) the amount expected to be borrowed by the
ESOP and the cost of the shares of Common Stock expected to be acquired by the
MRP are deducted from pro forma regulatory capital. For additional information
regarding the financial condition of the Bank and the assumptions underlying
the pro forma capital calculations set forth below, see "USE OF PROCEEDS,"
CAPITALIZATION" and "PRO FORMA DATA" and the Consolidated Financial Statements
and related Notes appearing elsewhere herein
OTS REGULATORY CAPITAL COMPLIANCE
<TABLE>
<CAPTION>
PRO FORMA AT SEPTEMBER 30. 1997
------------------------------------------------------------------------
Minimum of Estimated Midpoint of Estimated Maximum of Estimated
Valuation Range Valuation Range Valuation Range
----------------------- --------------------- ----------------------
4,845,000 Shares 5,700,000 Shares 6,555,000 Shares
September 30, 1997 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
--------------------- --------------------- --------------------- ----------------------
Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted
Total Total Total Total
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital(2).............. $29,501 10.7% $47,411 15.9% $50,601 16.8% $53,791 17.6%
======= ==== ======= ==== ======= ==== ======= ====
Tangible capital(2).......... $29,508 10.8% $47,418 16.1% $50,608 17.0% $53,798 17.8%
Tangible capital requirement 4,089 1.5 4,416 1.5 4,474 1.5 4,532 1.5
------- ---- ------- ---- ------- ---- ------- ----
Excess....................... $25,419 9.3% $43,002 14.6% $46,134 15.5% $49,266 16.3%
======= ==== ======= ==== ======= ==== ======= ====
Core capital(2).............. $29,508 10.8% $47,418 16.1% $50,608 17.0% $53,798 17.8%
Core capital requirements(3). 8,178 3.0 8,832 3.0 8,948 3.0 9,064 3.0
------- ---- ------- ---- ------- ---- ------- ----
Excess....................... $21,330 7.8% $38,586 13.1% $41,660 14.0% $44,734 14.8%
======= ==== ======= ==== ======= ==== ======= ====
Risk-based capital........... $32,309 13.1% $50,219 20.0% $53,409 21.2% $56,599 22.4%
Risk-based
capital requirements........ 19,746 8.0 20,095 8.0 20,157 8.0 20,219 8.0
------- ---- ------- ---- ------- ---- ------- ----
Excess....................... $12,563 5.1% $30,124 12.0% $33,252 13.2% $36,380 14.4%
======= ==== ======= ==== ======= ==== ======= ====
<CAPTION>
PRO FORMA AT SEPTEMBER 30. 1997
-------------------------------------------
15% above
Maximum of Estimated
Valuation Range
----------------------
7,538,250 Shares
at $10.00 Per Share
----------------------
Percent of
Adjusted
Total
Amount Assets(1)
------ ---------
<S> <C> <C>
GAAP capital(2).............. $57,460 18.5%
======= ====
Tangible capital(2).......... $57,467 18.7%
Tangible capital requirement 4,599 1.5
------- ----
Excess....................... $52,868 17.2%
======= ====
Core capital(2).............. $57,467 18.7%
Core capital requirements(3). 9,198 3.0
------- ----
Excess....................... $48,269 15.7%
======= ====
Risk-based capital(4)........ $60,268 23.8%
Risk-based
capital requirements........ 20,290 8.0
------- ----
Excess....................... $39,978 15.8%
======= ====
</TABLE>
14
<PAGE>
FDIC REGULATORY CAPITAL COMPLIANCE
<TABLE>
<CAPTION>
PRO FORMA AT SEPTEMBER 30, 1997
-------------------------------------------------------------------------
Minimum of Estimated Midpoint of Estimated Maximum of Estimated
Valuation Range Valuation Range Valuation Range
---------------------- --------------------- --------------------
Historical 4,845,000 Shares 5,700,000 Shares 6,555,000 Shares
At September 30, 1997 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
------------------------ ---------------------- --------------------- --------------------
Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted
Total Total Total Total
Amount Assets Amount Assets Amount Assets Amount Assets
--------- ------------- --------- ----------- ------- ---------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital............... $29,501 10.7% $47,411 15.9% $50,610 16.8% $53,791 17.6%
======= ==== ======= ==== ======= ==== ======= ====
Tier 1 capital............. $29,508 10.8% $47,418 16.1% $50,608 17.0% $53,798 17.8%
Minimum Tier 1 (leverage)
requirement............... 10,904 4.0 11,776 4.0 11,931 4.0 12,086 4.0
------- ---- ------- ---- ------- ---- ------- ----
Excess................... $18,604 6.8% $35,642 12.1% $38,677 13.0% $41,712 13.8%
======= ==== ======= ==== ======= ==== ======= ====
<CAPTION>
15% above
Maximum of Estimated
Valuation Range
-----------------------
7,538,250 Shares
at $10.00 Per Share
-----------------------
Percent of
Adjusted
Total
Amount Assets
-------- ----------
<S> <C> <C>
GAAP capital............... $57,460 18.5%
======= ====
Tier 1 capital............. $57,467 18.7%
Minimum Tier 1 (leverage)
requirement............... 12,264 4.0
------- ----
Excess................... $45,203 14.7%
======= ====
</TABLE>
FEDERAL RESERVE REGULATORY CAPITAL COMPLIANCE
<TABLE>
<CAPTION>
Historical
At September 30, 1997 PRO FORMA AT SEPTEMBER 30, 1997
--------------------- ---------------------------------------------------------------------
Percent of Percent of Percent of Percent of
Risk-weighted Risk-weighted Risk-weighted Risk-weighted
Amount Assets Amount Assets Amount Assets Amount Assets
------ ------------- ------ ------------- ------ ------------- ------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital...................... $29,508 12.0% $71,142 27.8% $78,548 30.5% $85,954 33.2%
Tier 1 (risk weighted) requirement.. 9,873 4.0 10,237 4.0 10,302 4.0 10,367 4.0
------- ---- ------- ---- ------- ---- ------- ----
Excess.............................. $19,635 8.0% $60,905 23.8% $68,246 26.5% $75,587 29.2%
======= ==== ======= ==== ======= ==== ======= ====
Total capital....................... $32,309 13.1% $73,943 28.9% $81,349 31.6% $88,755 34.2%
Total (risk weighted) requirement... 19,746 8.0 20,475 8.0 20,604 8.0 20,733 8.0
------- ---- ------- ---- ------- ---- ------- ----
Excess.............................. $12,563 5.1% $53,468 20.9% $60,745 23.6% $68,022 26.2%
======= ==== ======= ==== ======= ==== ======= ====
<CAPTION>
Percent of
Risk-weighted
Amount Assets
------ -------------
<S> <C> <C>
Tier 1 capital...................... $94,472 36.2%
Tier 1 (risk weighted) requirement.. 10,441 4.0
------- ----
Excess.............................. $84,031 32.2%
======= ====
Total capital....................... $97,273 37.3%
Total (risk weighted) requirement... 20,882 8.0
------- ----
Excess.............................. $76,391 29.3%
======= ====
</TABLE>
_____________________
(1) Based upon adjusted total assets of $272.6 million for purposes of
the tangible capital and core capital requirements, and risk-weighted
assets of $246.8 million for purposes of the risk-based capital
requirement.
(2) The current OTS core capital requirement for savings associations is
3% of total adjusted assets. The OTS has proposed core capital
requirements which would require a core capital ratio of 3% of total
adjusted assets for thrifts that receive the highest supervisory
rating for safety and soundness and a core capital ratio of 4% to 5%
for all other thrifts.
(3) Percentage represents total core and supplementary capital divided by
total risk-weighted assets. Assumes net proceeds are invested in
assets that carry a 20% risk-weighting.
15
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the Common Stock must be sold at a price
equal to the estimated pro forma market value of the Holding Company and the
Bank as converted, based upon an independent valuation. The Estimated Valuation
Range as of November 7, 1997 is from a minimum of $48,450,000 to a maximum of
$65,550,000 with a midpoint of $57,000,000 or, at a price per share of $10.00, a
minimum number of shares of 4,845,000, a maximum number of shares of 6,555,000
and a midpoint number of shares of 5,700,000. The actual net proceeds from the
sale of the Common Stock cannot be determined until the Conversion is completed.
However, net proceeds set forth on the following table are based upon the
following assumptions: (i) Trident Securities will receive fees of $414,000,
$532,000, $650,000 and $785,000 at the minimum, midpoint, maximum and 15% above
the Estimated Valuation Range, respectively (see "THE CONVERSION -- Plan of
Distribution for the Subscription, Direct Community and Syndicated Community
Offerings); (ii) all of the Common Stock will be sold in the Subscription and
Direct Community Offerings; and (iii) Conversion expenses, excluding the fees
paid to Trident Securities, will total approximately $588,000 at each of the
minimum, midpoint, maximum and 15% above the Estimated Valuation Range. Actual
expenses may vary from this estimate, and the fees paid will depend upon the
percentages and total number of shares sold in the Subscription, Direct
Community and Syndicated Community Offerings and other factors.
The pro forma consolidated net income of the Bank for the nine months ended
September 30, 1997 and the year ended December 31, 1996 have been calculated as
if the Conversion had been consummated at the beginning of the respective
periods and the estimated net proceeds received by the Holding Company and the
Bank had been invested at 5.45% and 5.50% at the beginning of the respective
periods, which represent the yield on one year Treasury Bill as of September 30,
1997 and December 31, 1996, respectively. As discussed under "USE OF PROCEEDS,"
the Holding Company expects to retain 50% of the net proceeds of the Offerings
from which it will fund the ESOP loan. A pro forma after-tax return of 3.38%
and 3.41% are used for both the Holding Company and the Bank for the periods,
after giving effect to an incremental combined federal and state income tax rate
of 38% for both periods. Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by the number of shares
of Common Stock indicated in the footnotes to the table. Per share amounts have
been computed as if the Common Stock had been outstanding at the beginning of
the respective periods or at September 30, 1997 or December 31, 1996, but
without any adjustment of per share historical or pro forma stockholders' equity
to reflect the earnings on the estimated net proceeds.
The following tables summarize the historical net income and retained
earnings of the Bank and the pro forma consolidated net income and stockholders'
equity of the Holding Company for the periods and at the dates indicated, based
on the minimum, midpoint and maximum of the Estimated Valuation Range and based
on a 15% increase in the maximum of the Estimated Valuation Range. No effect
has been given to: (i) the shares to be reserved for issuance under the Holding
Company's Stock Option Plan, which is expected to be voted upon by stockholders
at a meeting to be held no earlier than six months following consummation of the
Stock Conversion; (ii) withdrawals from deposit accounts for the purpose of
purchasing Common Stock in the Stock Conversion; (iii) the issuance of shares
from authorized but unissued shares to the MRP, which is expected to be voted
upon by stockholders at a meeting to be held no earlier than six months
following consummation of the Stock Conversion; or (iv) the establishment of a
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. See "MANAGEMENT OF THE BANK -- Benefits -- Stock
Option Plan" and "THE CONVERSION -- Stock Pricing and Number of Shares Issued."
Shares of Common Stock may be purchased with funds on deposit at the Bank, which
will reduce deposits by the amounts of such purchases. Accordingly, the net
amount of funds available for investment will be reduced by the amount of
deposit withdrawals used to fund stock purchases.
THE FOLLOWING PRO FORMA INFORMATION MAY NOT BE REPRESENTATIVE OF THE
FINANCIAL EFFECTS OF THE CONVERSION AT THE DATE ON WHICH THE CONVERSION ACTUALLY
OCCURS AND SHOULD NOT BE TAKEN AS INDICATIVE OF FUTURE RESULTS OF OPERATIONS.
STOCKHOLDERS' EQUITY REPRESENTS THE DIFFERENCE BETWEEN THE STATED AMOUNTS OF
CONSOLIDATED ASSETS AND LIABILITIES OF THE HOLDING COMPANY COMPUTED IN
ACCORDANCE WITH GAAP. STOCKHOLDERS' EQUITY HAS NOT BEEN INCREASED OR DECREASED
TO REFLECT THE DIFFERENCE BETWEEN THE CARRYING VALUE OF LOANS AND OTHER ASSETS
AND MARKET VALUE. STOCKHOLDERS' EQUITY IS NOT INTENDED TO REPRESENT FAIR MARKET
VALUE NOR DOES IT REPRESENT AMOUNTS THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO
STOCKHOLDERS IN THE EVENT OF LIQUIDATION.
16
<PAGE>
<TABLE>
<CAPTION>
At or For the Nine Months Ended September 30, 1997
---------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
---------- ----------- ---------- ----------------
4,845,000 5,700,000 6,555,000 7,538,250(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
---------- ----------- ---------- ----------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds...................................... $ 48,450 $ 57,000 $ 65,550 $ 75,383
Less: estimated expenses............................ (1,002) (1,120) (1,238) (1,373)
---------- ---------- ---------- ----------
Estimated net proceeds.............................. 47,448 55,880 64,312 74,010
Less: Common Stock acquired by ESOP................. (3,876) (4,560) (5,244) (6,031)
Less: Common Stock to be acquired by MRP............ (1,938) (2,280) (2,622) (3,015)
---------- ---------- ---------- ----------
Net investable proceeds........................ $ 41,634 $ 49,040 $ 56,446 $ 64,964
========== ========== ========== ==========
Consolidated net earnings:
Historical......................................... $ 2,258 $ 2,258 $ 2,258 $ 2,258
Pro forma income on net proceeds(2)................ 1,055 1,243 1,430 1,646
Pro forma ESOP adjustments(3)...................... (150) (177) (203) (234)
Pro forma MRP adjustments(4)....................... (180) (212) (244) (280)
---------- ---------- ---------- ----------
Pro forma net earnings........................... $ 2,983 $ 3,112 $ 3,241 $ 3,390
========== ========== ========== ==========
Consolidated net earnings per share (5)(6):
Historical......................................... $ 0.50 $ 0.43 $ 0.37 $ 0.32
Pro forma income on net proceeds................... 0.23 0.23 0.23 0.24
Pro forma ESOP adjustments(3)...................... (0.03) (0.03) (0.03) (0.03)
Pro forma MRP adjustments(4)....................... (0.04) (0.04) (0.04) (0.04)
---------- ---------- ---------- ----------
Pro forma net earnings per share................. $ 0.66 $ 0.59 $ 0.53 $ 0.49
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical......................................... $ 29,501 $ 29,501 $ 29,501 $ 29,501
Estimated net proceeds............................. 47,448 55,880 64,312 74,010
Less: Common Stock acquired by ESOP................ (3,876) (4,560) (5,244) (6,031)
Less: Common Stock to be acquired by MRP(4)........ (1,938) (2,280) (2,622) (3,015)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(7)................ $ 71,135 $ 78,541 $ 85,947 $ 94,465
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(8):
Historical(6)...................................... $ 6.09 $ 5.18 $ 4.50 $ 3.91
Estimated net proceeds............................. 9.79 9.80 9.81 9.82
Less: Common Stock acquired by ESOP................ (0.80) (0.80) (0.80) (0.80)
Less: Common Stock to be acquired by MRP(4)........ (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(9)...... $ 14.68 $ 13.78 $ 13.11 $ 12.53
========== ========== ========== ==========
Purchase Price as a percentage of pro forma
stockholders' equity per share..................... 68.1% 72.6% 76.3% 79.8%
========== ========== ========== ==========
Purchase Price as a multiple of pro forma
net earnings per share............................. 11.4x 12.7x 14.1x 15.4x
========== ========== ========== ==========
</TABLE>
(footnotes on second following page)
17
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
-------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
4,845,000 5,700,000 6,555,000 7,538,250(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
---------- ----------- ---------- ---------------
(In Thousands, Except Per Share Amounts)
Gross proceeds...................................... $ 48,450 $ 57,000 $ 65,550 $ 75,383
Less: estimated expenses............................ (1,002) (1,120) (1,238) (1,373)
---------- ---------- ---------- ----------
Estimated net proceeds.............................. 47,448 55,880 64,312 74,010
Less: Common Stock acquired by ESOP................. (3,876) (4,560) (5,244) (6,031)
Less: Common Stock to be acquired by MRP............ (1,938) (2,280) (2,622) (3,015)
---------- ---------- ---------- ----------
Net investable proceeds........................ $ 41,634 $ 49,040 $ 56,446 $ 64,964
========== ========== ========== ==========
Consolidated net earnings:
Historical......................................... $ 2,814 $ 2,814 $ 2,814 $ 2,814
Pro forma income on net proceeds(2)................ 1,420 1,672 1,925 2,215
Pro forma ESOP adjustments(3)...................... (200) (236) (271) (312)
Pro forma MRP adjustments(4)....................... (240) (283) (325) (374)
---------- ---------- ---------- ----------
Pro forma net earnings........................... $ 3,794 $ 3,967 $ 4,143 $ 4,343
========== ========== ========== ==========
Consolidated net earnings per share (5)(6):
Historical......................................... $ 0.62 $ 0.53 $ 0.46 $ 0.40
Pro forma income on net proceeds................... 0.32 0.32 0.32 0.32
Pro forma ESOP adjustments(3)...................... (0.05) (0.05) (0.05) (0.05)
Pro forma MRP adjustments(4)....................... (0.05) (0.05) (0.05) (0.05)
---------- ---------- ---------- ----------
Pro forma net earnings per share................. $ 0.84 $ 0.75 $ 0.68 $ 0.62
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical......................................... $ 27,250 $ 27,250 $ 27,250 $ 27,250
Estimated net proceeds............................. 47,448 55,880 64,312 74,010
Less: Common Stock acquired by ESOP................ (3,876) (4,560) (5,244) (6,031)
Less: Common Stock to be acquired by MRP(4)........ (1,938) (2,280) (2,622) (3,015)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(7)................ $ 68,884 $ 76,290 $ 83,696 $ 92,214
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(8):
Historical(6)...................................... $ 5.62 $ 4.78 $ 4.16 $ 3.61
Estimated net proceeds............................. 9.79 9.80 9.81 9.82
Less: Common Stock acquired by ESOP................ (0.80) (0.80) (0.80) (0.80)
Less: Common Stock to be acquired by MRP(4)........ (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(9)...... $ 14.21 $ 13.38 $ 12.77 $ 12.23
========== ========== ========== ==========
Purchase Price as a percentage of pro forma
stockholders' equity per share..................... 70.3% 74.7% 78.3% 81.7%
========== ========== ========== ==========
Purchase Price as a multiple of pro forma
net earnings per share............................. 11.9x 13.3x 14.7x 16.1x
========== ========== ========== ==========
</TABLE>
(footnotes on following page)
18
<PAGE>
___________________
(1) Gives effect to the sale of an additional 983,250 shares in the Stock
Conversion, which may be issued to cover an increase in the pro forma
market value of the Holding Company and the Bank as converted, without the
resolicitation of subscribers or any right of cancellation. The issuance of
such additional shares will be conditioned on a determination by Ferguson
that such issuance is compatible with its determination of the estimated
pro forma market value of the Holding Company and the Bank as converted.
See "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Stock Conversion. Since funds on
deposit at the Bank may be withdrawn to purchase shares of Common Stock
(which will reduce deposits by the amount of such purchases), the net
amount of funds available to the Bank for investment following receipt of
the net proceeds of the Offerings will be reduced by the amount of such
withdrawals.
(3) It is assumed that 8% of the shares of Common Stock offered in the Stock
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP (at an interest rate equal to the prime
rate as published in The Wall Street Journal on the closing date of the
Stock Conversion, which rate is currently 8.5%) from the net proceeds from
the Offerings retained by the Holding Company. The amount of this borrowing
has been reflected as a reduction from gross proceeds to determine
estimated net investable proceeds. The Bank intends to make contributions
to the ESOP in amounts at least equal to the principal and interest
requirement of the debt. As the debt is paid down, stockholders' equity
will be increased. The Bank's payment of the ESOP debt is based upon equal
installments of principal over a 12-year period, assuming a combined
federal and state income tax rate of 38%. Interest income earned by the
Holding Company on the ESOP debt offsets the interest paid by the Bank on
the ESOP loan. No reinvestment is assumed on proceeds contributed to fund
the ESOP. The ESOP expense reflects adoption of Statement of Position
("SOP") 93-6, which will require recognition of expense based upon shares
committed to be released and the exclusion of unallocated shares from
earnings per share computations. The valuation of shares committed to be
released would be based upon the average market value of the shares during
the year, which, for purposes of this calculation, was assumed to be equal
to the $10.00 per share Purchase Price. See "MANAGEMENT OF THE BANK --
Benefits -- Employee Stock Ownership Plan."
(4) In calculating the pro forma effect of the MRP, it is assumed that the
required stockholder approval has been received, that the shares were
acquired by the MRP at the beginning of the period presented in open market
purchases at the Purchase Price, that 20% of the amount contributed was an
amortized expense during such period, and that the combined federal and
state income tax rate is 38%. The issuance of authorized but unissued
shares of the Common Stock instead of open market purchases would dilute
the voting interests of existing stockholders by approximately 3.85% and
pro forma net income per share would be $0.65, $0.58, $0.52 and $0.48 at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range for the nine months ended September 30, 1997, respectively,
and $0.82, $0.73, $0.67 and $0.61 at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range for the year ended
December 31, 1996, respectively, and pro forma stockholders' equity per
share would be $14.50, $13.63, $12.99 and $12.43 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range at
September 30, 1997, respectively, and $14.06, $13.25, $12.66 and $12.15 at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range at December 31, 1996 respectively. Shares issued under the
MRP vest 20% per year and, for purposes of this table, compensation expense
is recognized on a straight-line basis over each vesting period. In the
event the fair market value per share is greater than $10.00 per share on
the date shares are awarded under the MRP, total MRP expense would
increase. The total estimated MRP expense was multiplied by 20% (the total
percent of shares for which expense is recognized in the first year)
resulting in after-tax MRP expense of $180,234, $212,040, $243,846 and
$280,423 at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range for the nine months ended September 30, 1997,
respectively, and $240,312, $282,720, $325,128 and $373,897 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range for the year ended December 31, 1996, respectively. No effect has
been given to the shares reserved for issuance under the proposed Stock
Option Plan. If stockholders approve the Stock
19
<PAGE>
Option Plan following the Stock Conversion, the Holding Company will have
reserved for issuance under the Stock Option Plan authorized but unissued
shares of Common Stock representing an amount of shares equal to 10% of the
shares sold in the Stock Conversion. If all of the options were to be
exercised utilizing these authorized but unissued shares rather than
treasury shares which could be acquired, the voting and ownership interests
of existing stockholders would be diluted by approximately 9.1%. Assuming
stockholder approval of the Stock Option Plan and that all options were
exercised at the beginning of the nine months ended September 30, 1997 and
the year ended December 31, 1996, respectively, at an exercise price of
$10.00 per share, pro forma net earnings per share would be $0.62, $0.56,
$0.51 and $0.46, respectively, for the nine months ended September 30,
1997, and $0.80, $0.71, $0.65 and $0.59, respectively, for the year ended
December 31, 1996, and pro forma stockholders' equity per share would be
$14.26, $13.44, $12.83 and $12.30, respectively, for the nine months ended
September 30, 1997, and $13.83, $13.08, $12.52 and $12.03, respectively for
the year ended December 31, 1996 at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range. See "MANAGEMENT OF THE
BANK -- Benefits -- Stock Option Plan" and "-- Benefits -- Management
Recognition Plan" and "RISK FACTORS -- Possible Dilutive Effect of Benefit
Programs."
(5) Per share amounts are based upon shares outstanding of 4,489,700,
5,282,000, 6,074,300 and 6,985,445 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range for the nine months
ended September 30, 1997, and the year ended December 31, 1996,
respectively, which includes the shares of Common Stock sold in the Stock
Conversion less the number of shares assumed to be held by the ESOP not
committed to be released within the first year following the Stock
Conversion.
(6) Historical per share amounts have been computed as if the shares of Common
Stock expected to be issued in the Stock Conversion had been outstanding at
the beginning of the period or on the date shown, but without any
adjustment of historical net income or historical retained earnings to
reflect the investment of the estimated net proceeds of the sale of shares
in the Stock Conversion, the additional ESOP expense or the proposed MRP
expense, as described above.
(7) "Book value" represents the difference between the stated amounts of the
Bank's assets and liabilities. The amounts shown do not reflect the
liquidation account which will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in the Stock
Conversion, or the federal income tax consequences of the restoration to
income of the Bank's special bad debt reserves for income tax purposes
which would be required in the unlikely event of liquidation. See "THE
CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" and "TAXATION." The amounts shown for book value do
not represent fair market values or amounts distributable to stockholders
in the unlikely event of liquidation.
(8) Per share amounts are based upon shares outstanding of 4,845,000,
5,700,000, 6,555,000 and 7,538,250 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively.
(9) Does not represent possible future price appreciation or depreciation of
the Common Stock.
20
<PAGE>
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information as to the approximate
purchases of Common Stock by each director and executive officer of the Bank,
including their associates, as defined by applicable regulations. No individual
has entered into a binding agreement with respect to such intended purchases,
and, therefore, actual purchases could be more or less than indicated below.
Directors and officers of the Bank and their associates may not purchase in
excess of 30% of the shares sold in the Stock Conversion. For purposes of the
following table, it has been assumed that sufficient shares will be available to
satisfy subscriptions in all categories. Directors, officers and employees will
pay the same price for the shares for which they subscribe as the price that
will be paid by all other subscribers.
<TABLE>
<CAPTION>
Percent of Percent of
Anticipated Anticipated Shares at Shares at
Number of Dollar Minimum of Maximum of
Name and Shares Amount Estimated Estimated
Position Purchased (1) Purchased Valuation Range Valuation Range
-------- ------------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
William H. Huddleston, III
Chairman of the Board 65,550 $655,500 1.4% 1.0%
Ed C. Loughry, Jr.
President, Chief Executive Officer
and Director 65,550 655,500 1.4 1.0
Ronald F. Knight
Executive Vice President, Chief
Operating Officer and Director 65,550 655,500 1.4 1.0
Gary Brown
Vice Chairman of the Board 65,550 655,500 1.4 1.0
Frank E. Crosslin, Jr.
Director 65,550 655,500 1.4 1.0
Tim J. Durham
Director 65,550 655,500 1.4 1.0
Ed Elam
Director 65,550 655,500 1.4 1.0
James C. Cope
Director 65,550 655,500 1.4 1.0
Terry G. Haynes
Director 65,550 655,500 1.4 1.0
Hillard C. "Bud" Gardner
Senior Vice President and Chief
Financial Officer 65,550 655,500 1.4 1.0
</TABLE>
(table continued on following page)
21
<PAGE>
<TABLE>
<CAPTION>
Percent of Percent of
Anticipated Anticipated Shares at Shares at
Number of Dollar Minimum of Maximum of
Name and Shares Amount Estimated Estimated
Position Purchased (1) Purchased Valuation Range Valuation Range
-------- ------------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
William S. Jones
Senior Vice President and Trust
Officer/Investor Relations 65,550 655,500 1.4 1.0
David W. Hopper
Senior Vice President and Trust Officer 65,550 655,500 1.4 1.0
R. Dale Floyd
Senior Vice President 65,550 655,500 1.4 1.0
Ira B. Lewis, Jr.
Vice President/CRA Compliance Officer
and Secretary 65,550 655,500 1.4 1.0
M. Glenn Layne
Vice President 65,550 655,500 1.4 1.0
Joy B. Jobe
Vice President 65,550 655,500 1.4 1.0
Other officers (14 persons) 282,950 2,829,500 5.8 4.3
--------- ----------- ---- ----
Total 1,331,750 $13,317,500 27.5% 20.3%
========= =========== ==== ====
</TABLE>
_______________
(1) Excludes any shares awarded pursuant to the ESOP and MRP and options to
acquire shares pursuant to the Stock Option Plan. For a description of the
number of shares to be purchased by the ESOP and intended awards under the
MRP and Stock Option Plan, see "MANAGEMENT OF THE BANK -- Benefits --
Employee Stock Ownership Plan," "-- Benefits -- Stock Option Plan" and "--
Benefits -- Management Recognition Plan."
22
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
The following Consolidated Statements of Earnings of Cavalry Banking and
Subsidiaries for the fiscal years ended December 31, 1996, 1995 and 1994 have
been audited by Rayburn, Betts & Bates, P.C., Nashville, Tennessee, independent
auditors, whose report thereon appears elsewhere in this Prospectus. The
Consolidated Statements of Earnings for the nine months ended September 30, 1997
and 1996 were not audited by Rayburn, Betts & Bates, P.C., but, in the opinion
of management, reflect all adjustments (none of which are other than normal
recurring entries) necessary for a fair presentation. The results of operations
for the nine months ended September 30, 1997 are not necessarily indicative of
the results of operations that may be expected for the entire fiscal year. These
statements should be read in conjunction with the Consolidated Financial
Statements and related Notes included elsewhere herein.
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Years Ended December 31,
------------------- ---------------------------------
1997 1996 1996 1995 1994
------- ---------- ------- ----------- -----------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
First mortgage loans...................................... $ 9,312 $ 8,446 $11,516 $ 9,996 $ 9,378
Other loans............................................... 5,750 4,410 6,165 4,904 4,503
Investment securities..................................... 399 1,114 1,338 1,601 1,088
Deposits with other financial institutions................ 629 332 464 612 339
Mortgage-backed securities................................ 70 78 101 109 86
------- ------- ------- ------- -------
Total interest income.................................. 16,160 14,380 19,584 17,222 15,394
------- ------- ------- ------- -------
Interest expense - deposits................................ 6,815 6,117 8,232 7,640 6,180
Interest expense - Advances from Federal
Home Loan Bank........................................... -- -- 36 56 119
------- ------- ------- ------- -------
Total interest expense................................. 6,815 6,117 8,268 7,696 6,299
------- ------- ------- ------- -------
Net interest income.................................... 9,345 8,263 11,316 9,526 9,095
Provision for loan losses (note 5)......................... 700 90 120 80 113
------- ------- ------- ------- -------
Net interest income after provision for loan losses.... 8,645 8,173 11,196 9,446 8,982
------- ------- ------- ------- -------
Noninterest income:
Servicing income.......................................... 398 411 548 658 375
Gain on sale of real estate acquired in
settlement of loans, net................................ -- 7 11 23 18
Gain on sale of loans, net................................ 674 733 890 882 530
Gain on sale of office properties and equipment........... -- -- 40 -- --
Deposit servicing fees and charges........................ 854 702 973 796 643
Trust service fees........................................ 435 349 483 375 302
Other operating income.................................... 153 111 213 230 147
------- ------- ------- ------- -------
Total noninterest income.............................. 2,514 2,313 3,158 2,964 2,015
------- ------- ------- ------- -------
Noninterest expenses:
Compensation payroll taxes and fringe benefits (note 12).. 4,081 3,454 4,661 3,889 3,774
Occupancy expense......................................... 404 355 493 459 417
Supplies, communications and other office expenses........ 468 413 567 615 460
Federal insurance premiums (note 18)...................... 76 1,537 1,654 418 423
Advertising expense....................................... 145 142 201 166 122
Equipment and service bureau expense...................... 1,452 1,082 1,466 1,241 1,073
State and other taxes..................................... 261 149 200 180 170
Other operating expenses.................................. 467 385 544 530 562
------- ------- ------- ------- -------
Total noninterest expenses............................ 7,354 7,517 9,786 7,498 7,001
------- ------- ------- ------- -------
Earnings before income tax expense......................... 3,805 2,969 4,568 4,912 3,996
Income tax expense (note 11)............................... 1,547 1,129 1,754 1,711 1,538
------- ------- ------- ------- -------
Net earnings.......................................... $ 2,258 $ 1,840 $ 2,814 $ 3,201 $ 2,458
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Bank. The information contained in this section
should be read in conjunction with the Consolidated Financial Statements and
accompanying Notes thereto and the other sections contained in this Prospectus.
OPERATING STRATEGY
The Bank is a community-oriented financial institution whose primary
business is attracting deposits from the general public and using those funds to
originate a variety of loans to individuals residing within its primary market
area, and to businesses owned and operated by such individuals. The Bank
believes that its operations more closely resemble those of a traditional
commercial bank than a traditional thrift institution. The Bank originates, in
order of magnitude, one-to-four family mortgage loans, construction loans,
commercial real estate loans, consumer loans, commercial business loans, and
land A&D loans. In addition, the Bank invests in U.S. Government and federal
agency obligations. The Bank intends to continue to fund its assets primarily
with retail deposits, although FHLB-Cincinnati advances may be used as a
supplemental source of funds. The Bank also offers trust services. See
"CAVALRY BANKING."
The Bank's profitability depends primarily on its net interest income,
which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits. Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing liabilities. When interest-earning
assets equal or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The Bank profitability is also
affected by the level of other income and expenses. Other income, net, includes
income associated with the origination and sale of mortgage loans, loan
servicing fees, other deposit related fees and trust fees. Other expenses
include compensation and benefits, occupancy and equipment expenses, deposit
insurance premiums, data servicing expenses and other operating costs. The
Bank's results of operations are also significantly affected by general economic
and competitive conditions, particularly changes in market interest rates,
government legislation and regulation and monetary and fiscal policies.
The Bank's business strategy is to operate as a well-capitalized,
profitable and independent financial institution dedicated to a community-
oriented approach that emphasizes management involvement with customers and the
community at large, local decision-making and quality customer service.
Management believes that it can best serve an important segment of the
marketplace and enhance the long-term value of the Holding Company by operating
independently and continuing with and expanding its community-oriented approach,
especially in light of recent consolidations of thrift institutions with large
regional commercial banks in the Bank's market area.
The Bank believes that it has successfully implemented its business
strategy by: (i) maintaining a strong capital base (see "HISTORICAL AND PRO
FORMA REGULATORY CAPITAL COMPLIANCE"); (ii) seeking to reduce its exposure to
fluctuations in market interest rates (see "-- Asset and Liability Management");
(iii) promoting local loan originations (see "BUSINESS OF THE BANK -- Lending
Activities -- General"); (iv) supplementing its traditional menu of mortgage
loan products with a variety of consumer and commercial loan products (see
"BUSINESS OF THE BANK -- Lending Activities -- Commercial Real Estate Lending,"
"-- Commercial Business Lending," and "-- Consumer Lending"); (v) providing
check imaging services and offering commercial deposit accounts to complement
its commercial real estate and commercial business lending activities (see
BUSINESS OF THE BANK -- Deposit Activities and Other Sources of Funds); (vi)
expanding its branch office network (see BUSINESS OF THE BANK -- Properties");
(vii) seeking to increase its portfolio of loans serviced for others (see
"BUSINESS OF THE BANK -- Lending Activities -- Loan Fees"); and (viii) seeking
to increase its trust
24
<PAGE>
assets under management (see "BUSINESS OF THE BANK --Trust Powers"). The Bank
believes that the capital raised in the Offerings will enhance its ability to
continue implementing its business strategy.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997, DECEMBER 31, 1996 AND
DECEMBER 31, 1995
Total assets were $275.9 million, $245.0 million and $223.9 million at
September 30, 1997, December 31, 1996 and December 31, 1995, respectively. This
increase resulted primarily from growth in the loan portfolio, which was funded
primarily by deposit growth.
Loans receivable, net, amounted to $216.4 million, $200.6 million and
$159.9 million at September 30, 1997, December 31, 1996 and December 31, 1995,
respectively. A substantial portion of the Bank's loan portfolio is secured by
real estate, either as primary or secondary collateral, located in its primary
market area. There are certain risks associated with this credit concentration.
See "RISK FACTORS -- Concentration of Credit Risk." In addition, the period
between December 31, 1995 and September 30, 1997 saw a continuing trend in the
growth of the construction commercial and consumer loan portfolios as the Bank
emphasized the origination of loans with shorter maturities for asset and
liability management purposes. See "-- Asset and Liability Management."
Construction, commercial real estate, commercial business and consumer loans are
inherently riskier than one- to- four family mortgage loans. See "RISK FACTORS
- --Certain Lending Risks" and "BUSINESS OF THE BANK -- Lending Activities."
Loans held-for-sale were $4.1 million, $5.3 million and $3.7 million at
September 30, 1997, December 31, 1996 and December 31, 1995, respectively. The
variances resulted primarily from timing differences in the funding of loans.
Cash and cash equivalents amounted to $26.7 million, $19.5 million and
$13.9 million at September 30, 1997, December 31, 1996 and December 31, 1995,
respectively. The increase between December 31, 1995 and September 30, 1997
reflects proceeds from the maturity of investment securities, and, to a lesser
extent, deposit growth. See "-- Liquidity and Capital Resources."
Investment securities held-to-maturity were $3.7 million, $7.7 million and
$35.6 million at September 30, 1997, December 31, 1996 and December 31, 1995,
respectively. The decrease between December 31, 1995 and September 30, 1997
resulted from maturities, with the proceeds used to fund loan growth.
Investment securities available-for-sale were $10.1 million at September
30, 1997. There were no investment securities available-for-sale at December
31, 1996 and December 31, 1995. The increase between December 31, 1996 and
September 30, 1997 reflected the investment of excess liquidity. Such
securities may be sold for lending or other operating purposes.
Office properties and equipment, net, were $7.9 million, $6.2 million and
$5.3 million at September 30, 1997, December 31, 1996 and December 31, 1995,
respectively. The increase between December 31, 1996 and 1995 resulted
primarily from the acquisition of land for the construction of the Cason Lane
and SE Broad branch offices, expansion of the Memorial Boulevard office, and
the purchase of the building and property for the Hazelwood branch. During
1996, the Bank also upgraded its computer hardware and software. The increase
from December 31, 1996 to September 30, 1997 resulted from the continuation of
the computer hardware and software upgrade project, the construction and opening
of the Cason Lane office, the purchase of two parcels of land for possible
branch locations and starting construction on the SE Broad office. Construction
in progress was $165,000 at December 31, 1995 and was related to the expansion
of the Memorial office. The construction was completed in March 1996 at a total
cost of $194,000. Construction in progress was $8,000 at December 31, 1996 and
was related to the construction of the Carson lane branch office. The
construction was completed in July 1997 at a total cost of $378,000.
Construction in progress was $144,000 at September 30, 1997 and was related to
the construction of a new branch office on Southeast Broad Street. This new
branch office was opened in December 1997 at a total cost of $422,000. See
"RECENT DEVELOPMENTS" and "BUSINESS OF THE BANK -- Properties."
25
<PAGE>
Deposit accounts totaled $242.0 million, $214.5 million and $196.7 million
at September 30, 1997, December 31, 1996 and December 31, 1995, respectively.
The increases between September 30, 1997, December 31, 1996 and December 31,
1995 were the result of aggressive marketing and promotion of transaction
accounts. See "BUSINESS OF THE BANK -- Deposit Activities and Other Sources of
Funds."
Total equity was $29.5 million, $27.3 million and $24.4 million at
September 30, 1997, December 31, 1996 and December 31, 1995, respectively.
These increases were primarily the result of retained earnings.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1996
NET EARNINGS. Net earnings were $2.3 million for the nine months ended
September 30, 1997 compared to $1.8 million for the nine months ended September
30, 1996, a 22.7% increase, attributed primarily to an increase in interest
income, offset by increases in interest expense and an increase in the provision
for loan losses.
NET INTEREST INCOME. Net interest income increased 13.1% from $8.3 million
for the nine months ended September 30, 1996 to $9.3 million for the nine months
ended September 30, 1997. Total interest income increased 12.4% from $14.4
million for the nine months ended September 30, 1996 to $16.2 million for the
nine months ended September 30, 1997 primarily as a result of an increase in the
average balance of interest-earning assets from $216.2 million to $237.6 million
resulting primarily from normal asset growth, combined with an increase in
average yield from 8.87% at September 30, 1996 to 9.07% at September 30, 1997
resulting primarily from an increase in market interest rates. Interest income
on other loans (consumer loans, commercial real estate loans and commercial
business loans) increased from $4.4 million for the nine months ended September
30, 1996 to $5.8 million for the nine months ended September 30, 1997 as a
result of the increased volume of such loans. Interest income from investment
securities decreased from $1.1 million for the nine months ended September 30,
1996 to $399,000 for the nine months ended September 30, 1997 as a result of
decrease in the average balance of investment securities from $24.8 million for
the nine months ended September 30, 1996 to $6.9 million for the nine months
ended September 30, 1997. Interest expense increased 11.4% from $6.1 million
for the nine months ended September 30, 1996 to $6.8 million for the nine months
ended September 30, 1997 as a result of an increase in the average balance of
deposits from $183.6 million to $203.4 million primarily as a result of normal
growth. The average cost of these funds was 4.45% for the period ending
September 30, 1996 compared with 4.46% for the period ended September 30, 1997.
Interest rate spread increased from 4.42% to 4.61% as a result of the increase
in yield on interest-earning assets between the nine months ended September 30,
1996 and the nine months ended September 30, 1997 resulting primarily from
increases in loans outstanding and decreases in investments outstanding.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level considered by
management as adequate to provide for estimated loan losses based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans and economic conditions. In determining the
adequacy of the allowance for loan losses, management periodically reviews the
loan portfolio and considers such factors as delinquency status, past
performance problems, historical loss experience, adverse situations that may
affect the ability of the borrowers to repay, known and inherent risks in the
portfolio, assessment of economic conditions, regulatory policies, and the
estimated value of any underlying collateral. Although the Bank's credit
management systems have resulted in low loss experience, there can be no
assurances that such experience will continue. The allowance for loan losses is
based principally on delinquency status and historical experience. The Bank
gives greater weight to the level of classified assets than to the level of
nonperforming assets (nonaccrual loans, accruing loans contractually past due 90
days or more, and real estate acquired in settlement of loans) because
classified assets include not only nonperforming assets but also performing
assets that otherwise exhibit, in management's judgment, potential credit
26
<PAGE>
weaknesses. See "BUSINESS OF THE BANK -- Lending Activities --Nonperforming
Assets and Delinquencies" and "-- Lending Activities -- Asset Classification."
The required level of the allowance for loan losses is then calculated based
upon the outstanding balances in each loan category and the risk weight assigned
to each loan category.
The provision for loan losses was $700,000 for the nine months ended
September 30, 1997 compared to $90,000 for the same period in 1996. Management
deemed the increase in the provision for loan losses necessary in light of the
increase in the relative level of estimated losses inherent in the higher levels
of higher risk loans (construction, commercial real estate, land, commercial
business and consumer loans), as well as the increase in the level of classified
assets at September 30, 1997. See "RISK FACTORS -- Certain Lending Risks" and
"BUSINESS OF THE BANK -- Lending Activities -- Asset Classification."
Management deemed the allowance for loan losses adequate at September 30, 1997.
NONINTEREST INCOME. Noninterest income increased from $2.3 million for the
nine months ended September 30, 1996 to $2.5 million for the nine months ended
September 30, 1997, primarily as a result of the increase in service charges and
trust fees offset by a decrease in other income. Service charges and fees
increased from $702,000 for the nine months ended September 30, 1996 to $854,000
for the same period in 1997 primarily as a result of increased income deposit
account fees, particularly on the increased number of transaction accounts.
Trust fees increased from $349,000 for 1996 to $435,000 for 1997 as a result of
an increase in trust assets under management. These increases were partially
offset by a decline in net gain on sale of loans from $733,000 for 1996 to
$674,000 for 1997 primarily because of a decrease in volume of loan sales.
NONINTEREST EXPENSES. Noninterest expenses were $7.4 million for the nine
months ended September 30, 1997 compared to $7.5 million for the same period in
1996. This decrease resulted primarily from the FDIC special assessment on all
SAIF-insured institutions to recapitalize the SAIF. The Bank's assessment
amounted to $1.2 million and was accrued during the quarter ended September 30,
1996. Prior to the SAIF recapitalization, the Bank's total annual deposit
insurance premiums amounted to 0.23% of assessable deposits. Effective January
1, 1997, the rate decreased to 0.065% of assessable deposits. See "REGULATION -
- - Federal Regulation of Savings Associations -- Federal Deposit Insurance
Corporation" and Note 17 of Notes to the Consolidated Financial Statements.
Compensation, payroll taxes and fringe benefits expenses increased from $3.5
million for 1996 to $4.1 million for 1997 as a result of an increase in
personnel to staff the new branch offices and service the increased number of
loan and deposit accounts. Occupancy expense increased from $355,000 in 1996 to
$404,000 in 1997 as a result of new branch openings and increased maintenance
costs on the main office. Equipment and service bureau expenses increased from
$1.1 million in 1996 to $1.5 million in 1997 as a result of increased
maintenance agreements for the new computer software and hardware and an
increase in related depreciation expense. Other operating expenses will
increase in subsequent periods following the consummation of the Conversion as a
result of increased costs associated with operating as a public company and
increased compensation expense as a result of the adoption of the ESOP and, if
approved by the Holding Company's stockholders, the MRP. See "RISK FACTORS --
Return on Equity After Conversion," "-- New Expenses Associated With ESOP and
MRP" and "BUSINESS OF THE BANK --Properties."
INCOME TAX EXPENSE. Income tax expense was $1.5 million for the nine
months ended September 30, 1997 compared to $1.1 million for the nine months
ended September 30, 1996 as a result of higher income before taxes. The
effective income tax rate increased from 38.0% for the nine months ended
September 30, 1996 to 40.7% for the nine months ended September 30, 1997
primarily as a result of a reduction in a state income tax benefit relating to
the calculation of the reserve for bad debts that existed for federal income tax
purposes prior to 1987.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NET EARNINGS. Net earnings were $2.8 million for the year ended December
31, 1996 compared to $3.2 million a year earlier, a 12.1% decline, primarily as
a result of increases in noninterest expenses, primarily associated with the
one-time FDIC special SAIF assessment, and an increase in the provision for loan
losses.
27
<PAGE>
NET INTEREST INCOME. Net interest income was $11.3 million for the year
ended December 31, 1996 compared to $9.5 million for the year ended December 31,
1995, a 18.8% increase. A 13.7% increase in total interest income, from $17.2
million in 1995 to $19.6 million in 1996, was offset by a 7.4% increase in
interest expense, from $7.7 million in 1995 to $8.3 million in 1996. The
increase in total interest income resulted primarily from an increase in the
average balance of interest-earning assets from $199.3 million in 1995 to $220.0
million in 1996 and an increase in the average yield on interest-earning assets
from 8.64% in 1995 to 8.92% in 1996 as a result of a combination of higher
market interest rates and an increase in the average balance of higher yielding
consumer and other loans. Interest income on other loans (consumer loans,
commercial real estate loans and commercial business loans) increased from $4.9
million for the year ended December 31, 1995 to $6.2 million of the year ended
December 31, 1996 as a result of the increased volume of such loans. Interest
income from investment securities decreased from $1.6 million for the year ended
December 31, 1995 to $1.3 million for the year ended December 31, 1996 as a
result of decrease in the average balance of investment securities from $28.4
million for the year ended December 31, 1995 to $21.9 million for the year ended
December 31, 1996. The increase in interest expense was primarily the result of
an increase in average deposits from $169.8 million at December 31, 1995 to
$185.5 million at December 31, 1996 primarily as a result of market and
promotions. The increase was offset by a decrease in the average cost of
deposits from 4.50% for 1995 to 4.44% for 1996 as a result of declining market
interest rates. Interest rate spread increased from 4.14% in 1995 to 4.48% in
1996.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $120,000 for
the year ended December 31, 1996 compared to $80,000 for the year ended December
31, 1995. Management deemed the increase in the provision for loan losses
necessary in light of the increase in the relative level of estimated losses
inherent in the higher levels of higher risk loans (construction, commercial
real estate, land, commercial business and consumer loans). See "BUSINESS OF
THE BANK -- Lending Activities -- Construction Lending" and "-- Lending
Activities -- Nonperforming Assets and Delinquencies."
NONINTEREST INCOME. Noninterest income was $3.2 million for the year ended
December 31, 1996 compared to $3.0 million for the year ended December 31, 1995.
Loan fees and servicing income declined from $658,000 in 1995 to $548,000 in
1996 as a result of a decrease in the servicing portfolio from $134.4 million at
December 31, 1995 to $121.1 million at December 31, 1996. This decrease was
offset by an increase in deposit fees from $796,000 in 1995 to $973,000 in 1996,
which was a result of an increase in transaction accounts. Trust fees also
increased from $375,000 in 1995 to $483,000 in 1996 as a result of increased
assets under management.
NONINTEREST EXPENSES. Noninterest expenses were $9.8 million for the year
ended December 31, 1996 compared to $7.5 million for the year ended December 31,
1995, an increase of 30.5%, primarily as a result of the FDIC special assessment
on all SAIF-insured institutions. This assessment amounted to $1.2 million in
1996. As the Bank continued to grow and expand during this period, compensation
and related employee expenses increased from $3.9 million for the year ended
December 31, 1995 to $4.7 million for the same period in 1996, which represents
a 19.9% increase. Equipment and service bureau expenses increased from $1.2
million in 1995 to $1.5 million in 1996, an 18.1% increase, as a result of
business expansion.
INCOME TAX EXPENSE. Income tax expense was $1.8 million for the year ended
December 31, 1996 compared to $1.7 million for the year ended December 31, 1995.
The effective income tax rate increased from 34.8% in 1995 to 38.4% in 1996 as a
result of previously unrecognized federal income tax benefits.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NET EARNINGS. Net earnings were $2.5 million for the year ended December
31, 1994 compared to $3.2 million for the year ended December 31, 1995, a 30.2%
increase, primarily as a result of an increase in net interest income and an
increase in other operating income, offset by an increase in other expense.
NET INTEREST INCOME. Net interest income increased from $9.1 million for
the year ended December 31, 1994 to $9.5 million for the year ended December 31,
1995. Interest rate spread increased to 4.14% in 1995 from
28
<PAGE>
4.11% in 1994 primarily as a result of increases in market interest rates.
Average interest-earning assets increased from $198.0 million to $199.3 million
during 1995, with a corresponding increase in yield from 7.78% to 8.64% as a
result of an increase in market interest rates. These increases were partially
offset by an increase in cost of funds and borrowings from 3.68% for 1994
compared to 4.5% for 1995 primarily as a result of increases in market interest
rates. Total average interest-bearing liabilities were $171.7 million for 1994
compared with $170.8 million for 1995.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $80,000 for
the year ended December 31, 1995 compared to $113,000 for the year ended
December 31, 1994. The reduced provision for loan losses was warranted in 1995
as a result of net recoveries of $141,000 during the year. See "BUSINESS OF THE
BANK -- Lending Activities --Allowance for Loan Losses."
NONINTEREST INCOME. Noninterest income was $3.0 million for the year ended
December 31, 1995 compared to $2.0 million for the year ended December 31, 1994.
Servicing income increased from $375,000 in 1994 to $658,000 in 1995 as a result
of the completion of the write-off of the remainder of an excess servicing asset
in 1994. There was also an increase in net gain on disposition of loans
available for sale from $530,000 in 1994 to $882,000 in 1995, resulting from
increased loan sale activity. Transaction account and deposit servicing fees and
charges increased from $643,000 in 1994 to $796,000 in 1995 as a result of
increased transaction account activity resulting primarily from an increased
number of accounts. Trust fees increased from $302,000 in 1994 to $375,000 in
1995 as a result of the growth in assets under management.
NONINTEREST EXPENSES. Noninterest expenses were $7.5 million in 1995
compared to $7.0 million in 1994, an increase of 7.1%, primarily as a result of
general increases in all expense categories, which reflected the increased
activity of the Bank during the year.
INCOME TAX EXPENSE. Income tax expense was $1.7 million for the year ended
December 31, 1995 compared to $1.5 million for the year ended December 31, 1994
as a result of higher income before taxes. The effective income tax rate
decreased from 38.5% in 1994 to 34.8% in 1995.
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST
The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing
income or expense by the average balances of assets or liabilities,
respectively, for the periods presented. Average balances are derived from
daily balances for the nine months ended September 30, 1997 and 1996 and for the
years ended December 31, 1996 and 1995. Average balances for the year ended
December 31, 1994 were derived from month-end balances. Management does not
believe that the use of month-end balances instead of daily balances has caused
any material inconsistencies in the information presented.
29
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, Years Ended December 31,
-------------------------------------------------------------- ----------------------------
1997 1996 1996
------------------------------ ------------------------------ ----------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost(3) Balance Dividends Cost(3) Balance Dividends Cost
-------- --------- --------- -------- --------- --------- -------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1)....... $212,161 $15,062 9.47% $180,579 $12,856 9.49% $186,393 $17,681 9.49%
Mortgage-backed securities...... 1,387 70 6.73 1,509 78 6.89 1,497 101 6.75
Investment securities........... 6,857 316 6.14 24,754 1,038 5.59 21,933 1,236 5.64
FHLB stock...................... 1,544 83 7.17 1,442 76 7.03 1,454 102 7.02
Federal funds sold and
overnight interest-bearing
deposits....................... 15,658 629 5.36 7,948 332 5.57 8,293 464 5.60
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-earning
assets....................... 237,607 16,160 9.07 216,232 14,380 8.87 219,570 19,584 8.92
Non-interest-earning assets...... 17,823 14,766 15,028
-------- -------- --------
Total assets.................. $255,430 $230,998 $234,598
======== ======== ========
Interest-bearing liabilities:
Deposits:
Passbook accounts.............. 15,354 227 1.97 16,821 272 2.16 16,581 350 2.11
Money market accounts.......... 33,243 1,040 4.17 25,286 795 4.20 25,851 1,090 4.22
NOW accounts................... 27,892 356 1.70 25,849 386 1.99 26,257 505 1.92
Certificates of deposit........ 126,987 5,192 5.45 115,675 4,664 5.39 116,828 6,287 5.38
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total deposits............... 203,476 6,815 4.46 183,631 6,117 4.45 185,517 8,232 4.44
-------- ------- ------ -------- ------- ------ -------- ------- ------
Advances from FHLB............... -- -- -- -- -- -- 628 36 5.73
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities.................. 203,476 6,815 4.46 183,631 6,117 4.45 186,145 8,268 4.44
Non-interest-bearing
liabilities(2).................. 23,625 21,890 22,726
-------- -------- --------
Total liabilities............. 227,101 205,521 208,871
Retained earnings................ 28,329 25,477 25,727
-------- -------- --------
Total liabilities and
retained earnings............ $255,430 $230,998 $234,598
======== ======== ========
Net interest income.............. 9,345 8,263 11,316
Interest rate spread............. 4.61% 4.42% 4.48%
====== ====== ======
Net interest margin.............. 5.24% 5.10% 5.15%
====== ====== ======
Ratio of average interest-earning
assets to average interest-
bearing liabilities............. 116.77% 117.75% 117.96%
====== ====== ======
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1994
---------------------------- ------------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
-------- --------- ------- -------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1)....... $158,043 $14,900 9.43% $163,370 $13,881 8.50%
Mortgage-backed securities...... 1,626 109 6.70 1,882 86 4.57
Investment securities........... 29,090 1,550 5.33 22,873 1,014 4.43
FHLB stock...................... 1,357 93 6.85 1,299 74 5.70
Federal funds sold and
overnight interest-bearing
deposits....................... 9,160 570 6.22 8,540 339 3.97
-------- ------- ------ -------- ------- ------
Total interest-earning
assets....................... 199,276 17,222 8.64 197,964 15,394 7.78
Non-interest-earning assets...... 13,648 11,577
-------- --------
Total assets.................. $212,924 $209,541
======== ========
Interest-bearing liabilities:
Deposits:
Passbook accounts.............. 17,943 399 2.22 21,202 445 2.10
Money market accounts.......... 16,352 681 4.16 12,258 396 3.23
NOW accounts................... 22,052 464 2.10 21,535 431 2.00
Certificates of deposit........ 113,498 6,096 5.37 114,438 4,908 4.29
-------- ------- ------ -------- ------- ------
Total deposits............... 169,845 7,640 4.50 169,433 6,180 3.65
-------- ------- ------ -------- ------- ------
Advances from FHLB............... 1,000 56 5.60 2,245 119 5.30
-------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities.................. 170,845 7,696 4.50 171,678 6,299 3.67
Non-interest-bearing
liabilities(2).................. 19,556 16,553
-------- --------
Total liabilities............. 190,401 188,231
Retained earnings................ 22,523 21,310
-------- --------
Total liabilities and
retained earnings............ $212,924 $209,541
======== ========
Net interest income.............. 9,526 9,095
Interest rate spread............. 4.14% 4.11%
====== ======
Net interest margin.............. 4.78% 4.59%
====== ======
Ratio of average interest-earning
assets to average interest-
bearing liabilities............. 116.64% 115.31%
====== ======
</TABLE>
_____________________
(1) Excludes interest on loans 90 days or more past due. Includes loans
originated for sale.
(2) Includes non-interest bearing demand deposits of $19.4 million and $17.3
million for the nine months ended September 30, 1997 and 1996,
respectively, and $18.0 million, $15.1 million and $13.6 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
(3) Annualized.
30
<PAGE>
YIELDS EARNED AND RATES PAID
The following table sets forth for the periods and at the dates indicated
the weighted average yields earned on the Bank's assets and the weighted average
interest rates paid on the Bank's liabilities, together with the net yield on
interest-earning assets.
<TABLE>
<CAPTION>
Nine Months
At Ended
September 30, September 30, Year Ended December 31,
----------------- -----------------------------
1997 1997 1996 1996 1995 1994
------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Weighted average yield on:
Loans receivable........................ 8.87% 9.47% 9.49% 9.49% 9.43% 8.50%
Mortgage-backed securities.............. 7.19 6.73 6.89 6.75 6.70 4.57
Investment securities................... 5.64 6.14 5.59 5.64 5.33 4.43
FHLB stock.............................. 7.25 7.17 7.03 7.02 6.85 5.70
Federal funds sold and overnight
interest-bearing deposits............ 6.00 5.36 5.57 5.60 6.22 3.97
All interest-earning assets............. 8.49 9.07 8.87 8.92 8.64 7.78
Weighted average rate paid on:
Passbook savings accounts............... 2.00 1.97 2.16 2.11 2.22 2.10
NOW accounts............................ 1.50 1.70 1.99 1.92 2.10 2.00
Money market accounts................... 4.18 4.17 4.20 4.22 4.16 3.23
Certificate accounts.................... 5.58 5.45 5.39 5.38 5.37 4.29
FHLB advances........................... -- -- -- 5.73 5.60 5.30
All interest-bearing liabilities........ 4.49 4.46 4.45 4.44 4.50 3.67
Interest rate spread (spread between
weighted average rate on all interest-
earning assets and all interest-
bearing liabilities).................... 4.00 4.61 4.42 4.48 4.14 4.11
Net interest margin (net interest income
(expense) as a percentage of average
interest-earning assets)................ N/A 5.24 5.10 5.15 4.78 4.59
</TABLE>
31
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
net interest income of the Bank. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); and (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume). The net change
attributable to the combined impact of volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31, Year Ended December 31,
1997 Compared to Nine Months 1996 Compared to Year 1995 Compared to Year
Ended September 30, 1996 Ended December 31, 1995 Ended December 31, 1994
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
------------------------------- ----------------------- -----------------------
Rate Volume Total Rate Volume Total Rate Volume Total
---- ------ ----- ---- ------ ----- ---- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1)...... $ 165 $2,041 $2,206 $(1,200) $ 3,981 $2,781 $ 738 $ 281 $1,019
Mortgage-backed securities -- (8) (8) -- (8) (8) 29 (6) 23
Investment securities..... (517) (205) (722) 1,212 (1,484) (272) (553) 1,048 495
FHLB stock................ -- 7 7 2 7 9 12 6 18
Federal funds sold and
overnight
interest-bearing deposits (92) 389 297 (366) 218 (148) 116 157 273
----- ------ ------ ------- ------- ------ ------ ------ ------
Total net change in income
on interest-earning assets (444) 2,224 1,780 (352) 2,714 2,362 342 1,486 1,828
Interest-bearing
liabilities:
Passbook accounts......... (24) (21) (45) (15) (32) (47) 102 (57) 45
NOW accounts.............. (82) 52 (30) 113 (72) 41 21 37 58
Money market accounts..... (314) 559 245 74 335 409 (44) 212 168
Certificate accounts...... (138) 666 528 (229) 418 189 954 235 1,189
FHLB advances............. -- -- -- (20) -- (20) 202 (265) (63)
----- ------ ------ ------- ------- ------ ------ ------ ------
Total net change in expense
on interest-bearing
liabilities.............. (557) 1,255 698 (78) 650 572 1,236 161 1,397
----- ------ ------ ------- ------- ------ ------ ------ ------
Net change in net interest
income.................... $ 113 $ 969 $1,082 $ (274) $ 2,064 $1,790 $ (894) $1,325 $ 431
===== ====== ====== ======= ======= ====== ====== ====== ======
</TABLE>
___________
(1) Excludes interest on loans 90 days or more past due. Includes loans held-
for-sale.
32
<PAGE>
ASSET AND LIABILITY MANAGEMENT
QUANTITATIVE ASPECTS OF MARKET RISK. The Bank does not maintain a trading
account for any class of financial instrument nor does it engage in hedging
activities or purchase purchase high-risk derivative instruments. Furthermore,
the Bank is not subject to foreign currency exchange rate risk or commodity
price risk. For information regarding the sensitivity to interest rate risk of
the Bank's interest-earning assets and interest-bearing liabilities, see the
tables under "BUSINESS OF THE BANK -- Lending Activities -- Maturity of Loan
Portfolio," "-- Investment Activities" and "-- Deposit Activities and Other
Sources of Funds -- Time Deposits by Maturities."
QUALITATIVE ASPECTS OF MARKET RISK. The Bank's principal financial
objective is to achieve long-term profitability while reducing its exposure to
fluctuating market interest rates. The Bank has sought to reduce the exposure of
its earnings to changes in market interest rates by attempting to manage the
mismatch between asset and liability maturities and interest rates. The
principal element in achieving this objective is to increase the interest-rate
sensitivity of the Bank's interest-earning assets by retaining for its portfolio
loans with interest rates subject to periodic adjustment to market conditions
and the selling of fixed-rate one- to- four family mortgage loans. In addition,
the Bank maintains an investment portfolio of U.S. Government and agency
securities with contractual maturities of between zero and two years. The Bank
relies on retail deposits as its primary source of funds. Management believes
retail deposits, compared to brokered deposits, reduce the effects of interest
rate fluctuations because they generally represent a more stable source of
funds. As part of its interest rate risk management strategy, the Bank promotes
transaction accounts and certificates of deposit with terms up to four
years.
In order to encourage institutions to reduce their interest rate risk, the
OTS adopted a rule incorporating an interest rate risk component into the risk-
based capital rules. Using data compiled by the OTS, the Bank receives a report
which measures interest rate risk by modeling the change in NPV over a variety
of interest rate scenarios. This procedure for measuring interest rate risk was
developed by the OTS to replace the "gap" analysis (the difference between
interest-earning assets and interest-bearing liabilities that mature or reprice
within a specific time period). NPV is the present value of expected cash flows
from assets, liabilities and off-balance sheet contracts. The calculation is
intended to illustrate the change in NPV that will occur in the event of an
immediate change in interest rates of at least 200 basis points with no effect
given to any steps that management might take to counter the effect of that
interest rate movement. Under proposed OTS regulations, an institution with a
greater than "normal" level of interest rate risk will be subject to a deduction
from total capital for purposes of calculating its risk-based capital. An
institution with a "normal" level of interest rate risk is defined as one whose
"measured interest rate risk" is less than 2.0%. Institutions with assets of
less than $300 million and a risk-based capital ratio of more than 12.0%, like
the Bank, are exempt. However, the Bank will likely not be exempt after the
consummation of the Conversion because its asset size will increase as a result
of the proceeds of the Offerings. Based on the Bank's regulatory capital levels
at September 30, 1997, and assuming the Conversion was consummated at that date,
the Bank believes that, if the proposed regulation was implemented at that date,
the regulation would not have had a material adverse effect on the Bank's
regulatory capital compliance.
33
<PAGE>
The following table is provided by the OTS and sets forth the change in the
Bank's NPV at September 30, 1997, based on OTS assumptions, that would occur in
the event of an immediate change in interest rates, with no effect given to any
steps that management might take to counteract that change.
<TABLE>
<CAPTION>
Basis Point Estimated Change in Board Approved
Change in Rates Net Portfolio Value Limit
--------------- ------------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Amount Percent Percent
------ ------- -------
400 $(5,011) (13)% (50)%
300 (3,243) (8) (30)
200 (1,702) (4) (20)
100 (555) (1) (10)
-- -- --
(100) (77) -- (10)
(200) (454) (1) (20)
(300) (487) (1) (30)
(400) 456 1 (50)
</TABLE>
The above table illustrates, for example, that an instantaneous 200 basis
point increase in market interest rates at September 30, 1997 would reduce the
Bank's NPV by approximately $1.7 million, or 4%.
Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations within its region were utilized in preparing the
preceding table. These assumptions relate to interest rates, loan prepayment
rates, deposit decay rates, and the market values of certain assets under
differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
34
<PAGE>
The following table presents the Bank's interest sensitivity gap analysis
at September 30, 1997.
<TABLE>
<CAPTION>
After After
Within One to Three Over
Six Six Months Three to Five Ten
Months to One Year Years Years Years Total
------ ----------- ------ ------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net.......................... $46,632 $ 38,484 $ 31,846 $ 26,981 $76,616 $220,559
Mortgage-backed securities.................... 15 15 67 77 1,159 1,333
Other loans................................... 160 160 641 641 -- 1,602
Investment securities......................... 3,698 5,038 5,072 -- -- 13,808
Federal funds sold and overnight
interest-bearing deposits.................... $17,000 -- -- -- -- 17,000
------- -------- -------- -------- ------- --------
Total rate sensitive assets................. 67,505 43,697 37,626 27,699 77,775 254,302
Interest-bearing liabilities:
Deposits:
NOW accounts................................. 2,999 2,999 11,996 11,996 -- 29,990
Passbook savings accounts.................... 1,520 1,520 6,081 6,081 -- 15,202
Money market deposit accounts................ 3,990 3,990 15,961 15,961 -- 39,902
Certificates of deposit...................... 66,916 45,334 17,412 2,446 -- 132,108
------- -------- -------- -------- ------- --------
Total rate sensitive liabilities............ 75,425 53,843 51,450 36,484 -- 217,202
------- -------- -------- -------- ------- --------
Excess (deficiency) of interest sensitivity
assets over interest sensitivity liabilities.. (7,920) (10,146) (13,824) (8,785) 77,775 37,100
Cumulative excess (deficiency) of
interest sensitivity assets................... (7,920) (18,066) (31,890) (40,675) 37,100 37,100
Cumulative ratio of interest-earning assets
to interest-bearing liabilities............... 89.50% 86.02% 82.35% 81.27% 117.08% 117.08%
Interest sensitivity gap to total assets....... (3.11)% (3.99)% (5.44)% (3.45)% 30.58% 14.59%
Ratio of interest-earning assets to
interest-bearing liabilities................. 89.50% 81.16% 73.13% 75.92% 117.08%
Ratio of cumulative gap to total assets........ (3.11)% (7.10)% (12.54)% (15.99)% 14.59% 14.59%
</TABLE>
35
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are customer deposits, proceeds from
principal and interest payments on and the sale of loans, maturing securities
and FHLB advances. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Bank generally maintains sufficient cash and
short-term investments to meet short-term liquidity needs. At September 30,
1997, cash and cash equivalents totalled $26.7 million, or 9.7% of total assets.
The Bank did not have any investment securities classified as available-for-sale
with maturities of one year or less at September 30, 1997. At September 30,
1997, the Bank also maintained an available line of credit of $12.1 million with
the FHLB-Cincinnati that may be used as an additional source of liquidity.
At September 30, 1997, the Bank's commitments to extend funds consisted of
unused lines of credit of $22.7 million, outstanding letters of credit of $8.1
million issued primarily to municipalities as performance bonds, and commitments
to originate or purchase loans of $3.8 million. The commitments to originate or
purchase loans at September 30, 1997 consisted of commitments to originate or
purchase variable rate loans of $800,000, and commitments to originate or
purchase fixed rate loans of $3.0 million at interest rates ranging from 5.75%
to 9.50%.
OTS regulations require savings institutions to maintain an average daily
balance of liquid assets (cash and eligible investments) equal to at least 5.0%
of the average daily balance of its net withdrawable deposits and short-term
borrowings. In addition, short-term liquid assets currently must constitute
1.0% of the sum of net withdrawable deposit accounts plus short-term borrowings.
The Bank's actual short- and long-term liquidity ratios at September 30, 1997
were 13.9% and 17.3%, respectively.
The Bank's primary lending activity is the origination of real estate
mortgage loans. During the nine months ended September 30, 1997 and the years
ended December 31, 1996, 1995 and 1994, the Bank originated $121.0 million,
$172.0 million, $147.3 million and $133.4 million of such loans, respectively.
At September 30, 1997, the Bank had loan commitments totalling $3.8 million and
undisbursed loans in process totalling $33.2 million. The Bank anticipates that
it will have sufficient funds available to meet current loan commitments.
Certificates of deposit that are scheduled to mature in less than one year from
September 30, 1997 totalled $112.3 million. Historically, the Bank has been able
to retain a significant amount of its deposits as they mature.
OTS regulations require the Bank to maintain specific amounts of regulatory
capital. As of September 30, 1997, the Bank complied with all regulatory
capital requirements as of that date with tangible, core and risk-based capital
ratios of 10.8%, 10.8% and 13.1%, respectively. For a detailed discussion of
regulatory capital requirements, see "REGULATION -- Federal Regulation of
Savings Associations -- Capital Requirements." See also "HISTORICAL AND PRO
FORMA REGULATORY CAPITAL COMPLIANCE."
IMPACT OF ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. See Note 1 of Notes to
the Consolidated Financial Statements for a discussion of Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." The Bank adopted SFAS No. 114 and SFAS No.
118 effective January 1, 1995, and their adoption did not have a material effect
on the Bank's financial condition or results of operations.
ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. In November 1993 the
American Institute of Certified Public Accountants issued SOP 93-6, which
requires an employer to record compensation expense in an amount equal
36
<PAGE>
to the fair value of shares committed to be released to employees from an
employee stock ownership plan and to exclude unallocated shares from earnings
per share computations. The effect of SOP 93-6 on net income and book value per
share in future periods cannot be predicted due to the uncertainty of the fair
value of the shares at the time they will be committed to be released. See "PRO
FORMA DATA."
DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES. In December
1994 the Accounting Standards Executive Committee issued SOP 94-6, "Disclosure
of Certain Significant Risks and Uncertainties." This SOP applies to financial
statements prepared in conformity with GAAP by all nongovernmental entities. The
disclosure requirements in SOP 94-6 focus primarily on risks and uncertainties
that could significantly affect the amounts reported in the financial statements
in the near-term functioning of the reporting entity. The risks and
uncertainties discussed in SOP 94-6 stem from the nature of the entity's
operations, from the necessary use of estimates in the preparation of the
entity's financial statements and from significant concentrations in certain
aspects of the entity's operations. SOP 94-6 is effective for financial
statements issued for fiscal years ending after December 15, 1995 and did not
have a material impact on the financial condition or results of operations of
the Bank.
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. See Note 1 of Notes to the
Consolidated Financial Statements for a discussion of SFAS No. 122, "Accounting
for Mortgage Servicing Rights." The Bank implemented SFAS No. 122,
prospectively, effective January 1, 1996 and its implementation did not have a
material impact on the Bank's financial condition or results of operations.
Effective January 1, 1997, SFAS No. 122 was superseded by SFAS No. 125 discussed
below.
ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes financial accounting and reporting
standards for stock-based employee compensation plans. This statement encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting method are required to disclose in a footnote to the financial
statements pro forma net income and, if presented, earnings per share, as if
this statement had been adopted. The accounting requirements of this statement
are effective for transactions entered into in fiscal years that begin after
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
Management of the Bank has not completed an analysis of the potential effects of
SFAS No. 123 on its financial condition or results of operations, but expects to
use the intrinsic value method upon consummation of the Conversion.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENT OF LIABILITIES. See Note 1 of Notes to the Consolidated Financial
Statements for a discussion of SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," and of SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125." SFAS No. 127 defers the effective date of the application of certain
portions of SFAS No. 125 until January 1, 1998. The adoption of the provisions
of SFAS No. 125 and SFAS No. 127 did not have a material impact on the Bank's
financial condition or results of operations.
EARNINGS PER SHARE. SFAS No. 128, "Earnings Per Share," issued in February
1997, establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly-held common stock or potential
common stock. It replaces the presentation of primary EPS with a presentation
of basic EPS and requires the dual presentation of basic and diluted EPS on the
face of the income statement. This statement is effective for financial
statements issued for periods ending after December 15, 1997 including interim
periods; earlier applications not permitted. This statement requires
restatement of all prior period EPS data presented.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. SFAS No. 129,
"Disclosure of Information About Capital Structure," establishes standards for
disclosing information about an entity's capital structure and applies to all
entities. SFAS No. 129 continues the previous requirements to disclose certain
information about an entity's
37
<PAGE>
capital structure found in Accounting Principles Board ("APB") Opinions No. 10,
"Omnibus Opinion - 1966," and No. 15, "Earnings Per Share," and SFAS No. 47,
"Disclosure of Long-Term Obligations," for entities that were subject to those
standards. SFAS No. 129 is effective for financial statements for periods ending
after December 15, 1997. SFAS No. 129 contains no change in disclosure
requirements for entities that were previously subject to the requirements of
APB Opinions Nos. 10 and 15 and SFAS No. 47. The adoption of the provisions of
SFAS No. 129 is not expected to have a material impact on the Bank.
COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comprehensive purposes is required.
DISCLOSURE ABOUT SEGMENTS. SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," issued in June 1997, establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting
for Segments of a Business Enterprise." SFAS No. 131 becomes effective for the
Bank's fiscal year ending December 31, 1998, and requires that comparative
information from earlier years be restated to conform to its requirements. The
adoption of the provisions of SFAS No. 131 is not expected to have a material
impact on the Bank.
YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a year in
the date datum field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If uncorrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations.
The Bank uses the services of an outside service bureau for its significant
data processing applications. Based on discussions with its service bureau, the
Bank does not expect that the cost of addressing any Year 2000 issue will be a
material event or uncertainty that would cause its reported financial
information not to be necessarily indicative of future operating results or
future financial condition, or that the costs or consequences of incomplete or
untimely resolution of any Year 2000 issue represent a known material event or
uncertainty that is reasonably likely to affect the its future financial
results, or cause its reported financial information not to be necessarily
indicative of future operating results or future financial condition.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars
without considering the change in the relative purchasing power of money over
time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Bank's operations. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates generally have a more significant impact
on a financial institution's performance than do 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.
38
<PAGE>
RECENT DEVELOPMENTS
The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Bank at the
dates and for the periods indicated. Information at November 30, 1997, September
30, 1997 and for the two-months and eleven-months ended November 30, 1997 and
1996 are unaudited, but, in the opinion of management, contain all adjustments
(none of which were other than normal recurring entries) necessary for a fair
presentation of the results of such periods. The selected operations data for
the two-months and eleven-months ended November 30, 1997 are not necessarily
indicative of the results of operation for the entire fiscal year. This
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At At At
November 30, September 30, December 31,
1997 1997 1996
------------ ------------- ------------
(In Thousands)
<S> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets......................................... $281,668 $275,925 $244,964
Loans receivable, net................................ 214,825 216,410 200,600
Loans held-for-sale.................................. 6,017 4,149 5,253
Investment securities held-to-maturity............... 2,700 3,700 7,705
Investment securities available-for-sale............. 10,082 10,107 --
Mortgage-backed securities held-to-maturity.......... 1,318 1,333 1,419
Cash, federal funds sold and
overnight interest-bearing deposits................. 32,743 26,691 19,519
Deposit accounts..................................... 245,970 241,950 214,533
Borrowings........................................... -- -- --
Total equity, substantially restricted............... 30,133 29,501 27,250
</TABLE>
<TABLE>
<CAPTION>
Two Months Eleven Months
Ended November 30, Ended November 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income...................................... $ 3,819 $3,440 $19,979 $ 17,820
Interest expense..................................... 1,637 1,414 8,452 7,532
-------- ------ ------- --------
Net interest income.................................. 2,182 2,026 11,527 10,288
Provision for loan losses............................ -- 20 700 110
-------- ------ ------- --------
Net interest income after provision for loan losses.. 2,182 2,006 10,827 10,178
Gains from sale of loans............................. 274 103 949 835
Other income......................................... 451 426 2,291 2,007
Other expenses....................................... 1,888 1,481 9,242 8,998
-------- ------ ------- --------
Earnings before income taxes......................... 1,019 1,054 4,825 4,022
Provision for income taxes........................... 385 417 1,932 1,546
-------- ------ ------- --------
Net earnings......................................... $ 634 $ 637 $ 2,893 $ 2,476
======== ====== ======= ========
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
At or For the At or For the
Two Months Eleven Months
Ended November 30, Ended November 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS(1):
Performance Ratios:
Return on average assets(2)................... 1.36% 1.56% 1.21% 1.16%
Return on average equity(3)................... 12.66 14.50 10.99 10.54
Interest rate spread(4)....................... 4.58 4.37 4.99 4.32
Net interest margin(5)........................ 5.07 5.31 5.21 5.14
Average interest-earning assets to average
interest-bearing liabilities................. 118.0 118.9 117.1 118.0
Noninterest expense as a percent
of average total assets...................... 4.06 3.63 3.88 4.20
Efficiency ratio(6)........................... 64.95 57.96 62.59 68.53
Asset Quality Ratios:
Nonaccrual and 90 days or more past due
loans as a percent of total loans, net....... 0.06 0.09 0.06 0.09
Nonperforming assets as a
percent of total assets...................... 0.05 0.07 0.05 0.07
Allowance for losses as a percent
of gross loans receivable.................... 1.10 0.85 1.10 0.85
Allowance for losses as a percent
of nonperforming loans....................... 2,088.06 1,175.56 2,088.06 1,175.56
Net charge offs to average outstanding loans.. -- 0.01 -- --
Capital Ratios:
Total equity-to-assets ratio(7)............... 10.70 10.70 10.70 10.70
Average equity to average assets.............. 10.76 10.77 11.05 10.98
</TABLE>
________________
(1) Annualized where appropriate.
(2) Net earnings divided by average total assets.
(3) Net earnings divided by average total equity.
(4) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Other expenses divided by the sum of net interest income and other income.
(7) Average total equity divided by average total assets.
40
<PAGE>
REGULATORY CAPITAL
The table below sets forth the Bank's capital position relative to its OTS
capital requirements at the date indicated. The definitions of the terms used in
the table are those provided in the capital regulations issued by the OTS. See
"REGULATION -- Federal Regulation of the Bank -- Capital Requirements."
<TABLE>
<CAPTION>
At November 30, 1997
----------------------------------
Percent of Adjusted
Amount Total Assets(1)
------ -------------------
(In Thousands)
<S> <C> <C>
Tangible capital.................. $30,142 10.79%
Tangible capital requirement...... 4,190 1.50
------- -----
Excess............................ $25,952 9.29%
======= =====
Core capital...................... $30,142 10.79%
Core capital requirement(2)....... 8,380 3.00
------- -----
Excess............................ $21,762 7.79%
======= =====
Risk-based capital(3)............. $32,940 13.37%
Risk-based capital requirement.... 19,712 8.00
------- -----
Excess............................ $13,228 5.37%
======= =====
</TABLE>
________________
(1) Based on total adjusted assets of $279.3 million for purposes of the
tangible and core capital requirements, and risk-weighted assets of $246.4
million for purposes of the risk-based capital requirement.
(2) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements that
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a core capital ratio of 4% to 5% for all other thrifts.
(3) Percentage represents total core and supplementary capital divided by total
risk-weighted assets.
NON-PERFORMING ASSETS AND DELINQUENCIES
At November 30, 1997, the Bank had $134,000 of loans accounted for on a
non-accrual basis ($114,000 in one-to- four family mortgage loans and $20,000 in
consumer loans) compared to $59,000 at September 30, 1997. At November 30, 1997
and September 30, 1997, the Bank had no accruing loans which were contractually
past due 90 days or more, no restructured loans and no real estate owned.
The allowance for loan losses was $2.8 million at November 30, 1997.
Charge-offs for the two- and eleven-months ended November 30, 1997 were $3,000
and $40,000, respectively, compared to $4,000 and $212,000 for the comparative
periods in 1996. Recoveries for the two- and eleven-months ended November 30,
1997 were $1,000 and $15,000, respectively, compared to $9,000 and $218,000 for
the comparative periods in 1996.
41
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by category at November 30, 1997.
<TABLE>
<CAPTION>
Percent of
Loans in Each
Category to
Amount Total Loans
------ -----------
<S> <C> <C>
Mortgage loans:
One- to- four family................... $ 426 33.5%
Multi-family........................... 20 0.5
Commercial............................. 565 14.8
Construction........................... 496 24.9
Land................................... 165 4.3
Consumer Loans:
Home equity lines of credit............ 40 1.0
Automobile............................. 75 2.0
Credit cards........................... 4 0.1
Loans secured by deposit accounts...... -- --
Unsecured.............................. 22 0.6
Other secured.......................... 368 9.6
Commercial business loans............... 331 8.7
Unallocated............................. 285 N/A
------ -----
Total allowance for loan losses....... $2,798 100.0%
====== =====
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT NOVEMBER 30, 1997 AND SEPTEMBER 30,
1997
Total assets increased 2.1% from $275.9 million at September 30, 1997 to
$281.7 million at November 30, 1997. This increase resulted primarily from an
increase in cash, and overnight deposits with the FHLB, which was funded
primarily by increased deposits.
Loans receivable, net, decreased from $216.4 million at September 30, 1997
to $214.8 million at November 30, 1997. This decrease resulted primarily from a
decrease in construction loans offset partially by increases in other secured
consumer loans and commercial real estate loans.
Loans held-for-sale increased from $4.1 million at September 30, 1997 to
$6.0 million at November 30, 1997. The variances resulted primarily from timing
differences in the funding of loans.
Cash and overnight deposits increased from $26.7 million at September 30 to
$32.7 million at November 30, 1997, a 2.2% increase. This increase was a result
of deposit growth and a decline in loans receivable, net.
Investments securities held to maturity decreased from $3.7 million at
September 30, 1997 to $2.7 million at November 30, 1997. This decrease reflects
investment maturities.
Deposits increased 1.7% from $242.0 million at September 30, 1997 to $246.0
million at November 30, 1997 as a result of normal growth.
Total equity increased from $29.5 million at September 30, 1997 to $30.1
million at November 30, 1997 primarily as a result of retained earnings.
42
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE TWO MONTHS ENDED NOVEMBER 30, 1997 AND
1996
NET EARNINGS. Net earnings for the two months ended November 30, 1997 were
$634,000 compared to $637,000 for the two months ended November 30, 1996.
NET INTEREST INCOME. Net interest income increased from $2.0 million for
the two months ended November 30, 1996 to $2.2 million for the two months ended
November 30, 1997. Interest income increased from $3.4 million in 1996 to $3.8
million in 1997 as a result of an increase in average earning assets from $228.7
million in 1996 to $258.1 million in 1997, offset by a decline in average yield
from 9.02% in 1996 to 8.88% in 1997. The decline in average yield can be
attributed to an increase in federal funds and investments as a percentage of
earning assets. Interest expense increased from $1.4 million for the two months
ended November 30 1996 to $1.6 million for the two months ended November 30 1997
as a result of an increase in average interest-bearing liabilities from $192.4
million for the two months ended November 30 1996 to $218.7 million for the two
months ended November 30 1997, partially offset by an increase in average cost
of funds from 4.41% to 4.48% as a result of an increase on the average rate paid
on certificates of deposit attributable to competition. The interest rate spread
decreased from 4.61% for the two months ended November 30 1996 to 4.40% for the
two months ended November 30 1997.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level considered by
management as adequate to provide for estimated loan losses based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans and economic conditions.
The provision for loan losses was $20,000 for the two months ended November
30, 1996 compared with no provision for the same period in 1997. This decrease
was a result of management's assessment of the level of the allowance for loan
losses being adequate at November 30, 1997.
NONINTEREST INCOME. Noninterest income was $725,000 for the two months
ended November 30, 1997 compared to $529,000 for the two months ended November
30, 1996. Servicing income decreased from $93,000 for the two months ended
November 30 1996 to $84,000 for the same period in 1997 as a result of a decline
in the balance of loans serviced for others. Net gain on loans sold increased
from $103,000 for the two months ended November 30 1996 to $274,000 for the two
months ended November 30 1997 as a result of increased sales activity.
Transaction account and deposit servicing fees and charges increased from
$172,000 for the two months ended November 30 1996 to $197,000 for the same
period in 1997 primarily as a result of an increased number of accounts. Trust
fees increased from $83,000 for the two months ended November 30 1996 to
$132,000 for the same period in 1997 as a result of increased assets under
management.
NONINTEREST EXPENSES. Noninterest expenses were $1.5 million for the two
months ended November 30, 1996 compared to $1.9 million for the two months ended
November 30, 1997. This increase is primarily attributable to an increase in
personnel expenses from $798,000 to $1.1 million attributable to opening a new
branch office and increased loan and deposit activity resulting in increased
staffing, higher commission and incentive expenses, increased compensation,
overtime and related benefits. This increased activity also contributed to
general increases in most other noninterest expense categories in 1997 compared
to 1996.
INCOME TAX EXPENSE. Income tax expense was $417,000 for the two months
ended November 30, 1996 compared to $385,000 for the period ending November 30,
1997 as a result of higher income before taxes. The effective tax rate for the
two months ended November 30, 1997 was 37.8% compared with 39.5% for the two
months ended November 30, 1996.
COMPARISON OF OPERATING RESULTS FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1997
AND 1996.
NET EARNINGS. Net earnings were $2.9 million for the eleven months ended
November 30, 1997 compared to $2.5 million for the eleven months ended November
30, 1996, a 16.0% increase. This increase resulted from
43
<PAGE>
increases in net interest income offset by an increase in provision for loan
losses. Other non-interest income also increased but was offset by an increase
in non-interest expenses.
NET INTEREST INCOME. Net interest income was $11.5 million for the eleven
months ended November 30, 1997 compared to $10.3 million for the eleven months
ended November 30, 1996, a 11.7% increase. Interest income increased from $17.8
million for the eleven months ended November 30, 1996 to $20.0 million for the
eleven months ended November 30, 1997 as a result of a 10.5% increase in average
earning assets from $218.4 million to $241.4 million. The average yield also
increased from 8.90% for the eleven months ended November 30, 1996 to 9.03% for
the comparable period in 1997 as a result of an increase in the average balance
of the loan portfolio. Interest expense increased from $7.5 million for the
eleven months ended November 30, 1996 to $8.4 million for the eleven months
ended November 30, 1997 as a result of a 11.3% increase in average interest-
bearing liabilities from $185.2 million to $206.2 million. The average cost of
interest-bearing liabilities increased from 4.44% for the eleven months ended
November 30, 1996 to 4.48% for the eleven months ended November 30, 1997 as a
result of an increase in the average rate paid on certificates of deposit
attributable to competition. Interest rate spread increased from 4.45% for the
eleven months ended November 30, 1996 to 4.55% for the comparable period in
1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $700,000 for
the eleven months ended November 30, 1997 compared to $110,000 for the same
period in 1996. Management deemed the increase in the provision for loan losses
necessary in light of the increase in the relative level of estimated losses
inherent in the higher levels of higher risk loans such as construction,
commercial real estate, land, commercial business and consumer loans. Management
deemed the allowance for loan losses adequate at November 30, 1997.
NONINTEREST INCOME. Noninterest income increased from $2.8 million for the
eleven months ended November 30, 1996 to $3.2 million for the eleven months
ended November 30, 1997. This increase was primarily a result of the increase in
service charges, trust fees and, to a lesser extent, an increase in net gain on
sale of loans available for sale. Service charges and fees increased from
$875,000 for the eleven months ended November 30, 1996 to $1.1 million for the
eleven months ended November 30, 1997 primarily as a result of increased income
deposit account fees, particularly on the increased number of transaction
accounts. Trust fees increased from $432,000 for the eleven months ended
November 30, 1996 to $567,000 for the same period in 1997 as a result of an
increase in trust assets under management. Net gain on sale of loans increased
from $835,000 for the eleven months ended November 30, 1996 to $949,000 for the
eleven months ended November 30, 1997 as a result of market interest rate
conditions.
NONINTEREST EXPENSES. Noninterest expenses were $9.0 million for the
eleven months ended November 30, 1996 compared with $9.2 million for the eleven
months ended November 30, 1997. Personnel expense increased from $4.3 million
for the eleven months ended November 30, 1996 to $5.2 million for the eleven
months ended November 30, 1997 as a result of increases in personnel to staff
the new branch office and service the increased number of loan and deposit
accounts. Occupancy expense increased from $450,000 for the eleven months ended
November 30, 1996 to $498,000 for the comparable period in 1997 as a result of
new branch openings and increased maintenance costs on the main office.
Equipment and service bureau expenses increased from $1.3 million for the eleven
months ended November 30, 1996 to $1.8 million for the eleven months ended
November 30, 1997 as a result of increased maintenance agreements for the new
computer software and hardware and an increase in related depreciation expense.
These increases were partially offset by the reduction in SAIF premiums and
assessments. The Bank recorded $1.6 million in premiums and assessments for the
eleven months ended November 30, 1996 compared to $100,000 for the eleven months
ended November 30, 1997. In 1996, the FDIC imposed a special assessment on all
SAIF-insured institutions to recapitalize the SAIF. The Bank's assessment
amounted to $1.2 million and was accrued during the quarter ended September 30,
1996. Prior to the SAIF recapitalization, the Bank's total annual deposit
insurance premiums amounted to 0.23% of assessable deposits. Effective January
1, 1997, the rate decreased to 0.065% of assessable deposits. See "REGULATION --
Federal Regulation of Savings Associations --Federal Deposit Insurance
Corporation" and Notes to the Consolidated Financial Statements. Other operating
expenses will increase in subsequent periods following the consummation of the
Conversion as a result of increased costs associated with operating as a public
company and increased compensation expense as a result of the adoption
44
<PAGE>
of the ESOP and if approved by the Holding Company's stockholders, the MRP. See
"RISK FACTORS -- Return on Equity After Conversion," "-- New Expenses Associated
With ESOP and MRP" and "BUSINESS OF THE BANK -- Properties."
INCOME TAX EXPENSE. Income tax expense was $1.9 million for the eleven
months ended November 30, 1997 compared to $1.5 million for the eleven months
ended November 30, 1996 as a result of higher income before taxes. The effective
tax rate for the eleven months ended November 30, 1997 was 39.8% compared with
38.4% for the eleven months ended November 30, 1996.
BUSINESS OF THE HOLDING COMPANY
GENERAL
The Holding Company was organized as a Tennessee business corporation at
the direction of the Bank on November 5, 1997 for the purpose of becoming a
holding company for the Bank upon completion of the Conversion. As a result of
the Conversion, the Bank will be a wholly-owned subsidiary of the Holding
Company and all of the issued and outstanding capital stock of the Bank will be
owned by the Holding Company.
BUSINESS
Prior to the Conversion, the Holding Company has not and will not engage in
any significant activities other than of an organizational nature. Upon
completion of the Conversion, the Holding Company's sole business activity will
be the ownership of the outstanding capital stock of the Bank. In the future,
the Holding Company may acquire or organize other operating subsidiaries,
although there are no current plans, arrangements, agreements or understandings,
written or oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Bank with the
payment of appropriate rental fees, as required by applicable law and
regulations.
Since the Holding Company will only hold the outstanding capital stock of
the Bank upon consummation of the Conversion, the competitive conditions
applicable to the Holding Company will be the same as those confronting the
Bank. See "BUSINESS OF THE BANK -- Competition."
BUSINESS OF THE BANK
GENERAL
The Bank operates, and intends to continue to operate, as a community
oriented financial institution and is devoted to serving the personal and
business needs of individuals residing in its primary market area. The Bank's
business consists primarily of attracting retail deposits from the general
public and using those funds to originate loans secured by real estate.The Bank
believes that its operations more closely resemble those of a traditional
commercial bank than a traditional thrift institution. In addition to
originating one- to- four family mortgage loans, the Bank originates commercial
business loans, consumer loans and other short-term non-real estate loans funded
increasingly by transaction accounts rather than long-term certificates. See "--
Lending Activities" and "-- Deposit Activities and Other Sources of Funds." In
addition, the Bank offers trust services. See "-- Trust Powers."
MARKET AREA
The Bank considers Rutherford, Bedford and Williamson Counties in Central
Tennessee to be its primary market area. A large number of the Bank's depositors
reside, and a substantial portion of its loan portfolio is secured
45
<PAGE>
by properties located, in Rutherford and Bedford Counties. See "RISK FACTORS --
Geographic Concentration of Credit Risk."
Rutherford and Bedford Counties had a 1990 population of approximately
118,570 and 30,411, respectively, according to the Rutherford and Bedford Areas
Chambers of Commerce. The economy of Rutherford and Bedford Counties are diverse
and generally stable. According to the U.S. Bureau of Labor Statistics, the
Rutherford and Bedford Counties unemployment rates were 3.4% and 5.1%,
respectively, for December 1996. According to the Rutherford and Bedford Area
Chambers of Commerce, major employers include Nissan Motor Manufacturing Corp.
USA, Rutherford County Government, Whirlpool Corp., Bridgestone/Firestone Inc.,
Middle Tennessee State University, Alvin C. York Veterans Administration Medical
Center and Ingram Book Co., among others.
The Bank faces intense competition from many financial institutions for
deposits and loan originations. See "-- Competition" and "RISK FACTORS --
Competition."
LENDING ACTIVITIES
GENERAL. At September 30, 1997, the Bank's total loans receivable
portfolio amounted to $220.6 million, or 79.9% of total assets at that date. The
Bank has traditionally concentrated its lending activities on conventional first
mortgage loans secured by one- to- four family properties, with such loans
amounting to $84.0 million, or 32.7% of the total loans receivable portfolio at
September 30, 1997. In addition, the Bank originates construction loans,
commercial real estate loans, land loans, consumer loans and commercial business
loans. A substantial portion of the Bank's loan portfolio is secured by real
estate, either as primary or secondary collateral, located in its primary market
area. See "RISK FACTORS -- Geographic Concentration of Credit Risk."
46
<PAGE>
LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of
the Bank's loan portfolio by type of loan as of the dates indicated.
<TABLE>
<CAPTION>
At At December 31,
-----------------------------------------------------------------------------
September 30,1997 1996 1995 1994 1993
-------------------- ------------------ ------------------ ------------------ -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
--------- -------- -------- -------- -------- -------- -------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
One- to four-family(1)........ $ 84,036 32.7% $ 81,279 33.1% $ 72,302 36.4% $ 82,793 43.5% $ 76,687 42.2%
Multi-family.................. 1,385 0.5 2,847 1.2 1,705 0.9 2,285 1.2 8,546 4.7
Commercial.................... 37,104 14.4 30,099 12.3 22,140 11.1 16,808 8.8 17,617 9.7
Construction.................. 68,794 26.7 61,032 24.9 47,416 23.9 40,261 21.1 35,969 19.8
Acquisition and
development.................. 10,634 4.1 18,799 7.7 13,816 6.9 9,962 5.2 7,500 4.1
-------- ------- -------- ----- -------- ----- -------- ----- -------- -----
Total mortgage loans......... 201,953 78.5 194,056 79.1 157,379 79.2 152,109 79.9 146,319 80.4
-------- -------- -------- -------- --------
Consumer Loans:
Home equity lines of
credit....................... 2,829 1.1 1,964 0.8 941 0.5 228 0.1 3 --
Automobile.................... 4,808 1.9 3,716 1.5 2,735 1.4 2,144 1.1 2,131 1.2
Unsecured..................... 1,855 0.7 1,779 0.7 1,996 1.0 2,129 1.1 2,051 1.1
Other secured................. 23,742 9.2 23,037 9.4 20,982 10.6 22,406 11.8 22,574 12.4
-------- ------- -------- ----- -------- ----- -------- ----- -------- -----
Total consumer loans........ 33,234 12.9 30,496 12.4 26,654 13.5 26,907 14.1 26,759 14.7
Commercial business loans...... 22,136 8.6 20,698 8.4 14,771 7.4 11,451 6.0 8,834 4.9
-------- ------- -------- ----- -------- ----- -------- ----- -------- -----
Total loans................. 257,323 100.0% 245,250 100.0% 198,805 100.0% 190,467 100.0% 181,912 100.0%
======= ===== ===== ===== =====
Less:
Undisbursed portion of
loans in process............. 33,201 36,573 32,615 21,228 20,699
Net deferred loan fees........ 762 701 560 533 589
Allowance for loan losses..... 2,801 2,123 1,997 1,776 1,681
-------- -------- -------- -------- --------
Total loans receivable, net.. $220,559 $205,853 $163,632 $166,930 $158,943
======== ======== ======== ======== ========
<CAPTION>
At December 31,
----------------------
Amount Percent
-------- --------
<S> <C> <C>
Mortgage Loans:
One- to four-family(1)........ $ 94,549 50.6%
Multi-family.................. 8,188 4.4
Commercial.................... 7,159 3.8
Construction.................. 27,389 14.6
Acquisition and
development.................. 8,582 4.6
-------- -----
Total mortgage loans......... 145,867 78.0
--------
Consumer Loans:
Home equity lines of
credit....................... 24 --
Automobile.................... 872 0.5
Unsecured..................... 127 0.1
Other secured................. 21,515 11.5
-------- -----
Total consumer loans........ 22,538 12.1
Commercial business loans...... 18,675 10.0
-------- -----
Total loans................. 187,080 100.0%
=====
Less:
Undisbursed portion of
loans in process............. 14,744
Net deferred loan fees........ 902
Allowance for loan losses..... 1,520
--------
Total loans receivable, net.. $169,914
========
</TABLE>
___________________
(1) Includes loans held-for-sale.
47
<PAGE>
ONE- TO- FOUR FAMILY REAL ESTATE LENDING. Historically, the Bank has
concentrated its lending activities on the origination of loans secured by first
mortgage loans on existing one- to- four family residences located in its
primary market area. At September 30, 1997, $84.0 million, or 32.7% of the
Bank's total loan portfolio, consisted of such loans. The Bank originated $54.6
million, $73.1 million, $63.2 million and $57.1 million of one- to- four family
residential mortgage loans during the nine months ended September 30, 1997 and
the years ended December 31, 1996, 1995 and 1994, respectively.
Generally, the Bank's fixed-rate one- to- four family mortgage loans have
maturities ranging from 15 to 30 years and are fully amortizing with monthly
payments sufficient to repay the total amount of the loan with interest by the
end of the loan term. Generally, they are originated under terms, conditions and
documentation which permit them to be sold to U.S. Government sponsored agencies
such as Federal Home Loan Mortgage Corporation ("FHLMC"). The Bank's fixed-rate
loans customarily include "due on sale" clauses, which give the Bank the right
to declare a loan immediately due and payable in the event the borrower sells or
otherwise disposes of the real property subject to the mortgage and the loan is
not paid.
The Bank also originates ARM loans at rates and terms competitive with
market conditions. At September 30, 1997, $72.6 million, or 28.1% of the Bank's
gross loan portfolio, were subject to periodic interest rate adjustments. The
Bank originates for its portfolio ARM loans which provide for an interest rate
which adjusts every year or which is fixed for one, three or five years and then
adjusts every year after the initial period. Most of the Bank's one-year, three-
year and five-year ARMs adjust every year after the initial fixed rate period
based on the one year Treasury constant maturity index. The Bank's ARMs are
typically based on a 30-year amortization schedule. The Bank qualifies the
borrowers on its nonconforming ARM loans (i.e. loans not originated in
----
conformity with standards that would permit the loans to be sold in the
secondary market) based on the initial rate. The Bank qualifies the borrowers
on its conforming ARM loans based on the maximum note interest rate during the
second year of the loan. A one-year ARM loan that is originated according to
FHLMC secondary market standards may be converted to a fixed-rate loan within
five years of the origination date. ARM loans that are not saleable to the
FHLMC are not permitted to be converted to fixed rate loans. The Bank does not
offer deep discount or "teaser" rates. The Bank's current ARM loans do not
provide for negative amortization. The Bank's ARM loans generally provide for
annual and lifetime interest rate adjustment limits of 2% and 5% to 6%,
respectively.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.
The retention of ARM loans in the Bank's loan portfolio helps reduce the
Bank's exposure to changes in interest rates. There are, however, unquantifiable
credit risks resulting from the potential of increased costs due to changed
rates to be paid by the customer. It is possible that during periods of rising
interest rates the risk of default on ARM loans may increase as a result of
repricing and the increased payments required by the borrower. See "RISK FACTORS
- -- Interest Rate Risk." In addition, although ARM loans allow the Bank to
increase the sensitivity of its asset base to changes in the interest rates, the
extent of this interest sensitivity is limited by the annual and lifetime
interest rate adjustment limits. Because of these considerations, the Bank has
no assurance that yields on ARM loans will be sufficient to offset increases in
the Bank's cost of funds. The Bank believes these risks, which have not had a
material adverse effect on the Bank to date, generally are less than the risks
associated with holding fixed-rate loans in portfolio during a rising interest
rate environment.
The Bank also originates one-to four-family mortgage loans under Federal
Housing Administration ("FHA") and Veterans Administration ("VA") programs and
the Tennessee Housing and Development Agency ("THDA"), an affordable housing
program. FHA and VA loans are generally sold to private investors, servicing
released (i.e., the right to collect principal and interest payments and forward
----
it to the purchaser of the loan, maintain escrow accounts for payment of taxes
and insurance and perform other loan administration functions is sold with the
loan). THDA loans are sold with servicing rights retained. See "-- Loan
Originations, Sales and Purchases."
48
<PAGE>
The Bank generally requires title insurance insuring the status of its lien
or an acceptable attorney's opinion on all loans where real estate is the
primary source of security. The Bank also requires that fire and casualty
insurance (and, if appropriate, flood insurance) be maintained in an amount at
least equal to the outstanding loan balance.
The Bank's one- to- four family residential mortgage loans typically do not
exceed 80% of the appraised value of the security property. Pursuant to
underwriting guidelines adopted by the Bank's Board of Directors, the Bank can
lend up to 95% of the appraised value of the property securing a one- to- four
family residential loan; however, the Bank generally obtains private mortgage
insurance on the portion of the principal amount that exceeds 80% to 95% of the
appraised value of the security property.
CONSTRUCTION LENDING. The Bank actively originates three types of
residential construction loans: (i) speculative construction loans, (ii) pre-
sold construction loans and (iii) construction/permanent loans. The construction
loan portfolio increased from $27.4 million, or 14.6% of total loans receivable
at December 31, 1992 to $68.8 million, or 26.7% of total loans receivable, at
September 30, 1997. See "RISK FACTORS -- Certain Lending Risks." To a
substantially lesser extent, the Bank also originates construction loans for the
development of multi-family and commercial properties.
At September 30, 1997, the composition of the Bank's residential
construction loan portfolio was as follows:
<TABLE>
<CAPTION>
Outstanding Percent of
Balance(1) Total
---------- -----
(In thousands)
<S> <C> <C>
Residential:
Speculative construction....... $28,805 41.9%
Pre-sold construction.......... 21,471 31.2
Construction/permanent......... 11,227 16.3
Commercial and multi-family..... 7,291 10.6
------- -----
Total.......................... $68,794 100.0%
======= =====
</TABLE>
__________________
(1) Includes loans in process.
Speculative construction loans are made to home builders and are termed
"speculative" because the home builder does not have, at the time of loan
origination, a signed contract with a home buyer who has a commitment for
permanent financing with either the Bank or another lender for the finished
home. The home buyer may be identified either during or after the construction
period, with the risk that the builder will have to debt service the speculative
construction loan and finance real estate taxes and other carrying costs of the
completed home for a significant time after the completion of construction until
the home buyer is identified. The Bank lends to approximately 110 local
builders, many of whom may have only one or two speculative loans outstanding
from the Bank. The Bank considers approximately 25 builders as core borrowers
with several speculative loans outstanding at any one time. Rather than
originating lines of credit to home builders to construct several homes at once,
the Bank originates and underwrites a separate loan for each home. Speculative
construction loans are originated for a term of 12 months, with interest rates
ranging from 0.5% to 2.0% above the prime lending rate, and with a loan-to-value
ratio of no more than 80% of the appraised estimated value of the completed
property. At September 30, 1997, the Bank had 14 borrowers each with aggregate
outstanding speculative loan balances of more than $500,000, all of which were
performing according to their respective terms and the largest of which amounted
to $1.4 million.
Unlike speculative construction loans, pre-sold construction loans are made
to home builders who, at the time of construction, have a signed contract with a
home buyer who has a commitment for permanent financing for the finished home
with the Bank or another lender. Pre-sold construction loans are generally
originated for a term of 12 months, with adjustable interest rates ranging from
0.5% to 1.0% above the prime lending rate, and with loan-to-value ratios of 80%
of the appraised estimated value of the completed property or cost, whichever is
less. At
49
<PAGE>
September 30, 1997, the largest outstanding pre-sold construction loan had an
outstanding balance of $404,000 and was performing according to its terms.
Construction/permanent loans are originated to the home owner rather than
the home builder. The construction phase of a construction/permanent loan
generally lasts 12 months and the interest rate charged is generally 8.5% to
9.5%, fixed, and with loan-to-value ratios of 80% (or up to 95% with private
mortgage insurance) of the appraised estimated value of the completed property
or cost, whichever is less. At the completion of construction, the Bank may
either originate a fixed-rate mortgage loan or an ARM loan for retention in its
portfolio or use its mortgage brokerage capabilities to obtain permanent
financing for the customer with another lender. See "-- Lending Activities --
Loan Originations, Sales and Purchases" and "-- Lending Activities-- Mortgage
Loan Servicing." At September 30, 1997, the largest outstanding
construction/permanent loan had an outstanding balance of $350,000 and was
performing according to its terms.
To a lesser extent, the Bank also provides construction financing for non-
residential properties (i.e., multi-family and commercial properties). At
----
September 30, 1997, such construction loans amounted to $7.3 million, $4.4
million of which was repaid subsequent to September 30, 1997.
Construction loans up to $500,000 may be approved by any two members of the
Bank's seven member Loan Committee. All construction loans over $500,000 must be
approved by the Board of Directors. See "-- Lending Activities -- Loan
Solicitation and Processing." Prior to preliminary approval of any construction
loan application, an appraiser approved by the Board of Directors inspects the
site and the Bank reviews the existing or proposed improvements, identifies the
market for the proposed project, analyzes the pro forma data and assumptions on
the project. In the case of a speculative or pre-sold construction loan, the
Bank reviews the experience and expertise of the builder. After preliminary
approval has been given, the application is processed, which includes obtaining
credit reports, financial statements and tax returns on the borrowers and
guarantors, an independent appraisal of the project, and any other expert
reports necessary to evaluate the proposed project. In the event of cost
overruns, the Bank requires that the borrower use its own funds to maintain the
original loan-to-value ratio.
The construction loan documents require that construction loan proceeds be
disbursed in increments as construction progresses. Disbursements are based on
periodic on-site inspections by an appraiser and/or Bank personnel approved by
the Board of Directors. The Bank regularly monitors the construction loan
portfolio and the economic conditions and housing inventory. Property
inspections are performed by the Bank's property inspector. The Bank believes
that the internal monitoring system helps reduce many of the risks inherent in
its construction lending.
Construction lending affords the Bank the opportunity to achieve higher
interest rates and fees with shorter terms to maturity than does its single-
family permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value upon completion proves to be inaccurate, the Bank may be confronted with a
project whose value is insufficient to assure full repayment. Projects may also
be jeopardized by disagreements between borrowers and builders and by the
failure of builders to pay subcontractors. Loans to builders to construct homes
for which no purchaser has been identified carry more risk because the payoff
for the loan depends on the builder's ability to sell the property prior to the
time that the construction loan is due. The Bank has sought to address these
risks by adhering to strict underwriting policies, disbursement procedures, and
monitoring practices. In addition, because the Bank's construction lending is in
its primary market area, changes in the local economy and real estate market
could adversely affect the Bank's construction loan portfolio.
50
<PAGE>
ACQUISITION AND DEVELOPMENT LENDING. The Bank originates acquisition and
development loans for the purpose of developing the land (i.e., installing
----
roads, sewers, water and other utilities) for sale for residential housing
construction. At September 30, 1997, the Bank had land A&D loans with aggregate
approved commitments of $26.1 million, of which an aggregate of $8.9 million was
outstanding. At September 30, 1997, the largest land A&D loan had an outstanding
balance of $495,000 and was performing according to its terms. All of the land
A&D loans are secured by properties located in the Bank's primary market area.
See "RISK FACTORS -- Concentration of Credit Risk."
Land A&D loans are usually repaid through the sale of the developed land.
However, the Bank believes that its land A&D loans are made to individuals with,
or to corporations the principals of which possess, sufficient personal
financial resources out of which the loans could be repaid, if necessary.
Land A&D loans are secured by a lien on the property, made for a two year
term, and with an interest rate that adjusts with the prime rate. The Bank
requires monthly interest payments during the term of the land A&D loan. After
the expiration of the two year term, the loan is reevaluated, adjusted and/or
extended as a fixed or adjustable rate loan. In addition, the Bank obtains
personal guarantees from the principals of its corporate borrowers. At September
30, 1997, the Bank did not have any nonaccruing land A&D loans.
Loans secured by undeveloped land or improved lots involve greater risks
than one- to four-family residential mortgage loans because such loans are more
difficult to monitor and foreclose as the Bank may be confronted with a property
the value of which is insufficient to assure full repayment. Furthermore, if the
borrower defaults the Bank may have to expend its own funds to complete
development and also incur costs associated with marketing and holding the
building lots pending sale. Land A&D loans are generally considered to involve a
higher degree of risk than single-family permanent mortgage loans because of the
concentration of principal among relatively few borrowers and development
projects, the increased difficulty at the time the loan is originated of
estimating the development building costs, the increased difficulty and costs of
monitoring the loan, the higher degree of sensitivity to increases in market
rates of interest, and the increased difficulty of working out problem loans. A
concentration of loans secured by properties in any single area presents the
risk that any adverse change in regional economic or employment conditions may
result in increased delinquencies and loan losses. The Bank attempts to minimize
this risk by limiting the maximum loan-to-value ratio on acquisition and
development loans to 75%, although the Board of Directors has the authority to
approve acquisition and development loans with loan-to-value ratios of up to
80%.
COMMERCIAL REAL ESTATE LENDING. The Bank originates mortgage loans for the
acquisition and refinancing of commercial real estate properties. At September
30, 1997, $37.1 million, or 14.4% of the Bank's total loan portfolio, consisted
of loans secured by existing commercial real estate properties. The majority of
the Bank's commercial real estate properties are secured by small businesses,
retail properties and churches located in the Bank's primary market area.
The Bank requires an evaluation of all properties securing commercial real
estate loans which are $250,000 and less. Evaluations are performed by the
Bank's commercial loan officers or in-house appraiser, an outside fee appraiser,
or an employee of the Bank designated by the Board of Directors. Appraisals are
required for all properties securing commercial real estate loans in excess of
$250,000. Appraisals are performed by an independent appraiser designated by the
Bank and are reviewed by management. The Bank considers the quality and location
of the real estate, the credit of the borrower, the cash flow of the project and
the quality of management involved with the property.
The average size of a commercial real estate loan in the Bank's portfolio
is approximately $100,000 to $200,000. Commercial real estate loans are
generally structured with fixed rates of interest and terms of three to five
years based on amortization schedules of fifteen to twenty years. At September
30, 1997, the largest commercial real estate loan had an outstanding balance of
$4.4 million. This loan was repaid subsequent to September 30, 1997.
51
<PAGE>
Loan to value ratios on the Bank's commercial real estate loans are
generally limited to 80%. As part of the criteria for underwriting commercial
real estate loans, the Bank generally imposes a debt coverage ratio (the ratio
of net cash from operations before payment of debt service to debt service) of
not less than 1.2 times. It is also the Bank's policy to obtain personal
guarantees from the principals of its corporate borrowers on its commercial real
estate loans.
Commercial real estate lending affords the Bank an opportunity to receive
interest at rates higher than those generally available from one- to- four
family residential lending. However, loans secured by such properties usually
are greater in amount, more difficult to evaluate and monitor and, therefore,
involve a greater degree of risk than one- to- four family residential mortgage
loans. Because payments on loans secured by multi-family and commercial
properties are often dependent on the successful operation and management of the
properties, repayment of such loans may be affected by adverse conditions in the
real estate market or the economy. The Bank seeks to minimize these risks by
limiting the maximum loan-to-value ratio to 80% and strictly scrutinizing the
financial condition of the borrower, the quality of the collateral and the
management of the property securing the loan. The Bank also obtains loan
guarantees from financially capable parties based on a review of personal
financial statements.
COMMERCIAL BUSINESS LENDING. The Bank's commercial business lending
activities focuses primarily on small to medium size businesses owned by
individuals well known to the Bank and who reside in the Bank's primary market
area. At September 30, 1997, commercial business loans amounted to $22.1
million, or 8.6% of total loans.
Commercial business loans may be unsecured loans, but generally are secured
by various types of business collateral other than real estate (i.e., inventory,
----
equipment, etc.). In many instances, however, such loans are often also secured
by junior liens on real estate. Commercial business loans are generally made in
amounts between $50,000 to $75,000 and may be either lines of credit or term
loans. Lines of credit are generally renewable and made for a one-year term.
Lines of credit are generally variable rate loans indexed to the prime rate.
Term loans are generally originated with three to five year maturities, with a
maximum of seven years, on a fully amortizing basis. As with commercial real
estate loans, the Bank generally requires annual financial statements from its
commercial business borrowers and, if the borrower is a corporation, personal
guarantees from the principals.
At September 30, 1997, the largest commercial business loan to an
unaffiliated borrower was a $2.0 line of credit secured by marketable investment
securities, with no outstanding balance at that date. At September 30, 1997, the
largest commercial business loan with an outstanding balance had a balance of
$324,000 and was secured by inventory and equipment. Such loan was performing
according to its terms at September 30, 1997.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Real estate lending is generally considered to be collateral based lending with
loan amounts based on predetermined loan to collateral values and liquidation of
the underlying real estate collateral is viewed as the primary source of
repayment in the event of borrower default. Although commercial business loans
are often collateralized by equipment, inventory, accounts receivable or other
business assets, the liquidation of collateral in the event of a borrower
default is often not a sufficient source of repayment because accounts
receivable may be uncollectible and inventories and equipment may be obsolete or
of limited use, among other things. Accordingly, the repayment of a commercial
business loan depends primarily on the creditworthiness of the borrower (and any
guarantors), while liquidation of collateral is a secondary and often
insufficient source of repayment.
As part of its commercial business lending activities, the Bank issues
standby letters of credit or performance bonds as an accommodation to its
borrowers. See "-- Loan Commitments and Letters of Credit."
CONSUMER LENDING. The Bank originates a variety of consumer loans that
generally have shorter terms to maturity and higher interest rates than
residential mortgage loans. At September 30, 1997, the Bank's consumer loans
totaled approximately $33.2 million, or 15.4%, of the Bank's loans receivable,
net. The Bank's consumer loans consist primarily of home equity lines of credit,
automobile loans, and a variety of other secured loans, a substantial
52
<PAGE>
portion of which are secured by junior mortgages on real estate. To a
substantially lesser extent, the Bank also originates unsecured consumer loans.
The Bank anticipates that it will continue to be an active originator of
consumer loans. Factors that may affect the ability of the Bank to increase its
originations in this area include the demand for such loans, interest rates and
the state of the local and national economy. Consumer loans accounted for 12.3%
of the Bank's total loan originations in the nine months ended September 30,
1997, and 9.5% and 8.9% in fiscal 1996 and 1995, respectively.
The Bank offers open-ended home equity lines of credit secured by a second
mortgage on the borrower's primary residence. These lines of credit have an
interest rate that is one to two percentage points above the prime lending rate,
as published in The Wall Street Journal, which adjusts monthly. The majority of
the approved lines of credit at September 30, 1997 were less than $50,000. At
September 30, 1997, approved lines of credit totaled $5.2 million, of which $2.8
million was outstanding.
At September 30, 1997, the Bank's automobile loan portfolio amounted to
$4.8 million, or 1.9%, of total loans at such date, a substantial portion of
which were secured by used automobiles. The maximum term for the Bank's
automobile loans is 60 months. The Bank generally lends up to 80% to 90% of the
purchase price of the automobile. The Bank requires all borrowers to maintain
automobile insurance, including collision, fire and theft, with a maximum
allowable deductible and with the Bank listed as loss payee. The Bank does not
engage in indirect automobile lending.
The Bank's consumer loan portfolio also includes other consumer loans
secured by a variety of collateral, such as recreational vehicles, boats,
motorcycles, deposit accounts and, in many instances, junior mortgages on real
estate. Such other secured consumer loans were $23.7 million, or 9.2% of total
loans, at September 30, 1997.
At September 30, 1997, unsecured consumer loans amounted to $1.9 million,
or 0.7% of total loans. Unsecured loans are made for a term up to 24 months with
fixed rates of interest and are offered primarily to existing customers of the
Bank. Included in the unsecured consumer loan portfolio are credit card loans
with an aggregate outstanding balance of $199,000 at September 30, 1997.
Approved credit card lines totaled $942,000 at September 30, 1997. The Bank is a
VISA and MASTERCARD card issuer. The Bank does not actively solicit credit card
business beyond its customer base and market area and has not engaged in mailing
of pre-approved credit cards. The rate currently charged by the Bank on its
credit card loans is the prime rate, as published in The Wall Street Journal,
plus 6.9%, and the Bank is permitted to change the interest rate quarterly.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles and other vehicles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Furthermore, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
that can be recovered on such loans. At September 30, 1997, the Bank had $59,000
of consumer loans accounted for on a nonaccrual basis.
MATURITY OF LOAN PORTFOLIO. The following table sets forth certain
information at September 30, 1997 regarding the dollar amount of loans maturing
in the Bank's portfolio based on their contractual terms to maturity, but does
not include scheduled payments or potential prepayments. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less. Loan balances do not include
undisbursed loan proceeds and do not reflect the deduction for unearned
discounts, unearned income and allowance for loan losses.
53
<PAGE>
<TABLE>
<CAPTION>
After After
One Year 3 Years 5 Years
Within Through Through Through After
One Year 3 Years 5 Years 10 Years 10 Years Total
-------- ------- ------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential................ $ 6,801 $10,488 $11,972 $14,802 $56,831 $100,894
Construction............... 44,144 3,672 -- -- -- 47,816
Commercial................. 14,212 6,272 9,117 4,046 289 33,936
Consumer and other loans... 9,462 6,956 4,608 203 165 21,394
Commercial business loans.. 10,858 5,177 2,004 387 1,656 20,082
------- ------- ------- ------- ------- --------
Total.................... $85,477 $32,565 $27,701 $19,438 $58,941 $224,122
======= ======= ======= ======= ======= ========
</TABLE>
The following table sets forth the dollar amount of all loans due after
September 30, 1998, which have fixed interest rates and have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Floating or
Rates Adjustable Rates
------- ----------------
(In thousands)
<S> <C> <C>
Mortgage loans:
Residential................ $21,508 $72,586
Construction............... -- 3,673
Commercial................. 18,886 838
Consumer and other loans... 8,358 3,574
Commercial business loans.. 9,171 52
------- -------
Total.................... $57,923 $80,723
======= =======
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a 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 tends to increase, however, when 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. Furthermore, management believes
that a significant number of the Bank's residential mortgage loans are
outstanding for a period less than their contractual terms because of the
transitory nature of many of the borrowers who reside in its primary market
area.
LOAN SOLICITATION AND PROCESSING. The Bank's lending activities are
subject to the written, non-discriminatory, underwriting standards and loan
origination procedures established by the Bank's Board of Directors and
management. Loan originations come from a number of sources. The customary
sources of loan originations are realtors, walk-in customers, referrals and
existing customers. A business development program has been implemented where
loan officers and sales personnel make sales calls on building contractors and
realtors. The Bank also advertises its loan products.
In marketing its products and services, the Bank emphasizes its community
ties, customized personal service and an efficient underwriting and approval
process. The Bank uses professional fee appraisers for most residential real
estate loans and construction loans and all commercial real estate and land
loans. The Bank requires hazard, title and, to the extent applicable, flood
insurance on all security property.
Loan approval authority varies based on loan type. Construction loans and
acquisition and development loans up to $500,000 may be approved by any two
members of the Bank's seven member Loan Committee, while loans over $500,000
must be approved by the Board of Directors. One- to- four family residential
mortgage loans up to $500,000 originated to be held in portfolio may be approved
by any two members of the Loan Committee,
54
<PAGE>
while loans over $500,000 must be approved by the Board of Directors. One- to-
four family residential mortgage loans that are originated for sale to investors
and that are underwritten to the investor's specifications may be approved by
any member of the Loan Committee up to FHLMC loan limits. Consumer and
commercial business loans may be approved by loan officers individually or in
combination with other loan officers within dollar limits specified by the Loan
Committee. These dollar limits range from $2,500 to $25,000 for unsecured loans
and from $25,000 to $500,000 for secured loans. The maximum approval authority
for an individual loan officer is $125,000 for unsecured loans and $250,000 for
secured loans. All unsecured consumer and commercial business loans over
$250,000, and all secured consumer and commercial business loans over $500,000,
must be approved by the Board of Directors. Each approved loan, regardless of
type, is reviewed by the Bank's quality control personnel to insure that proper
approval was received.
LOAN ORIGINATIONS, SALES AND PURCHASES. While the Bank originates both
adjustable-rate and fixed-rate loans, its ability to generate each type of loan
depends upon relative customer demand for loans in its primary market area.
The Bank sells all loans originated under FHA and VA programs, including
related servicing rights, except for those originated for the THDA. The Bank
periodically sells conventional one- to- four family loans (i.e., non-FHA/VA
----
loans) with servicing retained and without recourse. These sales generally
involve fixed-rate loans which help to reduce the Bank's exposure to interest
rate risk, and the proceeds of sale are used to fund continuing operations
However, the Bank occasionally may sell ARM loans to satisfy liquidity needs.
Sellers of loans are exposed to various degrees of "pipeline risk," which
is the risk that the value of the loan will decline during the period between
the time the loan is originated and the time of sale because of changes in
market interest rates. The Bank is exposed to a relatively low degree of
pipeline risk because it generally does not fix the loan interest rate until
shortly before or on the closing date and loans are generally closed against a
mandatory purchase commitment by the FHLMC or other purchaser.
When conventional loans are sold, the Bank retains the responsibility for
servicing the loans, including collection and remitting mortgage loans payments,
accounting for principal and interest and holding and disbursing escrow or
impound funds for real estate taxes and insurance premiums. The Bank receives a
servicing fee for performing these services for others. The Bank's servicing
portfolio amounted to $117.1 million at September 30, 1997. The Bank is
generally paid a fee equal to 0.25% of the outstanding principal balance for
servicing sold loans. Loan servicing income totalled $305,000, $447,000,
$561,000 and $285,000 for the nine months ended September 30, 1997 and the years
ended December 31, 1996, 1995 and 1994, respectively. The Bank earns late
charges collected from delinquent customers whose loans are serviced by the
Bank. The Bank is allowed to invest escrow impounds (funds collected from
mortgage customers for the payment of property taxes and insurance premiums on
mortgaged real estate) until they are disbursed on behalf of mortgage customers,
but is not required to pay interest on these funds. At September 30, 1997,
borrowers' escrow funds amounted to $1.1 million.
Historically, the Bank has not been an active purchaser of loans or
participation interests in loans.
55
<PAGE>
The following table sets forth total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans originated:
Mortgage loans:
One- to four-family..................... $ 54,597 $ 57,501 $ 73,075 $ 63,175 $ 57,145
Multi-family............................ -- -- -- -- 730
Commercial.............................. 4,200 7,100 9,700 7,200 4,700
Construction............................ 59,137 63,335 78,901 66,798 63,196
Land.................................... 3,091 6,649 10,341 10,114 7,633
Consumer................................. 21,326 16,641 22,625 15,842 15,653
Commercial business loans................ 30,599 30,601 41,222 14,875 16,142
-------- -------- -------- -------- --------
Total loans originated.................. 172,950 181,827 235,864 178,004 165,199
Loans purchased:
One- to four-family..................... -- 3,947 3,947 -- --
-------- -------- -------- -------- --------
Total loans originated and purchased.. 172,950 185,774 239,811 178,004 165,199
Loans sold:
Whole loans sold......................... (48,684) (52,278) (71,235) (67,136) (48,939)
-------- -------- -------- -------- --------
Total loans sold......................... (48,684) (52,278) (71,235) (67,136) (48,939)
Mortgage loan principal repayments........ (64,499) (52,670) (81,711) (72,743) (46,981)
Other loan principal repayments........... (48,524) (47,242) (50,101) (38,363) (56,255)
Increase (decrease) in other items, net... 3,463 1,838 5,457 (3,063) (5,034)
-------- -------- -------- -------- --------
Net increase (decrease) in
loans receivable, net.................... $ 14,706 $ 35,422 $ 42,221 $ (3,301) $ 7,990
======== ======== ======== ======== ========
</TABLE>
LOAN COMMITMENTS AND LETTERS OF CREDIT. The Bank issues commitments for
mortgage loans conditioned upon the occurrence of certain events. Such
commitments are made in writing on specified terms and conditions and are
honored for up to 45 days from approval, depending on the type of transaction.
At September 30, 1997, the Bank had loan commitments (excluding undisbursed
portions of interim construction loans of $33.2 million) of $3.8 million and
unused lines of credit of $22.7 million. See Note 15 of Notes to the
Consolidated Financial Statements.
As an accommodation to its commercial business borrowers, the Bank issues
standby letters of credit or performance bonds in favor of entities, usually
municipalities, for whom the Bank's borrowers are performing work or other
services. At September 30, 1997, the Bank had an outstanding standby letter of
credit of $8.1 million that was issued primarily to municipalities as
performance bonds. See Note 15 of Notes to the Consolidated Financial
Statements.
LOAN FEES. In addition to interest earned on loans, the Bank receives
income from fees in connection with loan originations, loan modification, late
payments and for miscellaneous service related to its loan. Income from these
activities varies from period to period depending upon the volume and type of
loans made and competitive conditions.
56
<PAGE>
The Bank charges loan origination fees which are calculated as a percentage
of the amount borrowed. In accordance with applicable accounting procedures,
loan origination fees and discount points in excess of loan origination costs
are deferred and recognized over the contractual remaining lives of the related
loans on a level yield basis. Discounts and premiums on loans purchased are
accreted and amortized in the same manner. The Bank recognized $820,000, $1.2
million, $918,000 and $1.2 million of deferred loan fees during the nine months
ended September 30, 1997 and the years ended December 31, 1996, 1995 and 1994,
respectively, in connection with loan refinancings, payoffs, sales and ongoing
amortization of outstanding loans.
The Bank also earns fee income on loans serviced for others. Loan servicing
fees for the nine months ended September 30, 1997 and the year ended December
31, 1996 amounted to $305,000 and $447,000, respectively. At September 30, 1997,
the Bank serviced loans for others totalling $116.7 million. See Note 1 of Notes
to Consolidated Financial Statements.
NONPERFORMING ASSETS AND DELINQUENCIES. When a borrowers fails to make a
required payment on a loan, the Bank attempts to cure the deficiency by
contacting the borrower and seeking the payment. Contacts are generally made ten
days after a payment is due. In most cases, deficiencies are cured promptly. If
a delinquency continues, additional contact is made either through a notice or
other means and the Bank will attempt to work out a payment schedule. While the
Bank generally prefers to work with borrowers to resolve such problems, the Bank
will institute foreclosure or other proceedings, as necessary, to minimize any
potential loss.
Loans are placed on nonaccrual status generally if, in the opinion of
management, principal or interest payments are not likely in accordance with the
terms of the loan agreement, or when principal or interest is past due 90 days
or more. Interest accrued but not collected at the date the loan is placed on
nonaccrual status is reversed against income in the current period. Loans may be
reinstated to accrual status when payments are under 90 days past due and, in
the opinion of management, collection of the remaining past due balances can be
reasonably expected.
The Bank's Board of Directors is informed monthly of the status of all
loans delinquent more than 60 days, all loans in foreclosure and all foreclosed
and repossessed property owned by the Bank.
57
<PAGE>
The following table sets forth information with respect to the Bank's non-
performing assets at the dates indicated.
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------------------------------
1997 1996 1995 1994 1993 1992
--- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One- to four-family................................. $ -- $ 9 $ 37 $ 204 $ 657 $ 968
Commercial.......................................... -- -- -- 61 4 187
Consumer loans....................................... 59 42 70 108 113 274
----- ----- ----- ----- ------ ------
Total........................................... $ 59 $ 51 $ 107 $ 373 $ 774 $1,429
Accruing loans which are contractually
past due 90 days or more............................. -- -- -- -- -- --
Total of nonaccrual and 90 days past due loans........ 59 51 107 373 774 1,429
Real estate owned..................................... -- -- -- 95 711 1,015
----- ----- ----- ----- ------ ------
Total nonperforming assets....................... $ 59 $ 51 $ 107 $ 468 $1,485 $2,444
===== ===== ===== ===== ====== ======
Restructured loans.................................... $ -- $ -- $ -- $ 95 $ 711 $1,015
===== ===== ===== ===== ====== ======
Nonaccrual and 90 days or more past due loans
as a percentage of loans receivable, net............. 0.03% 0.02% 0.07% 0.22% 0.49% 0.84%
Nonaccrual and 90 days or more past due
loans as a percentage of total assets................ 0.02% 0.02% 0.05% 0.18% 0.38% 0.72%
Nonperforming assets as a percentage of total assets.. 0.02% 0.02% 0.05% 0.22% 0.72% 1.23%
</TABLE>
Interest income that would have been recorded for the nine months ended
September 30, 1997 and the year ended December 31, 1996 had nonaccruing loans
been current in accordance with their original terms amounted to $8,700 and
$10,300, respectively. No interest was included in interest income on such loans
for such periods.
REAL ESTATE OWNED. See Note 1 of Notes to Consolidated Financial
Statements for a discussion of the accounting treatment of real estate owned.
At September 30, 1997, the Bank had no real estate acquired in settlement of
loans.
RESTRUCTURED LOANS. Under GAAP, the Bank is required to account for
certain loan modifications or restructuring as a "troubled debt restructuring."
In general, the modification or restructuring of a debt constitutes a troubled
debt restructuring if the Bank for economic or legal reasons related to the
borrower's financial difficulties grants a concession to the borrowers that the
Bank would not otherwise consider. Debt restructurings or loan modifications for
a borrower do not necessarily always constitute troubled debt restructurings,
however, and troubled debt restructurings do not necessarily result in
nonaccrual loans. The Bank had no restructured loans.
ASSET CLASSIFICATION. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected.
58
<PAGE>
Doubtful assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions and values questionable, and there
is a high possibility of loss. An asset classified as loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. If an asset or portion thereof is classified as
loss, the insured institution establishes specific allowances for loan losses
for the full amount of the portion of the asset classified as loss. All or a
portion of general loan loss allowances established to cover possible losses
related to assets classified substandard or doubtful can be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
Assets that do not currently expose the insured institution to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses are designated "special mention" and monitored by the Bank.
The aggregate amounts of the Bank's classified and special mention assets,
and of the Bank's general and specific loss allowances at the dates indicated,
were as follows:
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------
1997 1996 1995
---------------- ------- ------
(In thousands)
<S> <C> <C> <C>
Loss....................... $ -- $ -- $ --
Doubtful................... -- -- --
Substandard assets......... 863 735 748
Special mention............ 1,398 245 252
General loss allowances.... 2,801 2,123 1,997
Specific loss allowances... -- -- --
</TABLE>
At September 30, 1997, substandard assets consisted of seven one- to- four
family mortgage loans totalling $482,000 and 33 consumer loans totalling
$381,000.
At September 30, 1997, special mention assets consisted of four commercial
real estate loans, one of which was a $1.1 million loan secured by a golf course
property that was repaid subsequent to September 30, 1997.
ALLOWANCE FOR LOAN LOSSES. The Bank has established a systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal policy and takes into consideration the need for an
overall general valuation allowance as well as specific allowances that are tied
to individual loans.
In originating loans, the Bank recognizes that losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan,
general economic conditions and, in the case of a secured loan, the quality of
the security for the loan. The Bank increases its allowance for loan losses by
charging provisions for loan losses against the Bank's income.
The general valuation allowance is maintained to cover losses inherent in
the loan portfolio. 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. Specific valuation allowances are established to absorb
losses on loans for which full collectibility cannot be reasonably assured. The
amount of the allowance is based on the estimated value of the collateral
securing the loan and other analyses pertinent to each situation. Generally, a
provision for losses is charged against income quarterly to maintain the
allowances.
At September 30, 1997, the Bank had an allowance for loan losses of $2.8
million. Management believes that the amount maintained in the allowances at
September 30, 1997 will be adequate to absorb losses inherent in the portfolio.
Although management believes that it uses the best information available to make
such determinations,
59
<PAGE>
future adjustments to the allowance for loan losses may be necessary and results
of operations could be significantly and adversely affected if circumstances
differ substantially from the assumptions used in making the determinations.
Furthermore, while the Bank believes it has established its existing allowance
for loan losses in accordance with GAAP, there can be no assurance that
regulators, in reviewing the Bank's loan portfolio, will not request the Bank to
increase significantly its allowance for loan losses. In addition, because
future events affecting borrowers and collateral cannot be predicted with
certainty, there can be no assurance that the existing allowance for loan losses
is adequate or that substantial increases will not be necessary should the
quality of any loans deteriorate as a result of the factors discussed above. Any
material increase in the allowance for loan losses may adversely affect the
Bank's financial condition and results of operations.
60
<PAGE>
The following table sets forth an analysis of the Bank's gross allowance
for possible loan losses for the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
---------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance at beginning of period... $ 2,123 $ 1,997 $ 1,997 $ 1,776 $ 1,681 $ 1,520 $ 1,353
Provision for loan losses.......... 700 90 120 80 113 690 366
Recoveries:
Mortgage loans:
One- to four-family.............. -- 2 14 8 8 6 --
Multi-family..................... -- -- -- 68 26 -- --
Commercial....................... -- -- 1 101 7 -- --
Construction..................... -- -- -- 3 -- -- --
Consumer loans:
Unsecured........................ 14 194 191 -- -- -- --
Other............................ -- 15 12 12 17 12 9
Commercial business loans......... -- -- -- -- 1 --
--------- --------- --------- --------- ------- ------- -------
Total recoveries................ $ 14 $ 211 $ 218 $ 192 $ 59 $ 18 $ 9
Charge-offs:
Mortgage loans:
One- to four-family.............. -- -- 10 -- 54 -- --
Construction..................... -- -- -- 6 -- -- --
Consumer loans:
Home equity lines of credit...... 10 -- -- -- -- -- --
Automobile....................... 25 -- -- 4 -- -- --
Credit card...................... 1 -- -- -- -- -- --
Unsecured........................ -- 196 196 -- -- -- --
Other............................ -- 16 6 34 23 547 208
Commercial business loans......... -- -- -- 7 -- -- --
--------- --------- --------- --------- ------- ------- -------
Total charge-offs............... 36 212 212 51 77 547 208
--------- --------- --------- --------- ------- ------- -------
Net recoveries (charge-offs).... (22) (1) 6 141 (18) (529) (199)
--------- --------- --------- --------- ------- ------- -------
Balance at end of period....... $ 2,801 $ 2,086 $ 2,123 $ 1,997 $ 1,776 $ 1,681 $ 1,520
========= ========= ========= ========= ======= ======= =======
Allowance for loan losses
as a percentage of total
loans outstanding at the
end of the period................. 1.27% 1.05% 1.03% 1.22% 1.06% 1.06% 0.89%
Net (charge-offs) recoveries
as a percentage of average loans
outstanding during the period..... (0.01)% --% --% 0.09% (0.01)% (0.31)% (0.13)%
Allowance for loan losses as
a percentage of nonperforming
loans at end of period............ 4,747.46% 6,953.33% 4,160.76% 1,866.36% 476.14% 217.18% 106.37%
</TABLE>
61
<PAGE>
For additional discussion regarding the provisions for loan losses in
recent periods, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Results of Operations -- Comparison of Operating
Results for the Nine months Ended September 30, 1997 and 1995 -- Provision for
Loan Losses," "-- Results of Operations -- Comparison of Operating Results for
the Years Ended December 31, 1996 and 1995 -- Provision for Loan Losses," and
"--Results of Operations -- Comparison of Operating Results for the Years Ended
December 31, 1995 and 1994 -- Provision for Loan Losses."
62
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
<TABLE>
<CAPTION>
At
September 30, At December 31,
----------------------------------------
1997 1996 1995
--------------- --------------- ----------------
Percent Percent Percent
of Loans of Loans of Loans
in Category in Category in Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family....... $ 420 32.7% $ 121.9 33.0% $ 108 36.4%
Multi-family.............. 21 0.5 4.3 1.2 3 0.9
Commercial................ 557 14.4 301.0 12.3 221 11.1
Construction.............. 534 26.7 244.6 24.9 148 23.9
Land...................... 160 4.0 188.0 7.7 138 6.9
Consumer loans:
Home equity lines of
credit................... 42 1.1 24.6 0.8 9 0.5
Automobile................ 61 1.9 46.5 1.5 27 1.4
Credit cards.............. 3 0.1 -- -- -- --
Loans secured by deposit
accounts................. -- -- 0.4 -- 1 --
Unsecured................. 25 0.6 22.2 0.7 20 1.0
Other secured............. 356 9.2 287.6 9.4 209 10.5
Commercial business loans.. 332 8.6 258.7 8.4 148 7.4
Unallocated................ 290 N/A 623.0 N/A 964 N/A
------ ------ ------ ----- ------ -----
Total allowance
for loan losses........ $2,801 100.0% $2,123 100.0% $1,997 100.0%
====== ====== ====== ===== ====== =====
<CAPTION>
At December 31,
-----------------------------------------------------------------
1994 1993 1992
--------------- --------------- ----------------
Percent Percent Percent
of Loans of Loans of Loans
in Category in Category in Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family....... $ 124 43.6% $ 115 42.1% $ 142 50.5%
Multi-family.............. 3 1.2 13 4.7 12 4.4
Commercial................ 168 8.8 176 9.7 72 3.8
Construction.............. 190 21.1 153 19.8 126 14.6
Land...................... 100 5.2 75 4.1 86 4.6
Consumer loans:
Home equity lines of
credit................... 2 0.1 -- -- -- --
Automobile................ 21 1.1 21 1.2 9 0.5
Credit cards.............. -- -- -- -- -- --
Loans secured by deposit
accounts................. 1 0.2 6 0.3 7 0.4
Unsecured................. 20 1.1 21 1.1 1 0.1
Other secured............. 209 11.6 220 12.1 208 11.1
Commercial business loans.. 148 6.0 88 4.9 187 10.0
Unallocated................ 789 N/A 793 N/A 670 N/A
------ ------ ------ ------ ------ ------
Total allowance
for loan losses........ $1,776 100.0% $1,681 100.0% $1,520 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
63
<PAGE>
INVESTMENT ACTIVITIES
The Bank is permitted under federal law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the FHLB-
Cincinnati, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Bank may also invest a portion of its assets in commercial paper and corporate
debt securities. Savings institutions like the Bank are also required to
maintain an investment in FHLB stock. The Bank is required under federal
regulations to maintain a minimum amount of liquid assets. See "REGULATION" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
The Bank purchases investment securities with excess liquidity arising when
investable funds exceed loan demand. The Bank's investment securities purchases
generally have been limited to U.S. Government and agency securities with
contractual maturities of between one and five years. The Bank does not expect
a material change in these activities upon consummation of the Conversion.
The Bank's investment policies generally limit investments to U.S.
Government and agency securities, municipal bonds, certificates of deposits,
marketable corporate debt obligations, mortgage-backed securities. The Bank's
investment policy does not permit hedging activities or the purchase of high
risk mortgage derivative products or non-investment grade corporate bonds.
Investments are made based on certain considerations, which include the interest
rate, yield, settlement date and maturity of the investment, the Bank's
liquidity position, and anticipated cash needs and sources (which in turn
include outstanding commitments, upcoming maturities, estimated deposits and
anticipated loan amortization and repayments). The effect that the proposed
investment would have on the Bank's credit and interest rate risk and risk-based
capital is also considered.
64
<PAGE>
The following table sets forth the amortized cost and fair value of the
Bank's debt and mortgage-based and related securities, by accounting
classification and by type of security, at the dates indicated.
<TABLE>
<CAPTION>
At September 30, At December 31,
----------------------------------------------------------------------------
1997 1996 1995 1994
------------------------ ------------------------ ------------------------ ------------------------
Amortized Percent of Amortized Percent of Amortized Percent of Amortized Percent of
Cost(1) Total Cost(1) Total Cost(1) Total Cost(1) Total
------------ ---------- ------------ ---------- ------------ ---------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
Debt Securities:
U.S. Treasury obligations... $ 3,000 17.91% $ 7,005 65.82% $12,062 31.32% $ 8,109 35.46%
U.S. Government agency
obligations................ 700 4.18 700 6.58 23,488 60.99 11,789 51.55
Mortgage-backed securities... 1,333 7.96 1,419 13.33 1,541 4.00 1,665 7.28
FHLB stock................... 1,602 9.56 1,519 14.27 1,418 3.68 1,304 5.70
------- ------ ------- ------ ------- ------ ------- ------
Total held to maturity
securities.................. 6,635 39.60 10,643 100.00 38,509 100.00 22,867 100.00
------- ------ ------- ------ ------- ------ ------- ------
Available for Sale:
Debt Securities:
U.S. Treasury obligations... 3,052 18.22 -- -- -- -- -- --
U.S. Government agency
obligations................ 7,066 42.18 -- -- -- -- -- --
------- ------ ------- ------ ------- ------ ------- ------
Total available for sale
securities................ 10,118 60.40 -- -- -- -- -- --
------- ------ ------- ------ ------- ------ ------- ------
Total portfolio.............. $16,753 100.00% $10,643 100.00% $38,509 100.00% $22,867 100.00%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
________________
(1) The market value of the Bank's investment portfolio amount to $16.8
million, $10.6 million, $38.6 million and $22.0 million at September 30,
1997 and December 31, 1996, 1995 and 1994, respectively. At September 30,
1997, the market value of the principal components of the Bank's investment
securities portfolio was as follows: U.S. Government securities, $13.9
million; mortgage-backed securities, $1.3 million; and FHLB, $1.6 million.
65
<PAGE>
The following table sets forth the maturities and weighted average yields
of the debt and mortgage-backed securities in the Bank's investment securities
portfolio at September 30, 1997.
<TABLE>
<CAPTION>
Less Than One to Over Five to Over Ten
One Year Five Years Ten Years Years
-------- ----------- --------- ------- ------ ------ ------ --------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----------- --------- ------- ------ ------ ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
Debt Securities:
U.S. Government agency obligations..... $3,000 5.83% $ 700 5.53% $ -- --% $ -- --%
Mortgage backed securities............. -- -- -- -- -- 1,333 7.19
FHLB stock............................. 1,602 7.25 -- -- -- --
------ ------ ---- ------
Total held to maturity securities...... 4,602 6.33 700 5.53 -- -- 1,333 7.19
Available for Sale:
Debt Securities:
U.S. Government agency obligations..... 5,040 5.50 5,078 5.67 -- -- -- --
Mortgage backed securities............. -- -- -- -- -- -- -- --
Other.................................. -- -- -- -- -- -- -- --
------ ------ ------ ------
Total available for sale securities.. 5,040 5.50 5,078 5.67 -- -- -- --
------ ------ ------ ------
Total portfolio........................ $9,642 5.89% $5,778 5.65% $ -- --% $1,333 7.19
====== ====== ====== ======
</TABLE>
66
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits are the major external source of funds for the Bank's
lending and other investment activities. In addition, the Bank also generates
funds internally from loan principal repayments and prepayments and maturing
investment securities. Scheduled loan repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are influenced
significantly by general interest rates and money market conditions. Borrowings
from the FHLB-Cincinnati may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources. Presently, the Bank
has no other borrowing arrangements.
DEPOSIT ACCOUNTS. Most of the Bank's depositors reside in Tennessee. The
Bank's deposit products include a broad selection of deposit instruments,
including NOW accounts, demand deposit accounts, money market accounts, regular
passbook savings, statement savings accounts and term certificate accounts.
Deposit account terms vary with the principal difference being the minimum
balance deposit, early withdrawal penalties and the interest rate. The Bank
reviews its deposit mix and pricing weekly. The Bank does not utilize brokered
deposits, nor has it aggressively sought jumbo certificates of deposit.
The Bank believes it is competitive in the type of accounts and interest
rates it offers on its deposit products. The Bank does not seek to pay the
highest deposit rates but a competitive rate. The Bank determines the rates paid
based on a number of conditions, including rates paid by competitors, rates on
U.S. Treasury securities, rates offered on various FHLB-Cincinnati lending
programs, and the deposit growth rate the Bank is seeking to achieve.
In the unlikely event the Bank is liquidated after the Conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the Bank.
67
<PAGE>
The following table sets forth information concerning the Bank's time deposits
and other interest-bearing deposits at September 30, 1997.
<TABLE>
<CAPTION>
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- -------- ---- -------- ------- ------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
1.50% -- NOW Accounts $ 1,000 $29,981 13.80%
2.00 -- Savings Accounts 100 15,202 7.00
4.34 -- Money Market Accounts 5,000 39,902 18.37
Certificates of Deposit
-----------------------
3.55 32 to 89 Days Fixed-term, Fixed Rate 1,000 37 0.02
4.69 90 to 181 Days Fixed-term, Fixed Rate 1,000 1,120 0.52
5.22 182 - 364 Days Fixed-term, Fixed Rate 1,000 27,103 12.48
5.66 12 Months Fixed-term, Fixed Rate 1,000 1,818 0.84
6.00 12 Months Fixed-term, Adjustable Rate 1,000 2,025 0.93
8.00 15 Months Fixed-term, Fixed Rate 1,000 12 0.01
4.95 18 Months Floating Rate IRA 250 390 0.18
5.52 12 to 18 Month Fixed-term, Fixed Rate 1,000 35,983 16.57
5.23 18 to 23 Month Fixed-term, Fixed Rate 1,000 757 0.35
5.65 18 to 59 Month Fixed-term, Fixed Rate 1,000 155 0.07
5.04 18 Months Fixed Rate IRA 250 8,068 3.71
7.50 21 Months Fixed-term, Fixed Rate 1,000 4 --
5.45 24 Months Fixed-term, Fixed Rate 1,000 1,775 0.82
5.50 2 Years Fixed-term, Adjustable Rate 1,000 10 --
5.60 24 to 35 Month Fixed-term, Fixed Rate 1,000 12,475 5.74
5.51 36 to 47 Month Fixed-term, Fixed Rate 1,000 1,813 0.83
5.85 60+ Months Fixed-term, Fixed Rate 1,000 12,540 5.77
7.75 4 Years Fixed-term, Fixed Rate 1,000 10 --
5.82 3 to 60 Months Fixed-term, Fixed Rate 100,000 26,013 11.98
-------- ------
$217,193 100.00%
======== =======
</TABLE>
The following table indicates the amount of the Bank's jumbo certificates
of deposit by time remaining until maturity as of September 30, 1997. Jumbo
certificates of deposit have principal balances of $100,000 or more and the
rates paid on such accounts are generally negotiable.
<TABLE>
<CAPTION>
Maturity Period Amount
- --------------- -----------
(In thousands)
<S> <C>
Three months or less.............. $ 4,390
Over three through six months..... 6,770
Over six through twelve months.... 11,395
Over twelve months................ 3,458
-------
Total......................... $26,013
=======
</TABLE>
68
<PAGE>
DEPOSIT FLOW
The following table sets forth the balances of savings deposits in the
various types of savings accounts offered by the Bank at the dates indicated.
<TABLE>
<CAPTION>
At September 30, At December 31,
-----------------------------------------------------------
1997 1996 1995
----------------------------- ------------------------- -------------------------------
Percent Percent Percent
of Increase of Increase of Increase
Amount Total (Decrease) Amount Total Decrease Amount Total (Decrease)
-------- ------- ---------- -------- ------- --------- -------- ------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing....... $ 24,757 10.23% $ 4,913 $ 19,844 9.25% $ (31) $ 19,875 10.10% $ 5,141
NOW checking............... 29,981 12.39 2,245 27,736 12.93 3,410 24,326 12.36 1,838
Passbook savings accounts.. 15,202 6.28 (604) 15,806 7.37 (1,422) 17,228 8.76 (2,552)
Money market deposit....... 39,902 16.49 11,403 28,499 13.28 8,054 20,445 10.39 6,553
Fixed-rate certificates
which
mature in the year ending:
Within 1 year............ 112,254 46.40 20,150 92,104 42.93 4,453 87,651 44.55 11,434
After 1 year, but within
2 years................. 14,155 5.85 (8,331) 22,486 10.48 8,654 13,832 7.03 (3,365)
After 2 years, but
within 5 years.......... 5,699 2.36 (2,355) 8,054 3.75 (5,290) 13,344 6.78 (2,540)
Thereafter............... -- -- (4) 4 -- (29) 33 0.02 (58)
-------- ------ ------- -------- ------ ------- -------- ------ -------
Total................. $241,950 100.00% $27,417 $214,533 100.00% $17,799 $196,734 100.00% $16,451
======== ====== ======= ======== ====== ======= ======== ====== =======
<CAPTION>
At December 31,
----------------------------
1994
----------------------------
Percent
of Increase
Amount Total (Decrease)
-------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Non-interest-bearing....... $ 14,734 8.17% $ 384
NOW checking............... 22,488 12.47 3,078
Passbook savings accounts.. 19,780 10.97 (1,497)
Money market deposit....... 13,892 7.71 2,655
Fixed-rate certificates
which
mature in the year ending:
Within 1 year............ 76,217 42.28 (7,006)
After 1 year, but within
2 years................. 17,197 9.54 (7,692)
After 2 years, but
within 5 years.......... 15,884 8.81 5,097
Thereafter............... 91 0.05 91
-------- ------ -------
Total................. 180,283 100.00% $(4,890)
======== ====== =======
</TABLE>
69
<PAGE>
TIME DEPOSITS BY RATES. The following table sets forth the amount of time
deposits in the Bank categorized by rates at the dates indicated.
<TABLE>
<CAPTION>
At
September 30, At December 31,
----------------------------
1997 1996 1995 1994
------------- ---- ---- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
0.00 - 1.99%............ $ 269 $ 673 $ 377 $ 276
2.00 - 3.99%............ -- 93 277 23,092
4.00 - 4.99%............ 3,812 28,995 10,925 42,874
5.00 - 5.99%............ 79,328 59,373 74,193 26,621
6.00 - 6.99%............ 48,344 32,937 26,738 13,637
7.00% and over.......... 355 578 2,349 2,890
-------- -------- -------- --------
Total................... $132,108 $122,649 $114,859 $109,390
======== ======== ======== ========
</TABLE>
TIME DEPOSITS BY MATURITIES. The following table sets forth the amount of
time deposits in the Bank categorized by maturities at September 30, 1997.
<TABLE>
<CAPTION>
Amount Due
---------------------------------------------------------------
After After
One to Two to Three
Less Than Two Three to Four After
One Year Years Years Years 4 Years Total
--------- ----- ----- ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
0.00 - 1.99%............ $ 269 $ -- $ -- $ -- $ -- $ 269
2.00 - 3.99%............ -- -- -- -- -- --
4.00 - 4.99%............ 3,576 236 -- -- -- 3,812
5.00 - 5.99%............ 64,143 10,603 2,137 996 1,449 79,328
6.00 - 6.99%............ 44,126 3,294 924 -- -- 48,344
7.00% and over.......... 140 22 193 -- -- 355
-------- -------- -------- -------- -------- --------
Total................... $112,254 $ 14,155 $ 3,254 $ 996 $ 1,449 $132,108
======== ======== ======== ======== ======== ========
</TABLE>
DEPOSIT ACTIVITY. The following table set forth the savings activity of the
Bank for the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
---------------- ----------------------------
1997 1996 1996 1995 1994
---- ---- ------ ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance................. $214,533 $196,734 $196,734 $180,283 $185,174
Net deposits (withdrawals)
before interest credited........ 25,338 10,511 15,025 14,018 (6,895)
Interest credited................. 2,079 2,046 2,774 2,433 2,004
Net increase (decrease)
in deposits...................... 27,417 12,557 17,799 16,451 (4,891)
-------- -------- -------- -------- --------
Ending balance.................... $241,950 $209,291 $214,533 $196,734 $180,283
======== ======== ======== ======== ========
</TABLE>
BORROWINGS. Savings deposits are the primary source of funds for the Bank's
lending and investment activities and for its general business purposes. The
Bank has the ability to use advances from the FHLB-Cincinnati to supplement its
supply of lendable funds and to meet deposit withdrawal requirements. The FHLB-
Cincinnati
70
<PAGE>
functions as a central reserve bank providing credit for savings associations
and certain other member financial institutions. As a member of the FHLB-
Cincinnati, the Bank is required to own capital stock in the FHLB-Cincinnati and
is authorized to apply for advances on the security of such stock and certain of
its mortgage loans and other assets (principally securities that are obligations
of, or guaranteed by, the U.S. Government) provided certain creditworthiness
standards have been met. Advances are made pursuant to several different credit
programs. Each credit program has its own interest rate and range of maturities.
Depending on the program, limitations on the amount of advances are based on the
financial condition of the member institution and the adequacy of collateral
pledged to secure the credit. At September 30, 1997, the Bank had no advances
outstanding from the FHLB-Cincinnati.
The following table sets forth certain information regarding short-term
borrowings by the Bank at the end of and during the periods indicated:
<TABLE>
<CAPTION>
At or For the
Nine Months
Ended At or For the
September 30, Year Ended December 31,
-------------- --------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Maximum amount of FHLB advance
outstanding at any month end.......... $ -- $ -- $5,000 5,000 $5,000
Approximate average FHLB advance
outstanding........................... -- -- 5,000 5,000 5,000
Approximate weighted average rate paid
on FHLB advances....................... --% --% 5.67% 5.55% 5.34%
</TABLE>
COMPETITION
The Bank faces intense competition in its primary market area for the
attraction of savings deposits (its primary source of lendable funds) and in the
origination of loans. Its most direct competition for savings deposits has
historically come from commercial banks, credit unions, other thrifts operating
in its market area, and other financial institutions such as brokerage firms and
insurance companies. As of September 30, 1997, there were 12 commercial banks
and no other thrifts operating in Rutherford and Bedford Counties, Tennessee.
Particularly in times of high interest rates, the Bank has faced additional
significant competition for investors' funds from short-term money market
securities and other corporate and government securities. The Bank's competition
for loans comes from commercial banks, thrift institutions, credit unions and
mortgage bankers. Such competition for deposits and the origination of loans may
limit the Bank's growth in the future. See "RISK FACTORS -- Competition."
SUBSIDIARY ACTIVITIES
Federal savings associations generally may invest up to 3% of their assets
in service corporations, provided that at least one-half of any amount in excess
of 1% is used primarily for community, inner-city and community development
projects.
The Bank had three service corporation subsidiaries in dissolution as of
September 30, 1997. The subsidiaries were either inactive or engaged in an
insignificant level of activities that the Bank is legally permitted to engage
in directly.
71
<PAGE>
TRUST DEPARTMENT
The OTS granted trust powers to the Bank on December 13, 1991. The Bank is
one of the few banks in the Bank's primary market area providing a broad range
of trust services. These services include acting as trustee under a living
trust, a Standby Trust or Testamentary Trust; acting as personal representative;
agency services, including custody accounts, agent for the trustee, and agent
for the personal representative; and trustee and agent services for accounts
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). In addition to providing fiduciary and investment
advisory services, the Bank provides employee benefit services, such as Self-
Directed Individual Retirement Accounts ("IRAs"). At September 30, 1997, trust
assets under management totalled approximately $185.9 million.
PROPERTIES
The following table sets forth certain information regarding the Bank's
offices at September 30, 1997, all of which are owned except as noted.
<TABLE>
<CAPTION>
Approximate
Location Year Opened Square Footage Deposits
- -------- ----------- -------------- --------
(In thousands)
<S> <C> <C> <C>
Main Office:
114 W. College Street 1974 32,385 $174,076
Murfreesboro, Tennessee 37130
Branch Offices:
804 S. Tennessee Boulevard (1) 1983 578 2,477
Murfreesboro, Tennessee 37130
1745 Memorial Boulevard 1984 1,500 8,868
Murfreesboro, Tennessee 37129
1645 N.W. Broad Street 1995 1,500 5,525
Murfreesboro, Tennessee 37130
123 Cason Lane (2) 1997 1,967 10,810
Murfreesboro, Tennessee 37130
604 N. Main Street 1958 1,500 17,647
Shelbyville, Tennessee 37160
269 S. Lowry Street 1972 3,898 22,202
Smyrna, Tennessee 37167
Hazelwood Drive and Nashville Highway 1997 1,100 266
Smyrna, Tennessee 37167
</TABLE>
(table continued on following page)
72
<PAGE>
<TABLE>
<CAPTION>
Approximate
Location Year Opened Square Footage Deposits
- -------- ----------- -------------- --------
(In thousands)
<S> <C> <C> <C>
Almaville Road and Interstate 24 East (3) 1997 935 112
Smyrna, Tennessee 37167
Loan Production Office:
236 Public Square (4)
Franklin, Tennessee 37604 1985 1,200 N/A
</TABLE>
____________
(1) The Bank has received approval from the OTS to relocate this office to
Southeast Broad and Rutherford Boulevard.
(2) The Bank relocated this office from 110 John R. Rice Boulevard,
Murfreesboro, Tennessee, effective June 16, 1997.
(3) Lease expires in April 2001 with a 5-year option to renew.
(4) Leased month-to-month.
The Bank owns two commercial building lots for future branch office
development. The lots are located on U.S. Highway 231 South, Murfreesboro,
Tennessee, and State Highway 96 N.E., Murfreesboro, Tennessee. To date, the Bank
has not contracted with an architect or builder and has not filed the required
regulatory notices to establish branch offices at either of these locations.
The Bank uses the services of an outside service bureau for its significant
data processing applications. At September 30, 1997, the Bank had 15 proprietary
automated teller machines. At September 30, 1997, the net book value of the
Bank's office properties and the Bank's fixtures, furniture and equipment was
$7.9 million.
PERSONNEL
As of September 30, 1997, the Bank had 132 full-time and 35 part-time
employees, none of whom is represented by a collective bargaining unit. The Bank
believes its relationship with its employees is good.
LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving the
Bank, such as claims to enforce liens, condemnation proceedings on properties in
which the Bank holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Bank's
business. The Bank is not a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of the Bank.
MANAGEMENT OF THE HOLDING COMPANY
Directors shall be elected by the stockholders of the Holding Company for
staggered three-year terms, or until their successors are elected and qualified.
The Holding Company's Board of Directors consists of nine persons divided into
three classes, each of which contains approximately one third of the Board. One
class, consisting of Messrs. Brown, Huddleston and Haynes, has a term of office
expiring at the first annual meeting of stockholders; a second class, consisting
of Messrs. Crosslin, Loughry and Cope, has a term of office expiring at the
second annual meeting of stockholders; and a third class, consisting of Messrs.
Durham, Elam and Knight, has a term of office expiring at the third annual
meeting of stockholders.
73
<PAGE>
The executive officers of the Holding Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Holding Company are:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
William H. Huddleston, III Chairman of the Board
Gary Brown Vice Chairman of the Board
Ed C. Loughry, Jr. President and Chief Executive Officer
Ronald F. Knight Executive Vice President and Chief Operating Officer
Hillard C. "Bud" Gardner Senior Vice President and Chief Financial Officer
William S. Jones Senior Vice President
Ira B. Lewis, Jr. Vice President and Secretary
</TABLE>
Since the formation of the Holding Company, none of the executive officers,
directors or other personnel has received remuneration from the Holding Company.
For information concerning the principal occupations, employment and
compensation of the directors and executive officers of the Holding Company
during the past five years, see "MANAGEMENT OF THE BANK -- Biographical
Information."
MANAGEMENT OF THE BANK
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Bank is presently composed of nine members
who are elected for terms of three years, approximately one third of whom are
elected annually in accordance with the Bylaws of the Bank. The executive
officers of the Bank are elected annually by the Board of Directors and serve at
the Board's discretion. The following table sets forth information with respect
to the Directors and executive officers of the Bank.
DIRECTORS
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position with Bank Since Expires
- ---- ------- ------------------ ------ -------
<S> <C> <C> <C> <C>
William H. Huddleston, III 68 Chairman of the Board 1967 1997
Gary Brown 55 Vice Chairman of the Board 1984 1997
Ed C. Loughry, Jr. 55 Director, President and Chief 1982 1998
Executive Officer
Ronald F. Knight 47 Director, Executive Vice President 1990 1999
and Chief Operating Officer
Frank E. Crosslin, Jr. 61 Director 1985 1998
Tim J. Durham 44 Director 1986 1999
Ed Elam 57 Director 1977 1999
James C. Cope 48 Director 1992 1998
Terry G. Haynes 40 Director 1997 1997
</TABLE>
74
<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<TABLE>
<CAPTION>
Name Age (1) Position with Bank
- ---- ------- ------------------
<S> <C> <C>
Hillard C. "Bud" Gardner 49 Senior Vice President and Chief Financial Officer
David W. Hopper 54 Senior Vice President and Trust Officer
William S. Jones 37 Senior Vice President and Trust Officer/Investor Relations
Ira B. Lewis, Jr. 51 Vice President/CRA Compliance Officer and Secretary
R. Dale Floyd 47 Senior Vice President
M. Glenn Layne 43 Vice President
Joy B. Jobe 53 Vice President
</TABLE>
_____________________
(1) As of September 30, 1997.
BIOGRAPHICAL INFORMATION
Set forth below is certain information regarding the Directors and
executive officers of the Bank. Unless otherwise stated, each Director and
executive officer has held his current occupation for the last five years. There
are no family relationships among or between the Directors or executive
officers.
William H. Huddleston, III is a Civil Engineer and has been a part-time
employee of Huddleston-Steele Engineering, Inc., an engineering company,
Murfreesboro, Tennessee, since 1994. Prior to that time, Mr. Huddleston was
President and Chief Executive Officer of Huddleston Engineering, Inc. from 1955
to until 1993. Mr. Huddleston is Chairman of the Public Building Authority of
Rutherford County and is a director of the Christy/Houston Foundation.
Ed C. Loughry, Jr. joined the Bank in 1968 and has served as President and
Chief Executive Officer of the Bank since 1982. Mr. Loughry has served on the
Boards of Directors of the Rutherford County Chamber of Commerce, United Way and
Heart Fund, and currently serves as a director of the FHLB of Cincinnati,
Tennessee Bankers Association, Rutherford County 20/20 and the Murfreesboro
Conference Center Authority. He was selected Business Person of the Year in 1993
by the Chamber of Commerce.
Ronald F. Knight joined the Bank in 1972 and has served as Executive Vice
President and Chief Operating Officer since 1982. Mr. Knight serves on the Board
of Directors of the Rutherford County Chamber of Commerce, the Tennessee Housing
Development Agency, and is a committee member of the United Way and is co-
founder of a local charity, "Christmas For The Children." Mr. Knight has also
served as a director of the Tennessee Bankers Association.
Gary Brown is the owner and manager of Roscoe Brown, Inc., a heating and
air conditioning company, Murfreesboro, Tennessee. Mr. Brown is a member of the
Murfreesboro Water Sewer Department Board, the Electrical Examining Board and
the Middle Tennessee State University Foundation Board.
Frank E. Crosslin, Jr. is President and Chairman of the Board of Crosslin
Supply Company, Inc., a building supply company, Smyrna, Tennessee. Mr. Crosslin
is a member of the Rutherford County Industrial Bond Board, the Public Building
Authority of Rutherford County and the Smyrna Economic Development Board. Mr.
Crosslin is also a past director of the Tennessee Housing Development
Agency.
Tim J. Durham is the owner of Durham Realty & Auction, Inc., a real estate
and auction service company, Murfreesboro, Tennessee. Mr. Durham is also a
partner in D&H Development Co., commercial and residential developers. He is a
member of the Murfreesboro Water and Sewer Board. He served on the Murfreesboro
Planning
75
<PAGE>
Commission for eight years and is a former member of the Board of Zoning
Appeals. Mr. Durham is past President and Director of the Rutherford County
Board of Realtors.
Ed Elam is the Rutherford County Clerk, Murfreesboro, Tennessee, a position
he has held since 1973. Mr. Elam is a member of the Christy/Houston Foundation
Board and the Evergreen Cemetery Board.
James C. Cope is a partner in the law firm, Murfree, Cope, Hudson &
Scarlett, Murfreesboro, Tennessee. Mr. Cope serves as attorney for Rutherford
County, Tennessee, Middle Tennessee Electric Membership Corporation, the
Murfreesboro Housing Authority, the Smyrna/Rutherford County Airport Authority
and otherwise engages in a general civil practice of law. He was past President
of the Middle Tennessee State University Foundation and the Murfreesboro Rotary
Club.
Terry G. Haynes is the Chief Executive Officer, General Manager and Chief
Operating Officer of Haynes Bros. Lumber Co., a retail building supply dealer
located in Murfreesboro, Tennessee. Mr. Haynes is the Chairman of the Rutherford
County Chamber of Commerce.
Hillard C. "Bud" Gardner joined the Bank in 1981 and has been Senior Vice
President and Chief Financial Officer since 1982. Mr. Gardner is a member of the
Tennessee Society of Certified Public Accountants, the Security for Public
Deposit Task Force, the American Institute of Certified Public Accountants and
the Optimist International.
David W. Hopper joined the Bank in 1992 and has been Senior Vice President
and Trust Officer since that time. Mr. Hopper is a member of the Murfreesboro
Rotary Club, the Hospice of Murfreesboro, and the Murfreesboro School Board.
William S. Jones joined the Bank in 1992 and has been Senior Vice President
since January 1997. Prior to that time, Mr. Jones was Vice President/Senior Vice
President and Trust Officer of the Bank. Mr. Jones is an executive officer and a
member of the Board of Trustees of the Middle Tennessee State University
Foundation and a member of the Board of Trustees of the Middle Tennessee Medical
Center Foundation.
Ira B. Lewis, Jr. joined the Bank in 1993 and has been Vice President/CRA
Compliance Officer and Secretary since January 1996. Before joining the Bank,
Mr. Lewis was a Field Examiner and Field Manager of the OTS's Nashville Area
Office, an affiliate office of the OTS Central Regional Office, Chicago,
Illinois.
R. Dale Floyd joined the Bank in September 1987 and has been Senior Vice
President since October 1988. As Senior Vice President, he supervises the Bank's
mortgage lending activities, including originations, construction and land
development lending and mortgage loan servicing. Mr. Floyd's civic activities
include participation in Leadership Rutherford, Habitat for Humanity, Stones
River Ducks Unlimited and Kids Castle Volunteers. Mr. Floyd is also a member of
the Affordable Housing Advisory Council of the City of Murfreesboro.
M. Glenn Layne joined the Bank in August 1994 with over 17 years of banking
experience and has served as Vice President and Manager of Commercial and
Consumer Lending since that time. Before joining the Bank Mr. Layne served as
Vice President and Manager of a Commercial Lending Group with Sun Trust Bank. Mr
Layne is an active member of the Murfreesboro Downtown Lions Club and the Belle
Aire Baptist Church.
Joy B. Jobe joined the Bank in May 1995 with over 24 years of banking
experience and serves as Vice President of Retail Banking and Business
Development. Before joining the Bank Ms. Jobe was a Commercial Loan Officer,
Relationship Manager and Assistant Vice President with Sun Trust Bank. Ms. Jobe
is a member of the Rotary Club and the American Red Cross.
76
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Bank is conducted through meetings and activities of
the Board of Directors and its committees. During the fiscal year ended December
31, 1996, the Board of Directors held 12 regular meetings and no special
meetings. No director attended fewer than 75% of the total meetings of the Board
of Directors and of committees on which such director served.
The Executive Committee, consisting of Directors Huddleston (Chairman),
Elam, Brown, Loughry and Knight, has the authority to act on behalf of the Board
of Directors in the event of an emergency. The Executive Committee did not met
during the year ended December 31, 1996.
The full Board of Directors functions as a personnel committee responsible
for all personnel issues, including recommending compensation levels for all
employees and senior management to the Board of Directors. The Board of
Directors, functioning as a personnel committee, met 12 times during the year
ended December 31, 1996.
The Audit Committee, consisting of Directors Durham (Chairman), Elam,
Crosslin and Haynes, receives and reviews all reports prepared by the Bank's
external and internal auditor. The Committee meets semi-annually in April and
October to review the reports issued by the internal auditor and the external
auditor. The Audit Committee met twice during the year ended December 31, 1996.
The Chairman of the Board annually appoints three directors to serve as the
Nominating Committee for the annual selection of management's nominees for
election as directors. The Nominating Committee met once during the year ended
December 31, 1996.
The Bank also maintains standing Loan, Investment, Asset Classification,
Asset/Liability Management, Trust and Compliance Committees.
DIRECTORS' COMPENSATION
All directors, other than the Chairman of the Board and the Vice-Chairman
of the Board, receive a monthly fee of $1,000. The Chairman of the Board
receives a monthly fee of $1,200 and the Vice-Chairman of the Board receives a
monthly fee of $1,050. Outside directors receive an additional fee of $100 per
Executive Committee, Audit Committee and Trust Committee meeting attended.
Directors' fees totalled $72,000 for the year ended December 31, 1996. Following
consummation of the Conversion, directors' fees will continue to be paid by the
Bank and, initially, no separate fees are expected to be paid for service on the
Holdings Company's Board of Directors.
77
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following information is furnished for
Messrs. Loughry and Knight for the year ended December 31, 1996.
<TABLE>
<CAPTION>
Annual Compensation(1)
-----------------------------------------
Name and Other Annual All Other
Position Year Salary Bonus Compensation(2) Compensation(3)
- -------- ---- ------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Ed C. Loughry, Jr. 1996 $140,000 $43,120 -- $18,432
President and Chief
Executive Officer
Ronald F. Knight 1996 120,000 36,960 -- 16,332
Executive Vice
President and Chief
Operating Officer
</TABLE>
___________________
(1) Compensation information for the years ended December 31, 1995 and 1994 has
been omitted as the Bank was not a public company nor a subsidiary thereof
at such time.
(2) The aggregate amount of perquisites and other personal benefits was less
than 10% of the total annual salary and bonus reported.
(3) Includes employer paid medical, dental, group term life and disability
insurance premiums and employer 401(k) and pension plan contributions.
EMPLOYMENT AGREEMENTS. In connection with the Conversion, the Holding
Company and the Bank (collectively, the "Employers") will enter into three-year
employment agreements ("Employment Agreements") with Messrs. Loughry and Knight
(individually, the "Executive"). Under the Employment Agreements, the initial
salary levels for Messrs. Loughry and Knight will be $162,000 and $135,000,
respectively, which amounts will be paid by the Bank and may be increased at the
discretion of the Board of Directors or an authorized committee of the Board. On
each anniversary of the commencement date of the Employment Agreements, the term
of each agreement may be extended for an additional year at the discretion of
the Board. The agreement is terminable by the Employers at any time, by the
Executive if the Executive is assigned duties inconsistent with his initial
position, duties, responsibilities and status, or upon the occurrence of certain
events specified by federal regulations. In the event that an Executive's
employment is terminated without cause or upon the Executive's voluntary
termination following the occurrence of an event described in the preceding
sentence, the Bank would be required to honor the terms of the agreement through
the expiration of the current term, including payment of current cash
compensation and continuation of employee benefits.
The Employment Agreements also provide for severance payments and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employers. Severance payments also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, an Executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than the Holding Company purchases shares of Common Stock pursuant
to a tender or exchange offer for such shares, (b) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the
beneficial owner, directly or indirectly, of securities of the Holding Company
representing 25% or more of the combined voting power of the Holding Company's
then outstanding securities, (c) the membership of the Board of Directors
changes as the result of a contested election, or (d) shareholders of the
Holding Company approve a merger, consolidation, sale or disposition of all or
substantially all of the Holding Company's assets, or a plan of partial or
complete liquidation.
78
<PAGE>
The maximum value of the severance benefits under the Employment Agreements
is 2.99 times the Executive's average annual compensation during the five-year
period preceding the effective date of the change in control (the "base
amount"). The Employment Agreements provide that the value of the maximum
benefit may be distributed, at the Executive's election, (i) in the form of a
lump sum cash payment equal to 2.99 times the Executive's base amount or (ii) a
combination of a cash payment and continued coverage under the Employers'
health, life and disability programs for a 36-month period following the change
in control, the total value of which does not exceed 2.99 times the Executive's
base amount. Assuming that a change in control had occurred at September 30,
1997 and that each Executive elected to receive a lump sum cash payment, Messrs.
Loughry and Knight would be entitled to payments of approximately $566,000 and
$491,000, respectively. Section 280G of the Internal Revenue Code of 1986, as
amended ("Code"), provides that severance payments that equal or exceed three
times the individual's base amount are deemed to be "excess parachute payments"
if they are contingent upon a change in control. Individuals receiving excess
parachute payments are subject to a 20% excise tax on the amount of such excess
payments, and the Employers would not be entitled to deduct the amount of such
excess payments.
The Employment Agreements restrict each Executive's right to compete
against the Employers for a period of one year from the date of termination of
the agreement if an Executive voluntarily terminates employment, except in the
event of a change in control.
SEVERANCE AGREEMENTS. In connection with the Conversion, the Holding
Company and the Bank will enter into severance agreements with senior officers
of the Bank. On each anniversary of the commencement date of the severance
agreements, the term of each agreement may be extended for an additional year at
the discretion of the Board. It is anticipated that the severance agreements
will have initial terms of two years.
The severance agreements will provide for severance payments and
continuation of insured employee welfare benefits in the event of involuntary
termination of employment in connection with any change in control of the
Employers in the same manner as provided for in the employment agreements.
Severance payments and benefits also will be provided on a similar basis in
connection with a voluntary termination of employment where, subsequent to a
change in control, an officer is assigned duties inconsistent with his position,
duties, responsibilities and status immediately prior to such change in control.
The term "change in control" is defined in the agreement as having occurred
when, among other things, (a) a person other than the Holding Company purchases
shares of Common Stock pursuant to a tender or exchange offer for such shares,
(b) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the Holding Company representing 25% or more of the combined
voting power of the Holding Company's then outstanding securities, (c) the
membership of the Board of Directors changes as the result of a contested
election, or (d) shareholders of the Holding Company approve a merger,
consolidation, sale or disposition of all or substantially all of the Holding
Company's assets, or a plan of partial or complete liquidation.
Assuming that a change in control had occurred at September 30, 1997, and
excluding any other benefits due under the severance agreements, the aggregate
value of the severance benefits payable to the seven officers would be
approximately $650,000.
KEY PERSONNEL SEVERANCE COMPENSATION PLAN. In connection with the
Conversion, the Board of Directors of the Bank intends to adopt the Severance
Plan to provide benefits to eligible employees in the event of a change in
control of the Holding Company or the Bank. In general, all officers (except for
officers who enter into separate employment or severance agreements with the
Holding Company and the Bank) will be eligible to participate in the Severance
Plan. Under the Severance Plan, in the event of a change in control of the
Holding Company or the Bank, eligible officers, who are terminated or who
terminate employment (but only upon the occurrence of events specified in the
Severance Plan) within 12 months of the effective date of a change in control
will be entitled to a payment based on years of service with the Bank. However,
the maximum payment for any eligible employee would be equal to three months of
their then current compensation.. Assuming that a change in control had occurred
at September 30, 1997 and the termination of all eligible employees, the maximum
aggregate payment due under the Severance Plan would be approximately $116,000.
79
<PAGE>
BENEFITS
GENERAL. The Bank currently pays 100% of the premiums for medical, life and
disability insurance benefits for full-time employees, subject to certain
deductibles.
DEFINED BENEFIT PLAN. The Bank formerly maintained a non-contributory
defined benefit pension plan for the benefit of eligible employees. The plan was
terminated by resolution of the Board of Directors effective December 31, 1997.
The plan covered all employees who completed one year of service and attained
the age of 21 years. The normal retirement benefit, payable at age 65, was a
monthly amount equal to 1.2% times the participant's years of service up to 25
years. Optional forms of benefit included, at the participant's election, a lump
sum distribution or various annuity forms of distribution. The plan also
provided for payment of benefits reduced on an actuarial basis if the
participant elected early retirement at age 60 with 10 years of service and
unreduced benefits if the participant elected early retirement at age 55 with 30
years of service. Benefits under the plan were not subject to offset for social
security benefits. Pension expense for the fiscal year ended December 31, 1996
was $170,000. As of September 30, 1997, Messrs. Loughry and Knight had 30 and 26
years, respectively, of credited service under the plan.
The following table illustrates annual pension benefits payable at normal
retirement age, based on various levels of compensation and years of service.
<TABLE>
<CAPTION>
Highest Five-Year
Average Annual Years of Service
---------------------------------------------
Compensation 5 10 15 25 35
- -------------- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$ 10,000........... $600 $1,200 $1,800 $3,000 $3,000
20,000........... 1,200 2,400 3,600 6,000 6,000
30,000........... 1,800 3,600 5,400 9,000 9,000
40,000........... 2,400 4,800 7,200 12,000 12,000
60,000........... 3,600 7,200 10,800 18,000 18,000
80,000........... 4,800 9,600 14,400 24,000 24,000
100,000........... 6,000 12,000 18,000 30,000 30,000
120,000........... 7,200 14,400 21,600 36,000 36,000
</TABLE>
401(K) SAVINGS PLAN. The Bank maintains the Cavalry Banking 401(k) Savings
Plan ("401(k) Plan") for the benefit of eligible employees of the Bank. The
401(k) Plan is intended to be a tax-qualified plan under Sections 401(a) and
401(k) of the Code. Employees of the Bank who have completed 1,000 hours of
service during 12 consecutive months and who have attained age 21 are eligible
to participate in the 401(k) Plan. Participants may contribute from 1%-15% of
their annual compensation to the 401(k) Plan through a salary reduction
election. The Bank matches participant contributions on a discretionary basis to
a maximum of 3% of compensation contributed by the participant. In addition to
employer matching contributions, the Bank may contribute a discretionary amount
to the 401(k) Plan in any plan year which is allocated to individual
participants in the proportion that their annual compensation bears to the total
compensation of all participants during the plan year. To be eligible to receive
a discretionary employer contribution, the participant must complete 1,000 hours
of service during the plan year and remain employed by the Bank on the last day
of the plan year. Participants are at all times 100% vested in all
contributions. For the year ended December 31, 1996, the Bank incurred total
contribution-related expenses of $143,000 in connection with the 401(k) Plan.
Generally, the investment of 401(k) Plan assets is managed by the Bank's
Trust Department which serves as the 401(k) Plan trustee. In connection with the
Conversion, the investment options available to participants will be expanded to
include the opportunity to direct the investment of their 401(k) Plan account
balance to purchase shares of the Common Stock. A participant in the 401(k) Plan
who elects to purchase Common Stock in the Conversion through the 401(k) Plan
will receive the same subscription priority and be subject to the same
individual
80
<PAGE>
purchase limitations as if the participant had elected to make such purchase
using other funds. See "THE CONVERSION -- Limitations on Purchases of Shares."
EMPLOYEE STOCK OWNERSHIP PLAN. The Board of Directors has authorized the
adoption by the Bank of an ESOP for employees of the Bank to become effective
upon the completion of the Conversion. The ESOP is intended to satisfy the
requirements for an employee stock ownership plan under the Code and the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Full-time
employees of the Holding Company and the Bank who have been credited with at
least 1,000 hours of service during a 12-month period and who have attained age
21 will be eligible to participate in the ESOP.
In order to fund the purchase of up to 8% of the Common Stock to be issued
in the Conversion, it is anticipated that the ESOP will borrow funds from the
Holding Company. Such loan will equal 100% of the aggregate purchase price of
the Common Stock. The loan to the ESOP will be repaid principally from the
Bank's contributions to the ESOP and dividends payable on Common Stock held by
the ESOP over the anticipated 12-year term of the loan. The interest rate for
the ESOP loan is expected to be the prime rate as published in The Wall Street
Journal on the closing date of the Conversion. See "PRO FORMA DATA." To the
extent that the ESOP is unable to acquire 8% of the Common Stock issued in the
Conversion, such additional shares will be acquired following the Conversion
through open market purchases.
In any plan year, the Bank may make additional discretionary contributions
to the ESOP for the benefit of plan participants in either cash or shares of
Common Stock, which may be acquired through the purchase of outstanding shares
in the market or from individual stockholders or which constitute authorized but
unissued shares or shares held in treasury by the Holding Company. The timing,
amount, and manner of such discretionary contributions will be affected by
several factors, including applicable regulatory policies, the requirements of
applicable laws and regulations, and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in
a suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP at the rate
of 20% per year, beginning upon the completion of one year of participation. A
participant is fully vested at retirement, in the event of disability or upon
termination of the ESOP. Benefits are distributable upon a participant's
retirement, early retirement, death, disability, or termination of employment.
The Bank's contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated.
It is anticipated that members of the Board of Directors or officers of the
Bank will be appointed by the Board of Directors to serve as trustees of the
ESOP. Under the ESOP, the trustees must vote all allocated shares held in the
ESOP in accordance with the instructions of plan participants and unallocated
shares and allocated shares for which no instructions are received must be voted
in the same ratio on any matter as those shares for which instructions are
given.
Pursuant to SOP 93-6, compensation expense for a leveraged ESOP is recorded
at the fair market value of the ESOP shares when committed to be released to
participants' accounts. See "PRO FORMA DATA" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Results of
Operations -- Comparison of Operating Results for the Nine Months Ended
September 30, 1997 and 1996."
81
<PAGE>
If the ESOP purchases newly issued shares from the Holding Company, total
stockholders' equity would neither increase nor decrease. However, on a per
share basis, stockholders' equity and per share net earnings would decrease
because of the increase in the number of outstanding shares.
The ESOP will be subject to the requirements of ERISA and the regulations
of the IRS and the Department of Labor issued thereunder. The Bank intends to
request a determination letter from the IRS regarding the tax-qualified status
of the ESOP. Although no assurance can be given that a favorable determination
letter will be issued, the Bank expects that a favorable determination letter
will be received by the ESOP.
STOCK OPTION PLAN. The Board of Directors of the Holding Company intends to
adopt the Stock Option Plan and to submit the Stock Option Plan to the
stockholders for approval at a meeting held no earlier than six months following
consummation of the Conversion. Under current OTS regulations, the approval of a
majority vote of the Holding Company's outstanding shares is required prior to
the implementation of the Stock Option Plan within one year of the consummation
of the Conversion. The Stock Option Plan will comply with all applicable
regulatory requirements. However, the Stock Option Plan will not be approved or
endorsed by the OTS.
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Bank, and to reward officers and key employees for outstanding performance.
The Stock Option Plan will provide for the grant of incentive stock options
("ISOs") intended to comply with the requirements of Section 422 of the Code and
for nonqualified stock options ("NQOs"). Upon receipt of stockholder approval of
the Stock Option Plan, stock options may be granted to key employees of the
Holding Company and its subsidiaries, including the Bank. Unless sooner
terminated, the Stock Option Plan will continue in effect for a period of ten
years from the date the Stock Option Plan is approved by stockholders.
A number of authorized shares of Common Stock equal to 10% of the number of
shares of Common Stock issued in connection with the Conversion will be reserved
for future issuance under the Stock Option Plan (655,500 shares based on the
issuance of 6,555,000 shares at the maximum of the Estimated Valuation Range).
Shares acquired upon exercise of options will be authorized but unissued shares
or treasury shares. In the event of a stock split, reverse stock split, stock
dividend, or similar event, the number of shares of Common Stock under the Stock
Option Plan, the number of shares to which any award relates and the exercise
price per share under any option may be adjusted by the Committee (as defined
below) to reflect the increase or decrease in the total number of shares of
Common Stock outstanding.
The Stock Option Plan will be administered and interpreted by a committee
of the Board of Directors ("Committee"). Subject to applicable OTS regulations,
the Committee will determine which nonemployee directors, officers and key
employees will be granted options, whether, in the case of officers and
employees, such options will be ISOs or NQOs, the number of shares subject to
each option, and the exercisability of such options. All options granted to
nonemployee directors will be NQOs. The per share exercise price of all options
will equal at least 100% of the fair market value of a share of Common Stock on
the date the option is granted.
Under current OTS regulations, if the Stock Option Plan is implemented
within one year of the consummation of the Conversion, (i) no officer or
employees could receive an award of options covering in excess of 25%, (ii) no
nonemployee director could receive in excess of 5% and (iii) nonemployee
directors, as a group, could not receive in excess of 30% of the number of
shares reserved for issuance under the Stock Option Plan.
It is anticipated that all options granted under the Stock Option Plan will
be granted subject to a vesting schedule whereby the options become exercisable
over a specified period following the date of grant. Under OTS regulations, if
the Stock Option plan is implemented within the first year following
consummation of the Conversion the minimum vesting period will be five years.
All unvested options will be immediately exercisable in the event of the
recipient's death or disability. Unvested options also will be exercisable
following a change in control (as
82
<PAGE>
defined in the Stock Option Plan) of the Holding Company or the Bank to the
extent authorized or not prohibited by applicable law or regulations. OTS
regulations currently provide that if the Stock Option Plan is implemented prior
to the first anniversary of the Conversion, vesting may not be accelerated upon
a change in control of the Holding Company or the Bank.
Each stock option that is awarded to an officer or key employee will remain
exercisable at any time on or after the date it vests through the earlier to
occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Committee. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. All stock options are
nontransferable except by will or the laws of descent or distribution.
Under current provisions of the Code, the federal tax treatment of ISOs and
NQOs is different. With respect to ISOs, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of Common Stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the Common Stock on
the date of grant and the option exercise price, if any, will be taxable to the
optionee at ordinary income tax rates. A federal income tax deduction generally
will not be available to the Holding Company as a result of the grant or
exercise of an ISO, unless the optionee fails to satisfy the holding period
requirements. With respect to NQOs, the grant of an NQO generally is not a
taxable event for the optionee and no tax deduction will be available to the
Holding Company. However, upon the exercise of an NQO, the difference between
the fair market value of the Common Stock on the date of exercise and the option
exercise price generally will be treated as compensation to the optionee upon
exercise, and the Holding Company will be entitled to a compensation expense
deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made at this time, the
Holding Company and the Bank anticipate that if stockholder approval is obtained
it would provide awards to its directors, officers and employees to the extent
and under terms and conditions permitted by applicable regulations. The size of
individual awards will be determined prior to submitting the Stock Option Plan
for stockholder approval, and disclosure of anticipated awards will be included
in the proxy materials for such meeting.
MANAGEMENT RECOGNITION PLAN. Following the Conversion, the Board of
Directors of the Holding Company intends to adopt an MRP for officers,
employees, and nonemployee directors of the Holding Company and the Bank,
subject to shareholder approval. The MRP will enable the Holding Company and the
Bank to provide participants with a proprietary interest in the Holding Company
as an incentive to contribute to the success of the Holding Company and the
Bank. The MRP will comply with all applicable regulatory requirements. However,
the MRP will not be approved or endorsed by the OTS. Under current OTS
regulations, the approval of a majority vote of the Holding Company's
outstanding shares is required prior to the implementation of the MRP within one
year of the consummation of the Conversion.
The MRP expects to acquire a number of shares of Common Stock equal to 4%
of the Common Stock issued in connection with the Conversion (262,200 shares
based on the issuance of 6,555,000 shares in the Conversion at the maximum of
the Estimated Valuation Range). Such shares will be acquired on the open market,
if available, with funds contributed by the Holding Company or the Bank to a
trust which the Holding Company may establish in conjunction with the MRP ("MRP
Trust") or from authorized but unissued shares or treasury shares of the Holding
Company.
A committee of the Board of Directors of the Holding Company will
administer the MRP, the members of which will also serve as trustees of the MRP
Trust, if formed. The trustees will be responsible for the investment
83
<PAGE>
of all funds contributed by the Holding Company or the Bank to the MRP Trust.
The Board of Directors of the Holding Company may terminate the MRP at any time
and, upon termination, all unallocated shares of Common Stock will revert to the
Holding Company.
Shares of Common Stock granted pursuant to the MRP will be in the form of
restricted stock payable ratably over a specified vesting period following the
date of grant. During the period of restriction, all shares will be held in
escrow by the Holding Company or by the MRP Trust. Under OTS regulations, if the
MRP is implemented within the first year following consummation of the
Conversion, the minimum vesting period will be five years. All unvested MRP
awards will vest in the event of the recipient's death or disability. Unvested
MRP awards will also vest following a change in control (as defined in the MRP)
of the Holding Company or the Bank to the extent authorized or not prohibited by
applicable law or regulations. OTS regulations currently provide that, if the
MRP is implemented prior to the first anniversary of the Conversion, vesting may
not be accelerated upon a change in control of the Holding Company or the Bank.
A recipient of an MRP award in the form of restricted stock generally will
not recognize income upon an award of shares of Common Stock, and the Holding
Company will not be entitled to a federal income tax deduction, until the
termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
Common Stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made at this time, the
Holding Company and the Bank anticipate that if stockholder approval is obtained
it would provide awards to its directors, officers and employees to the extent
and under terms and conditions permitted by applicable regulations. Under
current OTS regulations, if the MRP is implemented within one year of the
consummation of the Conversion, (i) no officer or employees could receive an
award covering in excess of 25%, (ii) no nonemployee director could receive in
excess of 5% and (iii) nonemployee directors, as a group, could not receive in
excess of 30% of the number of shares reserved for issuance under the MRP. The
size of individual awards will be determined prior to submitting the MRP for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for such meeting.
TRANSACTIONS WITH THE BANK
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or present
other unfavorable features. The Bank's policy is not to make any new loans or
extensions of credit to the Bank's executive officers and directors at different
rates or terms than those offered to the general public. In addition, loans made
to a director or executive officer in an amount that, when aggregated with the
amount of all other loans to such person and his related interests, are in
excess of the greater of $25,000 or 5% of the Bank's capital and surplus (up to
a maximum of $500,000) must be approved in advance by a majority of the
disinterested members of the Board of Directors. See "REGULATION -- Federal
Regulation of Savings Associations -- Transactions with Affiliates." The
aggregate amount of loans by the Bank to its executive officers and directors
was approximately $609,000 at September 30, 1997, or approximately 0.71% of pro
forma stockholders' equity (based on the issuance of the maximum of the
Estimated Valuation Range).
President and Chief Executive Officer Ed C. Loughry, Jr.'s wife is a
principal partner in an insurance agency from which the Bank purchases some of
its insurance coverage. Mr. Loughry has no ownership interest in
84
<PAGE>
the insurance agency and does not participate in its business affairs. Mrs.
Loughry is not paid any direct commissions on sales to the Bank. Premiums paid
to the insurance agency by the Bank amounted to approximately $88,000 and
$68,000 for the year ended December 31, 1996 and the nine months ended September
30, 1997, respectively.
Director Cope's law firm provides periodic routine legal services to the
Bank. The Bank paid legal fees to the firm of approximately $25,000 and $11,000
for the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively. Neither of these amounts represented more than 5% of the law
firm's gross revenues for the law firm's last full fiscal year.
Periodically, the Bank has used the services of Director Brown's heating
and air conditioning company for maintenance and repair work to the Bank's
office facilities. The Bank paid to Mr. Brown's company approximately $8,000 and
$6,000 during the year ended December 31, 1996 and the nine months ended
September 30, 1997 for work performed.
REGULATION
GENERAL
The Bank is subject to extensive regulation, examination and supervision by
the OTS as its chartering agency, and the FDIC, as the insurer of its deposits.
The activities of federal savings institutions are governed by the Home Owners'
Loan Act, as amended ("HOLA") and, in certain respects, the Federal Deposit
Insurance Act ("FDIA") and the regulations issued by the OTS and the FDIC to
implement these statutes. These laws and regulations delineate the nature and
extent of the activities in which federal savings associations may engage.
Lending activities and other investments must comply with various statutory and
regulatory capital requirements. In addition, the Bank's relationship with its
depositors and borrowers is also regulated to a great extent, especially in such
matters as the ownership of deposit accounts and the form and content of the
Bank's mortgage documents. The Bank must file reports with the OTS and the FDIC
concerning its 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. There are periodic
examinations by the OTS and the FDIC to review the Bank's compliance with
various regulatory requirements. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies, whether by
the OTS, the FDIC or Congress, could have a material adverse impact on the
Holding Company, the Bank and their operations. The Holding Company, as a
savings and loan holding company, will also be required to file certain reports
with, and otherwise comply with the rules and regulations of, the OTS and the
Securities and Exchange Commission ("SEC").
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
OFFICE OF THRIFT SUPERVISION. The OTS is an office in the Department of the
Treasury subject to the general oversight of the Secretary of the Treasury. The
OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to: supervise the FHLBs; ensure that the FHLBs
carry out their housing finance mission; ensure that the FHLBs remain adequately
capitalized and able to raise funds in the capital markets; and ensure that the
FHLBs operate in a safe and sound manner. The Bank, as a member of the FHLB-
Cincinnati, is required to acquire and hold shares of capital stock in the FHLB-
Cincinnati in an amount equal to the greater of (i) 1.0% of the aggregate
outstanding principal amount of residential
85
<PAGE>
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, or (ii) 1/20 of its advances (borrowings) from the FHLB-
Cincinnati. The Bank is in compliance with this requirement with an investment
in FHLB-Cincinnati stock of $1.6 million at September 30, 1997. Among other
benefits, the FHLB-Cincinnati provides a central credit facility primarily for
member institutions. It is funded primarily from proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB-Cincinnati.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC is an independent federal
agency established originally to insure the deposits, up to prescribed statutory
limits, of federally insured banks and to preserve the safety and soundness of
the banking industry. The FDIC maintains two separate insurance funds: the BIF
and the SAIF. As insurer of the Bank's deposits, the FDIC has examination,
supervisory and enforcement authority over all savings associations.
The Bank's deposit accounts are insured by the FDIC under the SAIF to the
maximum extent permitted by law. The Bank pays deposit insurance premiums to the
FDIC based on a risk-based assessment system established by the FDIC for all
SAIF-member institutions. Under applicable regulations, institutions are
assigned to one of three capital groups that are based solely on the level of an
institution's capital ("well capitalized," "adequately capitalized" or
"undercapitalized"), which are defined in the same manner as the regulations
establishing the prompt corrective action system under the FDIA as discussed
below. The matrix so created results in nine assessment risk classifications,
with rates that until September 30, 1996 ranged from 0.23% for well capitalized,
financially sound institutions with only a few minor weaknesses to 0.31% for
undercapitalized institutions that pose a substantial risk of loss to the SAIF
unless effective corrective action is taken. The Bank's assessments expensed for
the year ended December 31, 1996 equaled $1.2 million.
Pursuant to the DIF Act, which was enacted on September 30, 1996, the FDIC
imposed a special assessment on each depository institution with SAIF-assessable
deposits which resulted in the SAIF achieving its designated reserve ratio. In
connection therewith, the FDIC reduced the assessment schedule for SAIF members,
effective January 1, 1997, to a range of 0% to 0.27%, with most institutions,
including the Bank, paying 0%. This assessment schedule is the same as that for
the BIF, which reached its designated reserve ratio in 1995. In addition, since
January 1, 1997, SAIF members are charged an assessment of 0.065% of SAIF-
assessable deposits for the purpose of paying interest on the obligations issued
by the Financing Corporation ("FICO") in the 1980's to help fund the thrift
industry cleanup. BIF-assessable deposits will be charged an assessment to help
pay interest on the FICO bonds at a rate of approximately .013% until the
earlier of December 31, 1999 or the date upon which the last savings association
ceases to exist, after which time the assessment will be the same for all
insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Bank.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Bank.
LIQUIDITY REQUIREMENTS. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and
86
<PAGE>
specified U.S. Government, state or federal agency obligations and certain other
investments) equal to a monthly average of not less than a specified percentage
(currently 5.0%) of its net withdrawable accounts plus short-term borrowings.
OTS regulations also require each savings institution to maintain an average
daily balance of short-term liquid assets at a specified percentage (currently
1.0%) of the total of its net withdrawable savings accounts and borrowings
payable in one year or less. Monetary penalties may be imposed for failure to
meet liquidity requirements. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources."
PROMPT CORRECTIVE ACTION. Under Section 38 of the FDIA, as added by the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), each
federal banking agency is required to implement a system of prompt corrective
action for institutions that it regulates. The federal banking agencies have
promulgated substantially similar regulations to implement this system of prompt
corrective action. Under the regulations, an institution shall be deemed to be
(i) "well capitalized" if it has a total risk-based capital ratio of 10.0% or
more, has a Tier I risk-based capital ratio of 6.0% or more, has a leverage
ratio of 5.0% or more and is not subject to specified requirements to meet and
maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier
I risk-based capital ratio of 4.0% or more and a leverage ratio of 4.0% or more
(3.0% under certain circumstances) and does not meet the definition of "well
capitalized;" (iii) "undercapitalized" if it has a total risk-based capital
ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less
than 4.0% or a leverage ratio that is less than 4.0% (3.0% under certain
circumstances); (iv) "significantly undercapitalized" if it has a total risk-
based capital ratio that is less than 6.0%, a Tier I risk-based capital ratio
that is less than 3.0% or a leverage ratio that is less than 3.0%; and (v)
"critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.
An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.
At September 30, 1997, the Bank was categorized as "well capitalized" under
the prompt corrective action regulations of the OTS.
STANDARDS FOR SAFETY AND SOUNDNESS. The FDIA requires the federal banking
regulatory agencies to prescribe, by regulation, standards for all insured
depository institutions relating to: (i) internal controls, information systems
and internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; (v) asset growth; and (vi) compensation, fees
and benefits. The federal banking agencies recently adopted final regulations
and Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines"). The Guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. If the OTS determines
that the Bank fails to meet any standard prescribed by the Guidelines, the
agency may require the Bank to submit to the agency an acceptable plan to
achieve compliance with the standard. OTS regulations establish deadlines for
the submission and review of such safety and soundness compliance plans.
87
<PAGE>
QUALIFIED THRIFT LENDER TEST. All savings associations are required to meet
a qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a QTL shall
either become a national bank or be subject to the following restrictions on its
operations: (i) the association may not make any new investment or engage in
activities that would not be permissible for national banks; (ii) the
association may not establish any new branch office where a national bank
located in the savings institution's home state would not be able to establish a
branch office; (iii) the association shall be ineligible to obtain new advances
from any FHLB; and (iv) the payment of dividends by the association shall be
subject to the statutory and regulatory dividend restrictions applicable to
national banks. Also, beginning three years after the date on which the savings
institution ceases to be a QTL, the savings institution would be prohibited from
retaining any investment or engaging in any activity not permissible for a
national bank and would be required to repay any outstanding advances to any
FHLB. In addition, within one year of the date on which a savings association
controlled by a company ceases to be a QTL, the company must register as a bank
holding company and become subject to the rules applicable to such companies. A
savings institution may requalify as a QTL if it thereafter complies with the
QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Code or that 65% of an
institution's "portfolio assets" (as defined) consist of certain housing and
consumer-related assets on a monthly average basis in nine out of every 12
months. Assets that qualify without limit for inclusion as part of the 65%
requirement are loans made to purchase, refinance, construct, improve or repair
domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an overall
limit of 20% of the savings institution's portfolio assets: 50% of residential
mortgage loans originated and sold within 90 days of origination; 100% of
consumer loans; and stock issued by Federal Home Loan Mortgage Corporation or
FNMA. Portfolio assets consist of total assets minus the sum of (i) goodwill and
other intangible assets, (ii) property used by the savings institution to
conduct its business, and (iii) liquid assets up to 20% of the institution's
total assets. At September 30, 1997, the qualified thrift investments of the
Bank were approximately 70.6% of its portfolio assets.
CAPITAL REQUIREMENTS. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in order
to comply with the capital requirements. The Holding Company is not subject to
any minimum capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital is
defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and nonincludable subsidiaries. An institution
that fails to meet the core capital requirement would be required to file with
the OTS a capital plan that details the steps they will take to reach
compliance. In addition, the OTS's prompt corrective action regulation provides
that a savings institution that has a leverage ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See "--Federal
Regulation of Savings Associations -- Prompt Corrective Action."
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings associations rated
a composite one (the highest rating) under the CAMEL rating system for savings
associations will
88
<PAGE>
be permitted to operate at or near the regulatory minimum leverage ratio of 3%.
All other savings associations will be required to maintain a minimum leverage
ratio of 4% to 5%. The OTS will assess each individual savings association
through the supervisory process on a case-by-case basis to determine the
applicable requirement. No assurance can be given as to the final form of any
such regulation, the date of its effectiveness or the requirement applicable to
the Bank.
Savings associations also must maintain "tangible capital" not less than
1.5% of the Bank's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating risk-
weighted assets. The categories range from 0% for cash and securities that are
backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans are
assigned a 100% risk weight, as are nonqualifying residential mortgage loans and
that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totalled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
----
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. Under certain
circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
89
<PAGE>
of the OTS-calculated amount. The OTS has postponed the date that the component
will first be deducted from an institution's total capital.
See "HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE" for a table
that sets forth in terms of dollars and percentages the OTS tangible, core and
risk-based capital requirements, the Bank's historical amounts and percentages
at September 30, 1997 and pro forma amounts and percentages based upon the
assumptions stated therein.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Bank to give the OTS 30 days'
advance notice of any proposed declaration of dividends, and the OTS has the
authority under its supervisory powers to prohibit the payment of dividends. The
regulation utilizes a three-tiered approach which permits various levels of
distributions based primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution). A
Tier 1 savings association may make (without application but upon prior notice
to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus one-half
its surplus capital ratio (i.e., the amount of capital in excess of its fully
----
phased-in requirement) at the beginning of the calendar year or the amount
authorized for a Tier 2 association. Capital distributions in excess of such
amount require advance notice to the OTS. A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution). Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement. Capital distributions exceeding this amount
require prior OTS approval. A Tier 3 savings association has capital below the
minimum capital requirement (either before or after the proposed capital
distribution). A Tier 3 savings association may not make any capital
distributions without prior approval from the OTS.
The Bank currently meets the criteria to be designated a Tier 1 association
and, consequently, could at its option (after prior notice to, and no objection
made by, the OTS) distribute up to 100% of its net income during the calendar
year plus 50% of its surplus capital ratio at the beginning of the calendar year
less any distributions previously paid during the year.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. The OTS by regulation has amended the loans to one borrower rule to
permit savings associations meeting certain requirements, including capital
requirements, to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units. At September 30, 1997, the Bank's limit on loans to one borrower
was $9.7 million. At September 30, 1997, the Bank's largest aggregate amount of
loans to one borrower was $6.1 million.
ACTIVITIES OF ASSOCIATIONS AND THEIR SUBSIDIARIES. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide the
information each agency may, by regulation, require. Savings associations also
must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the
90
<PAGE>
FDIC or the OTS has the authority to order the savings association to divest
itself of control of the subsidiary. The FDIC also may determine by regulation
or order that any specific activity poses a serious threat to the SAIF. If so,
it may require that no SAIF member engage in that activity directly.
TRANSACTIONS WITH AFFILIATES. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to which
the insured association or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus and place an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of such capital and surplus, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans, the
purchase of assets, the issuance of a guarantee and similar types of
transactions. Any loan or extension of credit by the Bank to an affiliate must
be secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve Board, as is currently the case with respect to all
FDIC-insured banks. The Bank has not been significantly affected by the rules
regarding transactions with affiliates.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, is governed by
Sections 22(g) and 22(h) of the Federal Reserve Act, and Regulation O
thereunder. Among other things, these regulations generally require that such
loans be made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Generally, Regulation O also places individual and aggregate limits on the
amount of loans the Bank may make to such persons based, in part, on the Bank's
capital position, and requires certain board approval procedures to be followed.
The OTS regulations, with certain minor variances, apply Regulation O to savings
institutions.
COMMUNITY REINVESTMENT ACT. Under the federal CRA, all federally-insured
financial institutions have a continuing and affirmative obligation consistent
with safe and sound operations to help meet all the credit needs of its
delineated community. The CRA does not establish specific lending requirements
or programs nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to meet all the credit
needs of its delineated community. The CRA requires the federal banking
agencies, in connection with regulatory examinations, to assess an institution's
record of meeting the credit needs of its delineated community and to take such
record into account in evaluating regulatory applications to establish a new
branch office that will accept deposits, relocate an existing office, or merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution, among others. The CRA requires public
disclosure of an institution's CRA rating. The Bank received a "satisfactory"
rating as a result of its latest evaluation.
REGULATORY AND CRIMINAL ENFORCEMENT PROVISIONS. The OTS has primary
enforcement responsibility over savings institutions and has the authority to
bring action against all "institution-affiliated parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers or directors,
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount
91
<PAGE>
to $27,500 per day, or $1.1 million per day in especially egregious cases. Under
the FDIA, the FDIC has the authority to recommend to the Director of the OTS
that enforcement action be taken with respect to a particular savings
institution. If action is not taken by the Director, the FDIC has authority to
take such action under certain circumstances. Federal law also establishes
criminal penalties for certain violations.
SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
HOLDING COMPANY ACQUISITIONS. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
HOLDING COMPANY ACTIVITIES. As a unitary savings and loan holding company,
the Holding Company generally is not subject to activity restrictions under the
HOLA. If the Holding Company acquires control of another savings association as
a separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. There generally are more restrictions
on the activities of a multiple savings and loan holding company than on those
of a unitary savings and loan holding company. The HOLA provides that, among
other things, no multiple savings and loan holding company or subsidiary thereof
which is not an insured association shall commence or continue for more than two
years after becoming a multiple savings and loan association holding company or
subsidiary thereof, any business activity other than: (i) furnishing or
performing management services for a subsidiary insured institution, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary insured institution,
(iv) holding or managing properties used or occupied by a subsidiary insured
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by regulation as of March 5, 1987 to be engaged
in by multiple holding companies or (vii) those activities authorized by the
Federal Reserve Board as permissible for bank holding companies, unless the OTS
by regulation, prohibits or limits such activities for savings and loan holding
companies. Those activities described in (vii) above also must be approved by
the OTS prior to being engaged in by a multiple savings and loan holding
company.
QUALIFIED THRIFT LENDER TEST. The HOLA provides that any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations -- Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.
BANK HOLDING COMPANY REGULATION
GENERAL. Upon consummation of the Bank Conversion, the Holding Company
would become a bank holding company and would register as such with the Federal
Reserve. Bank holding companies are subject to comprehensive regulation by the
Federal Reserve under the BHCA and the regulations of the Federal Reserve. As a
bank holding company, the Holding Company will be required to file with the
Federal Reserve annual reports and such additional information as the Federal
Reserve may require and will be subject to regular examinations by the Federal
Reserve. The Federal Reserve also has extensive enforcement authority over bank
holding companies, including, among other things, the ability to asses civil
money penalties to issue cease and desist or removal orders and to require that
a holding company divest subsidiaries (including its bank subsidiaries). In
general, enforcement actions may be initiated for violations of law and
regulations and unsafe or unsound practices.
Under the BHCA, a bank holding company must obtain Federal Reserve approval
before: (1) acquiring, directly or indirectly, ownership or control of any
voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the
92
<PAGE>
majority of such shares); (2) acquiring all or substantially all of the assets
of another bank or bank holding company; or (3) merging or consolidating with
another bank holding company.
Any direct or indirect acquisition by a bank holding company or its
subsidiaries of more than 5% of the voting shares of, or substantially all of
the assets of, any bank located outside of the state in which the operations of
the bank holding company's banking subsidiaries are principally conducted, may
not be approved by the Federal Reserve unless the laws of the state in which the
bank to be acquired is located specifically authorize such an acquisition. Most
states have authorized interstate bank acquisitions by out-of-state bank holding
companies on either a regional or a national basis, and most such statutes
require the home state of the acquiring bank holding company to have enacted a
reciprocal statute. Tennessee law permits on out-of-state bank holding company
to acquire banks or bank holding companies located in Tennessee subject to the
requirements that the laws of the state in which the acquiring bank holding
company is located permit bank holding companies located in Tennessee to acquire
banks or bank holding companies in the acquiror's state and that the Tennessee
bank sought to be acquired has been in existence for at least five years.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
from engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the Federal Reserve
includes, among other things, operating a savings institutions, mortgage
company, finance company, credit card company or factoring company, performing
certain data processing operations; providing certain investment and financial
advice; underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers. The Holding Company has no present plans to
engage in any of these activities.
DIVIDENDS. The Federal Reserve has issued a policy statement on the payment
of cash dividends by bank holding companies, which expresses the Federal
Reserve's view that a bank holding company should pay cash dividends only to the
extent that the company's net income for the past year is sufficient to cover
both the cash dividends and a rate of earning retention that is consistent with
the company's capital needs, asset quality and overall financial condition. The
Federal Reserve also indicated that it would be inappropriate for a company
experiencing serious financial problems to borrow funds to pay dividends.
Furthermore, under the prompt corrective action regulations adopted by the
Federal Reserve pursuant to FDICIA, the Federal Reserve may prohibit a bank
holding company from paying any dividends if the holding company's bank
subsidiary is classified as "undercapitalized." See "-- Federal Regulation of
the Bank -- Prompt Corrective Action."
Bank holding companies are required to give the Federal Reserve prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve may disapprove such a purchase or redemption of
it determines that the proposal would constitute an unsafe or unsound practice
or would violate any law, regulation, Federal Reserve order, or any condition
imposed by, or written agreement with, the Federal Reserve.
CAPITAL REQUIREMENTS. The Federal Reserve has established capital
requirements for bank holding companies that generally parallel the capital
requirements for national banks under the Office of the Comptroller of the
Currency's regulations. The Federal Reserve regulations provide that capital
standards will generally be applied on a bank only (rather than on a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets. SEE "HISTORICAL AND PRO FORMA CAPITAL
COMPLIANCE."
93
<PAGE>
TAXATION
FEDERAL TAXATION
GENERAL. The Holding Company and the Bank will report their income on a
fiscal year basis using the accrual method of accounting and will be subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to the Bank or the Holding Company.
BAD DEBT RESERVE. Historically, savings institutions such as the Bank which
met certain definitional tests primarily related to their assets and the nature
of their business ("qualifying thrift") were permitted to establish a reserve
for bad debts and to make annual additions thereto, which may have been deducted
in arriving at their taxable income. The Bank's deductions with respect to
"qualifying real property loans," which are generally loans secured by certain
interest in real property, were computed using an amount based on the Bank's
actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted additions to the non-qualifying reserve. Due to the Bank's loss
experience, the Bank generally recognized a bad debt deduction equal to 8% of
taxable income.
In August 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such
the new rules will have no effect on the net income or federal income tax
expense. For taxable years beginning after December 31, 1995, the Bank's bad
debt deduction will be determined under the experience method using a formula
based on actual bad debt experience over a period of years or, if the Bank is a
"large" association (assets in excess of $500 million) on the basis of net
charge-offs during the taxable year. The new rules allow an institution to
suspend bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years is equal to or greater than the
institutions average mortgage lending activity for the six taxable years
preceding 1996 adjusted for inflation. For this purpose, only home purchase or
home improvement loans are included and the institution can elect to have the
tax years with the highest and lowest lending activity removed from the average
calculation. If an institution is permitted to postpone the reserve recapture,
it must begin its six year recapture no later than the 1998 tax year. The
unrecaptured base year reserves will not be subject to recapture as long as the
institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to be subject to provisions
of present law referred to below that require recapture in the case of certain
excess distributions to shareholders.
DISTRIBUTIONS. To the extent that the Bank makes "nondividend
distributions" to the Holding Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of December
31, 1987 (or a lesser amount if the Bank's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserve. The amount of additional taxable income created from an Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Bank makes a "nondividend distribution," then approximately one
and one-half times the Excess Distribution would be includable in gross income
for federal income tax purposes, assuming a 34% corporate income tax rate
(exclusive of state and local taxes). See "REGULATION" and "DIVIDEND POLICY" for
limits on the
94
<PAGE>
payment of dividends by the Bank. The Bank does not intend to pay dividends that
would result in a recapture of any portion of its tax bad debt reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad debt
reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI. In addition, only 90%
of AMTI can be offset by net operating loss carryovers. AMTI is increased by an
amount equal to 75% of the amount by which the Bank's adjusted current earnings
exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses). For taxable years beginning after December
31, 1986, and before January 1, 1996, an environmental tax of 0.12% of the
excess of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Bank, whether or not an Alternative Minimum Tax is
paid.
DIVIDENDS-RECEIVED DEDUCTION. The Holding Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Holding Company and the Bank will not file a consolidated tax
return, except that if the Holding Company or the Bank owns more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be deducted.
AUDITS. The Bank's federal income tax returns have not been audited within
the past five years.
STATE TAXATION
GENERAL. The following is a summary of certain Tennessee state tax
considerations relating to the Stock Conversion and the Bank Conversion, but
does not purport to be a complete analysis of all the potential tax
considerations relating thereto. Investors should consult their own tax advisors
with respect to the application of Tennessee state tax laws to their
particularly situations, as well as any consequences arising under the laws of
any other state, local or foreign tax jurisdiction.
TENNESSEE. Tennessee imposes franchise and excise taxes. The franchise tax
($0.25 per $100) is applied either to the Bank's apportioned net worth or the
value of property owned and used in Tennessee, whichever is greater, as of the
close of the Bank's fiscal year. The excise tax (6%) is applied to net earnings
derived from business done in Tennessee. Under Tennessee regulations, bad debt
deductions are deductible from the excise tax. There have not been any audits of
the Bank's state tax returns during the past five years.
Any cash dividends, in excess of a certain exempt amount, that are paid
with respect to the Common Stock to a shareholder (including a partnership and
certain other entities) who is a resident of the State of Tennessee will be
subject to the Tennessee income tax which is levied at a rate of six percent.
Any distribution by a corporation from earnings according to percentage
ownership is considered a dividend, and the definition of a dividend for
Tennessee income tax purposes may not be the same as the definition of a
dividend for federal income tax purposes. A corporate distribution may be
treated as a dividend for Tennessee tax purposes if it is made from funds that
exceed the corporation's earned surplus and profits under certain
circumstances.
THE CONVERSION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY THE
MEMBERS OF THE BANK ENTITLED TO VOTE THEREON AND TO THE SATISFACTION OF CERTAIN
OTHER CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL. OTS APPROVAL DOES NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION.
95
<PAGE>
GENERAL
On August 7, 1997, the Board of Directors of the Bank unanimously adopted,
and on December 11, 1997 unanimously amended, the Plan of Conversion, pursuant
to which the Bank will be converted from a federally chartered mutual savings
bank to a federally chartered stock savings bank and, in the discretion of the
Board of Directors, subsequently convert to a Tennessee-chartered commercial
bank held by the Holding Company, a newly formed Tennessee corporation. THE
FOLLOWING DISCUSSION OF THE PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PLAN OF CONVERSION, WHICH IS ATTACHED AS EXHIBIT A TO THE
BANK'S PROXY STATEMENT AND IS AVAILABLE TO MEMBERS OF THE BANK UPON REQUEST. The
Plan of Conversion is also filed as an exhibit to the Registration Statement.
See "ADDITIONAL INFORMATION." The OTS has approved the Plan of Conversion
subject to its approval by the members of the Bank entitled to vote on the
matter at a Special Meeting called for that purpose to be held on ___________
__, 1998, and subject to the satisfaction of certain other conditions imposed by
the OTS in its approval.
If the Board of Directors of the Bank decides for any reason, such as
possible delays resulting from overlapping regulatory processing or policies or
conditions that could adversely affect the Bank's or the Holding Company's
ability to consummate the Stock Conversion and transact its business as
contemplated herein and in accordance with the Bank's operating policies, at any
time prior to the issuance of the Common Stock, not to use the holding company
form of organization in implementing the Stock Conversion, the Plan of
Conversion will be amended to not use the holding company form of organization
in the Stock Conversion. In the event that such a decision is made, the Bank
will promptly refund all subscriptions or orders received together with accrued
interest, will withdraw the Holding Company's registration statement from the
SEC and will take all steps necessary to complete the Stock Conversion and
proceed with a new offering without the Holding Company, including filing any
necessary documents with the OTS. In such event, and provided there is no
regulatory action, directive or other consideration upon which basis the Bank
determines not to complete the Conversion, the Bank will issue and sell the
common stock of the Bank. There can be no assurance that the OTS would approve
the Stock Conversion if the Bank decided to proceed without the Holding Company.
The following description of the Plan of Conversion assumes that a holding
company form of organization will be utilized in the Stock Conversion. In the
event that a holding company form of organization is not utilized, all other
pertinent terms of the Plan of Conversion as described below will apply to the
conversion of the Bank from mutual to stock form of organization and the sale of
the Bank's common stock.
96
<PAGE>
The Stock Conversion will be accomplished through adoption of a Federal
Stock Charter and Bylaws to authorize the issuance of capital stock by the Bank,
the issuance of all the Bank's capital stock to be outstanding upon consummation
of the Stock Conversion to the Holding Company, the offer and sale of the Common
Stock of the Holding Company and, if undertaken, the Bank Conversion. Upon
issuance of the Bank's shares of capital stock to the Holding Company, the Bank
will be a wholly owned subsidiary of the Holding Company. If undertaken, the
Bank Conversion, whereby the Bank would convert to a Tennessee-chartered
commercial bank, would be undertaken after the Stock Conversion. Pursuant to the
Plan of Conversion, 4,845,000 to 6,555,000 shares of Common Stock are being
offered for sale by the Holding Company at the Purchase Price of $10.00 per
share. As part of the Stock Conversion, the Bank will issue all of its newly
issued common stock (1,000 shares) to the Holding Company in exchange for 50% of
the net proceeds from the sale of Common Stock by the Holding Company.
The Plan of Conversion provides generally that: (i) the Bank will convert
from a federally chartered mutual savings bank to a federally chartered stock
savings bank; (ii) the Common Stock will be offered by the Holding Company in
the Subscription Offering to persons having Subscription Rights; (iii) if
necessary, shares of Common Stock not subscribed for in the Subscription
Offering will be offered in a Direct Community Offering to certain members of
the general public, with preference given to natural persons and trusts of
natural persons residing in the Local Community, and then to certain members of
the general public in a Syndicated Community Offering through a syndicate of
registered broker-dealers pursuant to selected dealers agreements; (iv) the
Holding Company will purchase all of the capital stock of the Bank to be issued
in connection with the Conversion; and (v) subject to the discretion of the
Board of Directors, the Bank would convert to a Tennessee-chartered commercial
bank. The Stock Conversion will be effected only upon completion of the sale of
at least $48,450,000 of Common Stock to be issued pursuant to the Plan of
Conversion.
As part of the Stock Conversion, the Holding Company is making a
Subscription Offering of its Common Stock to holders of Subscription Rights in
the following order of priority: (i) Eligible Account Holders (depositors with
$50.00 or more on deposit as of June 30, 1996); (ii) the Bank's ESOP; (iii)
Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit
as of December 31, 1997); and (iv) Other Members (depositors of the Bank as of
____________ __, 1997 and borrowers of the Bank with loans outstanding as of
January 24, 1991, which continue to be outstanding as of ___________ __, 1997).
Shares of Common Stock not subscribed for in the Subscription Offering may
be offered for sale in the Direct Community Offering to members of the general
public, with priority being given to natural persons and trusts of natural
persons residing in the Local Community. The Direct Community Offering, if one
is held, is expected to begin immediately after the Expiration Date, but may
begin at any time during the Subscription Offering. Shares of Common Stock not
sold in the Subscription and Direct Community Offerings may be offered in the
Syndicated Community Offering. Regulations require that the Direct Community and
Syndicated Community Offerings be completed within 45 days after completion of
the fully extended Subscription Offering unless extended by the Bank or the
Holding Company with the approval of the regulatory authorities. If the
Syndicated Community Offering is determined not to be feasible, the Board of
Directors of the Bank will consult with the regulatory authorities to determine
an appropriate alternative method for selling the unsubscribed shares of Common
Stock. The Plan of Conversion provides that the Stock Conversion must be
completed within 24 months after the date of the approval of the Plan of
Conversion by the members of the Bank.
No sales of Common Stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offerings unless the
Plan of Conversion is approved by the members of the Bank.
The completion of the Offerings, however, is subject to market conditions
and other factors beyond the Bank's control. No assurance can be given as to the
length of time after approval of the Plan of Conversion at the Special Meeting
that will be required to complete the Direct Community or Syndicated Community
Offerings or other sale of the Common Stock. If delays are experienced,
significant changes may occur in the estimated pro forma market value of the
Holding Company and the Bank as converted, together with corresponding changes
in the net proceeds realized by the Holding Company from the sale of the Common
Stock. In the event the Stock
97
<PAGE>
Conversion is terminated, the Bank would be required to charge all Stock
Conversion expenses against current income.
Orders for shares of Common Stock will not be filled until at least
4,845,000 shares of Common Stock have been subscribed for or sold and the OTS
approves the final valuation and the Stock Conversion closes. If the Stock
Conversion is not completed within 45 days after the last day of the fully
extended Subscription Offering and the OTS consents to an extension of time to
complete the Stock Conversion, subscribers will be given the right to increase,
decrease or rescind their subscriptions. Unless an affirmative indication is
received from subscribers that they wish to continue to subscribe for shares,
the funds will be returned promptly, together with accrued interest at the
Bank's passbook rate from the date payment is received until the funds are
returned to the subscriber. If such period is not extended, or, in any event, if
the Stock Conversion is not completed, all withdrawal authorizations will be
terminated and all funds held will be promptly returned together with accrued
interest at the Bank's passbook rate from the date payment is received until the
Stock Conversion is terminated.
PURPOSES OF CONVERSION
The Board of Directors and management believe that the Conversion is in the
best interests of the Bank, its members and the communities it serves. The
Bank's Board of Directors has formed the Holding Company to serve as a holding
company, with the Bank as its subsidiary, upon the consummation of the
Conversion. By converting to the stock form of organization, the Holding Company
and the Bank will be structured in the form used by holding companies of
commercial banks and by a growing number of savings institutions. Management of
the Bank believes that the Conversion offers a number of advantages which will
be important to the future growth and performance of the Bank. The capital
raised in the Conversion is intended to support the Bank's current lending and
investment activities and may also support possible future expansion and
diversification of operations, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any such expansion or
diversification. The Conversion is also expected to afford the Bank's members
and others the opportunity to become stockholders of the Holding Company and
participate more directly in, and contribute to, any future growth of the
Holding Company and the Bank. The Conversion will also enable the Holding
Company and the Bank to raise additional capital in the public equity or debt
markets should the need arise, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any such financing
activities. The Bank, as a mutual savings bank, does not have the authority to
issue capital stock or debt instruments, other than by accepting deposits.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE BANK
VOTING RIGHTS. Savings members and borrowers will have no voting rights in
the converted Bank or the Holding Company and therefore will not be able to
elect directors of the Bank or the Holding Company or to control their affairs.
Currently, these rights are accorded to savings members of the Bank. Subsequent
to the Stock Conversion, voting rights will be vested exclusively in the Holding
Company with respect to the Bank and the holders of the Common Stock as to
matters pertaining to the Holding Company. Each holder of Common Stock shall be
entitled to vote on any matter to be considered by the stockholders of the
Holding Company. A stockholder will be entitled to one vote for each share of
Common Stock owned.
After the Bank Conversion, if undertaken, holders of savings accounts in
and obligors on loans of the Bank will not have voting rights in the Bank.
Exclusive voting rights with respect to the Holding Company shall be vested in
the holders of the Common Stock, account holders and borrowers of the 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 Bank's capital stock.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, account balances
and existing FDIC insurance coverage of savings accounts will not be affected by
the Conversion. Furthermore, the Conversion will not affect
98
<PAGE>
the loan accounts, loan balances or obligations of borrowers under their
individual contractual arrangements with the Bank.
TAX EFFECTS. The Bank has received an opinion from Breyer & Aguggia,
Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Bank in its
mutual or stock form by reason of the Stock Conversion; (ii) no gain or loss
will be recognized to its account holders upon the issuance to them of accounts
in the Bank immediately after the Stock Conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at the Bank in its mutual
form plus interest in the liquidation account; (iii) the tax basis of account
holders' accounts in the Bank immediately after the Stock Conversion will be the
same as the tax basis of their accounts immediately prior to Stock Conversion;
(iv) the tax basis of each account holder's interest in the liquidation account
will be zero; (v) the tax basis of the Common Stock purchased in the Stock
Conversion will be the amount paid and the holding period for such stock will
commence at the date of purchase; (vi) no gain or loss will be recognized to
account holders upon the receipt or exercise of Subscription Rights in the
Conversion, except to the extent Subscription Rights are deemed to have value as
discussed below; and (vii) if the Bank Conversion is undertaken, the Bank (as a
Tennessee-chartered commercial bank), will be required to restate its tax
reserve for bad debt to a level generally based on its bad debt experience and
the excess of the restated amount is required to be included in its taxable
income ratably over a six year period. Unlike a private letter ruling issued by
the IRS, an opinion of counsel is not binding on the IRS and the IRS could
disagree with the conclusions reached therein. In the event of such
disagreement, no assurance can be given that the conclusions reached in an
opinion of counsel would be sustained by a court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the Subscription Rights are deemed to have a
fair market value. Ferguson, a financial consulting firm retained by the Bank,
whose findings are not binding on the IRS, has issued a letter indicating that
the Subscription Rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration and afford the recipients the right only to purchase shares of
the Common Stock at a price equal to its estimated fair market value, which will
be the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of Common Stock. If the Subscription Rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their Subscription Rights. The Bank could also recognize a
gain on the distribution of such Subscription Rights. 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 the
Subscription Rights are deemed to have a fair market value.
The Bank has also received an opinion from Bass, Berry & Sims PLC,
Nashville, Tennessee, that, assuming the Conversion does not result in any
federal income tax liability to the Bank, its account holders, or the Holding
Company, implementation of the Plan of Conversion will not result in any
Tennessee income tax liability to such entities or persons.
The opinions of Breyer & Aguggia and Bass, Berry & Sims PLC and the letter
from Ferguson are filed as exhibits to the Registration Statement. See
"ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, each depositor in the Bank would receive a
pro rata share of any assets of the Bank remaining after payment of claims of
all creditors (including the claims of all depositors up 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 account to the total
value of all deposit accounts in the Bank at the time of liquidation.
99
<PAGE>
After the Stock Conversion, holders of withdrawable deposit(s) in the Bank,
including certificates of deposit ("Savings Account(s)"), shall not be entitled
to share in any residual assets in the event of liquidation of the Bank.
However, pursuant to OTS regulations, the Bank shall, at the time of the Stock
Conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
herein.
The liquidation account shall be maintained by the 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 Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder shall, with
respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Bank subsequent to June 30, 1996 or December 31, 1997 is less
than the lesser of (i) the deposit balance in such Savings Account at the close
of business on any other annual closing date subsequent to June 30, 1996 or
December 31, 1997 or (ii) the amount of the "qualifying deposit" in such Savings
Account on June 30, 1996 or December 31, 1997, 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, such 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.
In the event of a complete liquidation of the 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 balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another federally insured institution in which the Bank is not the
surviving institution shall be considered to be a complete liquidation. In any
such transaction the liquidation account shall be assumed by the surviving
institution.
If undertaken, the Bank Conversion shall not be deemed to be a complete
liquidation of the Bank for purposes of the distribution of the liquidation
account. The liquidation account, and all rights and obligations of the Bank in
connection therewith, would be assumed by the Bank as a Tennessee-chartered
commercial bank.
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
SUBSCRIPTION OFFERING. In accordance with the Plan of Conversion,
nontransferable Subscription Rights to purchase the Common Stock have been
issued to persons and entities entitled to purchase the Common Stock in the
Subscription Offering. The amount of the Common Stock which these parties may
purchase will be subject to the availability of the Common Stock for purchase
under the categories set forth in the Plan of Conversion. Subscription
priorities have been established for the allocation of stock to the extent that
the Common Stock is available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more
on deposit at the Bank as of June 30, 1996 will receive nontransferable
Subscription Rights to subscribe for up to the greater of $655,500 of Common
Stock, one-tenth of one percent of the total offering of Common Stock or 15
times the product (rounded
100
<PAGE>
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the numerator is the
amount of qualifying deposit of the Eligible Account Holder and the denominator
is the total amount of qualifying deposits of all Eligible Account Holders. If
the exercise of Subscription Rights in this category results in an
oversubscription, shares of Common Stock will be allocated among subscribing
Eligible Account Holders so as to permit each Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make such person's
total allocation equal 100 shares or the number of shares actually subscribed
for, whichever is less. Thereafter, unallocated shares will be allocated among
subscribing Eligible Account Holders proportionately, based on the amount of
their respective qualifying deposits as compared to total qualifying deposits of
all Eligible Account Holders. Subscription Rights received by officers and
directors in this category based on their increased deposits in the Bank in the
one year period preceding June 30, 1996 are subordinated to the Subscription
Rights of other Eligible Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable Subscription Rights to purchase up to 10% of the shares
of Common Stock issued in the Stock Conversion. The ESOP intends to purchase 8%
of the shares of Common Stock issued in the Stock Conversion. In the event the
number of shares offered in the Stock Conversion is increased above the maximum
of the Estimated Valuation Range, the ESOP shall have a priority right to
purchase any such shares exceeding the maximum of the Estimated Valuation Range
up to an aggregate of 8% of the Common Stock. However, the ESOP may purchase
all or part of its shares in the open market after the consummation of the
Conversion.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of December 31, 1997 will receive nontransferable
Subscription Rights to subscribe for up to the greater of $655,500 of Common
Stock, one-tenth of one percent of the total offering of Common Stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of Subscription Rights in this category results in an oversubscription,
shares of Common Stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his total
allocation equal 100 shares or the number of shares actually subscribed for,
whichever is less. Thereafter, unallocated shares will be allocated among
subscribing Supplemental Eligible Account Holders proportionately, based on the
amount of their respective qualifying deposits as compared to total qualifying
deposits of all Supplemental Eligible Account Holders.
Category 4: Other Members. Each depositor of the Bank as of the Voting
Record Date (_________ __, 1997) and each borrower with a loan outstanding on
January 24, 1991, which continues to be outstanding as of the Voting Record Date
will receive nontransferable Subscription Rights to purchase up to $655,500 of
Common Stock in the Stock Conversion to the extent shares are available
following subscriptions by Eligible Account Holders, the Bank's ESOP and
Supplemental Eligible Account Holders. In the event of an oversubscription in
this category, the available shares will be allocated proportionately based on
the amount of the respective subscriptions.
SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE
TRANSFERRING THEIR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION
OFFERING OR SUBSCRIBING FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON WILL BE
SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OTS OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. EACH
PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT HE OR SHE
IS PURCHASING SUCH SHARES SOLELY FOR HIS OR HER OWN ACCOUNT AND THAT HE OR SHE
HAS NO AGREEMENT OR UNDERSTANDING WITH ANY OTHER PERSON FOR THE SALE OR TRANSFER
OF SUCH SHARES. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT
THE CONSENT OF THE BANK AND THE HOLDING COMPANY.
101
<PAGE>
The Holding Company and the Bank will make reasonable attempts to provide a
Prospectus and related offering materials to holders of Subscription Rights.
However, the Subscription Offering and all Subscription Rights under the Plan of
Conversion will expire at 12:00 Noon, Central Time, on the Expiration Date,
whether or not the Bank has been able to locate each person entitled to such
Subscription Rights. ORDERS FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING
RECEIVED IN HAND BY THE BANK AFTER THE EXPIRATION DATE WILL NOT BE ACCEPTED.
The Subscription Offering may be extended by the Holding Company and the Bank up
to __________ __, 1998 without the OTS's approval. OTS regulations require that
the Holding Company complete the sale of Common Stock within 45 days after the
close of the Subscription Offering. If the Direct Community Offering and the
Syndicated Community Offerings are not completed by ___________ __, 1998 (or
___________ __, 1998, if the Subscription Offering is fully extended), all funds
received will be promptly returned with interest at the Bank's passbook rate and
all withdrawal authorizations will be canceled or, if regulatory approval of an
extension of the time period has been granted, all subscribers and purchasers
will be given the right to increase, decrease or rescind their orders. If an
extension of time is obtained, all subscribers will be notified of such
extension and of the duration of any extension that has been granted, and will
be given the right to increase, decrease or rescind their orders. If an
affirmative response to any resolicitation is not received by the Holding
Company from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest (or withdrawal
authorizations will be canceled). No single extension can exceed 90 days.
DIRECT COMMUNITY OFFERING. Any shares of Common Stock which remain
unsubscribed for in the Subscription Offering will be offered by the Holding
Company to certain members of the general public in a Direct Community Offering,
with preference given to natural persons and trusts of natural persons residing
in the Local Community (Rutherford and Bedford Counties of Tennessee).
Purchasers in the Direct Community Offering are eligible to purchase up to
$655,500 of Common Stock in the Stock Conversion. In the event an insufficient
number of shares are available to fill orders in the Direct Community Offering,
the available shares will be allocated on a pro rata basis determined by the
amount of the respective orders. The Direct Community Offering, if held, is
expected to commence immediately subsequent to the Expiration Date, but may
begin at anytime during the Subscription Offering. The Direct Community Offering
may terminate on or at any time subsequent to the Expiration Date, but no later
than 45 days after the close of the Subscription Offering, unless extended by
the Holding Company and the Bank, with approval of the OTS. Any extensions
beyond 45 days after the close of the fully extended Subscription Offering would
require a resolicitation of orders, wherein subscribers for the maximum numbers
of shares of Common Stock would be, and certain other large Subscribers in the
discretion of the Holding Company and the Bank may be, given the opportunity to
continue their orders, in which case they will need to reconfirm affirmatively
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded with interest at the Bank's
passbook rate, or be permitted to modify or cancel their orders. THE RIGHT OF
ANY PERSON TO PURCHASE SHARES IN THE DIRECT COMMUNITY OFFERING IS SUBJECT TO THE
ABSOLUTE RIGHT OF THE HOLDING COMPANY AND THE BANK TO ACCEPT OR REJECT SUCH
PURCHASES IN WHOLE OR IN PART. IF AN ORDER IS REJECTED IN PART, THE PURCHASER
DOES NOT HAVE THE RIGHT TO CANCEL THE REMAINDER OF THE ORDER. THE HOLDING
COMPANY PRESENTLY INTENDS TO TERMINATE THE DIRECT COMMUNITY OFFERING AS SOON AS
IT HAS RECEIVED ORDERS FOR ALL SHARES AVAILABLE FOR PURCHASE IN THE STOCK
CONVERSION.
If all of the Common Stock offered in the Subscription Offering is
subscribed for, no Common Stock will be available for purchase in the Direct
Community Offering.
SYNDICATED COMMUNITY OFFERING. The Plan of Conversion provides that, if
necessary, all shares of Common Stock not purchased in the Subscription Offering
and Direct 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 registered broker-dealers to be managed by Trident Securities
acting as agent of the Holding Company. THE HOLDING COMPANY AND THE BANK HAVE
THE RIGHT TO REJECT ORDERS, IN WHOLE OR PART, IN THEIR SOLE DISCRETION IN THE
SYNDICATED COMMUNITY OFFERING. Neither Trident Securities nor any registered
broker-dealer shall have any obligation to take or purchase any shares of the
Common Stock in the Syndicated Community Offering; however, Trident Securities
has agreed to use its best efforts in the sale of shares in the Syndicated
Community Offering.
102
<PAGE>
Stock sold in the Syndicated Community Offering also will be sold at the
$10.00 Purchase Price. See "--Stock Pricing and Number of Shares to be Issued."
No person will be permitted to subscribe in the Syndicated Community Offering
for shares of Common Stock with an aggregate purchase price of more than
$655,500. See "-- Plan of Distribution for the Subscription, Direct Community
and Syndicated Community Offerings" for a description of the commission to be
paid to the selected dealers and to Trident Securities.
Trident Securities may enter into agreements with selected dealers to
assist in the sale of shares in the Syndicated Community Offering. During the
Syndicated Community Offering, selected dealers may only solicit indications of
interest from their customers to place orders with the Holding Company as of a
certain date ("Order Date") for the purchase of shares of Conversion Stock.
When and if Trident Securities and the Holding Company believe that enough
indications of interest and orders have been received in the Subscription
Offering, the Direct Community Offering and the Syndicated Community Offering to
consummate the Stock Conversion, Trident Securities will request, as of the
Order Date, selected dealers to submit orders to purchase shares for which they
have received indications of interest from their customers. Selected dealers
will send confirmations to such customers on the next business day after the
Order Date. Selected dealers may debit the accounts of their customers on a
date which will be three business days from the Order Date ("Settlement Date").
Customers who authorize selected dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but not before the
Settlement Date. On the Settlement Date, selected dealers will remit funds to
the account that the Holding Company established for each selected dealer. Each
customer's funds so forwarded to the Holding Company, along with all other
accounts held in the same title, will be insured by the FDIC up to the
applicable $100,000 legal limit. After payment has been received by the Holding
Company from selected dealers, funds will earn interest at the Bank's passbook
rate until the completion of the Offerings. At the completion of the Stock
Conversion, the funds received in the Offerings will be used to purchase the
shares of Common Stock ordered. The shares issued in the Stock Conversion
cannot and will not be insured by the FDIC or any other government agency. In
the event the Stock Conversion is not consummated as described above, funds with
interest will be returned promptly to the selected dealers, who, in turn, will
promptly credit their customers' brokerage accounts.
The Syndicated Community Offering may terminate on or at any time
subsequent to the Expiration Date, but no later than 45 days after the close of
the Subscription Offering, unless extended by the Holding Company and the Bank,
with approval of the OTS.
In the event the Bank is unable to find purchasers from the general public
for all unsubscribed shares, other purchase arrangements will be made by the
Board of Directors of the Bank, if feasible. Such other arrangements will be
subject to the approval of the OTS. The OTS may grant one or more extensions of
the offering period, provided that (i) no single extension exceeds 90 days, (ii)
subscribers are given the right to increase, decrease or rescind their
subscriptions during the extension period, and (iii) the extensions do not go
more than two years beyond the date on which the members approved the Plan of
Conversion. If the Stock Conversion is not completed within 45 days after the
close of the Subscription Offering, either all funds received will be returned
with interest (and withdrawal authorizations canceled) or, if the OTS has
granted an extension of time, all subscribers will be given the right to
increase, decrease or rescind their subscriptions at any time prior to 20 days
before the end of the extension period. If an extension of time is obtained,
all subscribers will be notified of such extension and of their rights to modify
their orders. If an affirmative response to any resolicitation is not received
by the Holding Company from a subscriber, the subscriber's order will be
rescinded and all funds received will be promptly returned with interest (or
withdrawal authorizations will be canceled).
PERSONS IN NON-QUALIFIED STATES. The Holding Company and the Bank will
make reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock pursuant to the
Plan of Conversion reside. However, the Holding Company and the Bank are not
required to offer stock in the Subscription Offering to any person who resides
in a foreign country or resides in a state of the United States with respect to
which (i) a small number of persons otherwise eligible to subscribe for shares
of Common Stock reside in such state or (ii) the Holding Company or the Bank
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including but not limited to a
request or
103
<PAGE>
requirement that the Holding Company and the Bank or their officers, directors
or trustees register as a broker, dealer, salesman or selling agent, under the
securities laws of such state, or a request or requirement to register or
otherwise qualify the Subscription Rights or Common Stock for sale or submit any
filing with respect thereto in such state. Where the number of persons eligible
to subscribe for shares in one state is small, the Holding Company and the Bank
will base their decision as to whether or not to offer the Common Stock in such
state on a number of factors, including the size of accounts held by account
holders in the state, the cost of reviewing the registration and qualification
requirements of the state (and of actually registering or qualifying the shares)
or the need to register the Holding Company, its officers, directors or
employees as brokers, dealers or salesmen.
PLAN OF DISTRIBUTION FOR THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED
COMMUNITY OFFERINGS
The Bank and the Holding Company have retained Trident Securities to
consult with and advise the Bank and to assist the Bank and the Holding Company,
on a best efforts basis, in the distribution of shares in the Offerings.
Trident Securities is a broker-dealer registered with the SEC and a member of
the NASD. Trident Securities will assist the Bank in the Stock Conversion as
follows: (i) it will act as marketing advisor with respect to the Subscription
Offering and will represent the Bank as placement agent on a best efforts basis
in the sale of the Common Stock in the Direct Community Offering if one is held;
(ii) it will conduct training sessions with directors, officers and employees of
the Bank regarding the Stock Conversion process; and (iii) it will assist in the
establishment and supervision of the Stock Information Center and, with
management's input, will train the Bank's staff to record properly and tabulate
orders for the purchase of Common Stock and to respond appropriately to customer
inquiries.
Based upon negotiations between Trident Securities on the one hand and the
Holding Company and the Bank on the other hand concerning fee structure, Trident
Securities will receive a commission equal to 1.5% of the aggregate amount of
Common Stock sold in the Subscription and Community Offerings to persons other
than the Bank's directors, executive officers and, in each case, their
associates and to the ESOP. Trident Securities and selected dealers
participating in the Syndicated Community Offering may receive a commission in
the Syndicated Community Offering in an amount to be agreed upon by the Holding
Company and the Bank. Fees and commissions paid to Trident Securities and to
any selected dealers may be deemed to be underwriting fees, and Trident
Securities and such selected dealers may be deemed to be underwriters. Trident
Securities will also be reimbursed for its reasonable out-of-pocket expenses not
to exceed $10,000 and its legal fees not to exceed $30,000. Trident Securities
has received an advance of $10,000 towards its reimbursable expenses. For
additional information, see "-- Stock Pricing and Number of Shares to be Issued"
and "USE OF PROCEEDS."
Subject to certain limitations, the Holding Company and the Bank have also
agreed to indemnify Trident Securities against liabilities and expenses
(including legal fees) incurred in connection with certain claims or litigation
arising out of or based upon untrue statements or omissions contained in the
offering material for the Common Stock or with regard to allocations of shares
(in the event of oversubscription) or determinations of eligibility to purchase
shares.
DESCRIPTION OF SALES ACTIVITIES
The Common Stock will be offered in the Subscription Offering and Direct
Community Offering principally by the distribution of this Prospectus and
through activities conducted at the Bank's Stock Information Center at its main
office facility. The Stock Information Center is expected to operate during
normal business hours throughout the Subscription Offering and Direct Community
Offering. It is expected that at any particular time one or more Trident
Securities employees will be working at the Stock Information Center. Such
employees of Trident Securities will be responsible for mailing materials
relating to the Offerings, responding to questions regarding the Conversion and
the Offerings and processing stock orders.
Sales of Common Stock will be made by registered representatives affiliated
with Trident Securities or by the selected dealers managed by Trident
Securities. The management and employees of the Bank may participate
104
<PAGE>
in the Offerings in clerical capacities, providing administrative support in
effecting sales transactions or, when permitted by state securities laws,
answering questions of a mechanical nature relating to the proper execution of
the Order Form. Management of the Bank may answer questions regarding the
business of the Bank when permitted by state securities laws. Other questions
of prospective purchasers, including questions as to the advisability or nature
of the investment, will be directed to registered representatives. The
management and employees of the Holding Company and the Bank have been
instructed not to solicit offers to purchase Common Stock or provide advice
regarding the purchase of Common Stock.
No officer, director or employee of the Bank or the Holding Company will be
compensated, directly or indirectly, for any activities in connection with the
offer or sale of securities issued in the Stock Conversion.
None of the Bank's personnel participating in the Offerings is registered
or licensed as a broker or dealer or an agent of a broker or dealer. The Bank's
personnel will assist in the above-described sales activities pursuant to an
exemption from registration as a broker or dealer provided by Rule 3a4-1 ("Rule
3a4-1") promulgated under the Exchange Act. Rule 3a4-1 generally provides that
an "associated person of an issuer" of securities shall not be deemed a broker
solely by reason of participation in the sale of securities of such issuer if
the associated person meets certain conditions. Such conditions include, but
are not limited to, that the associated person participating in the sale of an
issuer's securities not be compensated in connection therewith at the time of
participation, that such person not be associated with a broker or dealer and
that such person observe certain limitations on his participation in the sale of
securities. For purposes of this exemption, "associated person of an issuer" is
defined to include any person who is a director, officer or employee of the
issuer or a company that controls, is controlled by or is under common control
with the issuer.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND DIRECT COMMUNITY
OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under 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. The Bank will accept for
processing only orders submitted on original Order Forms. The Bank is not
obligated to accept orders submitted on photocopied or telecopied Order Forms.
ORDERS CANNOT AND WILL NOT BE ACCEPTED WITHOUT THE EXECUTION OF THE
CERTIFICATION APPEARING ON THE REVERSE SIDE OF THE ORDER FORM.
To purchase shares in the Subscription Offering, an executed Order Form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Bank (which may be given by completing the appropriate
blanks in the Order Form), must be received by the Bank by 12:00 Noon, Central
Time, on the Expiration Date. Order Forms which are not received by such time
or are executed defectively or are received without full payment (or without
appropriate withdrawal instructions) are not required to be accepted. The
Holding Company and the Bank have the right to waive or permit the correction of
incomplete or improperly executed Order Forms, but do not represent that they
will do so. Pursuant to the Plan of Conversion, the interpretation by the
Holding Company and the Bank of the terms and conditions of the Plan of
Conversion and of the Order Form will be final. In order to purchase shares in
the Direct Community Offering, the Order Form, accompanied by the required
payment for each share subscribed for, must be received by the Bank prior to the
time the Direct Community Offering terminates, which may be on or at any time
subsequent to the Expiration Date. Once received, an executed Order Form may
not be modified, amended or rescinded without the consent of the Bank unless the
Stock Conversion has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (June 30,
1996) and/or the Supplemental Eligibility Record Date (December 31, 1997) and/or
the Voting Record Date
105
<PAGE>
(_________ __, 1998) must list all accounts on the Order Form giving all names
in each account, the account number and the approximate account balance as of
such date.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Stock Information Center, (ii) by check, bank draft, or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Bank. Appropriate means by which such withdrawals may be authorized
are provided on the Order Form. No wire transfers will be accepted. Interest
will be paid on payments made by cash, check, bank draft or money order at the
Bank's passbook rate from the date payment is received until the completion or
termination of the Stock Conversion. If payment is made by authorization of
withdrawal from deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the contractual rates until
completion or termination of the Stock Conversion (unless the certificate
matures after the date of receipt of the Order Form but prior to closing, in
which case funds will earn interest at the passbook rate from the date of
maturity until consummation of the Stock Conversion), but a hold will be placed
on such funds, thereby making them unavailable to the depositor until completion
or termination of the Stock Conversion. At the completion of the Stock
Conversion, the funds received in the Offerings will be used to purchase the
shares of Common Stock ordered. THE SHARES OF COMMON STOCK ISSUED IN THE STOCK
CONVERSION CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY. In the event that the Stock Conversion is not consummated for any
reason, all funds submitted will be promptly refunded with interest as described
above.
If a subscriber authorizes the Bank to withdraw the amount of the aggregate
Purchase Price from his deposit account, the Bank will do so as of the effective
date of the Stock Conversion, though the account must contain the full amount
necessary for payment at the time the subscription order is received. The Bank
will waive any applicable penalties for early withdrawal from certificate
accounts. If the remaining balance in a certificate account is reduced below
the applicable minimum balance requirement at the time that the funds actually
are transferred under the authorization the certificate will be canceled at the
time of the withdrawal, without penalty, and the remaining balance will earn
interest at the Bank's passbook rate.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather may pay for such shares of Common Stock
subscribed for at the Purchase Price upon consummation of the Stock Conversion,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or the Holding
Company to lend to the ESOP, at such time, the aggregate Purchase Price of the
shares for which it subscribed.
IRAs maintained in the Bank do not permit investment in the Common Stock. A
depositor interested in using his IRA funds to purchase Common Stock must do so
through a self-directed IRA. Since the Bank does not offer such accounts, it
will allow such a depositor to make a trustee-to-trustee transfer of the IRA
funds to a trustee offering a self-directed IRA program with the agreement that
such funds will be used to purchase the Holding Company's Common Stock in the
Offerings. There will be no early withdrawal or IRS interest penalties for such
transfers. The new trustee would hold the Common Stock in a self-directed
account in the same manner as the Bank now holds the depositor's IRA funds. An
annual administrative fee may be payable to the new trustee. Depositors
interested in using funds in a Bank IRA to purchase Common Stock should contact
the Stock Information Center so that the necessary forms may be forwarded for
execution and returned prior to the Expiration Date. In addition, the provisions
of ERISA and IRS regulations require that officers, directors and 10%
shareholders who use self-directed IRA funds to purchase shares of Common Stock
in the Subscription Offering, make such purchases for the exclusive benefit of
IRAs.
Certificates representing shares of Common Stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed Order Forms or to the last address of such persons appearing
on the records of the Bank as soon as practicable following consummation of the
sale of all shares of Common Stock. Any certificates returned as undeliverable
will be disposed of in accordance with applicable law. PURCHASERS MAY NOT BE
ABLE TO SELL THE SHARES OF COMMON STOCK WHICH THEY PURCHASED UNTIL CERTIFICATES
FOR
106
<PAGE>
THE COMMON STOCK ARE AVAILABLE AND DELIVERED TO THEM, EVEN THOUGH TRADING OF THE
COMMON STOCK MAY HAVE COMMENCED.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the Stock Conversion be based upon an
estimated pro forma value of the Holding Company and the Bank as converted
(i.e., taking into account the expected receipt of proceeds from the sale of
----
securities in the Stock Conversion), as determined by an independent appraisal.
The Bank and the Holding Company have retained Ferguson to prepare an appraisal
of the pro forma market value of the Holding Company and the Bank as converted,
as well as a business plan. Ferguson will receive a fee expected to total
approximately $25,000 for its appraisal services and assistance in the
preparation of a business plan, plus reasonable out-of-pocket expenses incurred
in connection with the appraisal. The Bank has agreed to indemnify Ferguson
under certain circumstances against liabilities and expenses (including legal
fees) arising out of, related to, or based upon the Conversion.
Ferguson has prepared an appraisal of the estimated pro forma market value
of the Holding Company and the Bank as converted taking into account the
formation of the Holding Company as the holding company for the Bank. For its
analysis, Ferguson undertook substantial investigations to learn about the
Bank's business and operations. Management supplied financial information,
including annual financial statements, information on the composition of assets
and liabilities, and other financial schedules. In addition to this
information, Ferguson reviewed the Bank's Form AC Application for Approval of
Conversion and the Holding Company's Form S-1 Registration Statement.
Furthermore, Ferguson visited the Bank's facilities and had discussions with the
Bank's management and its special conversion legal counsel, Breyer & Aguggia.
No detailed individual analysis of the separate components of the Holding
Company's or the Bank's assets and liabilities was performed in connection with
the evaluation.
In estimating the pro forma market value of the Holding Company and the
Bank as converted, as required by applicable regulatory guidelines, Ferguson's
analysis utilized three selected valuation procedures, the Price/Book ("P/B")
method, the Price/Earnings ("P/E") method, and Price/Assets ("P/A") method, all
of which are described in its report. Ferguson placed the greatest emphasis on
the P/E and P/B methods in estimating pro forma market value. In applying these
procedures, Ferguson reviewed, among other factors, the economic make-up of the
Bank's primary market area, the Bank's financial performance and condition in
relation to publicly-traded institutions that Ferguson deemed comparable to the
Bank, the specific terms of the offering of the Holding Company's Common Stock,
the pro forma impact of the additional capital raised in the Stock Conversion,
conditions of securities markets in general, and the market for thrift
institution common stock in particular. Ferguson's analysis provides an
approximation of the pro forma market value of the Holding Company and the Bank
as converted based on the valuation methods applied and the assumptions outlined
in its report. Included in its report were certain assumptions as to the pro
forma earnings of the Holding Company after the Stock Conversion that were
utilized in determining the appraised value. These assumptions included
expenses of $1,120,000 at the midpoint of the Estimated Valuation Range, an
assumed after-tax rate of return on the net Stock Conversion proceeds of 3.41%,
purchases by the ESOP of 8% of the Common Stock sold in the Stock Conversion and
purchases in the open market by the MRP of a number of shares equal to 4% of the
Common Stock sold in the Stock Conversion at the Purchase Price. See "PRO FORMA
DATA" for additional information concerning these assumptions. The use of
different assumptions may yield different results.
On the basis of the foregoing, Ferguson has advised the Holding Company and
the Bank that, in its opinion, as of November 7, 1997, the aggregate estimated
pro forma market value of the Holding Company and the Bank as converted and,
therefore, the Common Stock was within the valuation range of $48,450,000 to
$65,550,000 with a midpoint of $57,000,000. After reviewing the methodology and
the assumptions used by Ferguson in the preparation of the appraisal, the Board
of Directors established the Estimated Valuation Range which is equal to the
valuation range of $48,450,000 to $65,550,000 with a midpoint of $57,000,000.
Assuming that the shares are sold at $10.00 per share in the Stock Conversion,
the estimated number of shares would be between 4,845,000 and 6,555,000 with
107
<PAGE>
a midpoint of 5,700,000. The Purchase Price of $10.00 was determined by
discussion among the Boards of Directors of the Bank and the Holding Company and
Trident Securities, taking into account, among other factors (i) the requirement
under OTS regulations that the Common Stock be offered in a manner that will
achieve the widest distribution of the stock, (ii) desired liquidity in the
Common Stock subsequent to the Conversion, and (iii) the expense of issuing
shares for purposes of Tennessee franchise taxes. Since the outcome of the
Offerings relate in large measure to market conditions at the time of sale, it
is not possible to determine the exact number of shares that will be issued by
the Holding Company at this time. The Estimated Valuation Range may be amended,
with the approval of the OTS, if necessitated by developments following the date
of such appraisal in, among other things, market conditions, the financial
condition or operating results of the Bank, regulatory guidelines or national or
local economic conditions.
Ferguson's appraisal report is filed as an exhibit to the Registration
Statement. See "ADDITIONAL INFORMATION."
If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, Ferguson, after taking into account factors
similar to those involved in its prior appraisal, will determine its estimate of
the pro forma market value of the Holding Company and the Bank as converted, as
of the close of the Subscription Offering.
No sale of the shares will take place unless prior thereto Ferguson
confirms to the OTS that, to the best of Ferguson's knowledge and judgment,
nothing of a material nature has occurred that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Holding Company and the Bank
as converted at the time of the sale. If, however, the facts do not justify
such a statement, the Offerings or other sale may be canceled, a new Estimated
Valuation Range and price per share set and new Subscription, Direct Community
and Syndicated Community Offerings held. Under such circumstances, subscribers
would have the right to modify or rescind their subscriptions and to have their
subscription funds returned promptly with interest and holds on funds authorized
for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares discussed herein. In the
event the total amount of shares issued is less than 4,845,000 or more than
7,538,250 (15% above the maximum of the Estimated Valuation Range), for
aggregate gross proceeds of less than $48,450,000 or more than $75,382,500,
subscription funds will be returned promptly with interest to each subscriber
unless he indicates otherwise. In the event a new valuation range is
established by Ferguson, such new range will be subject to approval by the OTS.
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Bank and the Holding Company, if possible. Such
other purchase arrangements will be subject to the approval of the OTS and may
provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate.
In formulating its appraisal, Ferguson relied upon the truthfulness,
accuracy and completeness of all documents the Bank furnished to it. Ferguson
also considered financial and other information from regulatory agencies, other
financial institutions, and other public sources, as appropriate. While
Ferguson believes this information to be reliable, Ferguson does not guarantee
the accuracy or completeness of such information and did not independently
verify the financial statements and other data provided by the Bank and the
Holding Company or independently value the assets or liabilities of the Holding
Company and the Bank. THE APPRAISAL BY FERGUSON IS NOT INTENDED TO BE, AND MUST
NOT BE INTERPRETED AS, A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF
VOTING TO APPROVE THE PLAN OF CONVERSION OR OF PURCHASING SHARES OF COMMON
STOCK. MOREOVER, BECAUSE THE
108
<PAGE>
APPRAISAL IS NECESSARILY BASED ON MANY FACTORS WHICH CHANGE FROM TIME TO TIME,
THERE IS NO ASSURANCE THAT PERSONS WHO PURCHASE SUCH SHARES IN THE STOCK
CONVERSION WILL LATER BE ABLE TO SELL SHARES THEREAFTER AT PRICES AT OR ABOVE
THE PURCHASE PRICE.
LIMITATIONS ON PURCHASES OF SHARES
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of Common Stock by eligible subscribers and others in the
Conversion. Each subscriber must subscribe for a minimum of 25 shares. With
the exception of the ESOP, which is expected to subscribe for 8% of the shares
of Common Stock issued in the Stock Conversion, the Plan of Conversion provides
that no person (including all persons on a joint account), either alone or
together with associates of or persons acting in concert with such person, may
purchase in the Stock Conversion shares of Common Stock with an aggregate
purchase price of more than $655,500. For purposes of the Plan of Conversion,
the directors are not deemed to be acting in concert solely by reason of their
Board membership. Pro rata reductions within each Subscription Rights category
will be made in allocating shares to the extent that the maximum purchase
limitations are exceeded.
The Bank's and the Holding Company's Boards of Directors may, in their sole
discretion, increase the maximum purchase limitation set forth above up to 9.99%
of the shares of Common Stock sold in the Stock Conversion, provided that orders
for shares which exceed 5% of the shares of Common Stock sold in the Stock
Conversion may not exceed, in the aggregate, 10% of the shares sold in the Stock
Conversion. The Bank and the Holding Company do not intend to increase the
maximum purchase limitation unless market conditions are such that an increase
in the maximum purchase limitation is necessary to sell a number of shares in
excess of the minimum of the Estimated Valuation Range. If the Boards of
Directors decide to increase the purchase limitation above, persons who
subscribed for the maximum number of shares of Common Stock will be, and other
large subscribers in the discretion of the Holding Company and the Bank may be,
given the opportunity to increase their subscriptions accordingly, subject to
the rights and preferences of any person who has priority Subscription Rights.
The term "acting in concert" is defined in the Plan of Conversion to mean
(i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. In general, a person who acts in concert with another party shall
also be deemed to be acting in concert with any person who is also acting in
concert with that other party.
The term "associate" of a person is defined in the Plan of Conversion to
mean (i) any corporation or organization (other than the Bank or a majority-
owned subsidiary of the Bank) 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 (excluding tax-qualified employee plans); and
(iii) any relative or spouse of such person, or any relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Bank or any of its parents or subsidiaries. For example, a corporation of which
a person serves as an officer would be an associate of such person and,
therefore, all shares purchased by such corporation would be included with the
number of shares which such person could purchase individually under the above
limitations.
The term "officer" is defined in the Plan of Conversion to mean an
executive officer of the Bank, including its Chairman of the Board, President,
Executive Vice Presidents, Senior Vice Presidents, Vice Presidents in charge of
principal business functions, Secretary and Treasurer.
109
<PAGE>
Common Stock purchased pursuant to the Stock Conversion will be freely
transferable, except for shares purchased by directors and officers of the Bank
and the Holding Company and by NASD members. See "--Restrictions on
Transferability by Directors and Officers and NASD Members."
RESTRICTIONS ON REPURCHASE OF STOCK
Pursuant to OTS regulations, OTS-regulated savings associations (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director; or (iii) a purchase in the
open market by a tax-qualified or non-tax-qualified employee stock benefit plan
in an amount reasonable and appropriate to fund the plan. Furthermore,
repurchases of any common stock are prohibited if the effect thereof would cause
the association's regulatory capital to be reduced below (a) the amount required
for the liquidation account or (b) the regulatory capital requirements imposed
by the OTS. Repurchases are generally prohibited during the first year
following conversion. Upon ten days' written notice to the OTS, and if the OTS
does not object, an institution may make open market repurchases of its
outstanding common stock during years two and three following the conversion,
provided that certain regulatory conditions are met and that the repurchase
would not adversely affect the financial condition of the association. Any
repurchases of common stock by the Holding Company would be subject to these
regulatory restrictions unless the OTS would provide otherwise.
RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of Common Stock purchased in the Offerings by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the Stock Conversion, except in the event of the death of the
stockholder or in any exchange of the Common Stock in connection with a merger
or acquisition of the Holding Company. Shares of Common Stock received by
directors or officers through the ESOP or the MRP or upon exercise of options
issued pursuant to the Stock Option Plan or purchased subsequent to the Stock
Conversion are not subject to this restriction. Accordingly, shares of Common
Stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the restriction and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's Common Stock with respect to the restriction on transfers.
Any shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted Common Stock shall be subject to the same
restrictions.
Purchases of outstanding shares of Common Stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following the Stock Conversion may be
made only through a broker or dealer registered with the SEC, except with the
prior written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding Common Stock or to the purchase of stock pursuant to the Stock
Option Plan.
The Holding Company has filed with the SEC a registration statement under
the Securities Act of 1933, as amended ("Securities Act") for the registration
of the Common Stock to be issued pursuant to the Stock Conversion. The
registration under the Securities Act of shares of the Common Stock to be issued
in the Stock Conversion does not cover the resale of such shares. Shares of
Common Stock purchased by persons who are not affiliates of the Holding Company
may be resold without registration. Shares purchased by an affiliate of the
Holding Company will be subject to the resale restrictions of Rule 144 under the
Securities Act. If the Holding Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of the Holding
Company who complies with the other conditions of Rule 144 (including those that
require the affiliate's sale to be aggregated with those of certain other
persons) would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of (i) 1%
of the outstanding shares of the Holding Company or (ii) the average weekly
volume of trading in such shares during the preceding four calendar weeks.
Provision may
110
<PAGE>
be made in the future by the Holding Company to permit affiliates to have their
shares registered for sale under the Securities Act under certain circumstances.
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 ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal law
and regulations and Tennessee corporate law, as well as the Charter and Bylaws
of the Holding Company, relating to stock ownership and transfers, the Board of
Directors and business combinations, all of which may be deemed to have "anti-
takeover" effects. The description of these provisions is necessarily general
and reference should be made to the actual law and regulations and to the
Charter and Bylaws of the Holding Company contained in the Registration
Statement filed with the SEC. See "ADDITIONAL INFORMATION" as to how to obtain
a copy of these documents.
CONVERSION REGULATIONS
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company). The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, 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. However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a selling group acting on the converting institution's (or its holding
company's) behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).
CHANGE OF CONTROL REGULATIONS
Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings and loan association or its parent holding company
unless the OTS has been given 60 days' prior written notice and has not issued a
notice disapproving the proposed acquisition. In addition, OTS regulations
provide that no company may acquire control of a savings association without the
prior approval of the OTS. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association'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 any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations. Such control factors include
the acquiror being one of the two largest stockholders. 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
111
<PAGE>
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 must file with the OTS a certification form 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. There are also rebuttable presumptions in
the regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
TENNESSEE ANTI-TAKEOVER STATUTES
The TBCA contains several provisions, described below, which may be
applicable to the Holding Company upon consummation of the Stock Conversion.
BUSINESS COMBINATION ACT. The TBCA generally prohibits a "business
combination" (generally defined to include mergers, share exchanges, sales and
leases of assets, issuances of securities and similar transactions) by a
"resident domestic corporation" (as defined below) or a subsidiary with an
"Interested Shareholder" (generally defined as any person or entity which
beneficially owns 10% or more of the voting power of any class or series of the
corporation's stock then outstanding) for a period of five years after the date
the person becomes an Interested Shareholder unless, prior to such date, the
board of directors approved either the business combination or the transaction
which resulted in the shareholder becoming an Interested Shareholder and the
business combination satisfies any other applicable requirements imposed by law
or by the corporation's charter or bylaws. The Business Combination Act also
limits the extent to which a "resident domestic corporation" which has a class
of voting stock traded on any national securities exchange or registered
pursuant to Section 12(g) of the Exchange Act or any of its officers or
directors could be held liable for resisting any business combination.
For purposes of the Business Combination Act, the term "resident domestic
corporation" is defined as an issuer of voting stock which, as of the share
acquisition date in question, is organized under the laws of Tennessee and meets
two or more of the following requirements: (i) the corporation has more than
10,000 stockholders or 10% of its stockholders resident in Tennessee or more
than 10% of its shares held by stockholders who are Tennessee residents; (ii)
the corporation has its principal office or place of business located in
Tennessee; (iii) the corporation has the principal office or place of business
of a significant subsidiary, representing not less than 25% of the corporation's
consolidated net sales located in Tennessee; (iv) the corporation employs more
than 250 individuals in Tennessee or has a combined annual payroll paid to
Tennessee residents which is in excess of $5.0 million; (v) the corporation
produces goods and services in Tennessee which result in annual gross receipts
in excess of $10.0 million; or (vi) the corporation has physical assets and/or
deposits, including those of any subsidiary located within Tennessee which
exceed $10.0 million in value.
CONTROL SHARE ACQUISITION ACT. The Tennessee Control Share Acquisition Act
generally provides that any person or group that acquires the power to vote more
than certain specified levels (one-fifth, one-third or a majority) of the shares
of certain Tennessee corporations will not have the right to vote such shares
unless granted voting rights by the holders of a majority of the votes entitled
to be cast, excluding "interested shares." Interested shares are those shares
held by the acquiring person, officers of the corporation and employees and
directors of the corporation. If approval of voting power for the shares is
obtained at one of the specified levels, additional stockholder approval is
required when a stockholder seeks to acquire the power to vote shares at the
next level. In the absence of such approval, the additional shares acquired by
the stockholder may not be voted until they are transferred to another
112
<PAGE>
person in a transaction other than a control share acquisition. The statutory
provisions will only apply to a Tennessee corporation if its charter or bylaws
so provides and which has: (i) 100 or more stockholders; (ii) its principal
place of business, its principal office or substantial assets within Tennessee;
and (iii) either (A) more than 10% of its stockholders resident in Tennessee,
(B) more than 10% of its shares owned by stockholders resident in Tennessee, or
(C) 10,000 or more stockholders resident in Tennessee. Neither the Holding
Company's Charter nor its Bylaws contains a provision declaring that the Holding
Company will be subject to the provisions of the Control Share Acquisition Act,
although the Holding Company could amend its Charter or Bylaws in the future to
include such a provision. At this time, the Holding Company has cannot
determine whether it would otherwise meet the requirements to be subject to its
provisions.
GREENMAIL ACT. The Tennessee Greenmail Act prohibits a Tennessee
corporation having a class of voting stock registered or traded on a national
securities exchange or registered pursuant to Section 12(g) of the Exchange Act
from purchasing, directly or indirectly, any of its shares at a price above the
market value of such shares from any person who holds more than 3% of the class
of securities to be purchased if such person has held such shares for less than
two years, unless: (i) such purchase has been approved by the affirmative vote
of a majority of the outstanding shares of each class of voting stock issued by
such corporation or (ii) the corporation makes an offer, at least equal value
per share, to al holders of shares of such class. Market value is defined as
the average of the highest and lowest closing market price of such shares during
the 30 trading days preceding the purchase or preceding the commencement or
announcement of a tender offer if the seller of such shares has commenced a
tender offer or announced an intention to seek control of the corporation.
The Common Stock will be registered pursuant to Section 12(g) of the
Exchange Act. As such, the Holding Company will be subject to the restrictions
of the Greenmail Act upon consummation of the Stock Conversion.
INVESTOR PROTECTION ACT. The Tennessee Investor Protection Act prohibits
any party owning, directly or indirectly, 5% or more of any class of equity
securities of an "offeree company" (as defined below), any of which were
purchased within one year before the proposed takeover offer, unless the
offeror: (i) before making such purchase, had made a public announcement of his
intention or change or influence the management or control of the "offeree
company;" (ii) has made a full, fair and effective disclosure of such intention
to the persons from whom he acquired such securities; and (iii) has filed with
the Tennessee Commissioner of Commerce and Insurance and with the "offeree
company" a statement signifying such intentions and containing such additional
information as the Commissioner may require. An "offeree company" is defined as
a corporation or other issuer of equity securities which is incorporated or
organized under the laws of Tennessee or has its principal office in Tennessee,
has substantial assets located in Tennessee and which is or may be involved in a
takeover offer relating to any class of its equity securities.
The Investor Protection Act also prohibits any offeror from making a
takeover offer which is not made to the holders of record or beneficial owners
of the equity securities of an offeree company who reside in Tennessee on
substantially the same terms as the offer is made to holders residing elsewhere.
ANTI-TAKEOVER PROVISIONS IN THE HOLDING COMPANY'S CHARTER AND BYLAWS AND
TENNESSEE LAW
Several provisions of the Holding Company's Charter and Bylaws deal with
matters of corporate governance and certain rights of stockholders. The
following discussion is a general summary of certain provisions of the Holding
Company's Charter and Bylaws 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. These provisions may
have the effect of discouraging a future takeover attempt which is not approved
by the Board of Directors but which individual Holding Company stockholders may
deem to be in their best interests or in which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also render the removal
of incumbent Board of Directors or management of the Holding Company more
difficult. The following description of certain of the provisions of the Charter
and Bylaws of the Holding
113
<PAGE>
Company is necessarily general, and reference should be made in each case to
such Charter and Bylaws, which are incorporated herein by reference. See
"ADDITIONAL INFORMATION" as to how to obtain a copy of these documents.
LIMITATION ON VOTING RIGHTS. Article XII of the Holding Company's Charter
provides that, if at any time following the consummation of the Conversion, any
person acquires beneficial ownership of more than 10% of any class of equity
security of the Holding Company without the prior approval of two-thirds of the
"Continuing Directors" (as defined below), then the record holders of the voting
stock of the Holding Company beneficially owned by such acquiring person shall
have only voting rights, with respect to each share in excess of 10%, equal to
one -hundredth (1/100th) of a vote. The aggregate voting power of such record
holders will be allocated proportionately among such record holders by
multiplying the aggregate voting power, as so limited, of the outstanding shares
of voting stock of the Holding Company beneficially owned by such acquiring
person by a fraction whose numerator is the number of votes represented the
shares of voting stock of the Holding Company owned of record by such person
(and which are beneficially owned by such acquiring person) and whose
denominator is the total number of votes represented by the shares of voting
stock of the Holding Company that are beneficially owned by such acquiring
person. A person who is the record owner of shares of voting stock of the
Holding Company that are beneficially and simultaneously owned by more than one
person shall have, with respect to such shares, the right to cast the least
number of votes that such person would be entitled to cast under Article XII.
"Continuing Directors" are defined in the Holding Company's Charter to be those
members of the board of directors who are unaffiliated with any "Related Person"
(as defined below) and who were members of the board of directors prior to the
time that a "Related Person" (as defined below) became a "Related Person" and
any successor to such directors who are recommended to succeed a Continuing
Director by a majority of the Continuing Directors then on the Board of
Directors. The term "Related Person" is defined as any individual, corporation,
partnership or other person or entity which, together with its affiliates,
beneficially owns in the aggregate 10% or more of the outstanding shares of
Common Stock and any affiliate of such individual, corporation, partnership or
other person or entity.
BOARD OF DIRECTORS. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year. The Holding Company's Charter
provides that the size of the Board shall be as set forth in the Bylaws. The
Bylaws currently set the number of directors at nine. The Charter provides that
any vacancy occurring in the Board, including a vacancy created by an increase
in the number of directors, shall be filled by a vote of two-thirds of the
directors then in office and any director so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of the class to
which the director has been chosen expires. 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 stockholder 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 Holding Company. The Charter of the Holding Company provides
that a director may be removed from the Board of Directors prior to the
expiration of his or her term only for cause and only upon the vote of at least
80% of the outstanding shares of voting stock. In the absence of this
provision, the vote of the holders of a majority of the shares could remove the
entire Board, but only with cause, and replace it with persons of such holders'
choice.
CUMULATIVE VOTING, SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT. The
Charter does not provide for cumulative voting for any purpose. Moreover, the
Charter provides that special meetings of stockholders of the Holding Company
may be called only by the Board of Directors of the Holding Company and that
stockholders may take action only at a meeting and not by written consent.
AUTHORIZED SHARES. The Charter authorizes the issuance of 49,750,000 shares
of Common Stock and 250,000 shares of preferred stock. The shares of Common
Stock and preferred stock were authorized in an amount greater than that to be
issued in the Conversion to provide the Holding Company's Board of Directors
with as much flexibility as possible to effect, among other transactions,
financings, acquisitions, stock dividends, stock splits,
114
<PAGE>
restricted stock grants and the exercise of stock options. However, these
additional authorized shares may also be used by the Board of Directors
consistent with its fiduciary duty to deter future attempts to gain control of
the Holding 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 tender offer,
merger or other transaction by which a third party seeks control of the Holding
Company, and thereby assist members of management to retain their positions. The
Holding Company's Board currently has no plans for the issuance of additional
shares, other than the issuance of shares of Common Stock upon exercise of stock
options and in connection with the MRP.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS. To approve
mergers and similar transactions, the TBCA generally requires the approval of
the Board of Directors of the corporation and of the holders of a majority of
all the votes entitled to be cast, unless the Charter or the Board of Directors
requires a greater vote. The TBCA permits a corporation to merge with another
corporation without obtaining the approval of its stockholders (unless the
Charter provides otherwise) if: (i) the corporation's separate corporate
existence will not cease as a result of the merger and, except for certain types
of amendments, its charter will not differ from its charter before the merger;
(ii) each stockholder of the corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number of
shares, with identical designations, preferences, limitations and relative
rights, immediately after the effective date of the merger; (iii) the voting
power of the shares outstanding immediately after the merger, plus the voting
power of the shares issuable as a result of the merger (either by the conversion
of securities issued pursuant to the merger or by the exercise of rights and
warrants issued pursuant to the merger) will not exceed by more than 20% the
voting power of the total shares of the corporation outstanding immediately
before the merger or exchange; and (iv) the number of participating shares
outstanding immediately after the merger, plus the number of participating
shares issuable as a result of the merger (either by the conversion of
securities issued pursuant to the merger or by the exercise of rights and
warrants issued pursuant to the merger) will not exceed more than 20% the total
number of participating shares outstanding immediately before the merger.
The TBCA also provides that any sale, lease, exchange, or other disposition
of all, or substantially all, of the property and assets not made in the usual
and regular course of business may be made in the following manner: (i) the
board of directors may adopt a resolution recommending that such a transaction
be approved by stockholders, unless the board of directors for any reason
determines that it should not make such a recommendation, in which case the
board may adopt a resolution directing that the transaction be submitted to
stockholders without a recommendation, (ii) the board of directors may submit
the proposed transaction for authorization by the company's stockholders at an
annual or special meeting of stockholders, (iii) written notice of such meeting
shall be given to stockholders of record, stating that the purpose, or one of
the purposes of the meeting is to propose the transaction, (iv) at such meeting
the stockholders may authorize the transaction, upon the affirmative vote of a
majority of all the votes entitled to be cast on the transaction, unless the
board of directors or the corporation's charter requires a greater vote or
voting by voting groups, (v) after such authorization by vote of the
stockholders, the board of directors may nevertheless abandon such transaction,
subject to the rights of third parties under any contract, without further
action or approval by the stockholders.
As holder of all the outstanding common stock of the Bank after
consummation of the Stock Conversion, the Holding Company generally will be able
to authorize a merger, consolidation or other business combination involving the
Bank without the approval of the stockholders of the Holding Company. In
addition to the provisions of Tennessee law, the Holding Company's Charter
requires the approval of the holders of at least 80% of the Holding Company's
outstanding shares of voting stock, and a majority of such shares not including
shares deemed beneficially owned by a Related Person, to approve certain
"Business Combinations," as defined therein. The Charter requires the approval
of the stockholders in accordance with the increased voting requirements in
connection with any such transactions except in cases where the proposed
transaction has been approved in advance by at least two-thirds of the Holding
Company's Continuing Directors. These provisions of the Charter apply to any
"Business Combination" which generally is defined to include: (i) any merger,
share exchange or consolidation of the Holding Company with
115
<PAGE>
or into a Related Person; (ii) any sale, lease, exchange, transfer or other
disposition of, including without limitation, the granting of any mortgage, or
any other security interest in, all or any substantial part of the assets of the
Holding Company (including, without limitation, any voting securities of a
subsidiary) or of a subsidiary to a Related Person or proposed by or on behalf
of a Related Person; (iii) any sale, lease, exchange, transfer or other
disposition, including without limitation, a mortgage, pledge or any other
security interest in, all or any substantial part of the assets of a Related
Person to the Holding Company or a subsidiary; (iv) the issuance or transfer of
any securities of the Holding Company or a subsidiary to a Related Person other
than pursuant to a dividend or distribution made pro rata to all stockholders of
the Holding Company; (v) the acquisition by the Holding Company or a subsidiary
of any securities of a Related Person or of any securities convertible into
securities of a Related Person; (vi) any transaction proposed by or on behalf of
a Related Person or pursuant to an agreement, arrangement or understanding with
a Related Person which has the effect, directly or indirectly, of increasing the
Related Person's proportionate ownership of voting securities of the Holding
Company or a subsidiary thereof or of securities that are convertible to,
exchangeable for or carry the right to acquire such voting securities; (vii) the
adoption of any plan or proposal of liquidation or dissolution of the Holding
Company any reincorporation of the Holding Company in another state or
jurisdiction, any reclassification of the Common Stock, or any recapitalization
involving the Common Stock proposed by or on behalf of a Related Person; (viii)
any loans, advances, guarantees, pledges, financial assistance, security
arrangements, restrictive covenants or any tax credits or other tax advantages
provided by, through or to the Holding Company or any subsidiary thereof as a
result of which a Related Person receives a benefit, directly or indirectly,
other than proportionately as a stockholder; and (ix) any agreement, contract or
other arrangement providing for any of the transactions described in (i) -
(viii) above.
AMENDMENT OF CHARTER AND BYLAWS. No amendment of the Holding Company's
Charter may be made unless it is first approved by the Board of Directors of the
Holding Company, recommended to the stockholders for approval and thereafter is
approved by the holders of a majority of the shares of the Holding Company
entitled to be cast. An 80% vote of the shares of the Holding Company is
required to amend, adopt, alter, change or repeal any provision inconsistent
with Article VI (setting quorum and voting requirements), Article VII (setting
the requirements for the Board of Directors, including classification of the
Board and vacancies), Article VIII (setting the procedures for nomination of
directors and stockholder proposals), Article IX (removal of directors), Article
X (elimination of director liability), Article XI (indemnification), Article XII
(restrictions on voting rights of certain holders), Article XIII (approval of
Business Combinations), Article XIV (evaluation of business combinations),
Article XVII (amendment of Bylaws) and Article XVIII (amendment of Charter).
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Charter of the Holding Company
requires a stockholder who intends to nominate a candidate for election to the
Board of Directors or to raise new business at a stockholder meeting to give
advance written notice to the Secretary of the Holding Company 120 calendar days
in advance of the month and day of the Holding Company's proxy statement to
shareholders was mailed to shareholders the preceding year; provided, however,
that if notice of the meeting is effective fewer than 40 calendar days before
the meeting, such written notice shall be delivered to the Secretary of the
Holding Company not later than the close of the tenth calendar day following the
day on which notice of the meeting was mailed to shareholders. The notice
provision requires a stockholder who desires to raise new business to provide
certain information to the Holding Company concerning the nature of the new
business, the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
director must provide the Holding Company with certain information concerning
the nominee and the proposing stockholder.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE HOLDING COMPANY'S CHARTER AND
BYLAWS. The Board of Directors of the Bank believes that the provisions
described above are prudent and will reduce the Holding Company's vulnerability
to takeover attempts and certain other transactions which have not been
negotiated with and approved by its Board of Directors. These provisions will
also assist in the orderly deployment of the Conversion proceeds into productive
assets during the initial period after the Conversion. The Board of Directors
believes these provisions are in the best interest of the Bank and the Holding
Company and its stockholders. In the judgment of the Board of Directors, the
Holding Company's Board will be in the best position to determine the true value
of the Holding Company and to negotiate more effectively for what may be in the
best interests of its stockholders.
116
<PAGE>
Accordingly, the Board of Directors believes that it is in the best interest of
the Holding Company and its stockholders to encourage potential acquirors to
negotiate directly with the Board of Directors of the Holding Company and that
these provisions will encourage such negotiations and discourage hostile
takeover attempts. It is also the view of the Board of Directors that these
provisions should not discourage persons from proposing a merger or other
transaction at a price reflective of the true value of the Holding Company and
which is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of the Holding
Company and its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objective may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for Exchange Act deregistration.
Despite the belief of the Bank and the Holding Company as to the benefits
to stockholders of these provisions of the Holding Company's Charter and Bylaws,
these provisions may also have the effect of discouraging a future takeover
attempt that would not be approved by the Holding Company's Board, but pursuant
to which stockholders may receive a substantial premium for their shares over
then current market prices. As a result, stockholders who might desire to
participate in such a transaction may not have any opportunity to do so. Such
provisions will also render the removal of the Holding Company's Board of
Directors and of management more difficult. The Board of Directors of the Bank
and the Holding Company, however, have concluded that the potential benefits
outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted for a Tennessee business corporation. The Holding Company and the
Bank do not presently intend to propose the adoption of further restrictions on
the acquisition of the Holding Company's equity securities.
The cumulative effect of the restrictions on acquisition of the Holding
Company contained in the Charter and Bylaws and Holding Company, federal law and
Tennessee law may be to discourage potential takeover attempts and perpetuate
incumbent management, even though certain stockholders of the Holding Company
may deem a potential acquisition to be in their best interests, or deem existing
management not to be acting in their best interests.
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
GENERAL
The Holding Company is authorized to issue 49,750,000 shares of Common
Stock having no par value per share and 250,000 shares of preferred stock
having no par value per share. The Holding Company currently expects to issue
up to 6,555,000 shares of Common Stock and no shares of preferred stock in the
Stock Conversion. Each share of the Holding Company's Common Stock will have
the same relative rights as, and will be identical in all
117
<PAGE>
respects with, each other share of Common Stock. Upon payment of the Purchase
Price for the Common Stock, in accordance with the Plan of Conversion, all such
stock will be duly authorized, fully paid and nonassessable.
THE COMMON STOCK OF THE HOLDING COMPANY WILL REPRESENT NONWITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF ANY TYPE, AND WILL NOT BE INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY.
COMMON STOCK
DIVIDENDS. The Holding Company can pay dividends out of statutory surplus
or from certain net profits if, as and when declared by its Board of Directors.
The payment of dividends by the Holding Company is subject to limitations which
are imposed by law and applicable regulation. See "DIVIDEND POLICY" and
"REGULATION." The holders of Common Stock of the Holding Company will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Holding Company out of funds legally available
therefor. If the Holding Company issues preferred stock, the holders thereof may
have a priority over the holders of the Common Stock with respect to dividends.
STOCK REPURCHASES. The Plan of Conversion and OTS regulations place certain
limitations on the repurchase of the Holding Company's capital stock. See "THE
CONVERSION -- Restrictions on Repurchase of Stock" and "USE OF PROCEEDS."
VOTING RIGHTS. Upon consummation of the Stock Conversion, the holders of
Common Stock of the Holding Company will possess exclusive voting rights in the
Holding Company. They will elect the Holding Company's Board of Directors and
act on such other matters as are required to be presented to them under
Tennessee law or as are otherwise presented to them by the Board of Directors.
Except as discussed in "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY,"
each holder of Common Stock will be entitled to one vote per share and will not
have any right to cumulate votes in the election of directors. If the Holding
Company issues preferred stock, holders of the Holding Company preferred stock
may also possess voting rights. Certain matters require a vote of 80% of the
outstanding shares entitled to vote thereon. See "RESTRICTIONS ON ACQUISITION OF
THE HOLDING COMPANY."
As a federal mutual savings bank, corporate powers and control of the Bank
are vested in its Board of Directors, who elect the officers of the Bank and who
fill any vacancies on the Board of Directors as it exists upon Conversion.
Subsequent to the Stock Conversion, voting rights will be vested exclusively in
the owners of the shares of capital stock of the Bank, all of which will be
owned by the Holding Company, and voted at the direction of the Holding
Company's Board of Directors. Consequently, the holders of the Common Stock
will not have direct control of the Bank.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Bank, the Holding Company, as holder of the Bank's capital stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders and Supplemental Eligible Account Holders
(see "THE CONVERSION"), all assets of the Bank available for distribution. In
the event of liquidation, dissolution or winding up of the Holding Company, the
holders of its common stock would be entitled to receive, after payment or
provision for payment of all its debts and liabilities, all of the assets of the
Holding Company available for distribution. If Holding Company preferred stock
is issued, the holders thereof may have a priority over the holders of the
Common Stock in the event of liquidation or dissolution.
PREEMPTIVE RIGHTS. Holders of the Common Stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued. The Common Stock is not subject to redemption.
118
<PAGE>
PREFERRED STOCK
None of the shares of the authorized Holding Company preferred stock will
be issued in the Conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
RESTRICTIONS ON ACQUISITION
Acquisitions of the Holding Company are restricted by provisions in its
Charter and Bylaws and by the rules and regulations of various regulatory
agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
REGISTRATION REQUIREMENTS
The Holding Company will register the Common Stock with the SEC pursuant to
Section 12(g) of the Exchange Act upon the completion of the Stock Conversion
and will not deregister its Common Stock for a period of at least three years
following the completion of the Stock Conversion. Upon such registration, the
proxy and tender offer rules, insider trading reporting and restrictions, annual
and periodic reporting and other requirements of the Exchange Act will be
applicable.
LEGAL AND TAX OPINIONS
The legality of the Common Stock has been passed upon for the Holding
Company by Breyer & Aguggia, Washington, D.C. The federal tax consequences of
the Offerings have been opined upon by Breyer & Aguggia and the Tennessee tax
consequences of the Offerings have been opined upon by Bass, Berry & Sims PLC,
Nashville, Tennessee. Breyer & Aguggia and Bass, Berry & Sims PLC have
consented to the references herein to their opinions. Certain legal matters
will be passed upon for Trident Securities by Peabody & Brown, Washington, D.C.
EXPERTS
The consolidated financial statements of the Bank as of December 31, 1996
and 1995 and for the years ended December 31, 1996, 1995 and 1994 included in
this Prospectus have been audited by Rayburn, Betts & Bates, P.C., independent
auditors, as stated 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.
Ferguson has consented to the publication herein of the summary of its
report to the Bank setting forth its opinion as to the estimated pro forma
market value of the Holding Company and the Bank as converted and its letter
with respect to subscription rights and to the use of its name and statements
with respect to it appearing herein.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-40057) under the Securities Act with respect to the Common
Stock offered in the Conversion. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at its
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
may be obtained at prescribed rates from the Public Reference Section of the SEC
at 450
119
<PAGE>
Fifth Street, N.W., Washington, D.C. 20549. The Registration Statement also is
available through the SEC's World Wide Web site on the Internet
(http://www.sec.gov).
The Bank has filed with the OTS an Application for Approval of Conversion,
which includes proxy materials for the Bank's Special Meeting and certain other
information. This Prospectus omits certain information contained in such
Application. The Application, including the proxy materials, exhibits and
certain other information that are a part thereof, may be inspected, without
charge, at the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552
and at the office of the Regional Director of the OTS at the Regional Director
of the OTS at the Central Regional Office of the OTS, Madison Plaza, 200 West
Madison Street, Suite 1300, Chicago, Illinois 60606.
120
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CAVALRY BANKING AND SUBSIDIARIES
Page
----
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report...................................... F-1
Consolidated Balance Sheets as of September 30, 1997 (unaudited)
and December 31, 1996 and 1995................................... F-2
Consolidated Statements of Earnings for the
Nine Months Ended September 30, 1997 and 1996 (unaudited)
and the Years Ended December 31, 1996, 1995 and 1994............. 23
Consolidated Statements of Equity for the Nine Months Ended
September 30, 1997 and 1996 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994........................... F-3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 (unaudited)
and the Years Ended December 31, 1996, 1995 and 1994............. F-4
Notes to Consolidated Financial Statements........................ F-6
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.
121
<PAGE>
[LETTERHEAD OF RAYBURN, BETTS & BATES, P.C. APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Cavalry Banking and Subsidiaries
We have audited the consolidated balance sheets of Cavalry Banking and
Subsidiaries (the Bank) as of December 31, 1996 and 1995 and the related
consolidated statements of earnings, changes in equity and cash flows for each
of the years in the three year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cavalry Banking and
Subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three year period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Rayburn, Betts & Bates, P.C.
--------------------------------
RAYBURN, BETTS & BATES, P.C.
Nashville, Tennessee
September 25, 1997
F-1
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30 December
------------ --------
Assets 1997 1996 1995
-------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C>
Cash (note 2) $ 9,691 9,497 7,420
Interest-bearing deposits with other financial institutions 17,000 10,022 6,515
-------- ------- -------
Cash and cash equivalents 26,691 19,519 13,935
Investment securities available for sale (note 3) 10,107 - -
Investment securities held to maturity (note 3) 3,700 7,705 35,550
Mortgage-backed securities held to maturity (note 4) 1,333 1,419 1,541
Loans held for sale, at estimated fair value (note 5) 4,149 5,253 3,689
Loans receivable, net (notes 5 and 10) 216,410 200,600 159,943
Accrued interest receivable:
Loans, net of allowance for delinquent interest of
$2, $5 and $9 in 1997, 1996
and 1995, respectively 1,485 1,280 1,092
Investment securities 374 155 509
Mortgage-backed securities 11 11 13
Office properties and equipment, net (note 6) 7,864 6,203 5,286
Required investment in stock of Federal Home Loan Bank,
at cost (note 7) 1,602 1,519 1,418
Deferred tax asset, net (note 11) 1,185 755 523
Other assets (note 12) 1,014 545 383
-------- ------- -------
$275,925 244,964 223,882
======== ======= =======
Liabilities and Retained Earnings
---------------------------------
Liabilities:
Deposits (note 9) $241,950 214,533 196,734
Accrued interest payable 353 264 271
Advance payments by borrowers for property
taxes and insurance 1,120 328 487
Income taxes payable (note 11) 1,211 1,089 620
Accrued expenses and other liabilities 1,790 1,500 1,334
-------- ------- -------
Total liabilities 246,424 217,714 199,446
-------- ------- -------
Equity: Retained earnings, substantially restricted
(notes 13 and 14) 29,508 27,250 24,436
Net unrealized loss on investment securities
available-for-sale, net of taxes (7) - -
-------- ------- -------
Total equity 29,501 27,250 24,436
-------- ------- -------
Total liabilities and equity $275,925 244,964 223,882
======== ======= =======
</TABLE>
Commitments and contingencies (notes 2, 12 and 16)
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized
Loss on
Investment
Securities
Retained Available-for
Earnings Sale Total
-------- ---- -----
<S> <C> <C> <C>
Balance at December 31, 1993 $18,777 - 18,777
Net earnings 2,458 - 2,458
------- ------------- ------
Balance at December 31, 1994 21,235 - 21,235
Net earnings 3,201 - 3,201
------- ------------- ------
Balance at December 31, 1995 24,436 - 24,436
Net earnings 2,814 - 2,814
------- ------------- ------
Balance at December 31, 1996 27,250 - 27,250
Net earnings (unaudited) 2,258 - 2,258
Change in valuation allowance for
securities available-for-sale, net of
income taxes of $4 (unaudited) - (7) (7)
------- ------------- ------
Balance at September 30, 1997 (unaudited) $29,508 (7) 29,501
======= ============= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
----------------- --------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net earnings $ 2,258 1,840 2,814 3,201 2,458
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Provision for loan losses 700 90 120 80 113
Gain on sales of real estate acquired
in settlement of loans, net - (7) (11) (23) (18)
Gain on sales of loans, net (674) (733) (890) (882) (530)
Gain on sale of office properties
and equipment - - (40) - -
Depreciation and amortization on
office properties and equipment 780 535 733 538 525
Net amortization (accretion) of
investment and mortgage-backed
securities premiums, net 10 95 102 (37) 189
Accretion of discount on loans
acquired through merger - - - - (60)
Amortization of deferred loan
origination fees (820) (836) (1,152) (918) (1,157)
Loan fees collected 867 978 1,294 946 1,160
Deferred income tax benefit (430) (253) (231) (40) (73)
Proceeds from sales of loans 48,684 52,278 71,235 67,136 48,939
Origination of loans held for sale (46,907) (50,660) (71,909) (68,491) (45,056)
Decrease (increase) in accrued
interest receivable (423) 5 167 (255) (263)
Decrease (increase) in other assets (464) (210) (162) (169) 493
Increase (decrease) in accrued
interest payable 88 (5) (7) 78 23
Stock dividends on Federal Home
Loan Bank stock (83) (50) (102) (114) (66)
Increase in accrued expenses
and other liabilities 290 1,382 170 301 162
Increase (decrease) in current
income taxes payable 123 (158) 469 151 36
-------- ------- ------- -------- --------
Net cash provided by
operating activities 3,999 4,291 2,600 1,502 6,875
-------- ------- ------- -------- --------
Investing activities:
Increase (decrease) in loans
receivable, net (16,557) (36,578) (40,962) 5,420 (11,585)
Principal payments on mortgage
backed securities 83 63 116 118 427
</TABLE>
See accompanying notes to conslidated statements.
F-4
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
------------------ -----------------------------------
1997 1996 1996 1995 1994
-------- ------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Investing activities: (Continued)
Proceeds from the sales of branch and
office properties and equipment - - 153 3 -
Purchases of investment securities
available for sale (10,120) - - - -
Purchases of investment securities
held to maturity - (2,000) (2,002) (32,609) (16,036)
Proceeds from maturities of
investment securities 4,000 20,000 29,750 17,000 9,500
Purchases of office properties
and equipment (2,441) (807) (1,763) (913) (770)
Proceeds from sale of real estate
acquired through foreclosure - 51 51 129 820
-------- ------- ------- ------- -------
Net cash used in investing
activities (25,035) (19,271) (14,657) (10,852) (17,644)
------- -------
Financing activities:
Net increase in deposits 27,416 12,555 17,800 16,450 (4,891)
Advance from (repayment to)
Federal Home Loan Bank - - - (5,000) 5,000
Net increase (decrease) in advance
payments by borrowers for
property taxes and insurance 792 711 (159) (143) (22)
-------- ------- ------- ------- -------
Net cash provided by
financing activities 28,208 13,266 17,641 11,307 87
-------- ------- ------- ------- -------
Increase (decrease) in cash and
cash equivalents 7,172 (1,714) 5,584 1,957 (10,682)
Cash and cash equivalents,
beginning of year 19,519 13,935 13,935 11,978 22,660
-------- ------- ------- ------- -------
Cash and cash equivalents, end of year $ 26,691 12,221 19,519 13,935 11,978
======== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Payments during the period for:
Interest $ 4,648 4,076 5,500 5,185 4,272
======== ======= ======= ======= =======
Income taxes $ 1,920 1,526 1,591 1,771 1,453
======== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Foreclosures and in substance
foreclosures of loans during year $ - 44 44 22 232
======== ======= ======= ======= =======
Interest credited to deposits $ 2,079 2,046 2,775 2,433 2,004
======== ======= ======= ======= =======
Net unrealized losses on investment
securities available for sale $ 11 - - - -
======== ======= ======= ======= =======
Increase in deferred tax asset related
to unrealized loss on investments $ 4 - - - -
======== ======= ======= ======= =======
</TABLE>
See accompanying notes to conslidated statements.
F-5
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(1) Summary of Significant Accounting Policies:
------------------------------------------
Business
--------
Cavalry Banking and Subsidiaries and its wholly-owned subsidiaries' (the
Bank) primary business activities include attracting deposits from the
general public and originating residential property loans (one-to-four
family home mortgage, cooperative apartment and multi-family property
loans). The Bank also makes commercial real estate loans and consumer
loans. The Bank is subject to competition from other financial
institutions. Deposits at the Bank are insured up to applicable limits
by the Federal Deposit Insurance Corporation (FDIC). The Bank is a
federally chartered savings bank and is subject to comprehensive
regulation, examination and supervision by the OTS and the FDIC.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the consolidated balance sheet and revenues and expenses
for the year. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for loan losses and foreclosed real
estate, management obtains independent appraisals for significant
properties.
A substantial portion of the Bank's loans are secured by real estate in the
Middle Tennessee market. In addition, foreclosed real estate, is located
in this same market. Accordingly, the ultimate collectibility of a
substantial portion of the Bank's loan portfolio and the recovery of a
substantial portion of the carrying amount of foreclosed real estate is
susceptible to changes in local market conditions.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be
necessary based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowances for losses on loans and
foreclosed real estate. Such agencies may require the Bank to recognize
additions to the allowances based on their judgments about information
available to them at the time of their examination.
As more fully discussed in note 19, the Bank plans to convert from a mutual
to capital stock form of ownership. As a stock institution and as a
result of the public offering of the stock of the holding company
intended to be formed by the Bank, the Bank will be subject to the
financial reporting requirements of the Securities Exchange Act of 1934,
as amended. Accordingly, in connection with the conversion, the Bank
performed a comprehensive review of its accounting policies and
practices, and made a determination that certain of such policies and
practices should be changed to adopt preferable accounting practices. The
accompanying consolidated financial statements
F-6
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Business (Continued)
--------
have been prepared to reflect such preferred accounting policies, which
are referred to in the paragraphs below and relate principally to the
timing of loan loss provisions.
Certain reclassifications have been made to prior periods amounts to
conform to the current period presentation.
Cash Equivalents
----------------
Cash equivalents include cash and demand and time deposits at other
financial institutions with remaining maturities of three months or less.
Investment Securities
---------------------
In accordance with Statement of Financial Accounting Standards No. (SFAS)
115, Accounting for Certain Investments in Debt and Equity Securities,
which the Bank adopted effective January 1, 1994, the Bank is required to
report debt, readily-marketable equity, mortgage-backed and mortgage
related securities in one of the following categories: (i) "held-to-
maturity" (management has a positive intent and ability to hold to
maturity) which are to be reported at amortized cost adjusted, in the
case of debt securities, for the amortization of premiums and accretion
of discounts; (ii) "trading" (held for current resale) which are to be
reported at fair value, with unrealized gains and losses included in
earnings; and (iii) "available for-sale" (all other debt, equity,
mortgage-backed and mortgage related securities) which are to be reported
at fair value, with unrealized gains and losses reported net of tax as a
separate component of retained earnings. The Bank classified all of its
holdings of debt, readily-marketable equity, mortgage-backed and mortgage
related securities at January 1, 1994 as either "held-to-maturity" or
"available-for-sale," thereafter, at the time of new securities
purchases, a determination is made as to the appropriate classification.
Realized and unrealized gains and losses on trading securities are
included in net income. Unrealized gains and losses on securities
available-for-sale are recognized as direct increases or decreases in
retained earnings, net of any tax effect. Cost of securities sold is
recognized using the specific identification method.
Mortgage-backed Securities
--------------------------
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at the unpaid
principal balances, adjusted for unamortized premiums and unearned
discounts. Premiums and discounts are amortized using methods
approximating the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. Management
intends and has the ability to hold such securities to maturity. The Bank
has classified all mortgage-backed securities in its portfolio as held to
maturity. Should any be sold, cost of securities sold is determined using
the specific identification method.
F-7
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Loans Held for Sale
-------------------
Mortgage loans originated and held for sale in the secondary market are
carried at the lower of cost or market value determined on an aggregate
basis. Net unrealized losses are recognized in a valuation allowance
through charges to income. Gains and losses on the sale of loans held for
sale are determined using the specific identification method.
Real Estate Acquired in Settlement of Loans
-------------------------------------------
Real estate acquired in settlement of loans includes property acquired
through foreclosure and deeds in lieu of foreclosure. Property acquired
by deed in lieu of foreclosure results when a borrower voluntarily
transfers title to the Bank in full settlement of the related debt in an
attempt to avoid foreclosure. Real estate acquired in settlement of loans
is valued at the date of acquisition and thereafter at the lower of fair
value less costs to sell or the Bank's net investment in the loan and
subsequent improvements to the property. Certain costs relating to
holding the properties, and gains or losses resulting from the
disposition of properties are recognized in the current period's
operations.
Office Properties and Equipment
-------------------------------
Depreciation and amortization are provided over the estimated useful lives
of the respective assets which range from 3 to 40 years. All office
properties and equipment are recorded at cost and are depreciated on the
straight-line method.
Income Taxes
------------
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. To the
extent that current available evidence about the future raises doubt
about the realization of a deferred tax asset, a valuation allowance must
be established. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
The Bank files a consolidated federal income and combined state franchise
and excise tax return. Each of the members of the consolidated group
accrues tax expense on a separate entity basis.
Pension and Savings Plans
-------------------------
The Bank has a noncontributory, defined benefit employee pension plan and a
401(k) savings plan covering substantially all employees upon attainment
of age 21 and completion of one year of service. The Bank contributes
actuarially determined amounts necessary to fund defined plan benefits of
at least the minimum amount required by the Employee Retirement Income
Security Act of 1974, as amended.
F-8
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Loans Receivable
----------------
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts. Unearned
discounts on installment loans are recognized as income over the term of
the loans using the sum-of-the-months digits method that approximates the
interest method.
Loan origination and commitment fees, as well as certain origination costs,
are deferred and amortized as a yield adjustment over the lives of the
related loans adjusted for estimated prepayments based on the Bank's
historical prepayment experience, using the interest method. Loans are
placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more.
Any unpaid interest previously accrued on these loans is reversed from
income and an allowance for accrued interest is recorded.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb losses inherent in the loan
portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the
nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. Allowances
for impaired loans are generally determined based on collateral values or
the present value of estimated cash flows. The allowance is increased by
a provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries. Changes in the allowance relating to
impaired loans are charged or credited to the provision for loan
losses.
In May 1993, SFAS 114, Accounting by Creditors for Impairment of a Loan was
issued. The statement is effective for financial statements for fiscal
years beginning after December 15, 1994. According to SFAS 114,
impairment is measured based upon the present value of expected future
cash flows or fair value of the loan's collateral, if collateral
dependent.
In October 1994, SFAS 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures was issued. SFAS 118 is also
effective for fiscal years beginning after December 15, 1994 and amends
SFAS 114 to allow a creditor to use existing methods for recognizing
interest income on an impaired loan. This statement also amends the
disclosure requirements of SFAS 114 to require information about the
recorded investment in certain impaired loans and about how a creditor
recognizes interest income related to those impaired loans. The Bank
adopted SFAS 114 and SFAS 118 on January 1, 1995. The adoption of SFAS
114 and SFAS 118 did not have a significant effect on the Bank's
consolidated financial statements.
F-9
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Fair Values of Financial Instruments
------------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
consolidated balance sheets for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instruments. Fair value estimates
are made at a point in time, based on relevant market information and
information about the financial instrument. Accordingly, such estimates
involve uncertainties and matters of judgment and therefore cannot be
determined with precision. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Bank.
The following are the more significant methods and assumptions used by the
Bank in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement
of financial condition for cash and cash equivalents approximate those
assets' fair values, because they mature within 90 days or less and do
not present credit risk concerns.
Investment securities and mortgage-backed securities: Fair values for
investment securities and mortgage-backed securities are based on quoted
market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans receivable: The fair values for loans receivable are estimated using
discounted cash flow analysis which considers future repricing dates and
estimated repayment dates, and further using interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future
expected loss experience and risk characteristics.
Loans held for sale: Fair value is based on investor commitments, or in the
absence of such commitments, on current investor yield requirements.
Accrued interest receivable: Fair value is estimated to approximate the
carrying amount because such amounts are expected to be received within
90 days or less and any credit concerns have been previously considered
in the carrying value.
F-10
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Fair Values of Financial Instruments (Continued)
------------------------------------
Deposits: The fair values disclosed for deposits with no stated maturity
such as demand deposits, interest-bearing checking accounts and passbook
savings accounts are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying amounts). The fair
values for certificates of deposit and other fixed maturity time deposits
are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on such type accounts to a
schedule of aggregated contractual maturities on such time deposits.
Advance from Federal Home Loan Bank: This advance matures within 90 days of
the balance sheet date; therefore, the carrying value will approximate
fair value.
Accrued interest payable: The carrying amount will approximate fair value
as the majority of such interest will be paid within 90 days or less.
Commitments to extend credit: Commitments to extend credit were evaluated
and fair value was estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.
Sale and Servicing of Mortgage Loans
------------------------------------
The Bank sells mortgage loans for cash proceeds equal to the principal
amount of the loans sold but with yield rates which reflect the current
market rate. Gain or loss is recorded at the time of sale in an amount
reflecting the difference between the contractual interest rates of the
loans sold and the current market rate. Certain loans are sold with the
servicing retained by the Bank. Servicing income is recognized as
collected and is based on the normal agency servicing fee as defined by
GNMA, FNMA, or FHLMC. In May 1994, SFAS 122, Accounting for Mortgage
Servicing Rights was issued. SFAS 122 is effective for fiscal years
beginning after December 15, 1995, with earlier adoption permitted. The
statement amends SFAS 65, Accounting for Certain Mortgage Banking
Activities, to require that a mortgage banking enterprise recognize, as
separate assets, rights to service mortgage loans for others, however
acquired. For mortgage servicing rights that are created through the
origination of mortgage loans, and where the loans are subsequently sold
or securitized with servicing rights retained, the statement requires
that the total cost of the mortgage loans should be allocated to the
mortgage servicing rights and the loans based on their relative fair
values. The statement also requires the assessment of capitalized
mortgage servicing rights for impairment to be based on the current fair
value of those rights and recognized through a valuation allowance. The
Bank adopted SFAS 122 effective January 1, 1996, the impact of which was
not material to its financial statements.
Fees earned for servicing loans are reported as income when the related
mortgage loan payments are collected. Mortgage servicing rights (MSRs)
are amortized, as a reduction to loan service fee income, using the
interest method over the estimated remaining life of the underlying
mortgage loans. MSR assets are carried at fair value and impairment, if
any, is recognized through a valuation allowance. The Bank primarily
sells its mortgage loans on a non-recourse basis.
F-11
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Effect of New Accounting Pronouncements
---------------------------------------
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
statement supersedes SFAS No. 122, Accounting for Mortgage Servicing
Rights. The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. After a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when
extinguished.
This Statement requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be
initially measured at fair value, if practicable. It also requires
that servicing assets and other retained interests in the transferred
assets be measured by allocating the previous carrying amount between
the assets sold, if any, and retained interests, if any, based on
their relative fair values at the date of the transfer. This Statement
requires that servicing assets and liabilities be subsequently
measured by (a) amortization in proportion to and over the period of
estimated net servicing income or loss and (b) assessment for asset
impairment or increased obligation based on their fair values. This
Statement requires that debtors reclassify financial assets pledged as
collateral and that secured parties recognize those assets and their
obligation to return them in certain circumstances in which the
secured party has taken control of those assets.
This Statement requires that a liability be derecognized if and only if
either (a) the debtor pays the creditor and is relieved of its
obligation for the liability or (b) the debtor is legally released
from being the primary obligor under the liability either judicially
or by the creditor. Therefore, a liability is not considered
extinguished by an in-substance defeasance.
This Statement is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after January 1, 1998 as
deferred by SFAS 127, and is to be applied prospectively. The impact
on the financial statements for implementation of the Statement is not
expected to be material.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. The
statement establishes standards for computing and presenting earnings
per share ("EPS") and applies to entities with publicly-held common
stock or potential common stock. It replaces the presentation of
primary EPS with a presentation of basic EPS and requires the dual
presentation of basic and diluted EPS on the face of the income
statement. This statement is effective for financial statements issued
for periods ending after December 15, 1997 including interim periods;
earlier applications not permitted. This statement requires
restatement of all prior period EPS data presented.
F-12
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Effect of New Accounting Pronouncements (Continued)
---------------------------------------
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure. The statement establishes standards for
disclosing information about an entity's capital structure and applies
to all entities. This statement continues the previous requirements to
disclose certain information about an entity's capital structure found
in Accounting Principles Board ("APB") Opinions No. 10, Omnibus
Opinion - 1966, and No. 15, Earnings Per Share, and SFAS No. 47,
Disclosure of Long-Term Obligations, for entities that were subject to
those standards. This statement is effective for financial statements
for periods ending after December 15, 1997. This statement contains no
change in disclosure requirements for entities that were previously
subject to the requirements of APB Opinions Nos. 10 and 15 and SFAS
No. 47. The adoption of the provisions of this statement is not
expected to have a material impact on the Bank.
In July 1997, the FASB issued SFAS No. 130, Comprehensive Income. The
statement establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. It
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is presented with the same prominence as
other financial statements. This statement requires that companies (i)
classify items of other comprehensive income by their nature in a
financial statement and (ii) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial
condition. This statement is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comprehensive purposes is required.
In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information. The statement establishes
standards for disclosure about operating segments in annual financial
statements and selected information in interim financial reports. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This statement
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. This statement becomes effective for the Bank's fiscal
year ending December 31, 1998, and requires that comparative
information from earlier years be restated to conform to its
requirements. The adoption of the provisions of this statement is not
expected to have a material impact on the Bank.
F-13
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Unaudited Financial Information
-------------------------------
Information as of September 30, 1997 and for the nine month periods ended
September 30, 1997 and 1996 is unaudited. The unaudited information
furnished reflects all adjustments, which consist solely of normal
recurring accruals, which are, in the opinion of management, necessary
for a fair presentation of the financial position at September 30,
1997 and the results of operations and cash flows for the nine-month
periods ended September 30, 1997 and 1996. The results of the nine-
month periods are not necessarily indicative of the results of the
Bank which may be expected for the entire year.
Reclassification:
-----------------
Certain amounts in the December 31, 1995 financial statements have been
reclassified to conform with December 31, 1996 financial statement
presentation.
(2) Cash:
----
The Bank is required to maintain cash on hand or in the Federal Reserve
Bank account for various regulatory purposes. During 1997 and 1996,
such required cash averaged approximately $1,400,000 and $2,000,000,
respectively.
(3) Investment Securities Held to Maturity and Investment Securities Available
--------------------------------------------------------------------------
for Sale:
--------
The amortized cost and estimated fair values of investment securities held
to maturity and available for sale at September 30, 1997, December 31,
1996 and 1995, are as follows:
Investment securities held to maturity:
<TABLE>
<CAPTION>
September 30, 1997 (Unaudited)
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government agencies $3,700 5 2 3,703
============= ============= ============= =======
<CAPTION>
December 31, 1996
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government agencies $7,705 12 15 7,702
=========== ============ ============ ========
</TABLE>
F-14
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(3) Investment Securities Held to Maturity and Available-for-Sale: (Continued)
--------------------------------------------------------------------------
Investment securities held to maturity: (Continued)
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government agencies $35,550 104 31 35,623
============= ============== ============= ============
</TABLE>
Investment securities available for sale:
<TABLE>
<CAPTION>
September 30, 1997 (Unaudited)
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government agencies $10,118 - 11 10,107
============ ============= ============= =========
</TABLE>
The amortized cost and estimated market value of investment securities held to
maturity and available-for-sale at September 30, 1997, by contractual
maturity, are shown below.
Investment securities held to maturity:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government agencies:
Maturing within one year $3,000 3,005
Maturing from one to five years 700 698
------- -------
$3,700 3,703
======= =======
</TABLE>
F-15
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(3) Investment Securities Held to Maturity and Available-for-Sale: (Continued)
-------------------------------------------------------------
Investment securities available-for-sale:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
(Unaudited)
<S> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government agencies:
Maturing within one year $ 5,040 5,034
Maturing from one to five years 5,078 5,073
------- ---------
$10,118 10,107
======= =========
</TABLE>
The amortized cost and estimated market value of investment securities held to
maturity at December 31, 1996, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government agencies:
Maturing within one year $6,004 6,011
Maturing from one to five years 1,701 1,691
------ ---------
$7,705 7,702
====== =========
</TABLE>
The amortized cost and estimated market value of investment securities held to
maturity at December 31, 1995, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government agencies:
Maturing within one year $15,047 15,052
Maturing from one to five years 20,503 20,571
------- ------
$35,550 35,623
======= ======
</TABLE>
At September 30, 1997, December 31, 1996 and 1995, investment securities with
amortized cost values of $2,000,529, $2,000,000 and $9,032,217, respectively,
were pledged as collateral as permitted or required by law.
There were no sales of investment securities available-for-sale in the years
ended December 31, 1996, 1995, and 1994, or in the unaudited nine months ended
September 30, 1997 and 1996.
F-16
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(4) Mortgage-backed Securities:
--------------------------
The amortized cost and estimated fair values of mortgage-backed securities
at September 30, 1997, December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
September 30, 1997 (Unaudited)
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ 430 9 - 439
FNMA 903 12 5 910
------ ----- ----- ------
Total mortgage-backed securities $1,333 21 5 1,349
====== ===== ===== ======
<CAPTION>
December 31, 1996
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ 459 3 2 460
FNMA 960 4 7 957
------ ----- ----- -----
Total mortgage-backed securities $1,419 7 9 1,417
====== ===== ===== =====
<CAPTION>
December 31, 1995
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S>
Mortgage-backed securities:
FHLMC $ 520 1 2 519
FNMA 1,021 - 6 1,015
------ ----- ----- -----
Total mortgage-backed securities $1,541 1 8 1,534
====== ===== ===== =====
</TABLE>
There were no sales of mortgage-backed securities in the years ended December
31, 1996, 1995, and 1994 or in the unaudited nine months ended September 30,
1997 and 1996.
F-17
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(5) Loans Held-for-Sale, Net and Loans Receivable Held for Investment, Net:
----------------------------------------------------------------------
Loans held for sale, net are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1997 1996 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
One-to-four family loans $4,149 5,253 3,689
------ ----- -----
Total loans held for sale, net $4,149 5,253 3,689
====== ===== =====
</TABLE>
The Bank originates most fixed rate loans for immediate sale to the Federal
National Mortgage Association (FNMA) or other investors. Generally, the
sale of such loans is arranged at the time the loan application is received
through commitments.
Loans receivable at September 30, 1997 and December 31, 1996 and 1995,
consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
-------------- ----------------
1997 1996 1995
-------------- ------- -------
(Unaudited)
<S> <C> <C> <C>
Loans secured by first mortgages on real estate:
One-to-four family $ 84,036 81,279 72,302
Multi-family 1,385 2,847 1,705
Land 10,634 18,799 13,816
Commercial real estate 37,104 30,099 22,140
Construction and development 68,794 61,032 47,416
-------- ------- -------
Total first mortgage loans 201,953 194,056 157,379
Second mortgage loans 2,829 1,964 941
Commercial loans 22,136 20,698 14,771
Consumer loans 30,405 28,533 25,713
-------- ------- -------
257,323 245,251 198,804
Less:
Loans in process 33,201 36,573 32,615
Allowance for loan losses 2,801 2,123 1,997
Deferred loan fees, net 762 702 560
Loans held for sale 4,149 5,253 3,689
-------- ------- -------
Loans receivable, net $216,410 200,600 159,943
======== ======= =======
</TABLE>
F-18
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(5) Loans Held-for-Sale, Net and Loans Receivable Held for Investment, Net:
----------------------------------------------------------------------
(Continued)
Loans are presented net of loans serviced for the benefit of others
totaling approximately $116.7 million, $120.5 million, $123.3 million,
$132.8 million and $139.2 million at September 30, 1997 and 1996 and
December 31, 1996, 1995 and 1994, respectively. Servicing loans for others
generally consists of collecting mortgage payments, maintaining escrow
amounts, disbursing payments to investors and foreclosure processing.
Impaired loans and related allowances for loan losses have been identified
and calculated in accordance with the provisions of SFAS 114. The total
allowance for loan losses has been determined in accordance with the
provisions of SFAS 5, Accounting for Contingencies. As such, the Bank has
provided amounts for anticipated losses that exceed the immediately
identified losses associated with loans that have been deemed impaired.
Provisions have been made and established accordingly, based upon
experience and expectations, for losses associated with the general
population of loans, specific industry and loan types, including
residential and consumer loans which are not subject to the provisions of
SFAS 114.
No loans were considered impaired at September 30, 1997 and December 31,
1996.
Activity in the allowance for loan losses, consisted of the following:
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
---------------- -------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $2,123 1,997 1,997 1,776 1,681
Provision for loan losses 700 90 120 80 113
Recoveries 14 211 218 192 59
Charge-offs (36) (212) (212) (51) (77)
------ ----- ----- ----- -----
Balance at end of period 2,801 2,086 2,123 1,997 1,776
====== ===== ===== ===== =====
</TABLE>
Nonaccrual loans totaled approximately $59,000, $51,000 and $107,000 at
September 30, 1997, December 31, 1996 and 1995, respectively. Interest
income foregone on such loans was approximately $8,700, $7,725, $10,300,
$21,100 and $45,300 during the nine month periods ended September 30, 1997
and 1996 and the years ended December 31, 1996, 1995 and 1994,
respectively. The Bank is not committed to lend additional funds to
borrowers whose loans have been placed on a nonaccrual basis.
F-19
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(5) Loans Held-for-Sale, Net and Loans Receivable Held for Investment, Net:
----------------------------------------------------------------------
(Continued)
Loans in arrears three months or more were as follows:
<TABLE>
<CAPTION>
Amount % of loans
------ ----------
<S> <C> <C>
September 30, 1997 (unaudited) $108 0.05%
==== ====
December 31, 1996 $ 25 0.01%
==== ====
December 31, 1995 $ 97 0.06%
==== ====
</TABLE>
The Bank's policy is to make consumer and mortgage loans to directors,
officers, and employees pursuant to board of directors' approval.
The following summarizes the activity of these loans:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ---------------
1997 1996 1995
----- ---- ----
(Unaudited)
<S> <C> <C> <C>
Balance at beginning of period $ 542 104 122
New loans 320 645 121
Principal repayments (253) (207) (139)
----- ---- ----
Balance at end of period $ 609 542 104
===== ==== ====
</TABLE>
In the opinion of management, such loans were made on substantially the
same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other borrowers and did not
involve more than the normal risk of collectibility or present other
unfavorable features.
(6) Office Properties and Equipment, Net:
------------------------------------
Office properties and equipment, less accumulated depreciation and
amortization, consisted of the following at September 30, 1997 and
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Land $ 2,525 2,088 1,543
Office buildings 3,759 3,363 3,125
Furniture, fixtures, and equipment 5,760 4,422 3,425
Leasehold improvements 150 150 150
Automobiles 102 96 106
Construction in process 144 8 165
------- ------ -----
12,440 10,127 8,514
Less accumulated depreciation and amortization 4,576 3,924 3,228
------- ------ -----
Office properties and equipment, net $ 7,864 6,203 5,286
======= ====== =====
</TABLE>
F-20
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(7) Required Investment in Stock of Federal Home Loan Bank:
------------------------------------------------------
The Bank is a member of the Federal Home Loan Bank (FHLB). As a member of
this system, the Bank is required to maintain an investment in capital
stock of the Federal Home Loan Bank of Cincinnati in an amount equal to
the greater of 1% of residential mortgage loans and mortgage-backed
securities, or .3% of total assets of the Bank. At December 31, 1996, no
additional investments are required. No ready market exists for the stock,
and it has no quoted market value, but may be redeemed for face value by
the FHLB if the Bank withdraws its membership. Accordingly, this
investment is carried at the Bank's historical cost.
(8) Mortgage Servicing Rights:
--------------------------
An analysis of the activity for originated mortgage servicing rights is as
follows:
<TABLE>
<S> <C>
Balance of adoption of Statement of
Financial Accounting Standards
No. 122 on January 1, 1996 $ -
Originations 29
Amortization (6)
----------
Balance, December 31, 1996 23
Originations (unaudited) 176
Amortization (unaudited) (34)
----------
Balance, September 30, 1997 (unaudited) $ 165
==========
</TABLE>
(9) Deposits:
--------
Savings, demand, and time deposit account balances are summarized as
follows:
<TABLE>
<CAPTION>
September 30, 1997
------------------------
(Unaudited)
Weighted
Type of Account Average Rate Amount
--------------- ------------- ------
<S> <C> <C>
Personal accounts - % $ 24,757
NOW accounts 1.70 29,981
Savings accounts 2.00 15,202
Certificates of deposit 5.52 132,108
Money market accounts 4.34 39,902
---------
$241,950
=========
</TABLE>
F-21
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(9) Deposits: (Continued)
---------------------
<TABLE>
<CAPTION> December 31, 1996
---------------------
Weighted
Type of Account Average Rate Amount
--------------- ------------ ------
<S> <C> <C>
Personal accounts - % $ 19,844
NOW accounts 1.69 27,735
Savings accounts 1.99 15,806
Certificates of deposit 5.38 122,649
Money market accounts 4.32 28,499
--------
$214,533
========
December 31, 1995
-----------------------
Weighted
Type of Account Average Rate Amount
--------------- ------------ ------
<S> <C> <C>
Personal accounts - % $ 19,877
NOW accounts 2.10% 24,325
Savings accounts 2.20% 17,228
Certificates of deposit 5.51% 114,859
Money market accounts 4.04% 20,445
--------
$196,734
========
</TABLE>
Scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
September 30, 1997
--------------------------
(Unaudited)
Weighted
Type of Account Average Rate Amount Percent
--------------- ------------ ------ -------
<S> <C> <C> <C>
1 year or less 5.51% $112,254 84.97%
Greater than 1 year through 2 years 5.51 14,155 10.72
Greater than 2 years through 3 years 6.32 3,254 2.46
Greater than 3 years through 4 years 5.59 996 0.75
Greater than 4 years through 5 years 5.66 1,449 1.10
Over 5 years - - -
-------- --------
$132,108 100.00%
======== ========
</TABLE>
F-22
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(9) Deposits: (Continued)
--------
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------
Weighted
Type of Account Average Rate Amount Percent
--------------- ------------ ------- -------
<S> <C> <C> <C>
1 year or less 3.77% $ 92,104 75.10%
Greater than 1 year through 2 years 5.58 22,487 18.33
Greater than 2 years through 3 years 5.82 4,902 4.00
Greater than 3 years through 4 years 6.06 3,153 2.57
Greater than 4 years through 5 years 6.24 3 -
Over 5 years - - -
------- --------
$122,649 100.00%
======= ========
<CAPTION>
December 31, 1995
---------------------------------------
Weighted
Type of Account Average Rate Amount Percent
--------------- ------------ ------ -------
<S> <C> <C> <C>
1 year or less 3.91% $ 87,650 76.31%
Greater than 1 year through 2 years 5.66% 13,832 12.04
Greater than 2 years through 3 years 5.74% 6,528 5.68
Greater than 3 years through 4 years 6.03% 6,816 5.93
Greater than 4 years through 5 years 5.59% 33 0.04
Over 5 years - % - -
-------- -------
$114,859 100.00%
======== =======
</TABLE>
Certificates of deposit in excess of $100,000 were approximately $25.9
million, $20.9 million and $18.8 million at September 30, 1997 (unaudited)
and at December 31, 1996 and 1995, respectively.
The FDIC insures deposits of account holders up to $100,000 per insured
depositor. To provide for this insurance, the Bank must pay a risk-based
annual assessment which considers the financial soundness of the
institution and capitalization level (note 17). At December 31, 1996, the
Bank was assessed at the FDIC's lowest assessment level, as a well
capitalized institution.
F-23
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(9) Deposits: (Continued)
--------
Interest expense on deposit balances is summarized as follows:
<TABLE>
<CAPTION>
Nine months Years ended
ended September 30, December 31,
------------------- ------------
(Unaudited)
1997 1996 1996 1995 1994
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Savings accounts $ 227 272 351 398 353
Money market and NOW accounts 1,396 1,181 1,595 1,145 800
Certificates of deposit 5,192 4,664 6,322 6,153 5,027
------ ----- ----- ----- -----
$6,815 6,117 8,268 7,696 6,180
====== ===== ===== ===== =====
</TABLE>
(10) Advance from the Federal Home Loan Bank:
---------------------------------------
As of September 30, 1997, December 31, 1996 and 1995, no funds are owed to
the Federal Home Loan Bank of Cincinnati (FHLB). Available advances were
$10,000,000 at December 31, 1996 and $12,100,000 at September 30, 1997
(unaudited) and are secured by a blanket agreement to maintain residential
first mortgage loans with a principal value of 150% of the outstanding
advances and has a variable interest rate. At September 30, 1997 and
December 31, 1996, there were no draws outstanding against advance line.
By pledging additional residential first mortgage loans, the Bank can
increase its borrowings from the FHLB to $45,254,666 (unaudited) at
September 30, 1997.
(11) Income Taxes:
-------------
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Nine months Years ended
ended September 30, December 31,
---------------------- --------------------------
(Unaudited)
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current income tax expense:
Federal $1,640 1,238 1,775 1,541 1,428
State 337 144 210 210 183
------ ----- ----- ----- -----
Total current income tax expense 1,977 1,382 1,985 1,751 1,611
------ ----- ----- ----- -----
Deferred income tax expense (benefit):
Federal (385) (235) (215) (35) (64)
State (45) (18) (16) (5) (9)
------ ----- ----- ----- -----
Total deferred income tax benefit (430) (253) (231) (40) (73)
------ ----- ----- ----- -----
Income tax expense $1,547 1,129 1,754 1,711 1,538
====== ===== ===== ===== =====
</TABLE>
F-24
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(11) Income Taxes: (Continued)
------------
The following table presents a reconciliation of the provision for income
taxes as shown in the consolidated statements of earnings with that which
would be computed by applying the statutory federal income tax rate of 34%
to earnings before income taxes.
<TABLE>
<CAPTION>
Nine months Years ended
ended September 30, December 31,
--------------------------- -----------------------------------------
(Unaudited)
1997 1996 1996 1995 1994
-------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rates $1,294 34.0% 1,009 34.0 1,553 34.0 1,670 34.0 1,359 34.0
Increases (decrease) in taxes
resulting from:
State income tax, net of
federal effect 193 5.0 83 2.8 128 2.8 136 2.8 115 2.9
Other, net 60 1.7 37 1.2 73 1.6 (95) (2.0) 64 1.6
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total income tax expense $1,547 40.7% 1,129 38.0 1,754 38.4 1,711 34.8 1,538 38.5
===== ===== ====== ===== ===== ==== ===== ==== ===== ====
</TABLE>
During 1996, legislation was passed which repealed the percentage of
taxable income reserve method of accounting for bad debts being utilized
by the Bank, effective for tax years beginning after 1995. The new law
required that, prospectively, the Bank account for bad debts utilizing the
experience reserve method beginning in tax year 1996.
The law also required that the Bank would be taxed on "applicable excess
reserves" which is determined by calculating the difference between the
balance of reserves as of the tax year ended 1995 and pre-1988 reserves.
These "applicable excess reserves" will be taxed over a six-taxable year
period beginning in 1996 unless a residential loan requirement is met. If
the residential loan requirement is met in 1996 and 1997, the payment of
the tax will commence in 1998. The Bank met the requirement in 1996.
The Bank's computed "applicable excess reserves" totaled $1,956,670 and,
based on an effective tax rate of 34%, would render additional tax of
$665,268. This computed tax is recorded as income taxes payable as of
December 31, 1996 and September 30, 1997 (unaudited).
The tax effects of temporary differences that give rise to the significant
portions of deferred tax asset and liabilities at September 30, 1997
(unaudited) and December 31, 1996 and 1995, are as follows:
F-25
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(11) Income Taxes: (Continued)
-------------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
----- ----- -----
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Loans receivable, allowance for loan losses $1,063 806 680
Deferred loan fees 289 266 192
Office properties and equipment 188 - -
Excess mortgage servicing asset 9 18 26
Other 2 2 4
----- ----- -----
Total deferred tax asset 1,551 1,092 902
----- ----- -----
Deferred tax liabilities:
FHLB stock 306 275 212
Office properties and equipment - 8 55
Tax bad debt reserve - - 60
Other 60 54 52
----- ----- -----
Total deferred tax liability 366 337 379
----- ----- -----
Net deferred tax asset $1,185 755 523
===== ===== =====
</TABLE>
SFAS No. 109, Accounting for Income Taxes, requires that the tax benefit of
deductible temporary differences be recorded as an asset to the extent
that management assesses the utilization of such temporary differences to
be "more likely than not." In accordance with SFAS No. 109, the
realization of tax benefits of deductible temporary differences depends on
whether the Bank has sufficient taxable income within the carryback and
carryforward period permitted by tax law to allow for utilization of the
deductible amounts. Taxable income in the carryback period and estimates
of taxable income in the carryforward period were expected to be
sufficient to utilize such differences. As such, no valuation allowance
was established at September 30, 1997 (unaudited), December 31, 1996 or
December 31, 1995.
(12) Pension Plan:
------------
The Bank sponsors a defined benefit pension plan and a 401(k) savings plan
to provide employees income at retirement. All employees of the Bank are
eligible to participate in both plans upon attainment of age 21 and
completion of one year of service. Both plans are administered by a
pension committee appointed by the Board of Directors of the Bank.
Under the defined benefit pension plan, the Bank contributes actuarially
determined amounts necessary to fund plan benefits of at least the minimum
amount required by the Employee Retirement Income Security Act of 1974, as
amended. No contributions are required or allowed by employees.
F-26
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(12) Pension Plan: (Continued)
------------
Net pension expense included the following components for the years ended
December 31, 1996 and 1995 (the latest valuation dates):
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost for benefits earned during the period $ 151 111 140
Interest cost on projected benefit obligation 104 86 86
Actual net return on plan assets (84) (169) 12
Net amortization and deferrals (1) 99 (56)
----- ---- ----
Net periodic pension expense $ 170 127 182
===== ==== ====
</TABLE>
The following table sets forth the defined benefit pension plan's funded status
and amounts recognized in the Bank's consolidated balance sheets for December
31, 1996 and 1995 (the latest valuation dates).
<TABLE>
<CAPTION>
December 31,
---------------
1996 1995
------- ------
<S> <C> <C>
Plan assets at fair value, primarily bonds $1,312 1,144
====== =====
Actuarial present value of benefit for service
rendered to date:
Accumulated benefit obligation, including vested
benefits of $714,198 and $660,838, respectively $ 812 739
Additional benefits based on projected future
compensation 832 844
------ -----
Projected benefit obligation 1,644 1,583
====== =====
Plan assets less than projected benefit obligation (332) (439)
Unrecognized prior service cost 39 43
Unrecognized net loss from past experience,
different from that assumed and effects of changes
in assumptions 521 631
Unrecognized net transition asset at January 1, 1989 (109) (120)
------ -----
Prepaid pension benefit $ 119 115
====== =====
</TABLE>
The weighted average discount rate used in determining the actuarial present
value was 7% for the years ended December 31, 1996 and 1995, respectively. The
rate of increase in future compensation levels used in determining the
actuarial present value was 5% for the years ended December 31, 1996 and 1995,
respectively. The expected long-term rate of return on plan assets was 8% in
1996 and 1995.
F-27
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(12) Pension Plan: (Continued)
------------
On January 1, 1993, management adopted the 401(k) savings plan (the Plan)
for employees of the Bank. Employees may enter the plan on January 1 or
July 1, whichever occurs first, after completion of eligibility
requirements. Management has contributed 2% of employees' earnings to the
Plan on the employees' behalf. Employees are allowed to contribute up to
15% of earnings and, in addition, management will match employee
contributions up to 3%. The expense incurred by the Plan for the nine
months ended September 30, 1997 and 1996 and for the years ended December
31, 1996, 1995 and 1994 was $126,795, $115,530 and $142,584,$141,523,
and $148,847 respectively.
(13) Retained Earnings:
-----------------
The Bank has been allowed a special bad debt deduction for Federal income
tax purposes, limited generally to 8% of otherwise taxable income and
subject to certain limitations based on aggregate loans and savings
account balances at the end of the year. The Bank could use each year for
Federal income tax purposes the greater of this percentage deduction or
actual charge-offs of loans. If the amounts that qualify as deductions
under the percentage method for Federal income tax purposes are later used
for purposes other than for bad debt losses, they would be subject to
Federal income tax at the then current corporate rate. During 1996,
legislation was passed prohibiting the utilization of percentage of
taxable income reserve method (see note 11). Retained earnings at
September 30, 1997, December 31, 1996 and 1995, include approximately
$2,800,000, $2,800,000 and $4,800,000, respectively, for which Federal
income tax has not been provided.
(14) Regulatory Matters:
------------------
The amounts for retained earnings and net earnings reported to the Office
of Thrift Supervision (OTS) agree to the amounts per the accompanying
consolidated financial statements at December 31, 1996 and 1995, and for
the years then ended.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established a capital based supervisory system of Prompt Corrective Action
(PCA) for all insured depository institutions. The regulations adopted
pursuant to FDICIA and effective December 19, 1992, established capital
categories that determine the degree of supervisory PCA to which a
depository institution could be subjected. The categories consist of "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized". An institution is
deemed to be "well capitalized" if (a) its risk-based capital ratio is 10%
or greater, (b) its Tier 1 risk-based capital ratio is 6% or greater, and
(c) its leverage ratio is 5% or greater. At September 30, 1997
(unaudited), the Bank was "well-capitalized."
When an insured depository institution's capital ratios fall below the
"well-capitalized" level it becomes subject to a series of increasingly
restrictive supervisory actions, to the point where a conservator or
receiver must be designated for a "critically undercapitalized"
institution unless certain certifications are made by the appropriate
regulatory agencies. An institution is deemed to be "critically
undercapitalized" if its ratio of Tier 1 capital to total assets is 2% or
less.
F-28
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(14) Regulatory Matters: (Continued)
------------------
The following table presents the Bank's retained earnings (equity capital)
and regulatory capital ratios as of September 30, 1997 (unaudited) and
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
September 30, 1997 (unaudited and rounded)
-----------------------------------------------------------------------------------------------------
Tier 1 Total
Core 1 risk- risk-
Equity Tangible Tangible leverage based based
capital capital equity capital capital capital
---------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Equity capital $ 29,500 29,500 29,500 29,500 29,500 29,500
Nonincludable subsidiaries - - - - - -
Unrealized loss on
available for sale
securities - 7 7 7 7 7
General valuation
allowances - - - - - 2,801
-------- -------- -------- ------- ------- -------
Regulatory capital measure $ 29,500 29,507 29,507 29,507 29,507 32,308
======== ======== ======== ======= ======= =======
Total assets $275,925
========
Adjusted total assets $ 275,925 272,604 272,604
======= ======= =======
Risk-weighted assets $246,830 246,830
======== =======
Capital ratio 10.69% 10.69% 10.82% 10.82% 11.95% 13.09%
======== ======= ====== ======= ======= =======
<CAPTION>
December 31, 1996 (rounded)
--------------------------------------------------------------------------
Tier 1 Total
Core 1 risk- risk-
Equity Tangible Tangible leverage based based
capital capital equity capital capital capital
---------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Equity capital $ 27,250 27,250 27,250 27,250 27,250 27,250
Nonincludable
subsidiaries - (2) (2) (2) (2) (4)
General valuation
allowances - - - - - 2,123
-------- ------- ------ -------- -------- -------
Regulatory capital measure $ 27,250 27,248 27,248 27,248 27,248 29,369
======== ======== ======= ======== ======== =======
Total assets $ 244,964
========
Adjusted total assets $ 244,962 242,748 242,748
======== ======= =======
Risk-weighted assets $227,556 227,748
======== =======
Capital ratio 11.12% 11.12% 11.22% 11.22% 11.97% 12.91%
======= ======== ====== ======== ======== =======
</TABLE>
F-29
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(14) Regulatory Matters: (Continued)
------------------
<TABLE>
<CAPTION>
December 31, 1995 (rounded)
-------------------------------------------------------------------------
Tier 1 Total
Core 1 risk- risk-
Equity Tangible Tangible leverage based based
capital capital equity capital capital capital
------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Equity capital $ 24,436 24,436 24,436 24,436 24,436 24,436
Nonincludable
subsidiaries - (2) (2) (2) (2) (4)
General valuation
allowances - - - - - 1,997
-------- ------- ------- ------- ------- -------
Regulatory capital measure $ 24,436 24,434 24,434 24,434 24,434 26,429
======== ======= ======= ======= ======= =======
Total assets $223,882
========
Adjusted total assets $223,880 223,841 223,841
======== ======= =======
Risk-weighted assets $184,669 184,669
======== =======
Capital ratio 10.91% 10.91% 10.91% 10.91% 13.23% 14.31%
====== ====== ====== ====== ====== ======
</TABLE>
The Bank's management believes that at December 31, 1996, that the Bank
meets all capital requirements to which it is subject.
(15) Financial Instruments with Off-Balance-Sheet Risk:
-------------------------------------------------
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend
credit, standby letters of credit, and financial guarantees. Those
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend
credit and standby letters of credit and financial guarantees written
is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making these
commitments and conditional obligations as it does for on-balance-
sheet instruments.
F-30
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(15) Financial Instruments with Off-Balance-Sheet Risk: (Continued)
-------------------------------------------------
At December 31, 1996 and 1995, unused lines of credit were approximately
$16,770,000 and $10,992,000, respectively, with the majority having
terms of one year for commercial and two to five years for consumer;
outstanding letter of credit balances were approximately $8,804,000
and $5,648,000, respectively; and commitments to originate or purchase
loans were approximately $44,715,000 and $20,651,000, respectively.
The commitments to originate loans at December 31, 1996 were composed
of variable rate loans of approximately $36,850,000 and fixed rate
loans of approximately $7,865,000. The fixed rate loans had interest
rates ranging from 7.92% to 9.33%. The commitments to originate loans
at December 31, 1995 were composed of variable rate loans of
approximately $13,044,000 and fixed rate loans of approximately
$7,607,000. The fixed rate loans had interest rates ranging from 7.5%
to 9.0%.
At September 30, 1997 (unaudited), unused lines of credit totaled
approximately $22,692,000 with the majority having terms of one year
for commercial and two to five years for consumer; the outstanding
letter of credit balance was approximately $8,131,000 and commitments
to originate or purchase loans was approximately 3,789,190. The
commitments to originate loans at September 30, 1997 (unaudited) was
composed of variable rate loans of approximately $770,165 and fixed
rate loans of approximately $3,019,025. The fixed rate loans had
interest rates ranging from 5.75% to 9.50%.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counter-party. Collateral held
varies but may include property, plant, and equipment and income-
producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to
support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. Most
guarantees extend from one to two years. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers.
F-31
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(16) Fair Value of Financial Instruments:
-----------------------------------
Information about the fair value of the financial instruments in the
consolidated balance sheets, which should be read in conjunction with
note 1 and certain other notes to the consolidated financial
statements presented elsewhere herein, is set forth as follows:
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1997 1996 1995
---------------------- --------------------- ---------------------
(Unaudited)
Estimated Estimated Estimated
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 26,691 26,691 19,519 19,519 13,935 13,935
Investment securities available
for sale 10,107 10,107 - - - -
Investment securities held to maturity 3,700 3,703 7,705 7,702 35,550 35,623
Mortgage-backed securities 1,333 1,349 1,419 1,417 1,541 1,534
Loans receivable, net 216,410 212,175 200,600 202,792 159,943 162,452
Loans available for sale 4,149 4,149 5,253 5,253 3,689 3,689
Accrued interest receivable 1,870 1,870 1,446 1,446 1,614 1,614
Required investment in stock of
the Federal Home Loan Bank 1,602 1,602 1,519 1,519 1,418 1,418
Financial liabilities:
Deposits with no stated maturity 109,842 109,842 91,884 91,884 81,875 81,875
Certificates of deposits 132,108 132,556 122,649 112,808 114,859 107,934
Off-balance sheet assets (liabilities):
Unused lines of credit - - -
Standby letters of credit - - -
Commitments to extend credit - - -
</TABLE>
(17) Federal Insurance Premiums:
--------------------------
During 1996, all Savings Association Insurance Fund (SAIF) members were
required to pay a one-time special assessment to the FDIC on SAIF-
assessable deposits to capitalize the SAIF at its target Designated
Reserve Ratio of 1.25% of insured deposits effective October 1, 1996.
The assessment was required to be applied against SAIF-assessable
deposits as of March 31, 1995 with an assessment rate of 67.5 basis
points. The expense incurred by the Bank for the nine months ended
September 30, 1997 and 1996 and the years ended December 31, 1996,
1995 and 1994 was $76,184. $1,536,641 and $1,653,727, $417,731 and
$422,768 respectively.
(18) Commitments and Contingencies:
-----------------------------
In the normal course of the Bank's business, there are outstanding various
commitments and contingent liabilities that have not been reflected in
the consolidated statements. In the opinion of management, the
financial position of the Bank will not be affected materially as a
result of such commitments and contingent liabilities.
F-32
<PAGE>
CAVALRY BANKING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(TABLE AMOUNTS IN THOUSANDS)
(18) Commitments and Contingencies: (Continued)
-----------------------------
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, after consultation with
legal counsel, the financial position of the Bank will not be affected
materially by the outcome of such legal proceedings.
The Bank's profitability depends to a large extent on its net interest
income, which is the difference between interest income on loans and
investments and interest expense on deposits. Like most financial
institutions, the Bank's interest income and interest expense are
significantly affected by changes in market interest rates and other
economic factors beyond its control. The Bank's interest earning
assets consist primarily of mortgage loans and investments which
adjust more slowly to changes in interest rates than its interest-
bearing savings deposits. Accordingly, the Bank's earnings would be
adversely affected during periods of rising interest rates.
(19) Conversion to Capital Stock Form of Ownership:
---------------------------------------------
On August 7, 1997, the Board of Directors of the Bank adopted a Plan of
Conversion (Plan), to convert from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank with
the concurrent formation of a holding company, Cavalry Bancorp, Inc.
(Company), subject to the approval by regulatory authorities and
depositors of the Bank. The conversion is expected to be accomplished
through amendment of the Bank's state charter and the sale of the
holding company's common stock in an amount equal to the consolidated
pro forma market value of the holding company and the Bank after
giving effect to the conversion. A subscription offering of the shares
of common stock will be offered initially to eligible account holders,
employee benefit plans of the Bank, supplemental eligible account
holders and other members of the Bank. Any shares of common stock not
sold in the offering are expected to be sold to the general public in
a community offering.
At the time of conversion, the Bank will establish a liquidation account
in an amount equal to its capital 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 will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each
eligible account holder will be entitled to receive 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 stockholder's 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 conversion. If the conversion is not completed, all costs will
be charged as expense. As of September 30, 1997, conversion costs of
$23,244 have been incurred.
F-33
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Cavalry Bancorp, Inc. or Cavalry Banking. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person or in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus nor any sale hereunder shall under any circumstances
create any implication that there has been no change in the affairs of Cavalry
Bancorp, Inc. or Cavalry Banking since any of the dates as of which information
is furnished herein or since the date hereof.
<TABLE>
<CAPTION>
Table of Contents Page
----------------- ----
<S> <C>
Prospectus Summary......................................................
Selected Consolidated Financial Information.............................
Risk Factors............................................................
Cavalry Bancorp, Inc....................................................
Cavalry Banking.........................................................
Use of Proceeds.........................................................
Dividend Policy.........................................................
Market for Common Stock.................................................
Capitalization..........................................................
Historical and Pro Forma Regulatory Capital Compliance..................
Pro Forma Data..........................................................
Shares to be Purchased by Management Pursuant...........................
to Subscription Rights..................................................
Cavalry Banking and Subsidiaries........................................
Consolidated Statements of Earnings.....................................
Management's Discussion and Analysis of Financial.......................
Condition and Results of Operations.....................................
Recent Developments.....................................................
Business of the Holding Company.........................................
Business of the Bank....................................................
Management of the Holding Company.......................................
Management of the Bank..................................................
Regulation..............................................................
Taxation................................................................
The Conversion..........................................................
Restrictions on Acquisition of the Holding Company......................
Description of Capital Stock of the Holding Company.....................
Registration Requirements...............................................
Legal and Tax Opinions..................................................
Experts.................................................................
Additional Information..................................................
Index to Consolidated Financial Statements..............................
</TABLE>
UNTIL THE LATER OF ____________ __, 1998, OR 25 DAYS AFTER COMMENCEMENT OF THE
SYNDICATED COMMUNITY OFFERING OF COMMON STOCK, IF ANY, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CAVALRY BANCORP, INC.
[Logo]
(Proposed Holding Company for
Cavalry Banking)
4,845,000 to 6,555,000 Shares of
Common Stock
---------------
PROSPECTUS
----------------
TRIDENT SECURITIES, INC.
_____________ __, 1998
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution(1)
<TABLE>
<CAPTION>
<S> <C>
Legal fees and expenses.................. $ 140,000
Securities marketing legal fees.......... 30,000
Printing, postage and mailing............ 130,000
Appraisal and business plan preparation.. 30,000
Accounting fees.......................... 60,000
Securities marketing fees and expenses... 531,600
Data processing fees..................... 15,000
SEC registration fee..................... 22,844
Blue Sky filing fees and expenses........ 15,000
OTS filing fees.......................... 8,400
Other expenses........................... 137,156
----------
Total............................... $1,120,000
==========
</TABLE>
________________
(1) Based on the midpoint of the Estimated Valuation Range, Trident
Securities, Inc. will receive a fee of 1.5% of the aggregate dollar amount of
stock sold (excluding shares purchased by officers and directors of the
Registrant and its affiliates, including the ESOP).
Item 14. Indemnification of Officers and Directors
Article XI of the Charter of Cavalry Bancorp, Inc. requires
indemnification of directors, officers and employees to the fullest
extent permitted by Tennessee law.
Section 48-18-502 through Section 48-18-508 of the Tennessee Business
Corporation Act sets forth circumstances under which directors,
officers, employees and agents may be insured or indemnified against
liability which they may incur in their capacities:
48-18-502 AUTHORITY TO INDEMNIFY. - (a) Except as provided in subsection
(d), a corporation may indemnify an individual made a party to a proceeding
because he is or was a director against liability incurred in the proceeding if:
(1) He conducted himself in good faith; and
(2) He reasonably believed:
(A) In the case of conduct in his official capacity with the corporation,
that his conduct was in its best interest; and
(B) In all other cases, that his conduct was at least not opposed to its
best interests; and
(3) In the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose he reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement of
subdivision (a)(2)(B).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this section.
(d) A corporation may not indemnify a director under this section:
(1) In connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation; or
(2) In connection with any other proceeding charging improper personal
benefit to him, whether or not involving action in his official capacity, in
which he was adjudged liable on the basis that personal benefit was improperly
received by him.
II-1
<PAGE>
48-18-503 MANDATORY INDEMNIFICATION. - Unless limited by its charter, a
corporation shall indemnify a director who was wholly successful, on the merits
or otherwise, in the defense of any proceeding to which he was a party because
he is or was a director of the corporation against reasonable expenses incurred
by him in connection with the proceeding.
48-18-504 ADVANCE FOR EXPENSES. - (a) A corporation may pay for or
reimburse the reasonable expenses incurred by a director who is a party to a
proceeding in advance of final disposition of the proceeding if:
(1) The director furnishes the corporation a written affirmation of his
good faith belief that he has met the standard of conduct described in (S)48-18-
502;
(2) The director furnishes the corporation a written undertaking, executed
personally or on his behalf, to repay the advance if it is ultimately determined
that he is not entitled to indemnification; and
(3) A determination is made that the facts then known to those making the
determination would not preclude indemnification under this part.
(b) The undertaking required by subsection (a)(2) must be an unlimited
general obligation of the director but need not be secured and may be accepted
without reference to financial ability to make repayment.
(c) Determinations and authorizations of payments under this section shall
be made in the manner specified in (S)48-18-506.
48-18-505 COURT ORDERED INDEMNIFICATION. - Unless a corporation's charter
provides otherwise, a director of the corporation who is a party to a proceeding
may apply for indemnification to the court conducting the proceeding or to
another court of competent jurisdiction. On receipt of an application, the
court, after giving any notice the court considers necessary, may order
indemnification if it determines:
(1) The director is entitled to mandatory indemnification under (S)48-18-
503, in which case the court shall also order the corporation to pay the
director's reasonable expenses incurred to obtain court-ordered indemnification;
or
(2) The director is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not he met the standard of
conduct set forth in (S)48-18-502 or was adjudged liable as described in (S)48-
18-502(d), but if he was adjudged so liable his indemnification is limited to
reasonable expenses incurred.
48-18-506 DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION. - (a) A
corporation may not indemnify a director under (S)48-18-502 unless authorized in
the specific case after a determination has been made that indemnification of
the director is permissible in the circumstances because he has met the standard
of conduct set forth in (S)48-18-502.
(b) The determination shall be made:
(1) By the board of directors by majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under subdivision (1), by majority vote
of a committee duly designated by the board of directors (in which designation
directors who are parties may participate), consisting solely of two (2) or more
directors not at the time parties to the proceeding;
(3) By independent special legal counsel;
(A) Selected by the board of directors or its committee in the manner
prescribed in subdivision (1) or (2); or
(B) If a quorum of the board of directors cannot be obtained under
subdivision (1) and a committee cannot be designated under subdivision (2),
selected by majority vote of the full board of directors (in which selection
directors who are parties may participate); or
(4) By the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be voted on the
determination.
(c) Authorization of indemnification and evaluation as to reasonableness
of expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation to
reasonableness of expenses shall be made by those entitled under subdivision
(b)(3) to select counsel.
II-2
<PAGE>
48-18-507 INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND AGENTS. - Unless a
corporation's charter provides otherwise:
(1) An officer of the corporation who is not a director is entitled to
mandatory indemnification under (S)48-18-503, and is entitled to apply for
court-ordered indemnification under (S)48-18-505, in each case to the same
extent as a director;
(2) The corporation may indemnify and advance expenses under this part to
an officer, employee, or agent of the corporation who is not a director to the
same extent as to a director; and
(3) A corporation may also indemnify and advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent with public
policy, that may be provided by its charter, bylaws, general or specific action
of its board of directors, or contract.
48-18-508 INSURANCE. - A corporation may purchase and maintain insurance on
behalf of an individual who is or was a director, officer, employee, or agent of
the corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust employee benefit plan, or other
enterprise, against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee, or agent,
whether or not the corporation would have the power to indemnify him against the
same liability under (S)48-18-502 or (S)48-18-503.
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
(a) List of Exhibits
INDEX TO EXHIBITS
<TABLE>
<S> <C>
1.1 - Form of proposed Agency Agreement among Cavalry Bancorp, Inc., Cavalry Banking and Trident Securities,
Inc.
1.2 - Engagement Letter between Cavalry Banking and Trident Securities, Inc. (a)
2 - Plan of Conversion of Cavalry Banking (attached as an exhibit to the Proxy Statement included
herein as Exhibit 99.5)
3.1 - Charter of Cavalry Bancorp, Inc. (a)
3.2 - Bylaws of Cavalry Bancorp, Inc. (a)
4 - Form of Certificate for Common Stock (a)
5 - Opinion of Breyer & Aguggia regarding legality of securities registered (a)
8.1 - Federal Tax Opinion of Breyer & Aguggia
8.2 - State Tax Opinion of Bass, Berry & Sims PLC
8.3 - Opinion of Ferguson & Company as to the value of subscription rights (a)
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.1 - Proposed Form of Employment Agreement For Certain Executive Officers (a)
10.2 - Proposed Form of Severance Agreement For Certain Senior Officers (a)
10.3 - Proposed Form of Severance Compensation Plan For Employees (a)
10.4 - Proposed Form of Employee Stock Ownership Plan (a)
10.5 - Cavalry Banking 401(k) Plan
21 - Subsidiaries of Cavalry Bancorp, Inc. (a)
23.1 - Consent of Rayburn, Betts & Bates, P.C.
23.2 - Consent of Breyer & Aguggia (contained in opinion included as Exhibit 5) (a)
23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion (contained in opinion included as Exhibit 8.1)
23.4 - Consent of Bass, Berry & Sims PLC as to its State Tax Opinion (contained in opinion included as Exhibit 8.2)
23.5 - Consent of Ferguson & Company (a)
24 - Power of Attorney (contained in signature page to the Registration Statement) (a)
99.1 - Order and Acknowledgement Form (a)
99.2 - Solicitation and Marketing Materials (a)
99.3 - Agreement with Ferguson & Company (a)
99.4 - Appraisal Report of Ferguson & Company
99.5 - Proxy Statement for Special Meeting of Members of Cavalry Banking
</TABLE>
_____________________
(a) Previously filed.
Financial Statements and Schedules
II-4
<PAGE>
CAVALRY BANKING
<TABLE>
<CAPTION>
Pages
<S> <C>
Independent Auditors' Report...................................... F-1
Consolidated Balance Sheets as of September 30, 1997 (unaudited)
and December 31, 1996 and 1995................................... F-2
Consolidated Statements of Income for the
Nine Months Ended September 30, 1997 and 1996 (unaudited)
and the Years Ended December 31, 1996, 1995 and 1994............. 23
Consolidated Statements of Equity for the Nine Months Ended
September 30, 1997 and 1996 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994........................... F-3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 (unaudited)
and the Years Ended December 31, 1996, 1995 and 1994............. F-4
Notes to Financial Statements..................................... F-6
</TABLE>
All schedules are omitted because the required information is either not
applicable or is included in the financial statements or related notes.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
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 and 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 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-5
<PAGE>
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") (and, where
applicable, each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amended Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Murfreesboro,
Tennessee on the 5th day of January 1998.
CAVALRY BANCORP, INC.
By: /s/Ed C. Loughry, Jr.
-------------------------------
Ed C. Loughry, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amended Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/Ed C. Loughry, Jr. President, Chief Executive Officer January 5, 1998
- -------------------------
Ed C. Loughry, Jr. and Director (Principal Executive Officer)
/s/Ronald R. Knight* Director, Chief Operating Officer January 5, 1998
- -------------------------
Ronald R. Knight and Executive Vice President
/s/Hillard C. "Bud" Gardner* Senior Vice President and Chief Financial
- --------------------------------------------
Hillard C. "Bud" Gardner Officer (Principal Financial and January 5, 1998
Accounting Officer)
/s/William H. Huddleston, III* Chairman of the Board January 5, 1998
- -------------------------------------------
William H. Huddleston, III
/s/Gary Brown* Vice Chairman of the Board January 5, 1998
- --------------------------------------------
Gary Brown
/s/Frank E. Crosslin, Jr.* Director January 5,C1998
- --------------------------------------------
Frank E. Crosslin, Jr.
/s/Tim J. Durham* Director January 5, 1998
- ------------------------------------------
Tim J. Durham
/s/Ed Elam* Director January 5, 1998
- --------------------------------------------
Ed Elam
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/James C. Cope* Director January 5, 1998
- -------------------------------------------
James C. Cope
/s/Terry G. Haynes* Director January 5, 1998
- ------------------------------------------
Terry G. Haynes
</TABLE>
* By power of attorney dated November 12, 1997.
<PAGE>
As filed with the Securities and Exchange Commission on January 5, 1998
Registration No. 333-40057
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CAVALRY BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in charter)
Tennessee 6035 62-1721072
- ------------------------------- -------------------- -------------------
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
114 WEST COLLEGE STREET
MURFREESBORO, TENNESSEE 37130
(615) 893-1234
---------------------------------------------------------------
(Address and telephone number of principal executive offices)
John F. Breyer, Jr., Esquire
Victor L. Cangelosi, Esquire
BREYER & AGUGGIA
Suite 470 East
1300 I Street, N.W.
Washington, D.C. 20005
---------------------------------
(Name and address of agent for service)
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
1.1 - Form of proposed Agency Agreement among Cavalry Bancorp, Inc., Cavalry Banking and Trident Securities,
Inc.
1.2 - Engagement Letter between Cavalry Banking and Trident Securities, Inc. (a)
2 - Plan of Conversion of Cavalry Banking (attached as an exhibit to the Proxy Statement included
herein as Exhibit 99.5)
3.1 - Charter of Cavalry Bancorp, Inc. (a)
3.2 - Bylaws of Cavalry Bancorp, Inc. (a)
4 - Form of Certificate for Common Stock (a)
5 - Opinion of Breyer & Aguggia regarding legality of securities registered (a)
8.1 - Federal Tax Opinion of Breyer & Aguggia
8.2 - State Tax Opinion of Bass, Berry & Sims PLC
8.3 - Opinion of Ferguson & Company as to the value of subscription rights (a)
10.1 - Proposed Form of Employment Agreement For Certain Executive Officers (a)
10.2 - Proposed Form of Severance Agreement For Certain Senior Officers (a)
10.3 - Proposed Form of Severance Compensation Plan For Employees (a)
10.4 - Proposed Form of Employee Stock Ownership Plan (a)
10.5 - Cavalry Banking 401(k) Plan
21 - Subsidiaries of Cavalry Bancorp, Inc. (a)
23.1 - Consent of Rayburn, Betts & Bates, P.C.
23.2 - Consent of Breyer & Aguggia (contained in opinion included as Exhibit 5) (a)
23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion (contained in opinion included as Exhibit 8.1)
23.4 - Consent of Bass, Berry & Sims PLC as to its State Tax Opinion (contained in opinion included as Exhibit 8.2)
23.5 - Consent of Ferguson & Company (a)
24 - Power of Attorney (contained in signature page to the Registration Statement) (a)
99.1 - Order and Acknowledgement Form (a)
99.2 - Solicitation and Marketing Materials (a)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
99.3 - Agreement with Ferguson & Company (a)
99.4 - Appraisal Report of Ferguson & Company
99.5 - Proxy Statement for Special Meeting of Members of Cavalry Banking
</TABLE>
______________________
(a) Previously filed.
<PAGE>
Exhibit 1.1
CALVARY BANCORP, INC.
UP TO 6,555,000 SHARES
Common Stock
(No Par Value Per Share)
$10.00 Per Share
SALES AGENCY AGREEMENT
----------------------
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Dear Sirs:
Calvary Bancorp, Inc., a Tennessee-chartered corporation (the "Company"),
and Calvary Banking, a Federally-chartered and federally insured mutual savings
bank (the "Bank"), hereby confirm, as of __________ __, 1997, their respective
agreements with Trident Securities, Inc. ("Trident"), a broker-dealer registered
with the Securities and Exchange Commission ("Commission") and a member of the
National Association of Securities Dealers, Inc., ("NASD"), as follows:
1. Introductory. The Bank intends to convert from a Federally-chartered
------------
mutual savings bank to a federally-chartered stock savings bank as a wholly
owned subsidiary of the Company (together with the Offerings, as defined below,
the issuance of shares of common stock of the Bank to the Company and the
incorporation of the Company, the "Conversion") pursuant to a plan of conversion
adopted on August 7, 1997 (the "Plan"). In accordance with the Plan the Company
is offering shares of its common stock, no par value per share (the "Shares" and
the "Common Stock"), pursuant to nontransferable subscription rights in a
subscription offering (the "Subscription Offering") to certain depositors of the
Bank and to the Bank's tax-qualified employee benefit plans (i.e., the Bank's
Employee Stock Ownership Plan (the "ESOP")). Shares of the Common Stock not sold
in the Subscription Offering may be offered to the general public in a community
offering with preference given to natural persons (including individual
retirement and Keogh retirement accounts and personal trusts in which such
natural persons have substantial interests) residing in the Bank's "Local
Community" as defined in the Plan (the Subscription and Community Offerings are
sometimes referred to collectively as the "Offerings"), subject to the right of
the Company and the Bank, in their absolute discretion to reject orders in the
Community Offering in whole or in part. In the Offerings, the Company is
offering between 4,845,000 and 6,555,000 Shares, with the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 2
possibility of offering up to 7,538,250 Shares without a resolicitation of
subscribers, as contemplated by the final regulations regarding mutual-to-stock
conversions of the Office of Thrift Supervision ("OTS"). Each Eligible Account
Holder and Supplemental Eligible Account Holder (each as defined in the Plan)
may purchase in the Subscription Offering the greater of $600,000 of the Common
Stock for a single account whether held jointly or individually, $600,000 of the
Common Stock when aggregated with purchases by an Associate of that person (as
defined in the Plan) or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Conversion Stock
to be issued by a fraction of which the numerator is the amount of the Deposit
of the Eligible Account Holder or Supplemental Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all Eligible Account
Holders or Supplemental Eligible Account Holders in the Bank on the Eligibility
Record Date; Other Members (as defined in the Plan) may purchase in the
Subscription Offering the greater of $600,000 of the Common Stock for a single
account whether held jointly or individually, $600,000 of the Common Stock when
aggregated with purchases by an Associate of that person (as defined in the
Plan) or 0.1 of 1% of the total offering of shares of Conversion Stock. Persons
purchasing shares of Common Stock in the Community Offering, together with
Associates of (as defined in the Plan) and persons Acting in Concert with such
persons (as defined in the Plan), may purchase in the Community Offering the
greater of $600,000 of the Common Stock for a single account whether held
jointly or individually, $600,000 of the Common Stock when aggregated with
purchases by an Associate of that person (as defined in the Plan), except that
the Tax-Qualified Employee Stock Benefit Plans may purchase up to 10/o of the
total shares of Conversion Stock to be issued in the Stock Conversion.
The Company and the Bank have been advised by Trident that it will utilize
its best efforts in assisting the Company and the Bank with the sale of the
Shares in the Offerings and, if deemed necessary by the Company in a syndicated
community offering. Prior to the execution of this Agreement, the Company has
delivered to Trident the Prospectus dated ____________ __, 1997 (as hereinafter
defined) and all supplements thereto to be used in the Offerings. Such
Prospectus contains information with respect to the Company, the Bank and the
Shares.
2. Representations and Warranties.
------------------------------
(a) The Company and the Bank jointly and severally represent and
warrant to Trident that:
(i) The Company has filed with the Commission a registration
statement, including exhibits and an amendment or amendments thereto,
on
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 3
Form S-1 (No. 333- )), including a Prospectus relating to the
Offerings, for the registration of the Shares under the Securities
Act of 1933, as amended (the "Act"), and such registration statement
has become effective under the Act and no stop order has been issued
with respect thereto and no proceedings therefor have been initiated
or, to the Company's best knowledge, threatened by the Commission.
Except as the context may otherwise require, such registration
statement, as amended or supplemented, on file with the Commission at
the time the registration statement became effective, including the
Prospectus, financial statements, schedules, exhibits and all other
documents filed as part thereof as amended and supplemented, is
herein called the "Registration Statement," and the prospectus, as
amended or supplemented, on file with the Commission at the time the
Registration Statement became effective is herein called the
"Prospectus," except that if the prospectus filed by the Company with
the Commission pursuant to Rule 424(b) of the general rules and
regulations of the Commission under the Act (together with the
enforceable published policies and releases of the Commission
thereunder, the "SEC Regulations") differs from the form of
prospectus on file at the time the Registration Statement became
effective, the term "Prospectus" shall refer to the Rule 424(b)
prospectus from and after the time it is filed with or mailed for
filing to the Commission and shall include any amendments or
supplements thereto from and after their dates of effectiveness or
use, respectively. If any Shares remain unsubscribed following
completion of the Subscription Offering and the Community Offering,
the Company (i) will promptly file with the Commission a post-
effective amendment to such Registration Statement relating to the
results of the Subscription and the Community Offerings, any
additional information with respect to the proposed plan of
distribution and any revised pricing information or (ii) if no such
post-effective amendment is required, will file with, or mail for
filing to, the Commission a prospectus or prospectus supplement
containing information relating to the results of the Subscription
and the Community Offerings and pricing information to Rule 424(c)
of the SEC Regulations, in either case in a form reasonably
acceptable to the Company and Trident.
(ii) The Bank has filed an Application for the Mutual-to-Stock
Conversion, including exhibits (as amended or supplemented, the
"Application") with the OTS under Home Owners' Loan Act ("HOLA") and
the enforceable rules and regulations, including published policies
and actions, of the OTS thereunder (the "OTS Regulations"), which has
been approved by
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 4
the OTS; and the Prospectus and the proxy statement for the
solicitation of proxies from members for the special meeting to
approve the Plan (the "Proxy Statement") included as part of the
Application have been approved for use by the OTS. No order has been
issued by the OTS preventing or suspending the use of the Prospectus
or the Proxy Statement, and no action by or before the OTS revolving
such approvals is pending or, to the Bank's best knowledge,
threatened.
(iii) At the date of the Prospectus and at all times subsequent
thereto through and including the Closing Date (i) the Registration
Statement and the Prospectus (as amended or supplemented, if amended
or supplemented) complied with the Act and the SEC Regulations, (ii)
the Registration Statement (as amended or supplemented, if amended or
supplemented) did not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii)
the Prospectus (as amended or supplemented, if amended or
supplemented) did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Representations or warranties in this subsection shall not apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company or the Bank relating to
Trident by or on behalf of Trident expressly for use in the
Registration Statement or Prospectus.
(iv) The Company has been duly incorporated as a Tennessee
corporation, and the Bank has been duly or as a mutual savings bank
under the laws of the United States, and each of them is validly
existing and in good standing under the laws of the jurisdiction of
its organization with full power and authority to own its property
and conduct its business as described in the Registration Statement
and Prospectus; the Bank is a member in good standing of the Federal
Home Loan Bank of Pittsburgh, and the deposit accounts of the Bank
are insured by the Savings Association Insurance Fund ("SAIF")
administered by the Federal Deposit Insurance Corporation ("FDIC") up
to the applicable legal limits. Each of the Company and the Bank is
not required to be qualified to do business as a foreign corporation
in any jurisdiction where nonqualification would have a material
adverse effect on the Company and the Bank, taken as a whole. The
Bank does not own equity securities of or an equity interest in any
business enterprise except as described in the Prospectus.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 5
Upon amendment of the Bank's charter and bylaws as provided in the
rules and regulations of the OTS and completion of the sale by the
Company of the Shares as contemplated by the Prospectus: (i) the Bank
will be converted pursuant to the Plan to a Federally-chartered
capital stock savings bank with full power and authority to own its
property and conduct its business as described in the Prospectus,
(ii) all of the authorized and outstanding capital stock of the Bank
will be owned of record and beneficially by the Company, and (iii)
the Company will have no direct subsidiaries other than the Bank. The
activities of the Bank are permissible to subsidiaries of a savings
and loan holding company by the rules, regulations, policies and
practices of the OTS.
(v) The Bank has good, marketable and insurable title to all
assets material to its business and to those assets described in the
Prospectus as owned by it, free and clear of all material liens,
charges, encumbrances or restrictions, except for liens for taxes not
yet due, except as described in the Prospectus and except as could
not in the aggregate have a material adverse effect upon the
operations or financial condition of the Bank- and all of the leases
and subleases material to the operations or financial condition of
the Bank, under which it holds properties, including those described
in the Prospectus, are in full force and effect as described therein.
(vi) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary actions on the part of each
of the Company and the Bank, and this Agreement is a valid and
binding obligation with valid execution and delivery of each of the
Company and the Bank, enforceable in accordance with its terms
(except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws relating to or
affecting the enforcement of creditors' rights generally or the
rights of creditors of depository institution holding companies the
accounts of whose subsidiaries are insured by the FDIC or by general
equity principles, regardless of whether such enforceability is
considered in a proceeding in equity or at law, and except to the
extent that the provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy or pursuant to Section 23A of
the Federal Reserve Act, 12 U.S.C. Section 371c ("Section 23A")).
(vii) There is no litigation or governmental proceeding pending
or, to the best knowledge of the Company or the Bank, threatened or
involving the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 6
Company or the Bank or any of their respective assets which
individually or in the aggregate would reasonably be expected to have
a material adverse effect on the condition (financial or otherwise),
results of operations and business, including the assets and
properties, of the Company and the Bank, taken as a whole.
(viii) The Company and the Bank have received the opinions of
Breyer & Aguggia, Washington, D.C. with respect to federal tax
consequences of the Conversion, and of Bass, Berry & Sims, P.C. with
respect to Tennessee income tax consequences of the Conversion, to
the effect that the Conversion will constitute a tax-free
reorganization under the Internal Revenue Code of 1986, as amended,
and will not be a taxable transaction for the Bank or the Company
under the laws of Tennessee, and the facts relied upon in such
opinions are accurate and complete.
(ix) Each of the Company and the Bank has all such corporate
power, authority, authorizations, approvals and orders as may be
required to enter into this Agreement and to carry out the provisions
and conditions hereof, subject to the limitations set forth herein
and subject to the satisfaction of certain conditions imposed by the
OTS in connection with its approval of the Application, and except as
may be required under the securities, or "blue sky" laws of various
jurisdictions, and in the case of the Company, as of the Closing
Date, will have such approvals and orders to issue and sell the
Shares to be sold by the Company as provided herein, and in the case
of the Bank, as of the Closing Date, will have such approvals and
orders to issue and sell the Shares of its Common Stock to be sold to
the Company as provided in the Plan, subject to the issuance of an
amended charter in the form required for Federally-chartered stock
savings banks (the "Stock Charter"), the form of which Stock Charter
has been approved by the OTS.
(x) Neither the Company nor the Bank is in violation of any
rule or regulation of the OTS that could reasonably be expected to
result in any enforcement action against the Company or the Bank or
their officers or directors that might have a material adverse effect
on the condition (financial or otherwise), operations, businesses,
assets or properties of the Company and the Bank, taken as a whole.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 7
(xi) The financial statements and any related notes or
schedules which are included in the Registration Statement and the
Prospectus fairly present the financial condition, income, equity and
cash flows of the Bank at the respective dates thereof and for the
respective periods covered thereby and comply as to form with the
applicable accounting requirements of the SEC Regulations and the
applicable regulations of the OTS. Such financial statements have
been prepared in accordance with generally accepted accounting
principles throughout the periods involved, except as set forth
therein, and such financial statements are consistent with financial
statements and other reports filed by the Bank with supervisory and
regulatory authorities except as such generally accepted accounting
principles may otherwise require. The tables in the Prospectus
accurately present the information purported to be shown thereby at
the respective dates thereof and for the respective periods therein.
(xii) There has been no material change in the condition
(financial or otherwise), results of operations or business,
including assets and properties, of the Company and the Bank, taken
as a whole, since the latest date as of which such condition is set
forth in the Prospectus, except as set forth therein, and the
capitalization, assets, properties and business of each of the
Company and the Bank conform to the descriptions thereof contained in
the Prospectus. Neither the Company nor the Bank has any material
liabilities of any kind, contingent or otherwise, except as set forth
in the Prospectus.
(xiii) There has been no breach or default (or the occurrence
of any event which, with notice or lapse of time or both would
constitute a default) under, or creation or imposition of any hen,
charge or other encumbrance upon any of the properties or assets of
the Company or the Bank pursuant to any of the terms, provisions or
conditions of, any agreement, contract, indenture, bond, debenture,
note, instrument or obligation to which the Company or the Bank is a
party or by which either of them or any of their respective assets or
properties may be bound or is subject, or violation of any
governmental license or any enforceable published law, administrative
regulation or order or court order, writ, injunction or decree, which
breach, default, encumbrance or violation would have a material
adverse effect on the condition (financial or otherwise), operations,
business, assets or properties of the Company and the Bank taken as a
whole- all agreements which are material to the condition (financial
or otherwise), results of operations or business of the Company and
the Bank taken as a whole are in full force and effect, and no party
to any such
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 8
agreement has instituted or, to the best knowledge of the Company and
the Bank, threatened any action or proceeding wherein the Company or
the Bank would be alleged to be in default thereunder.
(xiv) Neither the Company nor the Bank is in violation of its
respective articles of incorporation or charter or bylaws. The
execution and delivery hereof and the consummation of the transactions
contemplated hereby by the Company and the Bank do not conflict with
or result in a breach of the articles of incorporation or charter or
bylaws of the Company or the Bank (in either mutual or stock form) or
constitute a material breach of or default (or an event which, with
notice or lapse of time or both, would constitute a default) under,
give rise to any right of termination, cancellation or acceleration
contained in, or result in the creation or imposition of any lien,
charge or other encumbrance upon any of the properties or assets of
the Company or the Bank pursuant to any of the terms, provisions or
conditions of any material agreement, contract indenture, bond,
debenture, note, instrument or obligation to which the Company or the
Bank is a party or violate any governmental license or permit or any
enforceable published law, administrative regulation or order or court
order, writ, injunction or decree (subject to the satisfaction of
certain conditions imposed by the OTS in connection with its approval
of the Application), which breach, default, encumbrance or violation
would have a material adverse effect on the condition (financial or
otherwise), operations or business of the Company and the Bank taken
as a whole.
(xv) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and prior to the
Closing Date (as hereinafter defined), except as otherwise may be
indicated or contemplated therein, none of the Company or the Bank has
issued any securities which will remain issued at the Closing Date or
incurred any liability or obligation direct or contingent or borrowed
money, except borrowings or liabilities in the ordinary course of
business, or entered into any other transaction not in the ordinary
course of business and consistent with prior practices, which is
material in light of the business of the Company and the Bank, taken
as a whole.
(xvi) Upon consummation of the Conversion, the authorized,
issued and outstanding equity capital of the Company shall be within
the range as set forth in the Prospectus under the caption
"Capitalization," and no Common
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 9
Stock of the Company shall be outstanding immediately prior to the
Closing Date, the issuance and the sale of the Shares of the Company
have been duly authorized by all necessary action of the Company and
approved by the OTS and, when issued in accordance with the terms of
the Plan and paid for, shall be validly issued, fully paid and
nonassessable and shall conform to the description thereof contained in
the Prospectus; the issuance of the Shares is not subject to preemptive
rights, except as set forth in the Prospectus; and good title to the
Shares will be transferred by the Company upon issuance thereof against
payment therefor, free and clear of all claim encumbrances, security
interests and liens against the Company whatsoever. The certificates
representing the Shares will conform in all material respects with the
requirements of applicable laws and regulations. The issuance and sale
of the capital stock of the Bank to the Company has been duly
authorized by all necessary action of the Bank and the Company and
appropriate regulatory authorities (subject to the satisfaction of
various conditions imposed by the OTS in connection with its approval
of the Application), and such capital stock, when issued in accordance
with the term of the Plan, will be fully paid and nonassessable and
will conform in all material respects to the description thereof
contained in the Prospectus.
(xvii) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution and
delivery of this Agreement or the issuance of the Shares, except for
such approvals as have been obtained, the declaration of effectiveness
of any required post-effective amendment by the Commission and approval
thereof by the OTS, the issuance of the Stock Charter by the OTS and as
my be required under the securities laws of various jurisdictions.
(xviii) All contracts and other documents required to be filed
as exhibits to the Registration Statement or the Application have been
filed with the Commission or the OTS, as the case may be.
(xix) Rayburn, Betts & Bates, P.C., which has audited the
financial statements of the Bank as of December 31, 1996 and 1995
included in the Prospectus, is an independent public accountant within
the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants.
(xx) For the past five years, the Company and the Bank have
timely filed all required federal, state and local income or franchise
tax returns, and no
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 10
deficiency has been asserted with respect to such returns by any taxing
authorities, and the Company and the Bank have paid all taxes that have
become due and, to the best of the knowledge of the Company and the
Bank, the Company and the Bank have made adequate reserves for similar
future tax liabilities, except where any failure to make such filings,
payments and reserves, or the assertion of such a deficiency, would not
have a material adverse effect on the condition of the Company and the
Bank taken as a whole.
(xxi) All of the loans represented as assets of the Bank on
the most recent financial statements of the Bank included in the
Prospectus meet or are exempt from all requirements of federal, state or
local law pertaining to lending, including without limitation truth in
lending (including the requirements of Regulation Z and 12 C.F.R. Part
226), real estate settlement procedures, consumer credit protection,
equal credit opportunity and all disclosure laws applicable to such
loans, except for violations which, if asserted, would not have a
material adverse effect on the Company and the Bank taken as a whole.
(xxii) The records of account holders, depositors, borrowers
and other members of the Bank delivered to Trident by the Bank or its
agent for use during the Conversion have been prepared or reviewed by the
Bank and, to the best knowledge of the Company and the Bank, are reliable
and accurate.
(xxiii) None of the Company or the Bank, or, to the best
knowledge of the Company and the Bank the employees of the Company or the
Bank, has made any payment of funds of the Company or the Bank prohibited
by law, and no funds of the Company or the Bank have been set aside to be
used for any payment prohibited by law.
(xxiv) To the best knowledge of the Company and the Bank, the
Company and the Bank are in compliance with all laws, rules and
regulations relating to the discharge, storage, handling and disposal of
hazardous or toxic substances, pollutants or contaminants and neither the
Company nor the Bank believes that the Company or the Bank is subject to
liability under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or any similar law, except for
violations which, if asserted, would not have a material adverse effect
on the Company and the Bank, taken as a whole. There are no actions,
suits, regulatory investigations or other proceedings pending or, to the
best knowledge of the Company or the Bank, threatened against the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 11
Company or the Bank to the discharge, storage, handling and disposal of
hazardous or toxic substances, pollutants or contaminants. To the best
knowledge of the Company and the Bank, no disposal release or discharge
of hazardous or discharge of hazardous or toxic substances, pollutants or
contaminants, including petroleum and gas products, as any of such terms
may be defined under federal state or local law, has been caused by the
Company or the Bank or, to the best knowledge of the Company or the Bank,
has occurred on, in or at any of the facilities or properties of the
Company or the Bank, except such disposal, release or discharge which
would not have a material adverse effect on the Company and the Bank,
taken as a whole.
(xxv) At the Closing Date (as defined in Section 3 hereof),
the Company and the Bank will have completed the conditions precedent to,
and shall have conducted the Conversion in all material respects in
accordance with, the Plan, the OTS Regulations and all other applicable
laws, regulations, published decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Conversion
imposed by the OTS.
(b) Trident represents and warrants to the Company and the Bank that:
(i) Trident is registered as a broker-dealer with the
Commission, and is in good standing with the Commission and the NASD.
(ii) Trident is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with
full corporate power and authority to provide the services to be
furnished to the Company and the Bank hereunder.
(iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all action on the part of Trident, and this
Agreement is a legal, valid and binding obligation of Trident,
enforceable in accordance with its terms (except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally or the rights of creditors
of registered broker-dealers accounts of whose may be protected by the
Securities Investor Protection Corporation or by general equity
principles, regardless of whether such enforceability is considered in
a proceeding in equity or at law, and except to the extent that the
provisions of Sections 8 and 9 hereof may be
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 12
enforceable as against public policy or pursuant to Section 8 and 9
hereof may be unenforceable as against public policy or pursuant to
Section 23A).
(iv) Each of Trident and, to Trident's knowledge, its
employees, agents and representatives who shall perform any of the
services required hereunder to be performed by Trident shall be duly
authorized and shall have all licenses, approvals and permits
necessary to perform such services, and Trident is a registered
selling agent in the jurisdictions listed in Exhibit A hereto and will
remain registered in such jurisdictions in which the Company is
relying on such registration for the sale of the Shares, until the
Conversion is consummated or terminated.
(v) The execution and delivery of this Agreement by Trident,
the fulfillment of the terms set forth herein and the consummation of
the transactions contemplated hereby shall not violate or conflict
with the corporate charter or bylaws of Trident or violate, conflict
with or constitute a breach of, or default (or an event which, with
notice or lapse of time, or both would constitute a default) under,
any material agreement, indenture or other instrument by which Trident
is bound or under any governmental license or permit or any law,
administrative regulation, authorization, approval or order or court
decree, injunction or order.
(vi) Any funds received by Trident to purchase Common Stock
will be handled in accordance with Rule 15c2-4 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(vii) There is not now pending or, to Trident's knowledge,
threatened against Trident any action or proceeding before the
Commission, the NASD, any state or any state or federal court
concerning Trident's activities as a broker-dealer.
3. Employment of Trident: Sale and Delivery of the Shares. On the basis
-------------------------------------------------------
of the representations and warranties herein contained, but subject to the terms
and conditions herein set forth, the Company and the Bank hereby employ Trident
as their agent to utilize its best efforts in assisting the Company with the
Company's sale of the Shares in the Subscription Offering and Community
Offering. The employment of Trident hereunder shall terminate (a) forty-five
(45) days after the Subscription and Community Offering closes, unless the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 13
Company and the Bank, with the approval of the OTS, are permitted to extend such
period of time, or (b) upon consummation of the Conversion, whichever date shall
first occur.
In the event the Company is unable to sell a minimum of 4,845,000 Shares
(or such lesser amount as the OTS may permit) within the period herein provided,
this Agreement shall terminate, and the Company and the Bank shall refund
promptly to any persons who have subscribed for any of the Prospectus, and no
party to this Agreement shall have any obligation to the other party hereunder,
except as set forth in Section 6, 8 and 9 hereof. Appropriate arrangements for
placing the funds received from subscriptions for Shares in special interest-
bearing accounts with the Bank until all Shares are sold and paid for were made
prior to the commencement of the Subscription and Community Offering, with
provision for prompt refund to the purchasers as set forth above, or for
delivery to the Company if all Shares are sold.
If all conditions precedent to the consummation of the Conversion are
satisfied, including the sale of all Shares required by the Plan to be sold, the
Company agrees to issue or have issued such Shares and to release for delivery
certificates to subscribers thereof for such Shares on the Closing Date against
payment to the Company by any means authorized pursuant to the Prospectus, at
the principal office of the Company at 114 West College Street, Murfreesboro,
Tennessee 37130 or at such other place as shall be agreed upon between the
parties hereto. The date upon which the Company shall release the Shares sold
in the Offerings in accordance with the terms hereof is herein called the
"Closing Date."
Trident agrees either (a) upon receipt of an executed order form of a
subscriber to forward the offering price of the Common Stock ordered on or
before twelve noon on the next business day following receipt or execution of an
order form by Trident to the Bank for deposit in a segregated account or (b) to
solicit indications of interest in which event (i) Trident will subsequently
contact any potential subscriber indicating interest to confirm the interest and
give instructions to execute and return an order form or to receive
authorization to execute the order form on the subscriber's behalf, (ii) Trident
will mail acknowledgments of receipt of orders to each subscriber confirming
interest on the business day following such confirmation, (iii) Trident will
debit accounts of such subscribers on the fifth business day ("debit date")
following receipt of the confirmation referred to in (i) and (iv) Trident will
forward completed order forms together with such funds to the Bank on or before
twelve noon on the next business day following the debit date for deposit in a
segregated account. Trident acknowledges that if the procedure in (b) is
adopted, subscribers' funds are not required to be in their accounts until the
debit date.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 14
In addition to the expenses specified in Section 6 hereof, Trident shall
receive the following compensation for its services hereunder:
(a) (i) a proxy solicitation and conversion center management fee in
the amount of $10,000, (ii) 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 ESOP.
Additionally, commissions will be excluded on those shares sold to
Associates (as defined in the Plan) of the Bank's directors and executives
officers, and (iii) for stock sold by other NASD member firms under
selected dealer's agreements, the commission shall not exceed a fee to be
agreed upon jointly by Trident, the Company and the Bank to reflect market
requirements at the time of the stock allocation in a Syndicated Community
Offering. All such fees are to be payable in next-day funds to Trident on
the Closing Date.
(b) Trident shall be reimbursed for allocable expenses, including but
not limited to travel, communications, legal fees and expenses and postage,
incurred by it whether or not the Offerings are successfully completed;
provided, however, that neither the Company nor the Bank shall pay or
reimburse Trident for any of the foregoing expenses accrued after Trident
shall have notified the Company or the Bank of its election to terminate
this Agreement pursuant to Section 11 hereof or after such time as the
Company or the Bank shall have given notice in accordance with Section 12
hereof that Trident is in breach of this Agreement. Trident's reimbursable
out of pocket expenses will not exceed $10,000 and its reimbursable legal
fees will not exceed $30,000 (excluding out of pocket expenses). Full
payment to defray Trident's reimbursable expenses shall be made in next-day
funds on the Closing Date or, if the Conversion is not completed and is
terminated for any reason, within ten (10) business days of receipt by the
Company of a written request from Trident for reimbursement of its
expenses. Trident acknowledges receipt of $10,000 advance payment from the
Bank which shall be for reimbursement for expenses incurred by Trident
hereunder.
(c) Notwithstanding the limitations on reimbursement of Trident for
allocable expenses provided in the immediately preceding paragraph (b), in
the event that a resolicitation, for a reason other than failure to obtain
sufficient orders to reach the minimum of the estimated price range
established in the Conversion, or other event causes the Offerings to be
extended beyond their original expiration date, Trident shall be reimbursed
for its allocable expenses incurred during such extended period, provided
that the allowance for allocable expenses provided for in the immediately
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 15
preceding paragraph (b) above have been exhausted and subject to the
following. Such reimbursement shall be in amount equal to the product
obtained by dividing $10,000 (original out-of-pocket expenses) by the total
number of days of the unextended Subscription Offering (calculated from the
date of the Prospectus to the intended close of the Subscription Offering
as stated in the Prospectus) and multiplying such product by the number of
days of the extension (that number of days from the date of the
supplemental prospectus used in the extended Subscription Offering to the
closing of the extension of the Subscription Offering described in such
supplemental prospectus.
The Company shall pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Shares. The Company and the Bank shall
also pay all expenses of the Conversion incurred by them or on their prior
approval including but not limited to their attorney's fees, NASD filing fees,
and attorneys' fees relating to any required state securities laws research and
filings, telephone charges, air freight, rental equipment, supplies, transfer
agent charges, fees relating to auditing and accounting and costs of printing
all documents necessary in connection with the Conversion.
4. Offering. Subject to the provisions of Section 7 hereof, Trident is
--------
assisting the Company on a best efforts basis in offering a minimum of 4,845,000
and a maximum of 6,555,000 Shares, with the possibility of offering up to 7,538,
250 Shares (except as the OTS may permit to e decreased or increased) in the
Subscription and Community Offerings. The Shares are to be offered to the
public at the price set forth on the cover page of the Prospectus and the first
page of this Agreement.
5. Further Agreements. The Company and the Bank jointly and severally
------------------
covenant and agree that:
(a) The Company shall deliver to Trident, from time to time, such
number of copies of the Prospectus as Trident reasonably may request. The
Company authorizes Trident to use the Prospectus in any lawful manner in
connection with the offer and sale of the Shares.
(b) The Company will notify Trident immediately upon discovery, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement becomes effective or any supplement to the
Prospectus has been filed, (ii) of the issuance by the Commission of any
stop order relating to the Registration Statement or of the initiation or
the threat of any proceedings for that purpose, (iii) of the receipt of any
notice with respect to the suspension of the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 16
qualification of the Shares for offering or sale in any jurisdiction, and
(iv) of the receipt of any comments from staff of the Commission relating
to the Registration Statement. If the Commission enters a stop order
relating to the Registration Statement at any time, the Company will make
every reasonable effort to obtain the lifting of such order at the earliest
possible moment.
(c) During the time when a prospectus is required to be delivered
under the Act, the Company will comply so far as it is able with all
requirements imposed upon it by the Act, as now in effect and hereafter
amended, and by the SEC Regulations, as from time to time in force, so far
as necessary to permit the continuance of offers and sales of or dealings
in the Shares in accordance with the provisions hereof and the Prospectus.
If during the period when the Prospectus is required to be delivered in
connection with the offer and sale of the Shares any event relating to or
affecting the Company and the Bank, taken as a whole, shall occur as a
result of which it is necessary, in the opinion of counsel for Trident,
with the concurrence of counsel to the Company, to amend or supplement the
Prospectus in order to make the Prospectus not false or misleading in light
of the circumstances existing at the time it is delivered to a purchaser of
the Shares, the Company forthwith shall prepare and furnish to Trident a
reasonable number of copies of an amendment or amendments or of a
supplement or supplements to the Prospectus (in form and substance
satisfactory to counsel for Trident) which shall amend or supplement the
Prospectus so that, as amended or supplemented, the Prospectus shall not
contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser of the Shares, not misleading. The Company will not file or use
any amendment or supplement to the Registration Statement or the Prospectus
of which Trident has not first been furnished a copy or to which Trident
shall reasonably object after having been furnished such copy. For the
purposes of this subsection the Company and the Bank shall furnish such
information with respect to themselves as Trident from time to time may
reasonably request. The Company shall reimburse Trident for its costs,
including legal expenses, in connection with any amendment or supplement to
the Registration Statement or Prospectus with respect to any event
described in this paragraph.
(d) The Company and the Bank have taken or will take all
reasonably necessary action as may be required to qualify or register
the Shares for offer and sale by the Company under the securities or
blue sky laws of such jurisdictions as Trident and either the Company
or its counsel may agree upon;
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 17
provided, however, that the Company shall not be obligated to qualify
as a foreign corporation to do business under the laws of any such
jurisdiction. In each jurisdiction where such qualification or
registration shall be effected, the Company, unless Trident agrees
that such action is not necessary or advisable in connection with the
distribution of the Shares, shall file and make such statements or
reports as are, or reasonably may be, required by the laws of such
jurisdiction.
(e) Appropriate entries will be made in the financial records of
the Bank sufficient to establish a liquidation account for the benefit
of eligible account holders and supplemental eligible account holders
in accordance with the requirements of the OTS.
(f) The Company will file a registration statement for the Common
Stock under Section 12(g) of the Exchange Act, prior to completion of
the stock offering pursuant to the Plan and shall request that such
registration statement be effective upon completion of the Conversion.
The Company shall maintain the effectiveness of such registration for
a minimum period of three years or for such shorter period as may be
required by applicable law.
(g) The Company will make generally available to its security
holders, as soon as practicable, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the regulations
promulgated under the Act) covering a twelve-month period beginning
not later than the first day of the Company's fiscal quarter next
following the effective date (as defined in said Rule 158) of the
Registration Statement.
(h) For a period of three (3) years from the date of this
Agreement (unless the Common Stock shall have been reregistered under
the Exchange Act), the Company will furnish to Trident, as soon as
publicly available after the end of each fiscal year, a copy of its
annual report to shareholders for such year, and the Company will
furnish to Trident (i) as soon as publicly available, a copy of each
report or definitive proxy statement of the Company filed with the
Commission under the Exchange Act or mailed to shareholders, and (ii)
from time to time, such other public information concerning the
Company as Trident may reasonably request.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 18
(i) The Company shall use the net proceeds from the sale of the
Shares consistently with the manner set forth in the Prospectus.
(j) The Company shall not deliver the Shares until each and every
condition set forth in Section 7 hereof has been satisfied, unless
such condition is waived by Trident.
(k) The Company or its agent (other than Trident) shall advise
Trident, if necessary, as to the allocation of deposits, in the case
of eligible account holders, and votes, in the case of other members,
and of the Shares in the event of an oversubscription and shall
provide Trident final instructions as to the allocation of the Shares
("Allocation Instructions") in such event and such information shall
be accurate and reliable. Trident shall be entitled to rely on such
instructions and shall have no liability in respect of its reliance
thereon, including without limitation, no liability for or related to
any denial or grant of a subscription in whole or in part.
(l) The Company and the Bank will take such actions and furnish
such information as are reasonably requested by Trident to ensure
compliance with the NASD's "Interpretation Relating to Free-Riding and
Withholding."
6. Payment of Expenses. Whether or not the Conversion is
-------------------
consummated, the Company and the Bank shall pay or reimburse Trident for
(a) all filing fees paid or incurred by Trident in connection with all
filings with the NASD with respect to the Subscription and Community
Offerings, and (b) in addition, if the Company is unable to sell a minimum
of 4,845,000 Shares or such lesser amount as the OTS may permit or the
Conversion is otherwise terminated, the Company and the Bank shall
reimburse Trident fro allocable expenses incurred by Trident relating to
the offering of the Shares as provided in Section 3 hereof; provided,
however, that neither the Company nor the Bank shall pay or reimburse
Trident for any of the foregoing expenses accrued after Trident shall have
notified the Company or the Bank of its election to terminate this
Agreement pursuant to Section 11 hereof or after such time as the Company
or the Bank shall have given notice in accordance with Section 12 hereof
that Trident is in breach of this Agreement.
7. Conditions of Trident's Obligations. Except as may be waived by
-----------------------------------
Trident, the obligations of Trident as provided herein shall be subject to
the accuracy of the representations and warranties covered in Section 2
hereof as of the date hereof
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 19
and as of the Closing Date, to the performance by the Company and the Bank
of their obligations hereunder and to the following conditions:
(a) At the Closing Date, Trident shall receive the favorable
opinions of Breyer & Aguggia, special counsel for the Company and the
Bank, dated the Closing Date, addressed to Trident, in form and
substance reasonably satisfactory to counsel for Trident and to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, and the Bank is validly existing
as a mutual savings bank in good standing under the laws of the
United States, each with full power and authority to own its
properties and conduct its business as described in the
Prospectus;
(ii) each of the Company and the Bank has been qualified to
do business and, to such counsel's knowledge, is in good standing
as a foreign corporation in each jurisdiction where the ownership
or leasing of its properties or the conduct of its business
requires such qualification or, if not so qualified and in good
standing, failure to so qualify would not have any material
adverse effect on the Company and the Bank, taken as a whole;
(iii) the Bank is a member of the Federal Home Loan Bank of
Cincinnati, and the deposit accounts of the Bank are insured by
the SAIF up to the applicable legal limits.
(iv) to the knowledge of such counsel, the activities of the
Bank as such activities are described in the Prospectus are
permitted under federal and Tennessee law to subsidiaries of a
Tennessee business corporation, and the Bank does not have any
subsidiaries;
(v) to the knowledge of such counsel, the Bank has obtained
all licenses, permits and other governmental authorizations
currently required for the conduct of its business as such
business is described in the Prospectus, all such licenses,
permits and other governmental authorizations are in full force
and effect and the Bank is in all material respects complying
therewith, except where the failure to hold such
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 20
licenses, permits or governmental authorizations or the failure
to so comply would not have a material adverse effect on the
Company and the Bank, taken as a whole;
(vi) the Plan complies with, and, to the knowledge of such
counsel, the Conversion of the Bank from a Federally-chartered
mutual savings bank to a Federally-chartered stock savings bank
and the creation of the Company as a holding company for the Bank
have been effected in all material respects in accordance with,
the laws of the State of Tennessee and the OTS Regulations
(except for compliance with certain post-closing conditions
imposed by the OTS as to which no opinion need be rendered); to
such counsel's knowledge, all of the terms, conditions,
requirements and provisions with respect to the Plan and the
Conversion imposed by the OTS, except with respect to the filing
or submission of certain required post-Conversion reports or
other materials by the Company or the Bank, have been complied
with by the Company and the Bank; and, to the knowledge of such
counsel, no person has sought to obtain regulatory or judicial
review of the final action of the OTS in approving the
Application;
(vii) the Company and Bank have authorized Common Stock as
set forth in the Registration Statement and the Prospectus, and
the description of such Common Stock in the Registration
Statement and the Prospectus is accurate in all material
respects;
(viii) the issuance and sale of the Shares have been duly
and validly authorized by all necessary corporate action on the
part of the Company; the Shares, upon receipt of payment and
issuance in accordance with the terms of the Plan and this
Agreement, will be validly issued, fully paid, nonassessable and
free of preemptive rights, and good title thereto shall be
transferred by the Company free and clear of all claims,
encumbrances, security interests and liens created by the
Company.
(ix) the certificates for the Shares are in proper forms and
comply in all material respects with applicable Tennessee law;
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 21
(x) the issuance and sale of the capital stock of the Bank
to the Company have been duly authorized by all necessary
corporate action of the Bank and the Company and have received
the approval of the OTS, and such capital stock, upon receipt of
payment and issuance in accordance with the terms of the Plan,
will be validly issued, fully paid and nonassessable and owned of
record and, to the knowledge of such counsel, beneficially by the
Company.
(xi) subject to the satisfaction of the conditions to the
OTS' approval of the Application, no further approval,
authorization, consent or other order of any federal banking or
securities agency or the OTS or any other public Tennessee board
or body is required in connection with the execution and delivery
of this Agreement, the issuance of the Shares and the
consummation of the Conversion, except with respect to the
issuance to the Bank of the Stock Charter by the OTS and as may
be required under the "blue sky" laws of various jurisdictions;
(xii) the execution and delivery of this Agreement and the
consummation of the Conversion have been duly and validly
authorized by all necessary corporate action on the part of each
of the Company and the Bank; and this Agreement is a legal, valid
and binding obligation of each of the Company and the Bank;
enforceable in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization, receivership, conservatorship or
similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of
depository institutions whose accounts are insured by the FDIC or
depository institution holding companies the accounts of whose
subsidiaries are insured by the FDIC or by general equity
principles, regardless of whether such enforceability is
considered in a proceeding in equity or at law, or by laws
relating to the safety and soundness of insured depository
institutions and their affiliates, and except to the extent that
the provisions of Section 8 and 9 hereof may be unenforceable as
against public policy or applicable law, including but not
limited to Section 23A, as to which no opinion need be rendered);
(xiii) to such counsel's knowledge, there are no material
legal or governmental proceedings pending or threatened against
or involving
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 22
the assets of the Company or the Bank (provided that for this
purpose such counsel need not regard any litigation or
governmental procedure to be "threatened" unless the potential
litigant or government authority has manifested to the management
of the Company or the Bank, or to such counsel, a present
intention to initiate such litigation or proceeding);
(xiv) the statements in the Prospectus under the captions
"Regulation," "Taxation," "Dividend Policy," "Restrictions or
Acquisition of the Company" and "Description of Capital Stock of
the Company," insofar as they are, or refer to, statements of law
or legal conclusions (excluding financial data included therein,
as to which an opinion need not be expressed), have been prepared
or reviewed by such counsel and are correct in all material
respects;
(xv) the Application has been approved by the OTS, and the
Prospectus and the Proxy Statement have been authorized for use
by the OTS; the Registration Statement and any post-effective
amendment thereto has been declared effective by the Commission;
except as to any necessary qualifications or registration under
the securities laws of the jurisdictions in which the Shares were
offered, no further approval of any governmental authority is
required for the issuance and sale of the Shares (subject to the
satisfaction of certain conditions imposed by the OTS in
connection with its approval of the Application, and no
proceedings are pending by or before the Commission or the OTS
seeking to revoke or rescind the orders declaring the
Registration Statement effective, approving the Application, or,
to the knowledge of such counsel, are contemplated or threatened;
(xvi) the execution and delivery of this Agreement and the
consummation of the Conversion by the Company and the Bank do not
conflict with or result in a breach of the articles of
incorporation or bylaws of the Company or the Bank (in either
mutual or stock form), or, to the best knowledge of such counsel,
constitute a material breach or of default (or an event which,
with notice or lapse of time or both, would constitute a default)
under, give rise to any right of termination, cancellation or
acceleration contained in, or result in the creation or
imposition of any lien, charge or other encumbrance upon any of
the properties or assets of the Company or the Bank pursuant to
any of the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 23
terms, provisions or conditions of, any material agreement,
contract, indenture, bond, debenture, note instrument or
obligation to which the Company or the Bank is a party (other
than the establishment of the liquidation account pursuant to the
Plan) or violate any governmental license or permit or any
enforceable published law, administrative regulation or order or
court order, writ, injunction or decree (subject to the
satisfaction of certain conditions imposed by the OTS in
connection with its approval of the Application), which breach,
default, encumbrance or violation would have a material adverse
effect on the condition (financial or otherwise), operations,
business, assets or properties of the Company and the Bank taken
as a whole;
(xvii) to the knowledge of such counsel, there has been no
material breach of any provision of the Company's or the Bank's
articles of incorporation or charter or bylaws or breach or
default (or the occurrence of any event which, with notice or
lapse of time or both, would constitute a default) under any
agreement, contract, indenture, bond, debenture, note, instrument
or obligation to which the Company or the Bank is a party or by
which either of them or any of their respective assets or
properties may be bound or is subject, or violation of any
governmental license or permit, or a violation of any enforceable
published law, administrative regulation or order, or court
order, writ, injunction or decree which breach, default,
encumbrance or violation would have a material adverse effect on
the condition (financial or otherwise), operations, business,
assets or properties of the Company and the Bank taken as a
whole; and,
(xviii) the Application, the Registration Statement, the
Prospectus and the Proxy Statement, in each case as amended,
comply as to form in all material respects with the requirements
of the Act, the HOLA, the SEC Regulations and the OTS
Regulations, as the case may be (except as to information with
respect to Trident included therein and financial statements,
notes to financial statements, financial tables and other
financial and statistical data, including the appraisal and
related stock valuation information, included therein, as to
which an opinion need not be expressed); to such counsel's
knowledge, all documents and exhibits required to be filed with
the Application, and
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 24
the Registration Statement have been so filed, and the
descriptions in the Application and the Registration Statement of
such documents and exhibits are accurate in all material
respects.
In rendering such opinions, such counsel may rely as to matters of
fact on certificates of officers and directors of the Company and the Bank
and certificates of public officials delivered pursuant hereto. Such
counsel may assume that any agreement is the valid and binding obligation
of any parties to such parties to such agreement other than the Company and
the Bank. Such opinions may be governed by, and interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991), and, as a consequence, references in such opinions to
such counsel's "knowledge" may be limited to "actual knowledge" as defined
in the Accord (or knowledge based on certificates). Such opinions may be
limited to present statutes, regulations and judicial interpretations and
to facts as they presently exist; in rendering such opinions, such counsel
need assume no obligation to revise or supplement them should the present
laws be changed by legislative or regulatory action, judicial decision or
otherwise; and such counsel need express no view, opinion or belief with
respect to whether any proposed or pending legislation, if enacted, or any
regulations or any policy statements issued by any regulatory agency,
whether or not promulgated pursuant to any such legislation, would affect
the validity of the execution and delivery by the Company and the Bank of
this Agreement or the issuance of the Shares.
(b) At the Closing Date, Trident shall receive the letters of Breyer &
Aguggia , special counsel for the Company and the Bank, dated the Closing
Date, addressed to Trident, in form and substance reasonably satisfactory
to counsel for Trident and to the effect that based on such counsel's
participation in conferences with representatives of the Company, the Bank,
its counsel, the independent appraiser, the independent certified public
accountants, Trident and its counsel, review of documents and understanding
of applicable law (including the requirements of Form S-1) and the
experience such counsel has gained in its practice under the Act, nothing
has come to such counsel's attention that would lead it to believe that the
Registration Statement, as amended (except as to information in respect to
Trident contained therein and except as to the financial statements, notes
to financial statements, financial tables and other financial and
statistical data and stock valuation information contained therein, as to
which such counsel need express no comment), at the time it became
effective contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements made therein not misleading, or that the Prospectus, as
amended (except as to information in respect of
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 25
Trident contained therein and except as to financial statements, notes to
financial statements, financial tables and other financial and statistical
data and stock valuation information contained therein as to which such
counsel need express no comment), as of its date and at the Closing Date,
contained any untrue statement of material fact or omitted to state a
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading (in making
this statement such counsel may state that it has not undertaken to verify
independently the information in the Registration Statement or Prospectus
and, therefore, does not assume any responsibility for the accuracy or
completeness thereof).
(c) Counsel for Trident shall have been furnished such documents as
they reasonably may require for the purpose of enabling them to review or
pass upon the matters required by Trident, and for the purposes of
evidencing the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained, including but
not limited to, resolutions of the Board of Directors of the Company and
the Bank regarding the authorization of this Agreement and the transactions
contemplated hereby.
(d) Prior to and at the Closing Date, in the reasonable opinion of
Trident, (i) there shall have been no material adverse change in the
condition, financial or otherwise, business or results of operations of the
Company and the Bank, taken as a whole, since the latest date as of which
such condition is set forth in the Prospectus, except as referred to
therein: (ii) there shall have been no transaction entered into by the
Company or the Bank after the latest date as of which the financial
condition of the Company or the Bank is set forth in the Prospectus other
than transactions referred to or contemplated therein, transactions in the
ordinary course of business, and transactions which are not material to the
Company and the Bank, taken as a whole; (iii) none of the Company or the
Bank shall have received from the OTS, the FDIC or the Commission any
directive (oral or written) to make any change in the method of conducting
their respective businesses which is material to the business of the
Company and the Bank, taken as a whole, with which they have not complied;
(iv) no action, suit or proceeding, at law or in equity or before or by any
federal or state commission, board or other administrative agency, shall be
pending or threatened against the Company or the Bank or affecting any of
their respective assets, wherein an unfavorable decision, ruling or finding
would have a material adverse effect on the business, operations,
financial condition or income of the Company and the Bank, taken as a
whole; and (v) the Shares shall have been qualified or registered for
offering
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 26
and sale by the Company under the securities or blue sky laws of such
jurisdictions as Trident and the Company shall have agreed upon.
(e) At the Closing Date, Trident shall receive a certificate of the
principal executive officer and the principal financial officer of each of
the Company and the Bank, dated the Closing Date, to the effect that: (i)
they have examined the Prospectus and, at the time the Prospectus became
authorized by the Company for use, the Prospectus did not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading with respect to the Company or the
Bank; (ii) since the date the Prospectus became authorized by the Company
for use, no event has occurred which should have been set forth in an
amendment or supplement to the Prospectus which has not been so set forth,
including specifically, but not limitation, any material change in the
business, condition (financial or otherwise) or results of operations of
the Company or the Bank and, the conditions set forth in clauses (ii)
through (iv) inclusive of subsection (d) of this Section 7 have been
satisfied; (iii) to the best knowledge of such officers, no order has been
issued by the Commission or the OTS to suspend the Subscription Offering or
the Community Offering or the effectiveness of the Prospectus, and no
action for such purposes has been instituted or threatened by the
Commission or the OTS; (iv) to the best knowledge of such officers, no
person has sought to obtain review of the final actions of the OTS
approving the Plan; and (v) all of the representations and warranties
contained in Section 2 of this Agreement are true and correct, with the
same force and effect as though expressly made on the Closing Date.
(f) At the Closing Date, Trident shall receive, among other documents,
(i) copies of the letters from the OTS authorizing the use of the
Prospectus and the Proxy Statement, (ii) a copy of the Order of the
commission declaring the Registration Statement effective; (iii) copies of
the letters from the OTS evidencing the corporate existence of the Bank;
(iv) a copy of the letter from the appropriate Tennessee authority
evidencing the incorporation (and, if generally available from such
authority, good standing) of the Company; (v) a copy of the Company's
articles of incorporation certified by the appropriate Tennessee
governmental authority; and (vi) if available, a copy of the letter from
the OTS approving the Bank's Stock Charter.
(g) As soon as available after the Closing Date, Trident shall receive
a certified copy of the Bank's Stock Charter executed by the appropriate
official of the OTS.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 27
(h) Concurrently with the execution of this Agreement, Trident
acknowledges receipt of a letter from Rayburn, Betts & Bates, P.C.,
independent certified public accountants, addressed to Trident and the
Company, in substance and form satisfactory to counsel for Trident, with
respect to the financial statements and certain financial information
contained in the Prospectus.
(i) At the Closing Date, Trident shall receive a letter in form and
substance satisfactory to counsel for Trident from Rayburn, Betts & Bates,
P.C., independent certified public accountants, dated the Closing Date and
addressed to Trident and the Company, confirming the statements made by
them in the letter delivered by them pursuant to the preceding subsection
as of a specified date not more than five (5) days prior to the Closing
Date.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Trident and its counsel, satisfactory to Trident and its counsel.
Any certificates signed by an officer or director of the Company or the Bank
prepared for Trident's reliance and delivered to Trident or to counsel for
Trident shall be deemed a representation and warranty by the Company and the
Bank to Trident as to the statements made therein. If any condition to
Trident's obligations hereunder to be fulfilled prior to or at the Closing Date
is not so fulfilled, Trident may terminate this Agreement or, if Trident so
elects, may waive any such conditions which have not been fulfilled, or may
extend the time of their fulfillment. If Trident terminates this Agreement as
aforesaid, the Company and the Bank shall reimburse Trident for its expenses as
provided in Section 3(b) hereof.
8. Indemnification.
---------------
(a) The Company and the Bank jointly and severally agree to indemnify
and hold harmless Trident, its officers, directors and employees and each
person, if any, who controls Trident within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against any and all loss,
liability, claim, damage and expense whatsoever and shall further promptly
reimburse such persons for any legal or other expenses reasonably incurred
by each or any of them in investigating, preparing to defend or defending
against any such action, proceeding or claim (whether commenced or
threatened) arising out of or based upon (A) any untrue or alleged untrue
statement of a material fact or the omission or alleged omission of a
material fact required to be stated or necessary to make the statements, in
light of the circumstances under which
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 22
they were made, not misleading, contained in (i) the Registration Statement
or the Prospectus or (ii) any application (including the Application) or
other document or communication (in this Section 8 collectively called
"Applications") prepared or executed by or on behalf of the Company or the
Bank or based upon written information furnished by or on behalf of the
Company or the Bank, filed in any jurisdiction, to effect the Conversion or
qualify the Shares under the securities laws thereof or filed with the OTS
or the Commission with respect to the Conversion, unless such statement or
omission was made in reliance upon and in conformity with written
information furnished to the Company or the Bank with respect to Trident by
or on behalf of Trident expressly for use in the Prospectus or any
amendment or supplement thereof or in any of the Applications, as the case
may be, or (B) the participation by Trident in the Conversion. This
indemnity shall be in addition to any liability the Company and the Bank
may have to Trident otherwise. This indemnity shall not be applicable with
respect to any loss, liability, claim, damage or expense whatsoever if it
is determined by final judgment of a court having jurisdiction over the
matter that such loss, liability, claim, damage or expense was primarily
the result of Trident's willful misconduct or gross negligence.
(b) The Company shall indemnify and hold Trident harmless of any
liability whatsoever arising out of (i) the Allocation Instructions or (ii)
any records of account holders, depositors, borrowers and other members of
the Bank delivered to Trident by the Bank or its agents for use during the
Conversion.
(c) Trident agrees to indemnify and hold harmless the Company and the
Bank, their officers, directors and employees and each person, if any, who
controls the Company and the Bank within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, to the same extent as the
foregoing indemnity from the Company and the Bank to Trident, but only with
respect to (A) statements or omissions, if any, made in the Prospectus or
any amendment or supplement thereof, in any Application or to a purchaser
of the Shares in reliance upon, and in conformity with, written information
furnished to the Company or the Bank with respect to Trident by or on
behalf of Trident expressly for use in the Prospectus or in any of the
Applications; or (B) any liability of the Company or the Bank which is
found in a final judgment by a court of competent jurisdiction (not subject
to further appeal) to have primarily resulted from gross negligence or
willful misconduct of Trident.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 29
the indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this Section 8.
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with the other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than the reasonable cost of investigation except as
otherwise provided herein. In the event the indemnifying party elects to
assume the defense of any such action and retain counsel acceptable to the
indemnified party, the indemnified party may retain additional counsel, but
shall bear the fees and expenses of such counsel unless (i) the
indemnifying party shall have specifically authorized the indemnified party
to retain such counsel or (ii) the parties to such suit include such
indemnifying party and the indemnified party, and such indemnified party
shall have been advised by counsel that one or more material legal defenses
may be available to the indemnified party which may not be available to the
indemnifying party, in which case the indemnifying party shall not be
entitled to assume the defense of such suit notwithstanding the
indemnifying party's obligation to bear the fees and expenses of such
counsel. An indemnifying party against whom indemnity may be sought shall
not be liable to indemnify an indemnified party under this Section 8 if any
settlement of any such action is effected without such indemnifying party's
consent. In no event shall the indemnifying parties be liable for the fees
and expenses of more than one separate firm of attorneys for each
indemnified party in connection with any one action, proceeding, claim or
suit or separate but similar or related actions, proceedings or claims in
the same jurisdiction arising out of the same general allegations or
circumstances unless such indemnified parties receive an opinion of counsel
that they need separate representation because of potential conflicts of
interest between such indemnified parties or because some indemnified
parties have claims or defenses which are not shared by other indemnified
parties. To the extent required by law, this Section 8 is subject to and
limited by the provisions of Section 23A.
9. Contribution. In order to provide for just and equitable contribution
------------
in circumstances in which the indemnity agreement provided for in Section 8
above is for any reason held to be unavailable to Trident, the Company and/or
the Bank other than in
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 30
accordance with its terms, the Company or the Bank and Trident shall contribute
to the aggregate losses, liabilities, claims, damages, and expenses of the
nature contemplated by said indemnity agreement incurred by the Company or the
Bank and Trident (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Bank on the one hand and
Trident on the other from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above, but also the relative fault of the Company or the Bank
on the one hand and Trident on the other hand in connection with the statements
or omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Bank on the one hand and Trident on the
other shall be deemed to be in the same proportions as the total net proceeds
from the Conversion received by the Company and the Bank bear to the total fees
received by Trident under this Agreement. The relative fault of the Company or
the Bank on the one hand and Trident on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Bank or by Trident and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Bank and Trident agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by the indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, Trident shall not be required
to contribute any amount in excess of the amount by which fees owed Trident
pursuant to this Agreement exceeds the amount of any damages which Trident has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The extent required by law, this Section 9 is subject to and
limited by public policy and applicable law, including but not limited to the
provisions of Section 23A.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 31
10. Survival of Agreements, Representations and Indemnities. The
-------------------------------------------------------
respective indemnities of the Company and the Bank and Trident and the
representation and warranties of the Company and the Bank and of Trident set
forth in or made pursuant to this Agreement shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of Trident or the Company or the Bank or any
controlling person or indemnified party referred to in Section 8 hereof, and
shall survive any termination or consummation of this Agreement and/or the
issuance of the Shares, and any legal representative of Trident, the Company,
the Bank and any such controlling persons shall be entitled to the benefit of
the respective agreements, indemnities, warranties and representations.
11. Termination. Trident may terminate this Agreement by giving the
-----------
notice indicated below in this Section at any time after this Agreement becomes
effective as follows:
(a) If any domestic or international event or act or occurrence has
materially disrupted the United States securities markets such as to make
it, in Trident's reasonable opinion, impracticable to proceed with the
offering of the Shares; or if trading on the New York Stock Exchange shall
have suspended; or if the United States shall have become involved in a war
or major hostilities; or if a general banking moratorium has been declared
by a state or federal authority which has material effect on the Bank or
the conversion, or if a moratorium in foreign exchange trading by major
international banks or persons has been declared; or if there shall have
been a material adverse change in the capitalization, condition or business
or prospects of the Company, or if the Bank shall have sustained a material
or substantial loss by fire, flood, accident, hurricane, earthquake, theft,
sabotage or other calamity or malicious act, whether or not said loss shall
have been insured.
(b) If Trident elects to terminate this Agreement as provided in this
Section, the Company and the Bank shall be notified promptly by Trident by
telephone or telegram, confirmed by letter.
(c) If this Agreement is terminated by Trident for any of the reasons
set forth in subsection (a) above, and to fulfill its obligations, if any,
pursuant to Sections 3(b), 3(c), 6, 8(a) and 9 of this Agreement and upon
demand, the Company and the Bank shall pay Trident the full amount so owing
thereunder.
(d) The Bank may terminate the Conversion in accordance with the terms
of the Plan. Such termination shall be without liability to any party,
except that the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 32
Company and the Bank shall be required to fulfill their obligations
pursuant to Sections 3(b), 3(c), 6, 8(a) and 9 of this Agreement.
12. Notices. All communications hereunder, except as herein otherwise
-------
specifically provided, shall be in writing and if sent to Trident shall be
mailed, delivered or telegraphed and confirmed to Trident Securities, Inc., 4601
Six Forks Road, Suite 400, Raleigh, North Carolina 27609, Attention: Mr. R. Lee
Burrows, Jr. (with a copy to Peabody & Brown, 1255 23rd Street, N.W., Suite 800,
Washington, D.C. 20037, Attention: Raymond J. Gustini, Esquire) and if sent to
the Company or the Bank, shall be mailed, delivered or telegraphed and confirmed
to Calvary Bancorp, Inc., 114 West College Street, Murfreesboro, Tennessee
37130 (with a copy to Breyer & Aguggia, Suite 470 East, 1300 I Street, N.W.,
Washington, D.C. 20005, Attention: John F. Breyer, Jr., Esquire).
13. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon, Trident, the Company, the Bank and the controlling and
other persons referred to in Section 8 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
14. Construction. Unless governed by preemptive federal law, this
------------
Agreement shall be governed by and construed in accordance with the substantive
laws of North Carolina.
15. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute but one and the same instrument.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 33
Please acknowledge your agreement to the foregoing by signing below and
returning to the Company one copy of this letter.
CALVARY BANCORP, INC.
By:
------------------
Ed C. Loughry, Jr.
President and Chief Executive Officer
Date:
------------------
CALVARY BANKING
By:
------------------
Ed C. Loughry, Jr.
President and Chief Executive Officer
Date:
------------------
Agreed to and accepted:
TRIDENT SECURITIES, INC.
By:
------------------
R. Lee Burrows, Jr.
<PAGE>
Exhibit A
Trident Securities, Inc. is a registered selling agent in the jurisdictions
--
listed below:
<TABLE>
<S> <C>
Alabama Missouri
Arizona Nebraska
Arkansas Nevada
California New Hampshire
Colorado New Jersey
Connecticut New Mexico
Delaware New York
District of Columbia North Carolina
Florida North Dakota (Trident Securities, Inc. only, no agents)
Georgia Ohio
Idaho Oklahoma
Illinois Oregon
Indiana Pennsylvania
Iowa Rhode Island
Kansas South Carolina
Kentucky Tennessee
Delaware Texas
Maine Vermont
Maryland Virginia
Massachusetts Washington
Michigan West Virginia
Minnesota Wisconsin
Mississippi Wyoming
</TABLE>
Trident Securities, Inc. is not a registered selling agent in the jurisdictions
---
listed below:
Alaska
Hawaii
Montana
South Dakota
Utah
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF BREYER & AGUGGIA APPEARS HERE]
January 2, 1998
Boards of Directors
Cavalry Bancorp, Inc.
Cavalry Banking
114 W. College
Murfreesboro, Tennessee 37133
Re: Certain Federal Income Tax Consequences Relating to Proposed Holding
Company Conversion of Cavalry Banking and Subsequent Conversion to a
------------------------------------------------------------
Commercial Bank
---------------
Dear Members of the Board:
In accordance with your request, set forth herein is the opinion of this
firm relating to certain federal income tax consequences of (i) the proposed
conversion of Cavalry Banking (the "Cavalry Mutual") from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank (the "Cavalry
Stock") (the "Stock Conversion"); (ii) the concurrent acquisition of 100% of the
outstanding capital stock of the Cavalry Stock by a parent holding company
formed at the direction of the Board of Directors of Cavalry Mutual and to be
known as Cavalry Bancorp, Inc. (the "Holding Company"); and, thereafter, (iii)
the conversion of the Cavalry Stock to a Tennessee-chartered commercial bank
(the "Cavalry Bank") (the "Bank Conversion"). The Stock Conversion and the Bank
Conversion are referred to herein collectively as the "Conversion."
For purposes of this opinion, we have examined such documents and questions
of law as we have considered necessary or appropriate, including but not limited
to the Plan of Conversion as adopted by Cavalry Mutual's Board of Directors on
August 7, 1997, and subsequently amended on December 11, 1997 (the "Plan"); the
federal mutual charter and bylaws of Cavalry Mutual; the certificate of
incorporation and bylaws of the Holding Company; the Affidavit of
Representations dated November 24, 1997 provided to us by Cavalry Mutual (the
"Affidavit"), and the Prospectus (the "Prospectus") included in the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission ("SEC")
on November 12, 1997 (the "Registration Statement"). In such examination, we
have assumed, and have not independently verified, the genuineness of all
signatures on original documents where due execution and delivery are
requirements to the effectiveness thereof. Terms used but not defined herein,
whether capitalized or not, shall have the same meaning as defined in the
Plan.
<PAGE>
Breyer & Aguggia
==========================
Boards of Directors
Cavalry Bancorp, Inc.
Cavalry Banking
January 2, 1998
Page 2
BACKGROUND
----------
Based solely upon our review of such documents, and upon such information
as Cavalry Mutual has provided to us (which we have not attempted to verify in
any respect), and in reliance upon such documents and information, we set forth
herein a general summary of the relevant facts and proposed transactions,
qualified in its entirety by reference to the documents cited above.
Cavalry Mutual is a federally-chartered mutual savings bank which is in the
process of converting to a federally-chartered stock savings bank and, may
thereafter, to a Tennessee-chartered commercial bank. Cavalry Mutual was
initially organized in 1929. Cavalry Mutual is also a member of the Federal
Home Loan Bank System and its deposits are federally insured under the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation. Cavalry Mutual operates from its main office located at 114 W.
College, Murfreesboro, Tennessee 37133, four branch offices located in
Murfreesboro, Tennessee, a branch office in Shelbyville, Tennessee (Bedford
County) and three offices in Smyrna, Tennessee (Rutherford County). The Bank
also operates a mortgage loan origination office in Franklin, Tennessee
(Williamson County).
Cavalry Mutual is a community-oriented financial institution whose primary
business is attracting deposits from the general public and using those funds to
originate a variety of loans to individuals residing within its primary market
area, and to businesses owned and operated by such individuals. Cavalry Mutual
considers Rutherford, Bedford and Williamson Counties in Central Tennessee as
its primary market area. At September 30, 1997, Cavalry Mutual had total assets
of $275.9 million, deposits of $242.0 million, and total equity of $29.5
million.
As a federally-chartered mutual savings bank, Cavalry Mutual has no
authorized capital stock. Instead, Cavalry Mutual, in mutual form, has a unique
equity structure. A savings depositor of Cavalry Mutual is entitled to payment
of interest on his account balance as declared and paid by Cavalry Mutual, but
has no right to a distribution of any earnings of Cavalry Mutual except for
interest paid on his deposit. Rather, such earnings become retained earnings of
Cavalry Mutual.
However, a savings depositor does have a right to share pro rata, with
--- ----
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if Cavalry Mutual is ever liquidated. Savings
depositors and certain borrowers are members of Cavalry Mutual and thereby have
voting rights in Cavalry Mutual. Each savings depositor is entitled to cast
votes based on the balances of their withdrawable deposit account of Cavalry
Mutual, and each borrower member (hereinafter "borrower") is entitled to one
vote in addition to the votes (if any) to which such person is entitled in such
borrower's capacity as a savings
<PAGE>
Breyer & Aguggia
==========================
Boards of Directors
Cavalry Bancorp, Inc.
Cavalry Banking
January 2, 1998
Page 3
depositor of Cavalry Mutual. All of the interests held by a savings depositor
in Cavalry Mutual cease when such depositor closes his accounts with Cavalry
Mutual.
The Holding Company was incorporated in November 1997 under the laws of the
State of Tennessee as a general business corporation in order to act as a
savings institution holding company and a bank holding company. The Holding
Company has an authorized capital structure of 49,750,000 shares of common stock
and 250,000 shares of preferred stock.
PROPOSED TRANSACTION
--------------------
The Board of Directors of Cavalry Mutual has decided that in order to
increase Cavalry Mutual's net worth, support future growth, increase the amount
of funds available for lending and investment, provide greater resources for the
expansion of customer services, and facilitate future expansion through a
greater emphasis on commercial lending, it would be advantageous for Cavalry
Mutual to convert from a federally-chartered mutual savings bank to a federally-
chartered stock savings bank and, thereafter, to convert to a state-chartered
commercial bank. Further, the Board of Directors of Cavalry Mutual has
determined that in order to expand the financial services currently offered
through Cavalry Mutual and enhance flexibility of operations for diversification
of business opportunities, it would be advantageous to have the stock of Cavalry
Stock (and, after the Bank Conversion, the stock of the Cavalry Bank) held by a
parent holding company.
Cavalry Mutual presently intends to consummate the Bank Conversion
following receipt of all necessary regulatory approvals. However, a period of
time may elapse between the consummation of the Stock Conversion and the
consummation of the Bank Conversion. In addition, Calvary Stock may, upon
further analysis, determine not to proceed with the Bank Conversion and,
therefore, may retain its current charter.
Accordingly, pursuant to the Plan, Cavalry Mutual will undergo the Stock
Conversion whereby it will be converted from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank. As part of the Stock
Conversion, Cavalry Mutual will amend its existing mutual savings bank charter
and bylaws to read in the form of a Federal Stock Charter and Bylaws. Cavalry
Stock will then issue to the Holding Company shares of the Cavalry Stock's
common stock, representing all of the shares of capital stock to be issued by
the Cavalry Stock in the Conversion, in exchange for payment by the Holding
Company of 50% of the net proceeds realized by the Holding Company from such
sale of its Common Stock, less amounts necessary to fund the Employee Stock
Ownership Plan of Cavalry Mutual, or such other percentage as the Office of
Thrift Supervision ("OTS") may authorize or require.
<PAGE>
Breyer & Aguggia
==========================
Boards of Directors
Cavalry Bancorp, Inc.
Cavalry Banking
January 2, 1998
Page 4
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and Direct Community Offering.
The aggregate purchase price at which all shares of Common Stock will be offered
and sold pursuant to the Plan and the total number of shares of Common Stock to
be offered in the Conversion will be determined by the Boards of Directors of
Cavalry Mutual and the Holding Company on the basis of the estimated pro forma
--- -----
market value of the Cavalry Bank as a subsidiary of the Holding Company. The
estimated pro forma market value will be determined by an independent appraiser.
--- -----
Pursuant to the Plan, all such shares will be issued and sold at a uniform price
per share. The Stock Conversion, including the sale of newly issued shares of
the stock of the Cavalry Stock to the Holding Company, will be deemed effective
concurrently with the closing of the sale of the Common Stock. The Bank
Conversion will be consummated immediately following the consummation of the
Stock Conversion.
Under the Plan and in accordance with regulations of the OTS, the shares of
Common Stock will first be offered through the Subscription Offering pursuant to
non-transferable subscription rights on the basis of preference categories in
the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans of Cavalry Mutual;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
Any shares of Common Stock not subscribed for in the Subscription Offering
will be offered in the Direct Community Offering in the following order of
priority:
(a) Natural persons residing in Rutherford and Bedford Counties,
Tennessee; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Community Offering
will be offered to certain members of the general public on a best efforts basis
by a selling group of broker dealers in a Syndicated Community Offering.
The Plan also provides for the establishment of a Liquidation Account by
the Cavalry Stock for the benefit of all Eligible Account Holders and any
Supplemental Eligible Account Holders in an amount equal to the net worth of
Cavalry Mutual as of the date of the latest statement of financial condition
contained in the final prospectus issued in connection with the Conversion. The
establishment of the Liquidation Account will not operate to restrict the use or
application
<PAGE>
Breyer & Aguggia
==========================
Boards of Directors
Cavalry Bancorp, Inc.
Cavalry Banking
January 2, 1998
Page 5
of any of the net worth accounts of the Cavalry Stock. The account holders will
have an inchoate interest in a proportionate amount of the Liquidation Account
with respect to each savings account held and will be paid by the Cavalry Stock
in event of liquidation prior to any liquidation distribution being made with
respect to capital stock. Under the Plan, the Bank Conversion shall not be
deemed to be a liquidation of the Cavalry Stock for purposes of distribution of
the Liquidation Account. Upon consummation of the Bank Conversion, the
Liquidation Account, together with the related rights and obligations of the
Cavalry Stock, shall be assumed by the Cavalry Bank.
Following the Stock Conversion, voting rights in the Cavalry Stock shall be
vested in the sole holder of stock in the Cavalry Stock, which will be the
Holding Company. Following the Bank Conversion, voting rights in the Cavalry
Bank will similarly be vested in the Holding Company. Voting rights in the
Holding Company, both after the Stock Conversion and after the Bank Conversion,
will be vested in the holders of the Common Stock.
The Stock Conversion will not interrupt the business of Cavalry Mutual.
Cavalry Stock will continue to engage in the same business as Cavalry Mutual
immediately prior to the Stock Conversion, and the Cavalry Stock will continue
to have its savings accounts insured by the SAIF. Each depositor will retain a
withdrawable savings account or accounts equal in dollar amount to, and on the
same terms and conditions as, the withdrawable account or accounts at the time
of Stock Conversion except to the extent funds on deposit are used to pay for
Common Stock purchased in the Stock Conversion. All loans of Cavalry Mutual will
remain unchanged and retain their same characteristics in Cavalry Stock.
Similarly, the Bank Conversion is not expected to interrupt the business of
Cavalry Stock. Management of Cavalry Mutual expects that, after the
Conversion, the Cavalry Bank will initially continue to conduct business in
substantially the same manner as Cavalry Mutual prior to the Conversion. Over
time, the Cavalry Bank will continue Cavalry Mutual's diversification of its
loan portfolio into commercial loans. Further, the Bank Conversion is expected
to allow Cavalry Mutual to enhance its ability to structure its banking services
to respond to prevailing market conditions. The Cavalry Bank will also continue
to have its savings accounts insured by the SAIF. Each depositor will retain a
withdrawable savings account or accounts equal in dollar amount to, and on the
same terms and conditions as, the withdrawable account or accounts at the time
of Bank Conversion. All loans of the Cavalry Stock will remain unchanged and
retain their same characteristics in the Cavalry Bank.
The Plan must be approved by the OTS and by an affirmative vote of at least
a majority of the total votes eligible to be cast at a meeting of Cavalry
Mutual's members called to vote on the Plan. The Bank Conversion is also
subject to approval of the Board of Governors of the Federal Reserve Board and
the Tennessee Department of Financial Institutions.
<PAGE>
Breyer & Aguggia
==========================
Boards of Directors
Cavalry Bancorp, Inc.
Cavalry Banking
January 2, 1998
Page 6
Immediately prior to the Conversion, Cavalry Mutual will have a positive
net worth determined in accordance with generally accepted accounting
principles.
OPINION
-------
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Stock Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended (the "Code"), and no gain or loss will be recognized to
either Cavalry Mutual or the Cavalry Stock as a result of the Stock
Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78).
---
2. The assets of Cavalry Mutual will have the same basis in the hands of
Cavalry Stock as in the hands of Cavalry Mutual immediately prior to
the Stock Conversion (Section 362(b) of the Code).
3. The holding period of the assets of Cavalry Mutual to be received by
Cavalry Stock will include the period during which the assets were
held by Cavalry Mutual prior to the Stock Conversion (Section 1223(2)
of the Code).
4. No gain or loss will be recognized by the Cavalry Stock on the receipt
of money from the Holding Company in exchange for shares of common
stock of the Cavalry Stock (Section 1032(a) of the Code). The
Holding Company will be transferring solely cash to Cavalry Stock
in exchange for all the outstanding capital stock of Cavalry Stock
and, therefore, will not recognize any gain or loss upon such
transfer. (Section 351(a) of the Code; see Rev. Rul. 69-357, 1969-1
---
C.B. 101).
5. No gain or loss will be recognized by the Holding Company upon receipt
of money from stockholders in exchange for shares of Common Stock
(Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account Holders and
Supplemental Eligible Account Holders of Cavalry Mutual upon the
issuance of them of deposit accounts in the Cavalry Stock in the same
dollar amount and on the same terms and conditions in exchange for
their deposit accounts in Cavalry Mutual held immediately prior to the
Stock Conversion (Section 1001(a) of the Code; Treas. Reg. (S)1.1001-
1(a)).
<PAGE>
Breyer & Aguggia
==========================
Boards of Directors
Cavalry Bancorp, Inc.
Cavalry Banking
January 2, 1998
Page 7
7. The tax basis of the Eligible Account Holders' and Supplemental
Eligible Account Holders' savings accounts in Cavalry Stock
received as part of the Stock Conversion will equal the tax basis of
such account holders' corresponding deposit accounts in Cavalry Mutual
surrendered in exchange therefor (Section 1012 of the Code).
8. Gain or loss, if any, will be realized by the deposit account holders
of Cavalry Mutual upon the constructive receipt of their interest in
the liquidation account of the Cavalry Stock and on the
nontransferable subscription rights to purchase stock of the Holding
Company in exchange for their proprietary rights in Cavalry Mutual.
Any such gain will be recognized by Cavalry Mutual deposit account
holders, but only in an amount non in excess of the fair market value
of the liquidation account and subscription rights received. (Section
1001 of the Code; Paulsen v. Commissioner, 469 U.S. 131 (1985); Rev.
-----------------------
Rul. 69-646, 1969-2 C.B. 54.)
9. The basis of each account holder's interest in the Liquidation Account
received in the Stock Conversion and to be established by Cavalry
Stock pursuant to the Stock Conversion will be equal to the value, if
any, of that interest.
10. No gain or loss will be recognized upon the exercise of a subscription
right in the Stock Conversion. (Rev. Rul. 56-572, 1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock Conversion will be
equal to the purchase price of such stock, increased, in the case of
such stock acquired pursuant to the exercise of subscription rights,
by the fair market value, if any, of the subscription rights exercised
(Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights will
commence on the date on which the subscription rights are exercised
(Section 1223(6) of the Code). The holding period of the Common Stock
acquired in the Community Offering will commence on the date following
the date on which such stock is purchased (Rev. Rul. 70-598, 1970-2
C.B. 168; Rev. Rul. 66-97, 1966-1 C.B. 190).
13. The Bank Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code (see Rev. Rul. 80-105,
---
1980-1 C.B. 78).
14. The assets of the Cavalry Stock will have the same basis in the hands
of Cavalry Bank as in the hands of Cavalry Stock immediately
prior to the Bank Conversion (Section 362(b) of the Code).
<PAGE>
Breyer & Aguggia
==========================
Boards of Directors
Cavalry Bancorp, Inc.
Cavalry Banking
January 2, 1998
Page 8
15. The holding period of the assets of Cavalry Stock to be received
by the Cavalry Bank will include the period during which the assets
were held by Cavalry Stock prior to the Bank Conversion (Section
1223(2) of the Code).
SCOPE OF OPINION
----------------
Our opinion is limited to the federal income tax matters described above
and does not address any other federal income tax considerations or any federal,
state, local, foreign or other tax considerations. If any of the information
upon which we have relied is incorrect, or if changes in the relevant facts
occur after the date hereof, our opinion could be affected thereby. Moreover,
our opinion is based on the case law, Code, Treasury Regulations thereunder and
Internal Revenue Service rulings as they now exist. These authorities are all
subject to change, and such change may be made with retroactive effect. We can
give no assurance that, after such change, our opinion would not be different.
We undertake no responsibility to update or supplement our opinion. This
opinion is not binding on the Internal Revenue Service and there can be no
assurance, and none is hereby given, that the Internal Revenue Service will not
take a position contrary to one or more of the positions reflected in the
foregoing opinion, or that our opinion will be upheld by the courts if
challenged by the Internal Revenue Service.
CONSENTS
--------
We hereby consent to the filing of this opinion with the OTS as an exhibit
to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and the
OTS as exhibits to the Registration Statement and the Bank's Application for
Conversion on Form AC ("Form AC"), respectively, and the reference on our firm
in the Prospectus, which is a part of both the Registration Statement and the
Form AC, under the headings "THE CONVERSION -- Effect of Conversion to Stock
Form on Depositors and Borrowers of the Bank -- Tax Effects" and "LEGAL
AND TAX OPINIONS."
Very truly yours,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
<PAGE>
[LETTERHEAD OF BASS, BERRY & SIMS PLC APPEARS HERE]
December 12, 1997
Board of Directors
Cavalry Banking
Cavalry Bancorp, Inc.
114 West College Street
Murfreesboro, Tennessee 37130
Re: Certain Tennessee Income Tax Consequences Relating to Proposed
Holding Company Conversion Cavalry Banking and Subsequent Conversion
to a Tennessee-chartered Commercial Bank
Ladies and Gentlemen:
We have acted as counsel to Cavalry Banking (the "Bank") and have been
requested by you to furnish our opinion relating to certain Tennessee tax
consequences of (i) the proposed conversion of the Bank from a federally-
chartered mutual savings bank to a federally-chartered capital stock savings
bank (the "Converted Savings Bank") (the "Stock Conversion"); (ii) the
simultaneous issuance of all the converted Bank's outstanding capital stock to a
parent holding company formed at the direction of the Board of Directors of the
Bank and to be known as Cavalry Bancorp, Inc., a Tennessee corporation (the
"Holding Company"); and thereafter (iii) the conversion of the Converted Bank to
a Tennessee-chartered commercial bank ("Cavalry Bank") (the "Bank Conversion").
In connection with this request, we have reviewed such documents and
questions of law as we have considered necessary or appropriate, including but
not limited to the Prospectus (the "Prospectus") included in the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission ("SEC")
on November 12, 1997 (the "Registration Statement").
You have previously received the opinion of Breyer & Aguggia regarding the
federal income tax consequences of the Stock Conversion, the Holding Company
formation and the Bank Conversion to the Bank, the Converted Savings Bank, the
Holding Company and the deposit account holders of the Bank under the Internal
Revenue Code of 1986, as amended (the "Code"), dated December 5, 1997 (the
"Federal Opinion"). The federal opinion concludes, inter alia, that the
----------
proposed transactions qualify as a tax-free reorganization under Section
368(a)(1)(F) of the Code.
The State of Tennessee will, for state corporate income tax purposes, treat
the proposed transactions in an identical manner as they are treated by the
Internal Revenue Service for federal income tax purposes. Based upon the facts
and circumstances attendant to the Stock Conversion, the Bank Conversion and the
Holding Company formation, as laid forth specifically in the Prospectus,
<PAGE>
Board of Directors
Cavalry Banking
Cavalry Bancorp, Inc.
December 12, 1997
Page 2
pursuant to applicable provisions of the Code, and conditioned on the
transaction qualifying as a tax-free reorganization under Section 368(a)(1)(F)
of the Code, it is our opinion that, under the laws of the State of Tennessee,
no adverse Tennessee state income tax consequences will be incurred by the
parties to the proposed transactions, including deposit account holders,
pursuant to the Stock Conversion, the Holding Company formation and the Bank
Conversion.
Following the transactions contemplated above, however, any cash dividends
in excess of certain exempt amounts that are paid in respect to the Holding
Company Stock to a shareholder who is a resident of the State of Tennessee
(including a partnership and certain other entities) will be subject to the
Tennessee income tax which is levied at a rate of six percent. Any distribution
from the earnings and profits of a corporation is considered a taxable dividend.
In addition, a corporate distribution may be treated as a dividend for Tennessee
tax purposes even if it is made from funds that exceed the corporation's
earnings and profits under certain circumstances.
The opinions expressed herein are expressly premised and conditioned upon
the consummation of the Stock Conversion, the Holding Company formation and the
Bank Conversion pursuant to the terms and conditions described in the
Prospectus. Our opinions are also based upon the tax law as in effect on the
date hereof. You should note that future legislative changes, administrative
pronouncements and judicial decisions could materially alter the conclusions
reached herein. This opinion is not binding on the Tennessee Department of
Revenue (the "Department") and there can be no assurance, and none is hereby
given, that the Department will not take a position contrary to one or more of
the positions reflected in the foregoing opinions or that the opinion will be
upheld by the courts if challenged by the Department. No opinion is expressed
on any matter other than Tennessee income tax consequences including, but not
limited to, any franchise, capital stock, business, occupation, property, sales,
use, transfer or federal taxes which might result from the implementation of the
proposed transactions.
Without limiting the generality of the immediately preceding paragraph, we
specifically express no opinion on the qualification of the Stock Conversion,
the Holding Company formation and the Bank Conversion as a tax-free
reorganization under Section 368(a)(1)(F) of the Code.
We hereby consent to the filing of this opinion with the OTS as an exhibit
to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the proposed transactions and the reference to our firm in the
Application H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and the
OTS as exhibits to the Registration Statement and the Bank's Application for
Conversion on Form AC ("Form AC"), respectively, and the reference to our firm
in the Prospectus, which is part of both the Registration Statement and the Form
AC.
<PAGE>
Board of Directors
Cavalry Banking
Cavalry Bancorp, Inc.
December 12, 1997
Page 3
This opinion is being furnished only to you in connection with the proposed
transactions and solely for your benefit in connection therewith and, except as
provided immediately above, may not be used or relied upon for any other purpose
and may not be circulated, quoted or otherwise referred to for any other purpose
without our express written consent.
Very truly yours,
/s/ Bass, Berry & Sims, PLC
<PAGE>
Exhibit 10.5
BPS&M
REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN AND TRUST
BPS&M Defined Contribution Basic Plan Document #01
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
1 DEFINITIONS 1-1
2 ELIGIBLE EMPLOYEES AND PARTICIPANTS 2-1
3 CONTRIBUTIONS TO THE PLAN 3-1
4 ALLOCATION OF TRUST FUNDS AND PARTICIPANTS' ACCOUNTS 4-1
5 WITHDRAWALS AND LOANS 5-1
6 RETIREMENT BENEFITS 6-1
7 DEATH AND DISABILITY BENEFITS 7-1
8 BENEFITS UPON SEPARATION FROM SERVICE 8-1
9 PLAN ADMINISTRATION 9-1
10 THE TRUSTEE 10-1
11 AMENDMENT AND TERMINATION OF THE PLAN 11-1
12 GENERAL PROVISIONS AFFECTING THE EMPLOYER 12-1
13 TOP HEAVY PLANS 13-1
14 PAIRED PLANS 14-1
15 MISCELLANEOUS PROVISIONS 15-1
</TABLE>
<PAGE>
BPS&M
REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN AND TRUST
Bryan, Pendleton, Swats & McAllister (otherwise known as "BPS&M"), in order
to assist Employers in adopting a defined contribution plan and trust which is
qualified, respectively, under Section 401(a) and Section 501(a) of the Code and
designed in compliance with the Tax Reform Act of 1986, Omnibus Budget
Reconciliation Act of 1986, Omnibus Budget Reconciliation Act of 1987, the
Technical and Miscellaneous Revenue Act of 1988, final regulations under the
Retirement Equity Act of 1984, and final regulations under Code sections 401(a),
401(k), and 411(d)(6), hereby establishes a prototype defined contribution plan
and trust to be known as the BPS&M REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN
AND TRUST.
An Employer may adopt this regional prototype plan document as part of its
Plan by completing and signing an Adoption Agreement. However, such adoption
shall not be effective until also executed by the Trustee.
<PAGE>
ARTICLE 1
DEFINITIONS
The following terms when capitalized and used herein and in the Adoption
Agreements, unless the context clearly indicates otherwise, shall have the
meanings set forth hereinafter:
Section 1.01 "Accounts" shall mean all of the recordkeeping accounts to
-----------------------
which are allocated or credited a Participant's share of (i) contributions made
to the Plan, (ii) Forfeitures, and (iii) Income.
Section 1.02 "Adopting Employer" shall mean any person, business
--------------------------------
organization or corporation affiliated with the Employer through complete or
partial ownership by the Employer or which is otherwise cooperating with the
Employer for purposes of establishing and maintaining a qualified plan, which is
authorized by the Employer to adopt the Plan, and which adopts the Plan by
executing the Adoption Agreement.
The term shall also include any person, business organization or
corporation into which the Adopting Employer may be merged or consolidated or by
which it may be succeeded.
Section 1.03 "Adoption Agreement" shall mean the instrument by which the
---------------------------------
Employer elects to establish or continue its Plan by adoption of this prototype
plan document.
Section 1.04 "Anniversary Date" shall mean the day upon which a Plan Year
-------------------------------
begins.
Section 1.05 "Annuity Starting Date" shall mean the first day of the
------------------------------------
first period for which an amount is paid as an annuity or any other form.
Section 1.06 "Average Compensation" shall mean, with respect to a target
----------------------------------
benefit pension plan, the average compensation set forth in Item 7 of the
Adoption Agreement. If pursuant to the election in Item 12 of the Adoption
Agreement a Participant is entitled to have an Employer Contribution made on his
behalf for the Plan Year of termination of Service, then for purposes of
determining Average Compensation, if the Participant's Compensation for the Plan
Year of termination is based on a period of less than twelve (12) months, such
Compensation shall be annualized.
Section 1.07 "Beneficiary" shall mean such person, persons or legal
--------------------------
entity as may be designated by a Participant to receive benefits hereunder after
his death, or the person, persons or legal entity designated to the Trustee to
receive benefits after the death of the Participant, or the personal or legal
representative of the Participant, all as herein described and provided.
Section 1.08 "Break in Service" shall mean (i) the period defined in
-------------------------------
subsection (a) hereof for Plans which count Hours of Service
1-1
<PAGE>
pursuant to Item 6 of the Adoption Agreement and (ii) the period defined in
subsection (b) hereof for Plans which use the "elapsed time" method pursuant to
Item 6 of the Adoption Agreement.
(a) Hours Counting Method. A "Break in Service" shall mean a twelve (12)
---------------------
consecutive month period during which an Employee does not complete
more than five hundred (500) Hours of Service. For purposes of
determining eligibility, the initial twelve (12) month period shall
commence on the date the Employee first performs an Hour of Service,
and each subsequent twelve (12) month period shall be the Plan Year,
beginning with the Plan Year which commences prior to the end of the
initial twelve (12) month period. For purposes of computing a
Participant's nonforfeitable right to his accrued benefit, the twelve
(12) month period shall be the Plan Year. For purposes of this section
only, "Hours of Service" shall include Leaves of Absence in addition
to the Hours of Service specified in Section 1.31 hereof.
For Plan Years beginning after December 31, 1984, for purposes of
determining whether a Break in Service has occurred, Hours of Service
shall include any period in which an Employee is absent from work for
maternity or paternity reasons.
Hours of Service shall be credited for such maternity or paternity
absence from work as would normally have been credited to such
individual but for such absence or, if the Plan Administrator is
unable to determine the Hours of Service actually to be so credited,
then eight (8) Hours of Service per day shall be credited for such
absence; provided, however, that the total number of Hours of Service
to be credited by reason of any such absence for maternity or
paternity reasons shall not exceed five hundred and one (501) Hours of
Service during the computation period used to determine a Break in
Service. Such Hours of Service shall be credited in the computation
period used to determine a Break in Service in which the absence from
work begins if an Employee would be prevented from incurring a Break
in Service in such Plan Year because the period of absence is treated
as Hours of Service and, in any other case, in the immediately
following computation period.
(b) Elapsed Time Method. A "Break in Service" shall mean a "period of
-------------------
severance" of at least twelve (12) consecutive months. A "period of
severance" is a continuous period of time during which the Employee is
not employed by the Employer. Such period begins on the date the
Employee retires, quits or is discharged, or if earlier, the twelve
(12) month anniversary of the date on which the Employee was otherwise
first absent from Service.
1-2
<PAGE>
For Plan Years beginning after December 31, 1984, in the case of an
individual who is absent from work for maternity or paternity reasons,
the twelve (12)-consecutive month period beginning on the first
anniversary of the first date of such absence shall not constitute a
Break in Service.
(c) For purposes of this section, an absence from work for maternity or
paternity reasons means an absence
(1) by reason of the pregnancy of the individual,
(2) by reason of the birth of a child of the individual,
(3) by reason of the placement of a child with the individual in
connection with the adoption of such child by such individual, or
(4) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
No credit for Hours of Service for absence for maternity or paternity
reasons, however, shall be given hereunder unless an Employee
furnishes to the Plan Administrator such timely information as the
Plan Administrator may reasonably require to establish that the
absence from work is for a reason set forth in (1) through (4).
Section 1.09 "Code" shall mean the Internal Revenue Code of 1986, as
-------------------
amended.
Section 1.10 "Committee" shall mean the committee, if any, appointed
------------------------
under the provisions of Article 9 to carry out the day to day administrative
functions of the Plan.
Section 1.11 "Compensation" shall mean a Participant's compensation as
---------------------------
determined pursuant to subsection (a) or subsection (b) hereof, whichever is
applicable, and subsection (c) hereof.
(a) The definition of "Compensation" in this subsection (a) shall apply for
periods commencing before the first day of the Plan Year commencing
after the Plan Year in which the Employer adopts the Adoption Agreement
incorporating the changes required by the Tax Reform Act of 1986. This
definition shall apply wherever it is used in this Plan, except as
provided in Sections 4.07 and 13.02(a) hereof. "Compensation" shall
mean a Participant's compensation actually paid or accrued (as
indicated in the Plan prior to the Adoption Agreement incorporating the
changes required by the Tax Reform Act of 1986) within a Plan Year that
is subject to tax under Section 3101(a) of the Code without the dollar
limitation of Section 3121(a)(1) thereof, as defined and restricted
with respect only to nonstandardized plans in Item 7 of the Adoption
Agreement. Provided, however, (subject to the preceding limitations)
1-3
<PAGE>
with respect to a Self-Employed Individual, Compensation as used in
the Plan shall mean Earned Income. Provided further, however, the term
"Compensation" shall include contributions made to an employee benefit
plan under Section 401(k), Section 403(b) or Section 125 of the Code,
but shall not include any other tax-deferred or tax-exempt
compensation.
(b) The definition of "Compensation" in this subsection (b) shall apply
for periods commencing on or after the first day of the Plan Year
commencing after the Plan Year in which the Employer adopts the
Adoption Agreement incorporating the changes required by the Tax
Reform Act 1986. This definition shall apply wherever it is used in
this Plan, except as provided in Section 13.02(a) hereof. As elected
by the Employer in Item 7 of the Adoption Agreement, "Compensation"
shall mean each Participant's (i) W-2 Earnings as defined in Section
4.07(e)(13) hereof or (ii) compensation as defined in Section
4.07(e)(2)(ii) hereof and, except for purposes of Section 4.07(e)(2),
as further restricted in Item 7 of the Adoption Agreement. Provided,
however, (subject to the preceding limitations) with respect to a
Self-Employed Individual, Compensation shall mean Earned Income.
Compensation pursuant to this subsection (b) shall include only that
compensation which is actually paid to the Participant during the
applicable period. In addition, for purposes of determining the
Average Deferral Percentage under Section 3.05 and the Average
Contribution Percentage under Section 3.06, the Plan Administrator may
in any Plan Year use such definition as is permitted pursuant to the
regulations under Code Section 414(s) which is more beneficial in
helping the Plan pass the tests in those Plan sections. Except as
provide elsewhere in the Plan, the applicable period shall be the
period elected by the Employer in Item 7 of the Adoption Agreement. If
the Employer makes no election, the applicable period shall be the
Plan Year.
Notwithstanding the above, if elected by the Employer in Item 7(b) of
the Adoption Agreement, Compensation shall include:
(i) any amount which is contributed by the Employer with respect to
the applicable period pursuant to a salary reduction agreement
and which is not includible in the gross income of the Employee
uncle Section 125 (dealing with cafeteria plans), 402(a)(8)
(dealing with elective deferrals under 401(k) plans), 402(h)
(dealing with simplified employee pensions) or 403(b) (dealing
with tax sheltered annuities) of the Code;
(ii) compensation deferred under an eligible deferred compensation
plan within the meaning of Code Section 457(b) (dealing with
state and local governments and tax exempt organizations); and
1-4
<PAGE>
(iii) employee contributions under governmental plans described in
Code Section 414(h)(2) that are picked up by the employing
unit.
(c) For Plan Years beginning on or after January 1, 1989, the annual
compensation of each Participant taken into account under the Plan
for any year shall not exceed $200,000, as adjusted by the Secretary
at the same time and in the same manner as under Section 415(d) of
the Code. In determining the compensation of a Participant for
purposes of this limitation, the rules of Section 414(q)(6) of the
Code shall apply, except in applying such rules, the term "family"
shall include only the Spouse of the Participant and any lineal
descendants of the Participant who have not attained age nineteen
(19) before the close of the year. If, as a result of the
application of such rules the adjusted $200,000 limitation is
exceeded, then (except for purposes of determining the portion of
Compensation up to the integration break-point if this Plan provides
for permitted disparity), the limitation shall be prorated among the
affected individuals in proportion to each such individual's
Compensation as determined under this section prior to the
application of this limitation. The application of this subsection
(c) shall be subject to such rules as may be prescribed by the
Secretary of the Treasury.
Section 1.12 "Controlled Group" shall mean, with respect to the Employer,
------------------------------
a controlled group of corporations (as defined in Code Section 414(b)), a group
of trades or businesses under common control (as defined in Code Section
414(c)), an affiliated service group (as defined in Code Section 414(m)), and
any other entity required to be aggregated with the Employer pursuant to Code
Section 414(o) and the regulations thereunder. All employees of members of a
Controlled Group shall be treated as employed by a single employer for purposes
of Sections 401, 410, 411, 415 and 416 of the Code.
Section 1.13 "Covered Compensation." shall mean, for a Plan Year, the
------------------------------------
average (without indexing) of the contribution and benefit bases in effect under
Section 230 of the Social Security Act for each calendar year in the thirty-five
(35) year period ending with the last day of the calendar year in which the
employee attains (or will attain) the Social Security Retirement Age. The
determination of Covered Compensation for any year preceding the year in which
the Employee attains the Social Security Retirement Age shall be made by
assuming that there is no increase in the bases described in Section 230 of the
Social Security Act after the determination year and before the Social Security
Retirement Age. A Participant's Covered Compensation for a Plan Year before the
thirty-five (35) year period ending with the last day of the calendar year in
which the Participant attains his Social Security Retirement Age is the
contribution and benefit base in effect under section 230 of the Social Security
Act at the beginning of the Plan Year. A Participant's Covered Compensation for
a Plan year after such thirty-five (35) year period is the Participant's Covered
Compensation for the Plan Year during which the Participant attained Social
Security Retirement Age.
1-5
<PAGE>
Section 1.14 "Disability" shall, unless further restricted in Item 18(d)
-------------------------
of the Adoption Agreement, mean total and permanent incapacity of a Participant
to engage in any substantially gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. In determining the existence of Disability in
Plan Years commencing before January 1, 1989, the Plan Administrator may require
written certification of disability from a physician of its choosing and/or may
allow receipt of Social Security or any insured disability benefits to be
conclusive evidence of total and permanent disability. In determining the
existence of Disability in Plan Years commencing after December 31, 1988, the
Plan Administrator shall require medical evidence and/or shall allow receipt of
Social Security or any insured disability benefits to be conclusive evidence of
total and permanent disability, pursuant to its election in Item 18(e) of the
Adoption Agreement.
Section 1.15 "Earned Income" shall mean the net earnings from self-
----------------------------
employment in the trade or business with respect to which the Plan is
established, for which personal services of the individual are a material
income-producing factor. Net earnings shall be determined without regard to
items not included in gross income and the deductions allocable to such items.
Net earnings shall be determined with regard to the deduction allowed to the
Employer by Section 164(f) of the Code for taxable years beginning after
December 31, 1989. Net earnings shall be reduced by contributions by the
Employer to a qualified plan to the extent deductible under Section 404 of the
Code. If applicable, a person's total Earned Income shall be subject to the
adjustments required by regulations under Code Section 414(s).
Section 1.16 "Effective Date" shall mean the date the Plan was
-----------------------------
established by an Employer, as specified in Item l(a) of the executed Adoption
Agreement; provided, however, that the term shall mean, for an Employee of an
Adopting Employer who adopts the Plan later than the date it was originally
established, the effective date of adoption of the Plan by such Employer. The
effective date of the most recent adoption or amendment shall be the date
indicated in Item l(b) of the Adoption Agreement.
Section 1.17 "Elective Deferral Account" shall mean the account
----------------------------------------
maintained on behalf of a Participant to which shall be credited the
Participant's Elective Deferral Contributions and the Participant's share of the
Income of the Trust Fund allocable to this account.
Section 1.18 "Elective Deferral Contributions" shall mean the
----------------------------------------------
contributions made by an Employer on an Employee's behalf pursuant to Section
3.01(a) hereof.
Section 1.19 "Employee" shall mean either (i) a person (other than an
-----------------------
independent contractor) who is receiving remuneration for personal services
rendered to, or labor performed for, the Employer (or who would be receiving
such remuneration except for a Leave of Absence), or (ii) a Leased Employee
deemed to be an employee of the Employer as provided in Sections 414(n) or (o)
of the Code. In addition, if the Plan is a standardized plan, for purposes of
this section the "Employer" shall include all members of the Controlled Group
(regardless of whether any
1-6
<PAGE>
such employer is treated as operating separate lines of business under Code
section 414(r)); therefore, in the case of a standardized plan each employer in
the Controlled Group shall be required to adopt the Plan.
Section 1.20 "Employee Account" shall mean the account maintained on
-------------------------------
behalf of a Participant to which shall be credited the Participant's Employee
Contributions and the Participant's share of the Income of the Trust Fund
allocable to this account.
Section 1.21 "Employee Contributions" shall mean the contributions made
-------------------------------------
by the Employee pursuant to Section 3.03(a) hereof.
Section 1.22 "Employer" shall mean the entity executing the Adoption
-----------------------
Agreement as the Employer and each of those persons, business organizations or
corporations executing the Plan as an Adopting Employer, together with any
successor to all or a major portion of any said entity's property or business,
provided such successor Employer adopts the Plan by appropriate resolution of
its governing body.
Section 1.23 "Employer Account" shall mean the account maintained on
-------------------------------
behalf of a Participant to which shall be credited the Participant's share of
any Employer Contributions (and Forfeitures, if the Adoption Agreement provides
for the allocation of Forfeitures as an additional Employer Contribution) and
the Participant's share of the Income of the Trust Fund allocable to this
account.
Section 1.24 "Employer Contributions" shall mean contributions made by an
-------------------------------------
Employer pursuant to Section 3.01(c) hereof.
Section 1.25 "ERISA" shall mean the Employee Retirement Income Security
--------------------
Act of 1974, as amended.
Section 1.26 "Excess Compensation" shall mean, for an integrated target
----------------------------------
benefit pension plan, the amount of a Participant's Average Compensation in
excess of the level specified in Item 8 of the Adoption Agreement.
Section 1.27 "Family Member" shall mean an individual included in the
----------------------------
family of an Owner-Employee within the meaning of Section 267(c)(4) of the Code.
Section 1.28 "Fiduciary" shall mean the Employer, the Plan Administrator
------------------------
(and the Committee, if appointed pursuant to Section 9.01 hereof), the
Investment Manager, if any, and the Trustee, but only with respect to the
specific responsibilities for each described herein.
Section 1.29 "Forfeiture" shall mean the portion of a Participant's
-------------------------
Employer Account and Matching Account which is forfeited under Section 5.01 or
8.03 hereof before full vesting occurs.
Section 1.30 "Highly Compensated Employee" shall mean a person who is
------------------------------------------
either a "highly compensated active employee" as defined in subsection (a)
hereof or a "highly compensated former employee" as defined in subsection (b)
hereof.
1-7
<PAGE>
(a) A "highly compensated active employee" is any Employee who performs
service for the Employer during the determination year and who, during
the look-back year:
(1) received compensation from the Employer in excess of seventy-five
thousand dollars ($75,000) (as adjusted pursuant to Section
415(d) of the Code);
(2) received compensation from the Employer in excess of fifty
thousand dollars ($50,000) (as adjusted pursuant to Section
415(d) of the Code) and was a member of the top-paid Group for
such year; or
(3) was an officer of the Employer and received compensation during
such year that is greater than fifty percent (50%) of the dollar
limitation in effect under Section 415(b)(1)(A) of the Code.
The term "highly compensated active employee" also includes:
(4) An Employee (i) who is described in the preceding sentence if the
term "determination year" is substituted for the term "look-back
year" and (ii) who is one of the one hundred (100) Employees who
received the most compensation from the Employer during the
determination year; and
(5) An Employee who is a five percent (5%) owner at any time during
the look-back year or the determination year.
If no officer has satisfied the compensation requirement of (3) above
during either a determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated
Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve (12)-month period immediately
preceding the determination year.
(b) A "highly compensated former employee" is any Employee who separated
from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active employee for
either the separation year or any determination year ending on or
after the Employee's fifty-fifth (55th) birthday.
If an Employee is, during a determination year or look-back year, a family
member of either a five percent (5%) owner who is an active or former Employee
or a Highly Compensated Employee who is one of the ten (10) most highly
compensated Employees ranked on the basis of compensation paid by the Employer
during such year, then the family member and five percent (5%) owner or top-ten
(10) Highly Compensated Employee shall be treated as a single Employee receiving
compensation and Plan contributions
1-8
<PAGE>
or benefits equal to the sum of such compensation and contributions or benefits
of the family member and five (5%) percent owner or top-ten (10) Highly
Compensated Employee. For purposes of this section, family member includes the
spouse, lineal ascendants and descendants of the Employee or former Employee and
the spouses of such lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid Group,
the top one hundred (100) Employees, the number of Employees treated as officers
and the compensation that is considered, will be made in accordance with Section
414(q) of the Code and the regulations thereunder.
Section 1.31 "Hour of Service" shall mean:
------------------------------
(a) each hour for which an Employee is paid, or entitled to payment, for
the performance of duties for the Employer. These hours shall be
credited to the Employee for the Plan Year in which the duties are
performed; and
(b) each hour for which an Employee is paid, or entitled to payment, by
the 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, illness, incapacity
(including disability), layoff, jury duty, military duty or leave
absence. No more than five hundred and one (501) Hours Service shall
be credited under this paragraph for any single continuous period
(whether or not such period occurs in a single Plan Year). Hours
under this paragraph shall be calculated and credited pursuant to
Section 2530.200b-2 of the Department of Labor Regulations, which
are incorporated herein by this reference; and
(c) each hour for which back pay, irrespective of mitigation of damages,
has been either awarded or agreed to by the Employer. These hours
shall be credited to the Employee for the Plan Year to which the
award or agreement pertains rather than the Plan Year in which the
award, agreement or payment is made. Hours shall not be credited
under both this and any of the preceding subsections of this
section; provided, however, that
(d) Hours of Service shall not be credited for payments made solely to
comply with workmen's or unemployment compensation or disability
insurance laws or as reimbursement for medical expenses.
Hours of Service shall be determined on the basis selected in Item 6 of
the Adoption Agreement.
Notwithstanding the foregoing, in the event the Plan uses the "elapsed
time" method pursuant to Item 6 of the Adoption Agreement, an "Hour of Service"
shall mean each hour for which an Employee is paid or entitled to payment for
the performance of duties for the Employer.
1-9
<PAGE>
If the Employer is maintaining the plan of a predecessor employer, or if
a predecessor employer is either listed in Item 22 of the Adoption Agreement or
designated in writing by the Employer subsequent to the completion of the
Adoption Agreement, service with such predecessor employer shall be treated as
Service with the Employer.
Hours of Service shall be credited for employment with other members of a
Controlled Group of which the Employer is a member. Hours of Service shall also
be credited for any individual considered an Employee for purposes of the Plan
under Section 414(n) of the Code, or Section 414(o) of the Code and the
regulations thereunder.
Section 1.32 "Income" shall mean the net gain or loss of the Trust Fund
--------------------
from investments, as reflected by interest payments, dividends, realized and
unrealized gains and losses on securities, other investment transactions, and
expenses paid from the Trust Fund which are not reimbursed by the Employer. In
determining the Income of the Trust Fund for any period, assets shall be valued
on the basis of current fair market value.
Section 1.33 "Individual Retirement Account" shall mean a trust within
-------------------------------------------
the meaning of Section 408(a) of the Code or an individual retirement annuity
under Section 408(b) of the Code.
Section 1.34 "Investment Manager" shall mean any Fiduciary, other than
--------------------------------
the Trustee, who
(a) has the power to manage, acquire, or dispose of any asset of the Plan;
(b) (i) is registered as an investment advisor under the Investment
Advisers Act of 1940; (ii) is a bank, as defined in that Act; or (iii)
is an insurance company qualified to perform services described in
subsection (a) under the laws of more than one (l) state; and
(c) has acknowledged in writing that he is a Fiduciary with respect to the
Plan.
Section 1.35 "Leased Employee" shall mean any person (other than a common
-----------------------------
law employee of the recipient Employer) who provides services for the recipient
Employer if the following conditions are met:
(a) such services are provided pursuant to an agreement between the
recipient Employer and a leasing organization,
(b) such person has performed services for the recipient Employer (or the
recipient Employer and a "related person" as that term is defined in
Section 414(n)(6) of the Code) on a substantially full-time basis for
a period of at least one (1) year, and
(c) such services are of a type historically performed, in the business
field of the recipient Employer, by employees.
1-10
<PAGE>
Notwithstanding the foregoing, a Leased Employee shall not be considered an
Employee of the recipient Employer as to services performed after December 31,
1986 if:
(d) such person is covered by a money purchase pension plan providing:
(1) a nonintegrated employer contribution rate of at least ten
percent (10%) of compensation, as defined in Section 415(c)(3) of
the Code, but including amounts contributed pursuant to a salary
reduction agreement which are excludable from the employee's
gross income under a 401(k) plan, a cafeteria plan pursuant to
Code Section 125, a simplified employee pension (SEP) pursuant to
Code section 402(h) or a tax sheltered annuity pursuant to Code
section 403(b) of the Code,
(2) immediate participation, and
(3) full and immediate vesting; and
(e) Leased Employees do not constitute more than twenty percent (20%) of
the recipient's nonhighly compensated workforce.
For purposes of this Plan, contributions or benefits provided to a Leased
Employee by the leasing organization which are attributable to services
performed for the recipient Employer shall be treated as provided by the
recipient Employer.
Section 1.36 "Leave of Absence" shall mean any unpaid absence authorized
------------------------------
by the Employer under the Employer's standard personnel practices; provided that
all persons under similar circumstances shall be treated alike in the granting
of such Leaves of Absence; and provided, further, that the Participant returns
within the period of authorized absence. An absence due to service in the Armed
Forces of the United States shall be considered a Leave of Absence if the
absence is caused by war or other emergency, or the Employee is required to
serve under the laws of conscription in time of peace; and if, further, the
Employee returns to Service within the period during which his employment rights
are protected by law. Individuals on Leave of Absence shall be treated under the
Plan as if they were Employees according to the terms hereof.
Section 1.37 "Life Insurance Company'' shall mean a life insurance
---------------------------------------
company licensed to do business in a state in which the Employer also does
business.
Section 1.38 "Matching Account" shall mean the account maintained on
------------------------------
behalf of a Participant to which shall be credited the Participant's share of
any Matching Contributions (and Forfeitures, if the Adoption Agreement provides
for the allocation of Forfeitures as an additional Matching Contribution) and
the Participant's share of the Income of the Trust Fund allocable to this
account.
Section 1.39 "Matching Contributions" shall mean the contributions made
------------------------------------
by an Employer pursuant to Section 3.01(b) hereof.
1-11
<PAGE>
Section 1.40 "Net Profits" shall mean current or accumulated earnings of
-------------------------
the Employer before Federal and State taxes and contributions to this and
any, other qualified plans.
Section 1.41 "Non-highly Compensated Employee" shall mean an Employee of
---------------------------------------------
the Employer who is neither a Highly Compensated Employee nor a family member
(pursuant to Section 414(q)(6)(B) of the Code).
Section 1.42 "Normal Retirement Age" shall mean the age or date set out
-----------------------------------
in Item 18(a) of the Adoption Agreement. However, the Normal Retirement Age
shall not exceed any mandatory retirement age imposed by the Employer on
Employees.
Section 1.43 "Normal Retirement Date" shall mean the first day of the
------------------------------------
calendar month coincident with or next following the date on which the
Participant attains Normal Retirement Age.
Section 1.44 "Owner-Employee" shall mean an individual who is a sole
----------------------------
proprietor, or who is a partner owning more than ten percent (10%) of either the
capital or profits interest of the partnership.
Section 1.45 "Paired Plans" shall mean (i) two (2) or more defined
--------------------------
contribution plans adopted by the Employer pursuant to Adoption Agreements #004
through #006 under this prototype plan, the BPS&M Defined Contribution Basic
Plan Document #01, when paired under Article 14 hereof. Paired Plans shall be
standardized plans established by the Employer pursuant to Revenue Procedure
89-13.
Section 1.46 "Participant" shall mean an Employee participating in the
-------------------------
Plan in accordance with the provisions of Article 2 hereof.
Section 1.47 "Plan" shall mean the defined contribution plan established
------------------
by the Employer, incorporating this prototype plan document, which is BPS&M
Defined Contribution Basic Plan Document #01, the Adoption Agreement, and all
subsequent amendments to either.
Section 1.48 "Plan Administrator" shall mean the Employer or other entity
--------------------------------
or entities specified in Item 3 of the Adoption Agreement. For purposes of this
section, the Employer shall mean only the entity executing the Adoption
Agreement as the "Employer," and shall not include any organization executing
the Adoption Agreement as an "Adopting Employer."
Section 1.49 "Plan Year" shall mean the twelve (12) consecutive month
-----------------------
period specified in Item l(c) of the Adoption Agreement, and anniversaries
thereof. In unusual circumstances (such as the recent incorporation of the
Employer, a change of Plan Year or the establishment of the Plan as a successor
to a plan which was based on some period other than the current Plan Year), the
Plan Year may be shorter than twelve (12) months.
Section 1.50 "Policy" shall mean an individual life insurance policy or
--------------------
annuity contract, or a combination thereof, issued by a Life Insurance Company
in accordance with the provisions of the Plan.
1-12
<PAGE>
Section 1.51 "Qualified Joint and Survivor Annuity" shall mean an
--------------------------------------------------
immediate annuity for the life of the Participant with a survivor annuity for
the life of the Spouse of the Participant, as selected by the Employer in Item
19 of the Adoption Agreement, which is not less than fifty percent (50%) of, nor
greater than, the amount of the annuity payable during the joint lives of the
Participant and the Participant's Spouse and which is the amount of benefit
which can be purchased with the Participant's Vested Account Balance. If
no.election is made in Item 19 of the Adoption Agreement, then the percentage of
the survivor annuity under the Plan shall be fifty percent (50%).
Section 1.52 "Qualified Matching Account" shall mean the account
----------------------------------------
maintained on behalf of a Participant to which shall be credited the
Participant's share of any Qualified Matching Contributions and the
Participant's share of the Income of the Trust Fund allocable to this account.
Section 1.53 "Qualified Matching Contributions" shall mean the
----------------------------------------------
contributions made by the Employer pursuant to Section 3.01(e) hereof.
Section 1.54 "Qualified Non-elective Account" shall mean the account
--------------------------------------------
maintained on behalf of a Participant to which shall be credited the
Participant's share of any Qualified Non-elective Contributions and the
Participant's share of the Income of the Trust Fund allocable to the account.
Section 1.55 "Qualified Non-elective Contributions" shall mean the
--------------------------------------------------
contributions made by the Employer pursuant to Section 3.01(d) hereof.
Section 1.56 "Qualifying Employer Securities" shall mean employer
--------------------------------------------
securities which are stock or marketable obligations, such as bonds, debentures,
notes or certificates, or other evidence of indebtedness, as defined in Section
407(d)(5) of ERISA.
Section 1.57 "Retired Participant" shall mean a former Participant, other
---------------------------------
than a Separated Participant, who has terminated his Service and who is entitled
to receive benefits provided by the Plan.
Section 1.58 "Rollover Account" shall mean the account maintained on
------------------------------
behalf of a Participant to which shall be credited the Participant's Rollover
Contributions and the Participant's share of the Income of the Trust Fund
allocable to the account.
Section 1.59 "Rollover Contributions" shall mean the tax-free rollovers
------------------------------------
made by a Participant pursuant to Section 3.03(c) hereof.
Section 1.60 "Self-Employed Individual" shall mean an individual who has
--------------------------------------
Earned Income for the taxable year from the trade or business for which the Plan
is established; also, an individual who would have had Earned Income but for the
fact that the trade or business had no Net Profits for the taxable year.
Section 1.61 "Separated Participant" shall mean a former Participant who
-----------------------------------
incurs a Break in Service, or whose Service is terminated for reasons other than
death, Disability or retirement.
1-13
<PAGE>
Section 1.62 "Service" shall mean employment of an Employee by the
---------------------
Employer, and, unless the "elapsed time method is elected pursuant to Item 6 of
the Adoption Agreement, shall be measured in Hours of Service. If the "elapsed
time" method is elected, Service shall be expressed in years and a decimal
fraction of a year based on completed days of Service, and all non-successive
periods of Service (including fractional years) shall be aggregated. If any
period of Service in excess of one (1) Year of Service is required for
eligibility pursuant to Item 5 of the Adoption Agreement, and if an Employee has
a Break in Service before satisfying such Service eligibility requirement,
Service before such Break in Service shall not be taken into account for
purposes of determining eligibility under the Plan.
In determining a Participant's Service under the Plan, employment with
any employers listed in Item 22 of-the Adoption Agreement, or with any other
employers while such employers are members of a Controlled Group with the
Employer, shall be treated as employment with the Employer. However, this
provision shall not affect (i) the limitation of participation in the Plan to
Employees of the Employer and Adopting Employers and (ii) basing Compensation
only on compensation paid by an Adopting Employer.
Section 1.63 "Sponsor" shall mean Bryan, Pendleton, Swats McAllister
---------------------
(otherwise known as "BPS&M"), the sponsor of this regional prototype plan.
Section 1.64 "Spouse" shall mean the person who is legally married to a
--------------------
Participant or, if the Participant has been credited with at least one (1) Hour
of Service under the Plan on or after August 23, 1984, a former spouse of the
Participant if and to the extent such former spouse is to be treated as a spouse
or surviving spouse under a qualified domestic relations order described in
Section 414(p) of the Code.
Section 1.65 "Target Annual Retirement Benefit" shall mean, for a
----------------------------------------------
Participant in a target benefit pension plan, an annuity commencing at his
Normal Retirement Age, and payable monthly on the first day of each month
thereafter during the lifetime of the Participant, in an amount equal to the
benefit established in Item 8 of the Adoption Agreement, which contributions to
the Plan are actuarially determined to provide if a Participant remains in
Service until the annuity commencement date.
Anything in the Plan to the contrary notwithstanding, no Participant
shall be entitled, merely because of the foregoing, to receive an annuity equal
to his Target Annual Retirement Benefit. The purpose of the Target Annual
Retirement Benefit is solely to determine the amount of Employer contribution to
be made to the Employer Account of each Participant; the actual retirement
benefit for any Participant shall be that which can be provided from the amount
of his Employer Account.
Until such time as the Target Annual Retirement Benefit becomes
definitely determinable, an estimated Target Annual Retirement Benefit may be
used in lieu of the Target Annual Retirement Benefit for all purposes under the
Plan. The estimated Target Annual Retirement Benefit shall be the amount which
the Participant's Target Annual Retirement Benefit would be if such
Participant's Compensation for each Plan Year subsequent to the date of the
estimation, ending with the Plan Year during which the
1-14
<PAGE>
Participant would attain Normal Retirement Age, were the same as the
Participant's Compensation for the Plan Year immediately preceding (or, if the.
date of the estimation is the last day of a Plan Year, ending on) the date of
the estimation.
Section 1.66 "Taxable Wage Base" shall mean at any time the maximum
-------------------------------
amount of earnings which may be considered wages at such time under Section
3121(a)(1) of the Code.
Section 1.67 "TEFRA" shall mean the Tax Equity and Fiscal Responsibility
-------------------
Act of 1982, as amended.
Section 1.68 "Trust" shall mean the trust, incorporated into and forming
-------------------
a part of the Plan, by which the Employer's contributions and contributions from
Participants shall be received, held, invested and disbursed to or for the
benefit of Participants and their Beneficiaries.
Section 1.69 "Trustee" shall mean the individual, individuals, or
---------------------
financial institution specified in Item 3 of the Adoption Agreement.
Section 1.70 "Trust Fund" shall mean all assets held under the Plan by
------------------------
the Trustee. The corpus or income of the Trust Fund shall not be diverted for
purposes other than the exclusive benefit of Participants, Retired or Separated
Participants and their Spouses and Beneficiaries.
Section 1.71 "Valuation Date" shall mean the day upon which a Plan Year
----------------------------
ends or such other date as of which assets are valued for purposes of an interim
valuation pursuant to the provisions of Section 4.09 hereof.
Section 1.72 "Vested Account Balance" shall mean the aggregate value of
------------------------------------
the Participant's vested Accounts whether vested before or upon death, including
the proceeds of insurance contracts, if any, on the Participant's life.
Section 1.73 "Vesting Service" shall mean (i) the period defined in
-----------------------------
subsection (a) hereof for Plans which count Hours of Service pursuant to Item 6
of the Adoption Agreement and (ii) the period defined in subsection (b) hereof
for Plans which use the "elapsed time" method pursuant to Item 6 of the Adoption
Agreement, subject to subsection (c) and the other rules which follow subsection
(c).
(a) Hours Counting Method. "Vesting Service" shall mean the number of
---------------------
Plan Years during which an Employee has at least one thousand
(1,000) Hours of Service, subject to the limitations set out in this
section and in Item 17 of the Adoption Agreement.
Subject to the limitations set out herein and in Item 11 of the
Adoption Agreement, a Participant shall receive credit for a full
year of Vesting Service with respect to a Plan Year which is of less
than twelve (12) months duration (as described in Section 1.49) if
he completes one thousand (1,000) Hours of Service during the twelve
(12) month period which commences on the first day of such Plan
Year.
1-15
<PAGE>
(b) Elapsed Time Method. "Vesting Service" shall mean a one (1) year
-------------------
period of Service. A "period of Service" shall mean the period
commencing on the Employee's date of commencement of employment, or
reemployment, as the case may be, with the Employer and ending on
the first day of the subsequent Break in Service.
(c) Special Rules.
-------------
(1) For Plan Years beginning on or before December 31, 1984,
however, the following periods of Service shall be disregarded
in computing a Participant's period of Vesting Service under
the Plan.
(i) Service after a Break in Service shall be disregarded
with respect to determining the vesting percentage
applicable to any benefit derived from contributions
made by the Employer before such Break in Service.
(ii) If the "Rule of Parity" is to apply to the Plan pursuant
to Item 17(d) of the Adoption Agreement, then Service
before a Break in Service shall be disregarded if the
Employee did not have a nonforfeitable right to any
portion of his Employer Account at the time of the Break
in Service, and if the number of consecutive Breaks in
Service equals or exceeds the Employee's number of years
of Vesting Service prior to such consecutive Breaks in
Service. The number of years of Vesting Service prior to
such consecutive Breaks in Service shall be deemed to
exclude any years of Vesting Service not required to be
taken into account by reason of any prior Break in
Service.
(2) For Plan Years beginning after December 31, 1984, however, the
following periods of Service shall be disregarded in computing
a Participant's period of Vesting Service under the Plan.
(i) Service after a period of five (5) or more consecutive
Breaks in Service shall be disregarded with respect to
determining the vesting percentage applicable to any
benefit derived from contributions made by the Employer
before such period.
(ii) If the "Rule of Parity" is to apply to the Plan pursuant
to Item 17(d) of the Adoption Agreement, then Service
before any period of consecutive Breaks in Service shall
be disregarded if the Employee does not have a
nonforfeitable right to any portion of his Accounts
attributable to Employer contributions
1-16
<PAGE>
before such period of consecutive Breaks in Service, and
if the number of consecutive Breaks in Service equals or
exceeds the greater of (i) five (5) or (ii) the
Employee's aggregate number of years of Vesting Service
prior to such period of consecutive Breaks in Service.
The number of years of Vesting Service prior to such
period of consecutive Breaks in Service shall be deemed
to exclude any years of Vesting Service not required to
be taken into account by reason of any prior period of
consecutive Breaks in Service.
This subsection (c)(2) shall have applicability only
prospectively for Plan Years beginning after December 31,
1984, and shall not be applied in Plan Years after this date
with respect to Plan Years beginning on or before this date
with the result of requiring an Employer to take into account
as Vesting Service any Service which was disregarded in
subsection (c)(l) hereof.
For all Plan Years, Service with a predecessor employer shall be
disregarded in computing a Participant's period of Vesting Service under the
Plan, unless the Employer is maintaining a tax-qualified plan of the predecessor
employer and/or the predecessor employer is either listed in Item 22 of the
Adoption Agreement or is designated in writing by the Employer (or the Employer
otherwise elects to count Service with a predecessor employer in Item 22 of the
Adoption Agreement).
If this Plan is a continuation of a Plan which was in effect prior to
ERISA, then the provisions of the pre-ERISA plan with respect to (1) non-
continuous employment and (2) the measurement of periods of employment shall
continue to apply to Service prior to the date ERISA first applied to the Plan
if those provisions have been continuously and uniformly applied after ERISA
came into effect.
In the event a Participant becomes ineligible to participate because he
is no longer a member of an eligible class of employees, or an Employee who is
not a member of the eligible class of employees becomes a member of the eligible
class, employment in the ineligible class shall be treated as Service for
purposes of determining Vesting Service.
Section 1.74 "Voluntary Deductible Contributions" shall mean
------------------------------------------------
contributions made by the Employee pursuant to Section 3.03(b) hereof.
Section 1.75 "Voluntary Deductible Contributions Account" shall mean the
--------------------------------------------------------
account maintained on behalf of a Participant to which shall be credited the
Participant's Voluntary Deductible Contributions and the Participant's share of
the Income of the Trust Fund allocable to this account.
Section 1.76 "Year of Service" shall mean (i) the period defined in
-----------------------------
subsection (a) hereof for Plans which count Hours of Service pursuant to Item 6
of the Adoption Agreement and (ii) the period defined in
1-17
<PAGE>
subsection (b) hereof for Plans which use the "elapsed time" method pursuant to
Item 6 of the Adoption Agreement.
(a) Hours Counting Method. A "Year of Service" shall mean a twelve
---------------------
(12) consecutive month period during which an Employee
completes at least one thousand (1,000) Hours of Service.
For purposes of determining eligibility, the initial twelve
(12) month period shall commence on the date the Employee first
performs an Hour of Service, and each subsequent twelve (12)
month period shall be the Plan Year, beginning with the last
Plan Year which commences prior to the end of the initial
twelve (12) month period, regardless of whether or not the
Employee is entitled to be credited with one thousand (1,000)
Hours of Service during the initial eligibility computation
period. If a Plan Year is a Plan Year of less than the twelve
(12) months duration described in Section 1.49 hereof, then the
Employee must be credited with one thousand (1,000) Hours of
Service during the twelve (12) month period commencing on the
first day of such short Plan Year to be credited with a Year of
Service. If less than one (1) Year of Service is required for
eligibility pursuant to Item 5 of the Adoption Agreement, an
Employee shall not be required to complete any number of Hours
of Service for purposes of eligibility.
Notwithstanding the foregoing, however, if any period of
Service in excess of one (l) Year of Service is required for
eligibility pursuant to Item 5 of the Adoption Agreement, then
for purposes of determining eligibility the initial twelve (12)
month period shall commence on the date the Employee first
performs an Hour of Service, and each subsequent twelve (12)
month period shall commence on the anniversary date of the date
the Employee first performs an Hour of Service.
(b) Elapsed Time Method. A "Year of Service" shall mean a one (1)
-------------------
year "period of Service." A "period of Service" shall mean the
period commencing on the Employee's date of commencement of
employment, or reemployment, as the case may be, with the
Employer and ending on the first day of the subsequent Break in
Service. The Employee's date of commencement of employment or
reemployment is the first day the Employee performs an Hour of
Service.
(c) Accrual of Benefits. For purposes of determining the accrual of
-------------------
benefits, the twelve (12) consecutive month period shall be the
twelve (12) consecutive month period beginning on the first day
of the Plan Year.
1-18
<PAGE>
ARTICLE 2
ELIGIBLE EMPLOYEES AND PARTICIPANTS
Section 2.01 Eligibility. Each present and future Employee who is not
------------------------
excluded from participation under Item 4 of the Adoption Agreement shall be
eligible to become a Participant as of the date on which he first meets all of
the eligibility requirements set forth in Item 5(a) of the Adoption Agreement,
provided he is then an Employee. However, no Employee shall be eligible to
become a Participant prior to the effective date of adoption of the Plan by his
Employer.
Section 2.02 Eligibility Determination. Within sixty (60) days prior to
--------------------------------------
the date on which an Employee shall, if he continues in Service with the
Employer, satisfy the eligibility and participation requirements set forth in
Item 5 of the Adoption Agreement, the Plan Administrator shall forward to the
Employee such application for participation as the Plan Administrator shall
require, if any, and shall notify him of the requirements to become a
Participant, if any. An Employee who does not apply for participation when he
first becomes eligible may apply for participation as of any succeeding date he
is eligible to begin participation. In such event, his participation shall
commence as of such succeeding date. Should any question arise as to
eligibility, the Plan Administrator shall, after any hearing requested by the
Employee concerned, decide such question, and such determination, if made in
good faith and in accordance with the terms of the Plan, shall be final.
Notwithstanding the foregoing, in no event shall a standardized plan
require any application for participation, except pursuant to Adoption Agreement
#005 in cases where Elective Deferral Contributions or Employee Contributions
are required for participation.
Section 2.03 Participation. An Employee who meets the eligibility
--------------------------
requirements of Section 2.01 shall become a Participant on the date indicated in
Item 5(b) of the Adoption Agreement provided that he is still an Employee on
that date and has filed with the Plan Administrator such written application as
the Plan Administrator may require for participation in the Plan, if any, in
which he has agreed to abide by all the provisions thereof.
Once an Employee has become a Participant he shall continue to be a
Participant until his Service terminates or he incurs a Break in Service, dies,
sustains Disability, or retires. In the event that a Participant's Service
terminates or he incurs a Break in Service, dies, sustains Disability, or
retires in accordance with the provisions of the Plan, he shall thereupon cease
to be a Participant. If a Participant becomes a Separated Participant because of
a change in his classification of employment to one (1) of the classes, if any,
excluded in Item 4 of the Adoption Agreement, he shall be granted benefits, if
any, in accordance with Article 8 hereof; provided, however, that employment of
the Separated Participant in such an excluded class shall be deemed Service for
eligibility and vesting purposes.
2-1
<PAGE>
Section 2.04 Participation Following Reemployment or Break in Service. A
---------------------------------------------------------------------
former Participant whose Service has terminated, or who has incurred a Break in
Service, shall become a Participant immediately upon again being credited with
Service if such former Participant had a nonforfeitable right to all or a
portion of his Accounts attributable to contributions made by the Employer
pursuant to Section 3.01 at the time of such termination or break.
For Plan Years beginning on or before December 31, 1984, in Plans which
require an Employee to complete one thousand (1,000) Hours of Service in order
to have a Year of Service for eligibility purposes, a former Participant or
former Employee whose Service has terminated, or who has incurred a Break in
Service, but who did not have a nonforfeitable right to any portion of his
Accounts attributable to contributions made by the Employer pursuant to Section
3.01 at the time of such termination or break shall be considered a new Employee
upon again being credited with Service, for eligibility purposes (his Years of
Service prior to the Break in Service shall be disregarded), if the number of
his consecutive Breaks in Service equals or exceeds the aggregate number of his
Years of Service before such termination or break. If, in the case of a former
Participant, such former Participant's Years of Service before his termination
or break exceed the number of consecutive one (1) year Breaks in Service after
such termination or break, then such former Participant shall be eligible to
participate immediately. If, in the case of a former Employee, such former
Employee had satisfied the age and service requirements of the Plan but had
terminated prior to commencing participation in the Plan, then if such former
Employee returns to Service after the date he would have commenced participation
(if he had not terminated) but before incurring a one (1) year Break in Service,
he shall be eligible to participate immediately.
For Plan Years beginning after December 31, 1984, in Plans which require
an Employee to complete one thousand (1,000) Hours of Service in order to have a
Year of Service for eligibility purposes, a former Participant or former
Employee whose Service has terminated, or who has incurred a Break in Service,
but who did not have a nonforfeitable right to any portion of his Accounts
attributable to contributions made by the Employer pursuant to Section 3.01 at
the time of such break shall be considered a new Employee upon again being
credited with Service, for eligibility purposes (his Years of Service prior to
the Break in Service shall be disregarded), if the number of his consecutive
Breaks in Service equals or exceeds the greater of five (5) or the aggregate
number of his Years of Service before such Breaks in Service. If any Years of
Service are not taken into account under this paragraph, then such Years of
Service shall not be taken into account in applying this paragraph to a
subsequent period of Breaks in Service. If, in the case of a former Participant,
such former Participant's number of consecutive Breaks in Service do not equal
or exceed the greater of five (5) or the aggregate number of his Years of
Service, then such former Participant shall participate immediately upon again
being credited with Service. If, in the case of a former Employee, such former
Employee had satisfied the age and service requirements of the Plan but had
terminated prior to commencing participation in the Plan, then if such former
Employee returns to Service after the date he would have commenced participation
(if he had not terminated) but before incurring five (5) consecutive one (l)
year
2-2
<PAGE>
Breaks in Service, he shall be eligible to participate immediately. This
paragraph shall have applicability only prospectively for Plan Years beginning
after December 31, 1984, and shall not be applied in Plan Years after this date
with the result of requiring an Employer to take into account as Service for
eligibility any Service which was not taken into account in the preceding
paragraph.
Section 2.05 Participation Following Change -in Classification. In the
--------------------------------------------------------------
event a Participant becomes ineligible to participate because he is no longer a
member of an eligible class of Employees, but he has not incurred a Break in
Service, such Employee shall participate immediately upon his return to an
eligible class of Employees. If such Participant incurs a Break in Service, his
eligibility to participate shall be determined as a former Participant pursuant
to Section 2.04 hereof.
In the event an Employee who is not a member of the eligible class of
Employees becomes a member of the eligible class, such Employee then shall
participate immediately if such Employee has satisfied the minimum age and
Service requirements and would have previously become a Participant had he been
in the eligible class. If such an Employee has not satisfied the minimum age and
Service requirements when he becomes a member of the eligible class, he shall
participate as provided in Section 2.03 hereof, and his employment in the
ineligible class shall be treated as Service in determining his eligibility to
participate.
2-3
<PAGE>
ARTICLE 3
CONTRIBUTIONS TO THE PLAN
Section 3.01 Employer Contributions. Each Plan Year the Employer shall
-----------------------------------
make a contribution computed according to this Section 3.01 and Item 8 of the
Adoption Agreement. Contributions made pursuant to this Section 3.01 shall be
subject to the availability of sufficient Net Profits, if so required by the
election in Item 8 of-the Adoption Agreement.
Contributions made pursuant to this Section 3.01 may be made in cash or
in other property acceptable to the Trustee; provided, however that Elective
Deferral Contributions shall only be made in cash.
Contributions made to the Plan by the Employer shall be made on the
condition that the contributions are deductible under Code Section 404.
The following types of Employer contributions may be elected by the
Employer if available in Item 8 of the Adoption Agreement:
(a) Elective Deferral Contributions. If the Plan allows Elective
-------------------------------
Deferral Contributions, the Employer shall contribute, on behalf of
each Participant, the amount, if any, elected by the Participant in
lieu of cash compensation as an Elective Deferral Contribution,
pursuant to an elective deferral agreement. Such Elective Deferral
Contributions shall be considered to be Employer contributions under
the Plan and shall be nonforfeitable when made.
A Participant shall make an election, or may change an election, by
entering into an elective deferral agreement with his Employer
during the time periods described in Item 8(a) of the Adoption
Agreement. An elective deferral agreement shall remain in effect
until modified or terminated.
A Participant, by written notice filed with the Employer at least
thirty (30) days in advance of the effective date of such notice (or
within such shorter notice period as may be acceptable to the
Employer) may elect to prospectively revoke such elective deferral
agreement. Such revocation shall become effective with the first pay
period beginning coincident with or next following the expiration of
the notice period and shall not have retroactive effect. In the
event of such revocation, a Participant may again enter into an
elective deferral agreement with his Employer on the date indicated
in Item 8(a)(4) of the Adoption Agreement which follows such
revocation.
3-1
<PAGE>
The amount a Participant may elect to have made on his behalf as an
Elective Deferral Contribution shall be in accordance with Item 8(a)
of the Adoption Agreement, subject to the limitations of Sections
3.04 and 3.05 hereof.
The Plan Administrator may establish additional procedures for the
renewal, amendment, termination, or revocation of elective deferral
agreements which shall be uniform and nondiscriminatory. However,
the requirement of uniformity (but not nondiscrimination) may be
suspended, and such differences in procedure (provided such
differences are merely procedural) may be permitted between Highly
Compensated Employees and Non-highly Compensated Employees as are
necessary, proper or convenient in order to bring the Plan into
compliance with the nondiscrimination requirements of Section 3.05
hereof and thereby preserve, or assure the preservation of, the
qualified status of the Plan.
If the Plan Administrator shall determine that the Elective Deferral
Contributions would exceed the limitations of Section 3.04 hereof,
the Plan Administrator shall, before the end of the Plan Year
following the Plan Year during which such excess deferrals occur,
distribute the amount of such excess (and income allocable thereto)
to the Participant on whose behalf the contribution was made.
(b) Matching Contributions. The Employer shall contribute a Matching
----------------------
Contribution based on a Participant's Elective Deferral
Contributions and/or Employee Contributions according to Item 8(b)
of the Adoption Agreement; provide however, that the Employer shall
not contribute amounts which (i) would, if allocated to the Matching
Accounts of Highly Compensated Employees pursuant to Section
4.01(b), create Excess Aggregate Contributions (as defined in
Section 3.06) or (ii) are attributable to contributions which
pursuant to Sections 3.04, 3.05(c) or 3.06(d) are to be distributed
to Employees.
Any Employer which adopts any Adoption Agreement hereunder other
than Adoption Agreements #002 or #005, will no longer be allowed to
make Matching Contributions for periods following the date such
Adoption Agreement is adopted by the Employer. Matching
Contributions for Plan Years beginning after December 31, 1986,
together with any Employee Contributions, will be limited so as to
meet the nondiscrimination test of Section 401(m) of the Code.
(c) Employer Contributions.
----------------------
(1) If the Plan is a profit sharing plan, then each Plan Year the
Employer shall make an Employer Contribution
3-2
<PAGE>
computed according to Item 8 of the Adoption Agreement.
(2) If the plan is a money purchase pension plan or a target
benefit pension plan, then each Plan Year the Employer shall
make an Employer Contribution computed according to Item 8 of
the Adoption Agreement on behalf of Participants who completed
the required amount of Service during such Plan Year and who
are still in Service on the Valuation Date. Participants who
complete the required amount of Service during a Plan Year, but
who are no longer in Service on the Valuation Date at the end
of the Plan Year, shall be included in, or excluded from, the
computation for such Plan Year as.specified in Item 12 of the
Adoption Agreement. Participants who die, become disabled or
retire during the Plan Year shall be included in or excluded
from the computation for such Plan Years according to the
election made by the Employer in Item 12 of the Adoption
Agreement.
(i) Required Service - Hours Counting Method. For purposes of
----------------------------------------
non-standardized plans and, for Plan Years commencing
prior to January l, 1990, standardized plans, if the Plan
counts Hours of Service pursuant to Item 6 of the
Adoption Agreement then the Participant shall be required
to complete at least one thousand (1000) Hours of Service
during the Plan Year in order to have an Employer
Contribution made on his behalf. However, in the event
that a Plan Year is of less than twelve (12) months'
duration (as described in the second sentence of Section
1.49), then the requirement for completion of one
thousand (1000) Hours of Service shall be reduced pro
rata, based on the length of such Plan Year.
For purposes of standardized plans for Plan Years
commencing after December 31, 1989, if the Plan counts
Hours of Service pursuant to Item 6 of the Adoption
Agreement then the Participant shall be required to
complete at least one (l) Hour of Service during the Plan
Year in order to have an Employer Contribution made on
his behalf.
(ii) Required Service - Elapsed Time Method. If the Plan uses
--------------------------------------
the "elapsed time" method pursuant to Item 6 of the
Adoption Agreement, then the Participant shall be
required to perform an Hour of Service during the Plan
Year in order to have an Employer Contribution made on
his behalf.
3-3
<PAGE>
For purposes of this Section 3.01, Employer Contributions
shall be calculated as if the Plan were not Top Heavy. In
the event that the Plan is a Top Heavy Plan in a Plan
Year, additional Employer Contributions may be required
pursuant to the provisions of Section 13.03.
(d) Qualified Non-elective Contributions. The Employer shall
------------------------------------
contribute a Qualified Non-elective Contribution computed
according to Item 8(c) of the Adoption Agreement. Qualified
Non-elective Contributions must be contributions that
Participants may not elect to receive in cash until distributed
from the Plan, that are nonforfeitable when made, and that are
distributable only in accordance with the distribution
provisions that are applicable to Elective Deferrals and
Qualified Matching Contributions.
(e) Qualified Matching Contributions. The Employer shall contribute
--------------------------------
a Qualified Matching Contribution based on a Non-Highly
Compensated Employee's Elective Deferral Contributions if so
elected in Item 8(d) of the Adoption Agreement. Qualified
Matching Contributions shall be subject to the distribution and
nonforfeitability requirements under Code Section 401(k) when
made.
Notwithstanding the foregoing, if the Plan is a non-standardized
plan, then a Self-Employed Individual, an Owner-Employee or an
Employee who is an officer, shareholder or highly compensated
individual may elect, except as may otherwise be provided in this
paragraph, not to participate in the Plan in a Plan Year or, at his
election, may direct the Employer not to contribute on his behalf
for a Plan Year, or to contribute for a Plan Year a lesser portion
than that to be contributed on behalf of other Participants for the
Plan Year according to the contribution and allocation formulas of
the Plan. However, as to contributions made to a plan maintained by
a partnership with respect to Plan Years beginning after December
31, 1988, an arrangement shall not be allowed (other than a one-time
irrevocable election as described below) which directly or
indirectly permits individual partners to vary the amount of
contributions made on their behalf on a year-to-year basis, to the
extent such an arrangement is prohibited by regulations. A one-time
irrevocable election made by an Employee to have the Employer
contribute a specified amount or percentage of Compensation to the
Plan for the duration of the Employee's employment with the Employer
shall be allowed if the election is made upon commencement of
employment or upon the Employee's first becoming eligible under any
Plan of the Employer. In addition, any individual's one-time
irrevocable election to participate or not to participate in the
Plan, if only partners participate, shall be allowed if such
election is made on or before the later of the first day of the
first Plan Year beginning after December 31, 1988, or March 31,
1989, without regard to whether the election is made upon
commencement of employment or upon the
3-4
<PAGE>
Employee's first becoming eligible under any Plan of the Employer. Such
an election shall be in writing and shall be made in such form, and at
such time, as the Employer may require.
Section 3.02 Time of Payment. Except as may be otherwise provided in this
----------------------------
Section 3.02, contributions by the Employer with respect to any Plan Year shall
be made within the time provided by the Code for deduction of such
contributions. However, if the Plan is a money purchase pension plan or a target
benefit pension plan, then contributions by the Employer with respect to any
Plan Year may be made within the time provided by the Code or regulations
thereunder for compliance with minimum funding requirements, if later. In
addition, Elective Deferral Contributions shall be paid to the Trustee as soon
as practicable, but no later than the earlier of (i) the last day of the twelve
(12) month period immediately following the Plan Year to which the contribution
relates or (ii) the date required by U.S. Department of Labor regulations
concerning the contribution to a trust of Elective Deferral Contributions that
are plan assets.
Section 3.03 Participant Contributions. Participant contributions may be
--------------------------------------
allowed on a voluntary basis, if elected in Item 9 of Adoption Agreement.
A separate account shall be established and maintained for each type of
Participant contribution. Contributions by a Participant shall be remitted to
the Trustee, and shall be credited to the account established therefor and,
together with all Income allocable to such account, shall vest immediately.
Participant contributions shall be permitted, unless otherwise restricted herein
or by law, at such time or times, and in such form and manner, as may be
uniformly and nondiscriminatorily established by the Plan Administrator.
(a) Employee Contributions. If the Plan allows Employee Contributions,
----------------------
the Employer shall contribute to the Employee Account on behalf of
each Participant the amount, if any, elected by the Participant as
an Employee Contribution. Employee Contributions shall be made on a
non-deductible basis and shall not be subject to any restrictions
imposed by Code Sections 72(o) and 219.
The contribution to be made as a result of such deduction from
Compensation shall be paid to the Trustee as soon as practicable,
but no later than the date required by U.S. Department of Labor
regulations concerning the contribution to a trust of Employee
Contributions that are plan assets. Such Employee Contributions
shall be nonforfeitable when made.
If pursuant to Item 9 of the Adoption Agreement Employee
Contributions are made pursuant to payroll deduction agreements, a
Participant shall make an election, or may change an election, by
entering into a payroll deduction agreement with his Employer during
the time periods
3-5
<PAGE>
described in Item 9 of the Adoption Agreement. A payroll deduction
agreement shall remain in effect until modified or terminated.
A Participant, by written notice filed with the Employer at least
thirty (30) days in advance of the effective date of such notice (or
within such shorter notice period as may be acceptable to the
Employer) may elect to prospectively revoke such payroll deduction
agreement. Such revocation shall become effective with the first pay
period beginning coincident with or next following the expiration of
the notice period and shall not have retroactive effect. In the
event of such revocation, a Participant may again enter into a
payroll deduction agreement with his Employer at such time as a new
Participant may make an initial election pursuant to Item 9 of the
Adoption Agreement.
The Plan Administrator may establish additional procedures for the
renewal, amendment, termination, or revocation of payroll deduction
agreements and other types of Employee Contribution elections which
shall be uniform and nondiscriminatory. However, the requirement of
uniformity (but not nondiscrimination) may be suspended, and such
differences in procedure (provided such differences are merely
procedural) may be permitted between Highly Compensated Employees
and Non-highly Compensated Employees as are necessary, proper and
convenient in order to bring the Plan into compliance with the
nondiscrimination requirements of Section 3.06 hereof and thereby
preserve, or assure the preservation of, the qualified status of the
Plan.
Any Employer which adopts any Adoption Agreement hereunder other
than Adoption Agreements #002 and #005, will no longer be allowed to
accept Employee Contributions for Plan Years beginning after the
Plan Year in which such Adoption Agreement is adopted by the
Employer. Employee Contributions for Plan Years beginning after
December 31, 1986, together with any Matching Contributions, will be
limited so as to meet the nondiscrimination test of Section 401(m)
of the Code.
(b) Voluntary Deductible Contributions. The Plan Administrator will not
----------------------------------
accept Voluntary Deductible Contributions which are made for taxable
years beginning after December 31, 1986. Voluntary Deductible
Contributions made prior to that date will be maintained in the
Voluntary Deductible Contributions Account which will be
nonforfeitable at all times. That account will share in the Income
of the Trust in the same manner as described in Section 4.03 of the
Plan. No part of the Voluntary Deductible Contributions Account will
be used to purchase life insurance. Subject to Section 6.03,
Qualified Joint and Survivor Annuity requirements (if applicable),
the Participant may withdraw
3-6
<PAGE>
any part of the Voluntary Deductible Contribution Account by making
a written application to the Plan Administrator.
(c) Rollovers. Rollover Contributions by a Participant to the Plan;
---------
including rollovers of accumulated deductible employee contributions
as defined in Section 72(o)(5) of the Code, distributed pursuant to
Sections 402(a)(5), 402(a)(7) and 403(a)(4) of the Code from other
pension,profit sharing or stock bonus plans qualified under Section
401(a) of the Code or pursuant to Section 408(d)(3) of the Code from
Individual Retirement Accounts which have been established as
conduits for such other plan distributions, if allowed by Item 9(b)
of the Adoption Agreement, shall be allowed in cash or other
property acceptable to the Trustee; provided, however, that no
portion of any such Rollover Contribution may be attributable to
nondeductible employee contributions. Rollover Contributions shall
be made to the Rollover Account. Amounts in a Participant's Rollover
Account may be withdrawn at any time as a lump sum, or may be
combined with other benefits due under the Plan and paid in any form
which may be allowed for the payment of such other benefits.
Such rollovers shall be considered neither in determining the
maximum addition which may be made to the Participant's Accounts
under Section 4.07 hereof nor as contributions by the Employer under
Sections 3.01 or 13.03 hereof.
Section 3.04 Limit on Elective Deferrals. No Participant shall be
----------------------------------------
permitted to have "Elective Deferrals" made under this Plan, or any other
qualified plan maintained by the Employer, during any taxable year, in excess of
the dollar limitation contained in Section 402(g) of the Code in effect at the
beginning of such taxable year. For purposes of this Section 3.04, "Elective
Deferrals" shall include any employer contributions made to the plan at the
election of the Participant, in lieu of cash compensation, and shall include
contributions made pursuant to a salary reduction agreement or other deferral
mechanism. With respect to any taxable year, a Participant's Elective Deferral
is the sum of all employer contributions made on behalf of such Participant
pursuant to an election to defer under any qualified cash or deferred
arrangement as described in Code Section 401(k), any simplified employee pension
cash or deferred arrangement as described in Code Section 402(h)(1)(B), any
eligible deferred compensation plan under Code Section 457, any plan as
described under Code Section 501(c)(18), and any employer contributions made on
the behalf of a Participant for the purchase of an annuity contract under Code
Section 403(b) pursuant to a salary reduction agreement.
A Participant may assign to this Plan any "Excess Elective Deferrals"
made during a taxable year of the Participant by notifying the Plan
Administrator on or before the date specified in Item 8(a) of the Adoption
Agreement of the amount of the Excess Elective Deferrals to be assigned to the
Plan.
3-7
<PAGE>
Notwithstanding any other provision of the Plan, Excess Elective Deferrals,
plus any Income allocable thereto, shall be distributed no later than April 15
to any Participant to whose account Excess Elective Deferrals were assigned for
the preceding year and who claims Excess Elective Deferrals for such taxable
year.
"Excess Elective Deferrals" shall mean those Elective Deferrals that are
includible in a Participant's gross income under Section 402(g) of the Code to
the extent such Participant's Elective Deferrals for a taxable year exceed the
dollar limitation under such Code section. Excess Elective Deferrals shall be
treated as Annual Additions, as defined in Section 4.07, under the Plan.
Excess Elective Deferrals shall be adjusted for any Income up to the date
of distribution. The Income allocable to Excess Elective Deferrals is the sum
of: (i) Income allocable to the Participant's Elective Deferral Account for the
taxable year multiplied by a fraction, the numerator of which is such
Participant's Excess Elective Deferrals for the year and the denominator of
which is the Participant's account balance attributable to Elective Deferrals
without regard to any Income occurring during such taxable year; and (ii) ten
percent (10%) of the amount determined under (i) multiplied by the number of
whole calendar months between the end of the Participant's taxable year and the
date of distribution, counting the month of distribution if distribution occurs
after the fifteenth (15th) of such month.
Section 3.05 Special Discrimination Requirements for Elective Deferral
----------------------------------------------------------------------
Contributions (including Qualified Non-elective Contributions and Qualified
- ---------------------------------------------------------------------------
Matching Contributions).
- -----------------------
(a) Average Deferral Percentage Test. The Average Deferral Percentage
--------------------------------
(hereinafter "ADP") for eligible Employees who are Highly Compensated
Employees for each Plan Year and the ADP for eligible Employees who
are Non-highly Compensated Employees for the same Plan Year must
satisfy one of the following tests:
(1) The ADP for eligible Employees who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for eligible
Employees who are Nonhighly Compensated Employees for the same
Plan Year multiplied by one and twenty-five hundredths (1.25); or
(2) The ADP for eligible Employees who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for eligible
Employees who are Non-highly Compensated Employees for the same
Plan Year multiplied by two (2), provided that the ADP for
eligible Employees who are Highly Compensated Employees does not
exceed the ADP for eligible Employees who are Non-highly
Compensated Employees more than two (2) percentage points.
3-8
<PAGE>
"Average Deferral Percentage" shall mean, for a specified group
of eligible Employees for a Plan year, the average of the ratios
(calculated separately for each eligible Employee in such group)
of (i) the amount of Employer contributions actually paid over to
the trust on behalf of such eligible Employee for the Plan Year
to (ii) the eligible Employee's Compensation for such Plan Year
(whether or not the Employee was a Participant for the entire
Plan Year). Notwithstanding the preceding sentence, for Plan
Years commencing prior to the later of January l, 1992 and the
date that is sixty (60) days after the publication of final
regulations the Compensation used in determining, the Average
Deferral Percentage shall be limited to Compensation received by
the Employee for the period in which he is a Participant, if this
method is elected by the Employer in Item 7 of the Adoption
Agreement. Employer contributions on behalf of any eligible
Employee shall include: (1) any Elective Deferral Contributions
made pursuant to the eligible Employee's deferral election,
including Excess Elective Deferrals, but excluding Elective
Deferral Contributions that are taken into account in the
Contribution Percentage test under Section 3.06 (provided the ADP
test is satisfied both with and without exclusion of these
Elective Deferral Contributions); and (2) Qualified Non-elective
Contributions and Qualified Matching Contributions. For purposes
of computing Average Deferral Percentages, a person shall be
treated as an eligible Employee on whose behalf no Elective
Deferral Contributions are made if he would be a Participant, but
for the failure to make Elective Deferral Contributions.
(b) Special Rules.
-------------
(1) The ADP for any eligible Employee who is a Highly
Compensated Employee for the Plan Year and who is eligible
to have Elective Deferral Contributions (and Qualified Non-
elective Contributions or Qualified Matching Contributions,
or both, if treated as Elective Deferrals for purposes of
the ADP test) allocated to his Accounts under two (2) or
more arrangements described in Section 401(k) of the Code,
that are maintained by the Employer, shall be determined as
if such Elective Deferral Contributions (and, if applicable,
such Qualified Non-elective Contributions or Qualified
Matching Contributions, or both) were made under a single
arrangement. If a Highly Compensated Employee participates
in two (2) or more cash or deferred arrangements that have
different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year shall be
treated as a single arrangement.
3-9
<PAGE>
(2) In the event that this Plan satisfies the requirements of
Sections 401(k), 401(a)(4), or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such sections of the
Code only if aggregated with this Plan, then this section-
shall be applied by determining the ADP of Employees as if
all such plans were a single plan. For Plan Years beginning
after December 31, 1989, plans may be aggregated in order to
satisfy Section 401(k) of the Code only if they have the
same Plan Year.
(3) For purposes of determining the ADP of an eligible Employee
who is a five percent (5%) owner or one of the ten (10) most
highly-paid Highly Compensated Employees, the Elective
Deferral Contributions (and Qualified Non-elective
Contributions or Qualified Matching Contributions, or both,
if treated as Elective Deferral Contributions for purposes
of the ADP test) and Compensation of such eligible Employee
shall include the Elective Deferral Contributions (and, if
applicable, Qualified Non-elective Contributions and
Qualified Matching Contributions, or both) and Compensation
for the Plan Year of family members (as defined in section
414(q)(6) of the Code). Family members, with respect to
such Highly Compensated Employees, shall be disregarded as
separate Employees in determining the ADP both for eligible
Employees who are Non-highly Compensated Employees and for
eligible Employees who are Highly Compensated Employees.
(4) For purposes of determining the ADP test, Elective Deferral
Contributions, Qualified Non-elective Contributions and
Qualified Matching Contributions must be made before the
last day of the twelve (12)-month period immediately
following the Plan Year to which contributions relate.
(5) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount of
Qualified Non-elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(6) The determination and treatment of the ADP amounts of any
eligible Employee shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
(c) Distribution of Excess Contributions. Notwithstanding any other
------------------------------------
provision of this Plan, Excess Contributions, plus any Income
allocable thereto, shall be distributed no later than the last day of
each Plan Year to Participants to
3-10
<PAGE>
whose accounts such Excess Contributions were allocated for the
preceding Plan Year. If such excess amounts are distributed more than
two and one-half (2-1/2) months after the last day of the Plan Year in
which such excess amounts arose, a ten (10) percent excise tax will be
imposed on the Employer maintaining the Plan with respect to such
amounts. Such distributions shall be made to Highly Compensated
Employees on the basis of the respective portions of the Excess
Contributions attributable to each of such employees. Excess
Contributions shall be allocated to Participants who are subject to
the family member aggregation rules of Section 414(q)(6) of the Code
in the manner prescribed by the regulations.
"Excess Contributions" shall mean, with respect to any Plan Year, the
excess of:
(1) The aggregate amount of Employer contributions actually taken
into account in computing the ADP of Highly Compensated Employees
for such Plan Year, over
(2) The maximum amount of such contributions permitted by the ADP
test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of the ADPs, beginning with
the highest of such percentages).
Excess Contributions shall be treated as Annual Additions, as defined
in Section 4.07, under the Plan.
(d) Determination of Income. Excess Contributions shall be adjusted for
-----------------------
any Income up to the date of distribution. The Income allocable to
Excess Contributions is the sum of:
(1) Income allocable to the Participant's Elective Deferral Account
(and, if applicable, the Qualified Non-elective Account or the
Qualified Matching Account or both) for the Plan Year multiplied
by a fraction, the numerator of which is such Participant's
Excess Contributions for the year and the denominator of which is
the Participant's account balance attributable to Elective
Deferral Contributions (and Qualified Non-elective Contributions
or Qualified Matching Contributions, or both, if any of such
contributions are included in the ADP test) without regard to any
Income occurring during such Plan Year; and
(2) ten (10) percent of the amount determined under (l) multiplied by
the number of whole calendar months between the end of the Plan
Year and the date of distribution, counting the month of
distribution if distribution occurs after the fifteenth (15th) of
such month.
3-11
<PAGE>
(e) Accounting for Excess Contributions. Excess Contributions shall be
--------------------------- -------
distributed from the Participant's Elective Deferral Account and
Qualified Matching Account (if applicable) in proportion to the
Participant's Elective Deferral Contributions and Qualified Matching
Contributions (to the extent used in the ADP test) for the Plan Year.
Excess Contributions shall be distributed from the Participant's
Qualified Non-elective Account only to the extent that such Excess
Contributions exceed the balance in the Participant's Elective
Deferral Account and Qualified Matching Account.
Section 3.06 Special Discrimination Requirements for Employee
-------------------------------------------------------------
Contributions and Matching Contributions (including Qualified Non-elective
- --------------------------------------------------------------------------
Contributions and Qualified Matching Contributions used in the ACP test).
- ------------------------------------------------------------------------
(a) Average Contribution Percentage Test. The Average Contribution
------------------------------------
Percentage (hereinafter "ACP") for eligible Employees who are Highly
Compensated Employees for each Plan Year and the ACP for eligible
Employees who are Nonhighly Compensated Employees for the same Plan
Year must satisfy one of the following tests:
(1) The ACP for eligible Employees who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for eligible
Employees who are Nonhighly Compensated Employees for the same
Plan Year multiplied by one and twenty-five hundredths (1.25); or
(2) The ACP for eligible Employees who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for eligible
Employees who are Nonhighly Compensated Employees for the same
Plan Year multiplied by two (2), provided that the ACP for
eligible Employees who are Highly Compensated Employees does not
exceed the ACP for eligible Employees who are Non-highly
Compensated Employees by more than two (2) percentage points.
(b) Special Rules.
-------------
(1) Multiple Use: If one or more Highly Compensated Employees
participate in both a cash or deferred arrangement and a Plan
subject to the ACP test maintained by the Employer and the sum of
the ADP and ACP of those Highly Compensated Employees subject to
either or both tests exceeds the Aggregate Limit, then the ACP of
those Highly Compensated Employees who also participate in a cash
or deferred arrangement will be reduced (beginning with such
Highly Compensated Employee whose ACP is the highest) so that the
limit is not exceeded. The amount by which each Highly
Compensated Employee's Contribution Percentage Amounts
3-12
<PAGE>
is reduced shall be treated as an Excess Aggregate Contribution.
The ADP and ACP of the Highly Compensated Employees are
determined after any corrections required to meet the ADP and ACP
tests. Multiple use does not occur if each of the ADP and ACP of
the Highly Compensated Employees do not exceed 1.25 multiplied by
the ADP and ACP, respectively, of the Non-highly Compensated
Employees.
(2) For purposes of this section, the Contribution Percentage for any
eligible Employee who is a Highly Compensated Employee and who is
eligible to have Contribution Percentage Amounts allocated to his
account under two (2) or more plans described in Section 401(a)
of the Code, or arrangements described in Section 401(k) of the
Code that are maintained by the Employer, shall be determined as
if the total of such Contribution Percentage Amounts was made
under each plan. If a Highly Compensated Employee participates in
two (2) or more cash or deferred arrangements that have different
Plan Years, all cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single
arrangement.
(3) In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more other
plans satisfy the requirements of such sections of the Code only
if aggregated with this Plan, then this section shall be applied
by determining the Contribution Percentage of Employees as if all
such plans were a single plan. For Plan Years beginning after
December 31, 1989, plans may be aggregated in order to satisfy
Section 401(m) of the Code only if they have the same Plan Year.
(4) For purposes of determining the Contribution Percentage of an
eligible Employee who is a five percent (5%) owner or one of the
ten (10) most highly paid Highly Compensated Employees, the
Contribution Percentage Amounts and Compensation of such eligible
Employee shall include the Contribution Percentage Amounts and
Compensation for the Plan Year of family members (as defined in
Section 414(q)(6) of the Code). Family members, with respect to
Highly Compensated Employees, shall be disregarded as separate
employees in determining the Contribution Percentage both for
eligible Employees who are Non-highly Compensated Employees and
for eligible Employees who are Highly Compensated Employees.
(5) For purposes of the ACP test, Employee Contributions are
considered to have been made in the Plan Year in
3-13
<PAGE>
which contributed to the Trust. Payment by the Employee to an
agent of the Plan shall be treated as a contribution to the Trust
at the time of payment to the agent if the funds so paid are
transmitted to the Trust within a reasonable period after the
payment to the agent. Matching Contributions, Qualified Matching
Contributions and Qualified Non-elective Contributions will be
considered made for a Plan Year if made no later than the end of
the twelve (12)-month period beginning on the day after the close
of the Plan Year and designated for such Plan Year.
(6) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified Non-
elective Contributions or Qualified Matching Contributions, or
both, used in such test.
(7) The determination and treatment of the Contribution Percentage of
any eligible Employee shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
(c) Definitions.
-----------
(1) "Aggregate Limit" shall mean the sum of (i) one hundred twenty-
five percent (125%) of the greater of the ADP of the Non-highly
Compensated Employees for the Plan Year or the ACP of Non-highly
Compensated Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within the Plan Year
and (ii) the lesser of two hundred percent (200%) or two (2) plus
the lesser of such ADP or ACP. Notwithstanding the foregoing, the
determination of the aggregate limit shall be subject to such
further rules and regulations as may be prescribed by the
Secretary of the Treasury.
(2) "Average Contribution Percentage" shall mean the average of the
Contribution Percentages of the eligible Employees in a group.
(3) "Contribution Percentage" shall mean the ratio (expressed as a
percentage) of the eligible Employee's Contribution Percentage
Amounts to the eligible Employee's Compensation for the Plan Year
(whether or not the Employee was a Participant for the entire
Plan Year).
Notwithstanding the preceding sentence, for Plan Years commencing
prior to the later of January 1, 1992 and the date that is sixty
(60) days after the publication of final regulations, the
Compensation used in determining the Contribution Percentage
shall be
3-14
<PAGE>
limited to Compensation received by the Employee for the period
in which he is a Participant, if so elected by the Employer in
Item 7 of the Adoption Agreement.
(4) "Contribution Percentage Amounts" shall mean the sum of the
Employee Contributions, Matching Contributions, and Qualified
Matching Contributions (to the extent not taken into account for
purposes of the ADP test) made under the Plan on behalf of the
Participant for the Plan Year. Such Contribution Percentage
Amounts shall include Forfeitures of Excess Aggregate
Contributions or Matching Contributions allocated to the
Participant's account which shall be taken into account in the
year in which such Forfeiture is allocated. The Employer may
include Qualified Nonelective Contributions in the Contribution
Percentage Amounts, subject to such requirements as may be
prescribed by the Secretary of the Treasury. The Employer also
may use Elective Deferral Contributions in the Contribution
Percentage Amounts so long as the ADP test is met before the
Elective Deferrals are used in the ACP test and continues to be
met following the exclusion of those Elective Deferral
Contributions that are used to meet the ACP test, subject to such
requirements as may be prescribed by the Secretary of the
Treasury.
(5) "Eligible Employee" shall mean any Employee who is eligible to
make an Employee Contribution, or an Elective Deferral
Contribution (if the Employer takes such contributions into
account in the calculation of the Contribution Percentage), or to
receive a Matching Contribution (including Forfeitures) or a
Qualified Matching Contribution. If an Employee Contribution is
required as a condition of participation in the Plan, any
Employee who would be a Participant in the Plan if such Employee
made such a contribution shall be treated as an eligible Employee
on behalf of whom no Employee Contributions are made.
(6) "Matching Contribution" for purposes of this section shall mean
an employer contribution made to this or any other defined
contribution plan on behalf of a Participant on account of an
employee contribution made by such Participant, or on account of
a participant's Elective Deferral, under a plan maintained by the
Employer.
(d) Distribution of Excess Aggregate Contributions. Notwithstanding any
----------------------------------------------
other provision of this Plan, Excess Aggregate Contributions, plus any
Income allocable thereto, shall be forfeited, if forfeitable, or if
not forfeitable, distributed no later than the last day of each Plan
Year to Participants to whose accounts such Excess Aggregate
3-15
<PAGE>
Contributions were allocated for the preceding Plan Year. Excess
Aggregate Contributions shall be allocated to Participants who are
subject to the family member aggregation rules of section 414(q)(6) of
the Code in the manner prescribed by the regulations. If such Excess
Aggregate Contributions are distributed more than two and one-half (2-
l/2) months after the last day of the Plan Year in which such excess
amounts arose, a ten percent (10%) excise tax will be imposed on the
Employer maintaining the Plan with respect to those amounts. Excess
Aggregate Contributions shall be treated as Annual Additions, as
defined in Section 4.07, under the Plan.
"Excess Aggregate Contributions" shall mean, with respect to any Plan
Year, the excess of:
(l) The aggregate Contribution Percentage Amounts taken into account
in computing the numerator of the Contribution Percentage
actually made on behalf of Highly Compensated Employees for such
Plan Year, over
(2) The maximum Contribution Percentage Amounts permitted by the ACP
test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages).
Such determination shall be made after first determining Excess
Elective Deferrals pursuant to Section 3.04 and then determining
Excess Contributions pursuant to Section 3.05.
(e) Determination of Income. Excess Aggregate Contributions shall be
-----------------------
adjusted for any Income up to the date of distribution. The Income
allocable to Excess Aggregate Contributions is the sum of: (i) Income
allocable to the Participant's Employee Contribution Account, Matching
Contribution Account (if any, and if all amounts therein are not used
in the ADP test) and, if applicable, Qualified Non-elective
Contribution Account and Elective Deferral Account for the Plan Year
multiplied by a fraction, the numerator of which is such Participant's
Excess Aggregate Contributions for the year and the denominator of
which is the Participant's account balance(s) attributable to
Contribution Percentage Amounts without regard to any Income occurring
during such Plan Year; and (ii) ten percent (10%) of the amount
determined under (i) multiplied by the number of whole calendar months
between the end of the Plan Year and the date of distribution,
counting the month of distribution if distribution occurs after the
fifteenth (15th) of such month.
(f) Forfeitures of Excess Aggregate Contributions. Forfeitures of Excess
---------------------------------------------
Aggregate Contributions will be applied to reduce Matching
Contributions.
3-16
<PAGE>
(g) Accounting for Excess Aggregate Contributions. Excess Aggregate
---------------------------------------------
Contributions shall be forfeited, if forfeitable, or distributed on a
pro-rata basis from the Participant's Employee Account, Matching
Account, and Qualified Matching Account (and, if applicable, the
Participant's Qualified Non-elective Account or Elective Deferral
Account, or both).
Section 3.07 Responsibility of Trustee. The Trustee shall have no
--------------------------------------
responsibility for determining whether any Participant or Employer contribution
has been validly authorized or is in an amount permitted by this article nor
whether any Employer contribution is paid within the time permitted for its
deduction as an expense for such Employer.
Section 3.08 Contributions to Target Benefit Plans. If the Plan is a
--------------------------------------------------
target benefit pension plan, then the provisions set out in this section shall
apply in addition to the provisions set out in Section 3.01 above.
The Employer's Contribution for each Plan Year with respect to a
Participant for whom a contribution is required shall be that amount which, if
paid on the date as of which the calculation is made and on the anniversary of
such date commencing prior to the Participant's attainment of his Normal
Retirement Age, and if invested at the pre-retirement interest rate specified in
Item 8 of the Adoption Agreement until the end of the Plan Year during which the
Participant attains his Normal Retirement Age, and if added to the accumulated
value (as of the date of the calculation) of contributions assumed to have been
made with respect to prior Plan Years and similarly invested, would purchase the
Target Annual Retirement Benefit, where the value of the Target Annual
Retirement Benefit as of the end of the Plan Year during which the Participant
attains his Normal Retirement Age is based on the mortality table and the post-
retirement interest rate specified in Item 8 of the Adoption Agreement.
For purposes of determining Employer Contributions under this Section 3.08
for Plan Years commencing prior to the Plan Year in which the Participant
attains Normal Retirement Age, a contribution in the year in which the
Participant attains Normal Retirement Age will be assumed or not assumed based
on the provisions of Item 12 of the Adoption Agreement, the presumption that the
Participant will terminate employment on his Normal Retirement Date, and the
presumption of a forty (40) hour work week.
In the event that a change in the Compensation of a Participant or in the
actuarial assumptions used in the Plan causes the Participant's Target Annual
Retirement Benefit to differ from that in the last preceding Plan Year, the
increase or decrease in the Employer's Contribution on behalf of such
Participant shall be the amount which, if contributed on the date as of which
the calculation is made and on each anniversary of such date until the end of
the Plan Year during which the Participant attains his Normal Retirement Age,
would accumulate to the value (computed as described in the immediately
preceding paragraph) of the increase or decrease in the Target Annual Retirement
Benefit. If a former Participant reenters the Plan following a Break in Service,
the Employer shall
3-17
<PAGE>
annually contribute an Employer Contribution on behalf of such Participant an
amount which equals (i) the amount it was contributing on behalf of such
Participant prior to the Break in Service, plus (ii) the amount attributable to
changes in the Target Annual Retirement Benefit due to changes in Compensation
and actuarial assumptions used in the Plan following such Break in Service.
Employer Contributions shall be determined under the individual level
premium funding method using the following factor tables unless a mortality
table other than the UP-1984 Mortality Table is elected in Item 8 of the
Adoption Agreement, in which case the "Assumed Price of One Dollar ($1.00) of
Monthly Benefit" shall be based on the mortality table elected:
ACCUMULATION OF ONE DOLLAR ($1.00) PER YEAR
<TABLE>
<CAPTION>
Pre-Retirement Interest Rate
Number -------------------------------
of Years 5% 5 1/2% 6%
- -------- ------ ------- -------
<S> <C> <C> <C>
1 1.050 1.055 1.060
2 2.153 2.168 2.184
3 3.310 3.342 3.375
4 4.526 4.581 4.637
5 5.802 5.888 5.975
6 7.142 7.267 7.394
7 8.549 8.722 8.897
8 10.027 10.256 10.491
9 11.578 11.875 12.181
10 13.207 13.583 13.972
11 14.917 15.386 15.870
12 16.713 17.287 17.882
13 18.599 19.293 20.015
14 20.579 21.409 22.276
15 22.657 23.641 24.673
16 24.840 25.996 27.213
17 27.132 28.481 29.906
18 29.539 31.103 32.760
19 32.066 33.868 35.786
20 34.719 36.786 38.993
21 37.505 39.864 42.392
22 40.430 43.112 45.996
23 43.502 46.538 49.816
24 46.727 50.153 53.865
25 50.113 53.966 58.156
26 53.669 57.989 62.706
27 57.403 62.234 67.528
28 61.323 66.711 72.640
29 65.439 71.435 78.058
30 69.761 76.419 83.802
31 74.299 81.677 89.890
32 79.064 87.225 96.343
33 84.067 93.077 103.184
34 89.320 99.251 110.435
35 94.836 105.765 118.121
</TABLE>
3-18
<PAGE>
<TABLE>
<S> <C> <C> <C>
36 100.628 112.637 126.268
37 106.710 119.887 134.904
38 113.095 127.536 144.058
39 119.800 135.606 153.762
40 126.840 144.119 164.048
41 134.232 153.100 174.951
42 141.993 162.576 186.508
43 150.143 172.573 198.758
44 158.700 183.119 211.744
45 167.685 194.246 225.508
46 177.119 205.984 240.099
47 187.025 218.368 255.565
48 197.427 231.434 271.958
49 208.348 245.217 289.336
50 219.815 259.759 307.756
51 231.856 275.101 327.281
52 244.499 291.287 347.978
53 257.774 308.363 369.917
54 271.713 326.377 393.172
55 286.348 345.383 417.822
56 301.716 365.434 443.952
57 317.851 386.588 471.649
58 334.794 408.906 501.008
59 352.584 432.450 532.128
60 371.263 457.290 565.116
</TABLE>
3-19
<PAGE>
ASSUMED PRICE OF ONE DOLLAR ($1.00) OF MONTHLY BENEFIT
<TABLE>
<CAPTION>
Normal
Retirement Post-Retirement Interest Rate
--------------------------------
Age 5% 5 1/2% 6%
---------- ------- ------- -------
<S> <C> <C> <C>
55 154.431 147.407 140.927
56 151.244 144.407 138.291
57 147.997 141.554 135.592
58 144.696 138.540 132.833
59 141.347 135.475 130.021
60 137.948 132.354 127.150
61 134.503 129.183 124.227
62 131.020 125.970 121.256
63 127.509 122.721 118.246
64 123.979 119.448 115.207
65 120.436 116.156 112.143
66 116.895 112.858 109.066
67 113.363 109.567 105.990
68 109.853 106.279 102.912
69 106.334 102.982 99.818
70 102.800 99.661 96.694
71 99.254 96.323 93.547
72 95.704 92.972 90.381
73 92.155 89.616 87.203
74 88.627 86.271 84.030
75 85.129 82.949 80.871
76 81.673 79.659 77.738
77 78.272 76.416 74.642
78 74.939 73.233 71.599
79 71.657 70.091 68.589
80 68.433 67.000 65.624
81 65.281 63.973 62.714
82 62.214 61.022 59.874
83 59.228 58.144 57.099
84 56.312 55.330 54.382
</TABLE>
Notwithstanding the provisions of the first paragraph of Section 6.01
hereof, for Plan Years commencing prior to January 1, 1988 the Employer shall
not make contributions on behalf of a Participant under this section after the
Plan Year in which the Participant attains his Normal Retirement Age, except for
contributions required under Section 13.03 hereof in Plan Years in which the
Plan is a Top Heavy Plan. However, for Plan Years commencing after December 31,
1987, or such later date as the Employer may elect, the Employer shall make
contributions on behalf of a Participant under this section after the Plan Year
in which the Participant attains his Normal Retirement Age if so elected
pursuant to Item 8 of the Adoption Agreement.
3-20
<PAGE>
If pursuant to Item 12 of the Adoption Agreement a Participant is
entitled to have an Employer Contribution made on his behalf for the Plan Year
in which he terminates Service, the amount of such Employer Contribution shall
be reduced on a pro-rata basis for the number of calendar months during such
Plan Year beginning with the first calendar month in which the Participant
terminates Service and each calendar month thereafter.
3-21
<PAGE>
ARTICLE 4
ALLOCATION OF TRUST FUNDS AND PARTICIPANTS' ACCOUNTS
Section 4.01 Allocation of Employer Contributions. Except as may be
-------------------------------------------------
otherwise provided herein, on each Valuation Date, other than an interim
valuation date specified pursuant to Section 4.09 hereof, Employer contributions
shall be allocated as specified in Items 11 and 12 of the Adoption Agreement.
(a) Elective Deferral Contributions. As of each Valuation Date (including
-------------------------------
interim valuation dates specified pursuant to Section 4.09 hereof) the
Elective Deferral Contributions with respect to a Participant for the
period since the preceding Valuation Date shall be credited to the
Participant's Elective Deferral Account.
(b) Matching Contributions. As of each Valuation Date (including interim
----------------------
valuation dates if elected in Item 8(b)(iii) of the Adoption
Agreement), there shall be credited to the Matching Account of each
eligible Participant his allocable share of the Matching Contribution
as provided in Item 8(b) of the Adoption Agreement. The determination
of which Participants are eligible to share in the Matching
Contribution shall be in accordance with Item 8(b) of the Adoption
Agreement.
(c) Employer Contributions.
----------------------
(1) If the Plan is a profit sharing plan, then any Employer
Contributions (and Forfeitures, if to be allocated in the same
manner as Employer Contributions pursuant to Item 8 of the
Adoption Agreement) to the Plan for the Plan Year ending on such
Valuation Date shall be allocated to the Employer Account of each
Participant who completed the required amount of Service during
the Plan Year and who is still in Service on the Valuation Date.
Participants who complete the required amount of Service during a
Plan Year but who are no longer in Service on the Valuation Date
at the end of the Plan Year, shall be included in or excluded
from the allocation on such Valuation Date according to the
election made by the Employer in Item 12 of the Adoption
Agreement. Participants who die, become disabled or retire during
the Plan Year shall be included in or excluded from the
allocation on the Valuation Date at the end of the Plan Year
according to the election made by the Employer in Item 12 of the
Adoption Agreement.
(i) Required Service - Hours Counting Method. For purposes of
----------------------------------------
non-standardized plans and, for
4-1
<PAGE>
Plan Years commencing prior to January 1, 1990, standardized
plans, if the Plan counts Hours of Service pursuant to Item
6 of the Adoption Agreement then the Participant shall be
required to complete at least one thousand (1000) Hours of
Service during the Plan Year in order to have an Employer
Contribution made on his behalf.~ However, in the event that
a Plan Year is of less than twelve (12) months duration (as
described in Section 1.49), then the requirement for
completion of one thousand (1,000) Hours of Service shall be
reduced pro rata, based on the length of such Plan Year.
For purposes of standardized plans for Plan Years commencing
after December 31, 1989, if the Plan counts Hours of Service
pursuant to Item 6 of the Adoption Agreement then the
participant shall be required to complete at least one (1)
Hour of Service during the Plan Year in order to have an
Employer Contribution made on his behalf.
(ii) Required Service - Elapsed Time Method. If the Plan uses the
--------------------------------------
"elapsed time" method pursuant to Item 6 of the Adoption
Agreement, then the Participant shall be required to perform
an Hour of Service during the Plan Year in order to have an
Employer Contribution made on his behalf.
(2) If the Plan is a money purchase pension plan or a target benefit
pension plan, then any Employer Contributions (and, as to money
purchase pension plans, Forfeitures, if to be allocated in the
same manner as Employer Contributions pursuant to Item 8 of the
Adoption Agreement) to the Plan for the Plan Year ending on such
Valuation Date shall be allocated on the same basis as the
computation described in the provisions of Section 3.01 and in
Item 8 of the Adoption Agreement.
(3) If the Plan is a profit sharing plan integrated with Social
Security, then for Plan Years commencing after December 31, 1988,
the allocation of Employer Contributions (and Forfeitures, if to
be allocated in the same manner as Employer contributions
pursuant to Item 8 of the Adoption Agreement) shall be made as
follows:
(i) First, Employer Contributions (and Forfeitures, if to be
allocated) shall be allocated to each eligible Participant
in the proportion which the sum of his Compensation and his
4-2
<PAGE>
Compensation in excess of the integration break-point
selected in Item 11(b)(l) of the Adoption Agreement bears to
the total sum of the Compensation and the Compensation in
excess of said integration break-point, paid to all eligible
Participants; provided, however, that no Employee shall
receive under this stage of the allocation a higher
percentage of the sum of his Compensation and his excess
Compensation than the percentage specified in Item 11(b)(2)
of the Adoption Agreement.
(ii) Second, the remaining amount to be allocated shall be
allocated to each eligible Participant in the proportion
which his Compensation bears to the total Compensation of
all eligible Participants.
If the Plan is a profit sharing plan not integrated with Social
Security, then for Plan Years commencing after December 31, 1988
the allocation of Employer contributions (and Forfeitures, if to
be allocated in the same manner as Employer contributions
pursuant to Item 8 of the Adoption Agreement) shall be performed
as described in Item 11(a) of the Adoption Agreement.
(4) If the Plan is a profit sharing plan or a money purchase pension
plan (other than a target benefit plan) integrated with Social
Security, and if an Employee's entry date for participation in
the Plan is not the Anniversary Date, then the integration
breakpoint with respect to the Participant's Compensation
selected in the Adoption Agreement shall, if so indicated by the
Employer in its Adoption Agreement, be prorated in the ratio that
the length of the Participant's participation in the Plan that
Plan Year bears to the length of that entire Plan Year; proration
of the integration break-point shall not be made for Participants
whose Service terminates during the Plan Year. If a Plan Year is
of less than twelve (12) months' duration, then the integration
breakpoint for the Plan Year shall be prorated in the ratio which
the number of full months in the Plan Year bears to twelve (12).
(d) Qualified Non-elective Contributions. As of each Valuation Date, there
------------------------------------
shall be credited to the Qualified Non-elective Account of each
eligible Participant (as provided in Item 8(c) of the Adoption
Agreement) his allocable share of the Qualified Non-elective
Contributions for the Plan Year.
(e) Qualified Matching Contributions. As of each Valuation Date, there
--------------------------------
shall be credited to the Qualified Matching Account of each eligible
Participant his allocable share of
4-3
<PAGE>
the Qualified Matching Contribution as provided in Item 8(d) of the
Adoption Agreement. The determination of which Participants are
eligible to share in the Qualified Matching Contribution shall be in
accordance with Item 8(d) of the Adoption Agreement.
(f) Special Sub-accounts. For Plan Years beginning before January 1, 1985,
--------------------
if a Participant incurs a Break in Service, or for Plan Years
beginning after December 31, 1984, if a Participant incurs five (5)
consecutive Breaks in Service, but later accrues benefits related to
Employer Contributions or Matching Contributions, then separate
bookkeeping subaccounts shall be established under the Employer
Account and Matching Account, as applicable, with respect to the
Participant's pre-break and post-break benefits related to Employer
Contributions and Matching Contributions.
Section 4.02 Forfeitures. If the Plan is a profit sharing plan or a money
------------------------
purchase pension plan, Forfeitures becoming available for allocation under the
terms of Sections 5.01 and 8.03 hereof shall be reallocated or applied in the
same manner as Employer Contributions described in the provisions of Section
4.01 hereof or, alternatively, shall be used to reduce Employer contributions
for the Plan Year, as selected in Item 8 of the Adoption Agreement.
If the Plan is a target benefit pension plan, Forfeitures becoming
available under the terms of Section 5.01 and 8.03 shall be credited against
Employer Contributions otherwise due as described in the provisions of that
section concerning such pension plans. Forfeitures arising under target benefit
pension plans shall only be used to reduce the contributions of the Employer
which adopted this Plan, subject to Section 4.08 hereof.
Section 4.03 Allocation of Income. On each Valuation Date (including
---------------------------------
interim valuation dates specified pursuant to Section 4.09 hereof), the Income
to the Trust Fund during the period since the immediately preceding Valuation
Date shall be computed and shall be allocated to the Accounts of all
Participants on the Valuation Date. Each of such Participant's accounts shall
share in this allocation of Income in the proportion that the balance in such
accounts bears to the total of the balances in the accounts of all such
Participants. For purposes of this section, the balance in an account shall
mean:
(a) the value of the account as of the preceding Valuation Date,
plus (b) one-half (l/2) of the amount of Employee Contributions and Elective
Deferral Contributions contributed to the account since the preceding
Valuation Date (except as otherwise provided in Item 9 of the Adoption
Agreement or as provided if an alternative method is selected as
otherwise allowed in this Section 4.03)
4-4
<PAGE>
minus (c) any withdrawals (including benefit payments, Forfeitures and
payments as described in Section 4.05 hereof, including amounts
used to pay insurance premiums) since the preceding Valuation
Date,
but not less than zero (0). Alternatively, if approved by the Plan
Administrator, Income may be allocated in any equitable, uniform and
nondiscriminatory manner which is selected for the purpose of recognizing the
timing of contributions, withdrawals, distributions, transfers, Participant or
Employer directed investments or other temporal events affecting account value
as adjustments to account balances.
For purposes of this section only, the term "Participants" shall include
Separated Participants, Retired Participants and Employees who have account
balances but who would not be considered to be Participants because they made no
contributions to the Plan. The accounts on which this allocation of Income is
based shall not include amounts segregated pursuant to Sections 4.11 and 6.03(a)
hereof or Item 9 of the Adoption Agreement, nor the value of any insurance
policies held in the Trust Fund.
Section 4.04 No Vested Rights to Assets. The fact that allocations shall
---------------------------------------
be made and credited to the Accounts of a Participant shall not vest in such
Participant any right, title or interest in any assets of the Trust, except at
the time or times and upon the terms and conditions expressly set forth in the
Plan.
Section 4.05 Payments. Each Participant's Accounts shall be charged with
---------------------
any payments made by the Trustee to or for the account of such Participant or
any Beneficiary of such Participant.
Section 4.06 Adjustment to Accounts. As soon as practicable after each
-----------------------------------
Valuation Date, the value of each of the Participant's accounts shall be
determined by the Plan Administrator (or its agent). Each account shall be equal
to the value of such account as of the last Valuation Date,
(a) plus (as applicable to such account) any credit or allocation of
----
contributions, any allocation of Forfeitures, any allocation of
Income, and any account credits from insurance contracts, since the
last Valuation Date,
(b) minus (as applicable to such account) any payment (including
-----
insurance contract premiums paid or accrued), withdrawal or
Forfeiture from the account since the last Valuation Date.
Section 4.07 Limitation on Allocations
--------------------------------------
(a) (1) If the Participant does not participate in, and has never
participated in, another qualified plan or a welfare benefit
fund, as defined in Section 419(e) of the Code, maintained by
the Employer, or an individual medical account, as defined in
Section 415(1)(2) of
4-5
<PAGE>
the Code, maintained by the Employer, which provides an Annual
Addition, the amount of Annual Additions which may be credited
to the Participant's Accounts for any Limitation Year shall not
exceed the lesser of the Maximum Permissible Amount or any
other limitation contained in this Plan. If the Employer
contribution that would otherwise be contributed or allocated
to the Participant's Accounts would cause the Annual Additions
for the Limitation Year to exceed the Maximum Permissible
Amount, the amount contributed or allocated shall be reduced so
that the Annual Additions for the Limitation Year shall equal
the Maximum Permissible Amount. If the Plan provides for the
allocation of Forfeitures in the same manner as Employer
Contributions or Matching Contributions, then the amount
reflecting this reduction shall be allocated and reallocated to
other Participant accounts in accordance with the Plan formula
for allocating Employer contributions and Forfeitures to the
extent that such allocations do not cause the Annual Additions
to any such Participants' accounts to exceed the lesser of the
Maximum Permissible Amount or any other limitation provided in
the Plan.
(2) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant on the basis of a
reasonable estimation of the Participant's Compensation for the
Limitation Year, uniformly determined for all Participants
similarly situated.
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the
Limitation Year shall be determined on the basis of the
Participant's actual Compensation for the Limitation Year.
(4) If, as a result of a reasonable error in estimating the
Participant's actual Compensation, the allocation of
Forfeitures or other facts and circumstances allowed by
regulation, there is an Excess Amount, then such excess shall
be disposed of as follows:
(i) any Employee Contributions, to the extent they would
reduce the Excess Amount, shall be returned to the
Participant (the consent of the Participant or the
Participant's Spouse shall not be required to make this
distribution);
(ii) if after the application of paragraph (i) an Excess Amount
still exists, and the Participant is covered by the Plan
at the end of the Limitation Year, then any remaining
Excess Amount in the Participant's Accounts shall be used
to reduce Employer contributions
4-6
<PAGE>
(including any allocation of Forfeitures) for such
Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(iii) if after the application of paragraph (i) an Excess Amount
still exists, and the Participant is not covered by the
Plan at the end of a Limitation Year, then the Excess
Amount shall be held unallocated in a suspense account
which shall be applied to reduce future Employer
contributions (including any allocation of Forfeitures)
for all remaining Participants in the next Limitation
Year, and each succeeding Limitation Year if necessary;
and
(iv) if a suspense account is in existence at any time during a
Limitation Year pursuant to this section, then it shall
not participate in the allocation of the Trust's
investment gains and losses. If a suspense account is in
existence at any time during a particular Limitation Year,
all amounts in the suspense account must be allocated and
reallocated to Participants' accounts before any employer
contributions or any employee contributions may be made to
the plan for that Limitation Year. Excess amounts may not
be distributed to Participants or former Participants.
(b) (1) This subsection applies if, in addition to this Plan, the
Participant is covered under another qualified defined
contribution Regional Prototype Plan maintained by the Employer,
a welfare benefit fund, as defined in Section 419(e) of the
Code, maintained by the Employer, or an individual medical
account, as defined in Section 415(1)(2) of the Code, maintained
by the Employer, which provides an Annual Addition, during any
Limitation Year. The Annual Additions which may be credited to a
Participant's Accounts under this Plan for any such Limitation
Year shall not exceed the Maximum Permissible Amount reduced by
the Annual Additions credited to a Participant's accounts under
the other plans and welfare benefit funds for the same
Limitation Year. If the Annual Additions with respect to the
Participant under other defined contribution plans and welfare
benefit funds maintained by the Employer are less than the
Maximum Permissible Amount and the Employer contribution that
would otherwise be contributed or allocated to the Participant's
Account under this Plan would cause the Annual Additions for the
Limitation Year to exceed this limitation, then the amount
contributed or allocated shall be reduced so that the Annual
Additions under all such plans and funds for the Limitation Year
shall equal the Maximum Permissible
4-7
<PAGE>
Amount. If the Plan provides for the allocation of Forfeitures
in the same manner as Employer Contributions or Matching
Contributions, then the amount reflecting this reduction shall
be allocated and reallocated to other Participant Accounts in
accordance with the Plan formula for allocating Employer
contributions and Forfeitures to the extent that such
allocations do not cause the Annual Additions to any such
Participants' Accounts to exceed the lesser of the Maximum
Permissible Amount or any other limitation provided in the Plan.
If the Annual Additions with respect to the Participant under
other defined contribution plans and welfare benefit funds in
the aggregate are equal to or greater than the Maximum
Permissible Amount, then no amount shall be contributed or
allocated to the Participant's Accounts under this Plan for the
Limitation Year.
(2) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant in the manner described in
subsection 4.07(a)(2) hereof.
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the
Limitation Year shall be determined on the basis of the
Participant's actual Compensation for the Limitation Year.
(4) If, pursuant to subsection 4.07(b)(3) or as a result of the
allocation of Forfeitures, a Participant's Annual Additions
under this Plan and such other plans would result in an Excess
Amount for a Limitation Year, the Excess Amount shall be deemed
to consist of the Annual Additions last allocated; except that
Annual Additions attributable to a welfare benefit fund or
individual medical account shall be deemed to have been
allocated first regardless of the actual allocation date.
(5) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation
date of another plan, the Excess Amount attributed to this Plan
shall be the product of
(i) the total Excess Amount allocated as of such date, times
(ii) the ratio of (i) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under
this Plan to (ii) the total Annual Additions allocated to
the Participant for the Limitation Year as of such date
under
4-8
<PAGE>
this and all the other qualified Regional Prototype defined
contribution plans.
(6) Any Excess Amount attributed to this Plan shall be disposed of
in the manner described in subsection 4.07(a)(4).
(c) If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a Regional
Prototype Plan, Annual Additions which may be credited to the
Participant's Account under this Plan for any Limitation Year shall
be limited in accordance with subsections 4.07(b)(1) through
4.07(b)(6) as though the other plan were a Regional Prototype Plan
unless the Employer provides other limitations in Item 21 of the
Adoption Agreement.
(d) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan, the sum
of the Participant's Defined Benefit Fraction and Defined
Contribution Fraction shall not exceed one (1.0) in any Limitation
Year. The Annual Additions which may be credited to the Participant's
account under the Plan for any Limitation Year shall be limited in
accordance with Item 21 of the Adoption Agreement.
(e) For purposes of this section and Articles 13 and 14 hereof, together
with Items 20 and 21 of the Adoption Agreement, the following terms
shall be defined as follows:
(1) "Annual Additions" shall mean the sum of the following amounts
-----------------
credited to a Participant's Account for the Limitation Year:
(i) Employer contributions;
(ii) Employee Contributions; and
(iii) Forfeitures.
In addition, amounts allocated after March 31, 1984, to an
individual medical account, as defined in Section 415(1)(2) of
the Code, which is a part of a pension or annuity plan maintained
by the Employer shall be treated as Annual Additions to a
qualified defined contribution plan. Furthermore, amounts derived
from contributions paid or accrued after December 31, 1985, in
taxable years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate
account of a Key Employee, as that term is defined in Section
13.02(c) hereof, and pursuant to Section 419A(d)(3) of the Code
under a welfare benefit fund, as defined in Section 419(e) of the
Code, maintained by the Employer
4-9
<PAGE>
shall be treated as Annual Additions to a qualified defined
contribution plan.
For this purpose, any Excess Amount applied under subsections
(a)(4) and (b)(6) in the Limitation Year to reduce Employer
contributions shall be considered Annual Additions for such
Limitation Year.
(2) "Compensation" shall mean compensation as defined in (i) or (ii),
-------------
as elected in Item 7 of the Adoption Agreement.
(i) If Item 7(a)(1) is elected in the Adoption Agreement,
Compensation shall mean W-2 Earnings.
(ii) If Item 7(a)(2) is elected, Compensation shall mean a
Participant's earned income, wages, salaries, and fees for
professional services and other amounts received for
personal services actually rendered in the course of
employment with the Employer maintaining the Plan
(including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips and
bonuses, fringe benefits, reimbursements, and expense
allowances), and excluding the following:
(A) Employer contributions to a plan of deferred
compensation which are not includible in the Employee's
gross income for the taxable year in which contributed,
or Employer contributions under a simplified employee
pension plan to the extent such contributions are
deductible by the Employee, or any distributions from a
plan of deferred compensation;
(B) amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property)
held by the Employee either becomes freely transferable
or is no longer subject to a substantial risk of
forfeiture;
(C) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(D) other amounts which received special tax benefits, or
contributions made by the Employer (whether or not
under a salary reduction agreement) towards the
purchase of an annuity described in Section 403(b)
4-10
<PAGE>
of the Code (whether or not the amounts are actually
excludable from the gross income of the Employee).
For purposes of applying the limitations of this - article,
Compensation for a Limitation Year is the Compensation actually
paid or includible in gross income during such year.
(3) "Defined Benefit Fraction" shall mean a fraction, the numerator
-------------------------
of which is the sum of the Participant's projected annual
benefits under all the defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator of
which is the lesser of one hundred twenty-five percent (125%) of
the dollar limitation determined for the Limitation Year under
Section 415(b) and (d) of the Code or one hundred forty percent
(140%) of the highest average Compensation which may be taken
into account under Section 415(b)(1)(B) with respect to an
individual under the plan, including any adjustments under
Section 415(b) of the Code.
Notwithstanding the above, if the Participant was a Participant
as of the first day of the first Limitation Year beginning after
December 31, 1986, in one (1) or more defined benefit plans
maintained by the Employer which were in existence on May 6,
1986, the denominator of this fraction shall not be less than one
hundred twenty-five percent (125%) of the sum of the annual
benefits under such plans which the Participant had accrued as of
the close of the last Limitation Year beginning before January 1,
1987, disregarding any changes in the terms and conditions of the
Plan after May 5, 1986. The preceding sentence applies only if
the defined benefit plans individually and in the aggregate
satisfied the requirements of Code Section 415 for all Limitation
Years beginning before January 1, 1987
(4) "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 in effect for the
Limitation Year.
(5) "Defined Contribution Fraction" shall mean a fraction, the
------------------------------
numerator of which is the sum of the Annual Additions to the
Participant's Accounts under all the defined contribution plans
(whether or not terminated) maintained by the Employer for the
current and all prior Limitation Years, (including the Annual
Additions attributable to the Participant's nondeductible
Employee contributions to all defined
4-11
<PAGE>
benefit plans, whether or not terminated, maintained by the
Employer, and the Annual Additions attributable to all welfare
benefits funds, as defined in Section 419(e) of the Code, and
individual medical accounts, as defined in Section 415(1)(2) of
the Code, maintained by the Employer), and the denominator of
which is the sum of the maximum aggregate amounts for the current
and all prior Limitation Years of service with the Employer
(regardless of whether a defined contribution plan was maintained
by the Employer). For purposes hereof, the maximum aggregate
amount in any Limitation Year is the lesser of one hundred
twenty-five percent (125%) of the dollar limitation determined
under sections 415(b) and (d) of the Code in effect under Section
415(c)(1)(A) of the Code or thirty-five percent (35%) of the
Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day
of the first Limitation Year beginning after December 31, 1986,
in one (1) or more defined contribution plans maintained by the
Employer which were in existence on May 6, 1986, the numerator of
this fraction shall be adjusted if the sum of this fraction and
the Defined Benefit Fraction would otherwise exceed one (1.0)
under the terms of this Plan. Under the adjustment, an amount
equal to the product of (i) the excess of the sum of the
fractions over one (1.0) times (ii) the denominator of this
fraction, shall be permanently subtracted from the numerator of
this fraction. The adjustment is calculated using the fractions
as they would be computed as of the end of the last Limitation
Year beginning before January 1, 1987, and disregarding any
changes in the terms and conditions of the Plan made after May 5,
1986, but using the Code Section 415 limitation applicable to the
first Limitation Year beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning before
January 1, 1987, shall not be recomputed to treat all Employee
contributions as Annual Additions.
(6) "Employer" shall mean the Employer that adopts this Plan, and all
---------
members of a Controlled Group (within the meaning of that term as
modified by Section 415(h) of the Code) of which the Employer is
a member.
(7) "Excess Amount" shall mean the excess of the Participant's Annual
--------------
Additions for the Limitation Year over the Maximum Permissible
Amount.
(8) "Highest Average Compensation" shall mean the average
-----------------------------
Compensation for the three (3) consecutive Years of
4-12
<PAGE>
Service with the Employer that produces the highest average. A
Year of Service with the Employer is the twelve (12) consecutive
month period defined in Section 1.75 or, in another qualified
defined contribution plan being considered hereunder, that twelve
(12) consecutive month period defined therein for purposes of
determining the accrual of benefits. For purposes of any
qualified defined benefit pension plan being considered
hereunder, a Year of Service shall mean the twelve (12)
consecutive month period defined therein for purposes of
determining the accrual of benefits.
(9) "Limitation Year" shall mean a calendar year, or the twelve (12)
----------------
consecutive month period ending on the date elected by the
Employer in Item l(d) of the Adoption Agreement. All qualified
plans maintained by the Employer must use the same Limitation
Year. If the Limitation Year is amended to a different twelve
(12) consecutive month period, then the new Limitation Year shall
begin on a date within the Limitation Year in which the amendment
is made.
(10) "Maximum Permissible Amount" shall mean the maximum Annual
------------------------------
Addition that may be contributed or allocated to a Participant's
Account under the Plan for any Limitation Year and shall not
exceed the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) twenty-five percent (25%) of the Participant's
Compensation for the Limitation Year.
The Compensation limitation referred to in (ii) shall not apply
to any contribution for medical benefits (within the meaning of
Section 401(h) or Section 419A(f)(2) of the Code) which is
otherwise treated as an Annual Addition under section 415(1)(1)
or 419A(d)(2) of the Code.
If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different twelve (12)
consecutive month period, then the Maximum Permissible Amount
shall not exceed the Defined Contribution Dollar Limitation
multiplied by the following fraction:
number of months in the short Limitation Year
----------------------------------------------
twelve (12)
(11) "Projected Annual Benefit" shall mean the annual retirement
-------------------------
benefit (adjusted to an actuarially equivalent straight life
annuity if such benefit is expressed in a form other than a
straight life annuity or
4-13
<PAGE>
Qualified Joint and Survivor Annuity) to which the Participant
would be entitled under the terms of the plan assuming:
(i) the Participant shall continue employment until Normal
Retirement Age under the plan (or current age, if later),
and
(ii) the Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine
benefits under the plan shall remain constant for all future
Limitation Years.
(12) "Regional Prototype Plan" shall mean a plan the form of which is
------------------------
the subject of a favorable notification letter from the Internal
Revenue Service.
(13) "W-2 Earnings" shall be defined in accordance with (i) or (ii),
-------------
as determined by the Plan Administrator on a uniform basis.
(i) shall mean wages as defined in Code Section 3121(a), for
purposes of calculating social security taxes, but
determined without regard to the wage base limitation in
Code Section 3121(a)(1), the special rules in Code Section
3121(v) (applicable to certain elective contributions and
nonqualified deferred compensation), any rules that limit
covered employment based on the type or location of an
employee's employer, and any rules that limit the
remuneration included in wages based on familial
relationship or based on the nature or location of the
employment or the services performed (such as the exceptions
to the definition of employment in Code Section 3121(b)(1)
through (20)).
(ii) shall mean wages as defined in Code Section 3401(a) for
purposes of income tax withholding at the source but
determined without regard to any rules that limit the
remuneration 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)).
Section 4.08 Controlled Group and Affiliated Employer Contributions and
-----------------------------------------------------------------------
Forfeitures. In the event that two (2) or more members of a Controlled Group
- -----------
establish a Plan by adopting this Plan, each member of the Controlled Group
shall or shall not be considered to be a separate Employer for purposes of
allocating Employer contributions and Forfeitures, as provided in Item 24 of the
Adoption Agreements; provided, however, that a single Trust Fund may be used for
the investment of the funds of the Plan.
4-14
<PAGE>
If an Adopting Employer is affiliated with another Adopting Employer only
for purposes of sponsoring this Plan, but such are not members-of a Controlled
Group, then for purposes of allocating Employer contributions and Forfeitures,
such Employers shall be considered to be separate Employers; provided, however,
that a single Trust Fund may be used for the investment of the funds of the
Plan.
Section 4.09 Interim Valuations. Notwithstanding anything to the contrary
-------------------------------
expressed or implied herein, the Plan Administrator may direct a special
Valuation Date. Such special Valuation Date shall be deemed-equivalent to a
regular Valuation Date. Interim valuations, if any, shall be made on a
nondiscriminatory and uniform basis.
Section 4.10 Insurance Premiums on Separated Participants. In the event
---------------------------------------------------------
that the Trustee, as directed by the Plan Administrator, pays insurance premiums
during a Plan Year on behalf of a Participant who subsequently terminates his
Service during such Plan Year, and at the following Valuation Date the Separated
Participant's Employer Account includes less than the amount of the insurance
premiums paid, then the amount of such deficiency shall be allocated to the
Employer Account of the Separated Participant. This special allocation shall be
made from Employer contribution or from Forfeitures for the Plan Year, or from
both, and only the remainder of such Employer contribution or Forfeitures shall
be allocated pursuant to the terms of Sections 4.01 and 4.02 hereof.
Section 4.11 Election of Segregated Account. In its sole discretion, the
-------------------------------------------
Plan Administrator may make available to all Participants, on a uniform and non-
discriminatory basis, a segregated account election.
Subject to approval by the Plan Administrator, any Participant may elect
to have his Accounts invested in a segregated account. Such segregated account
shall remain a part of the Trust Fund, but shall be separately invested in
certificates of deposit, money market certificates, collective investment
trusts, other short-term debt security instruments or any other investments
acceptable to the Trustee, with all investment income on such investments
credited to the segregated account and all disbursements to, or on behalf of,
the Participant charged thereto.
A Participant may make the election provided for under this section only
once; such election shall become effective on the first (1st) day of the Plan
Year immediately following the date of the election, shall be irrevocable for a
five (5) year period unless a revocation is permitted by the Trustee and shall
be effective for all contributions made or allocated on behalf of the
Participant during the term of the election. The Participant's election shall be
effective for the entire amount of any of his Accounts with respect to which the
election is made.
The form and manner of such election shall be prescribed by the Plan
Administrator.
Section 4.12 Nondiscrimination Fail-Safe Provision. Notwithstanding
--------------------------------------------------
anything to the contrary expressed or implied herein, the allocation to Highly
Compensated Employees in any Plan Year shall not exceed the maximum amount
allowed pursuant to Code Section 401(a)(4) and Code Section 401(a)(26).
4-15
<PAGE>
ARTICLE 5
WITHDRAWALS AND LOANS
Section 5.01 In-Service Withdrawals. Withdrawals shall be permitted under a
-----------------------------------
Plan if, and to the extent, elected by an Employer in Item 14 of the Adoption
Agreement and subject to the provisions of this section. All requirements
imposed by the Adoption Agreement as completed, and all decisions made by the
Employer pursuant thereto, shall be applied in a uniform and nondiscriminatory
manner. Subject to any restrictions set forth in the Adoption Agreement,
withdrawals shall be made at such time or times, and in such form and manner, as
uniformly and nondiscriminatorily established by the Employer.
In-service withdrawals shall be subject to the spousal consent requirements
of Sections 6.03(c) and 7.02(c) hereof, which consent shall be obtained within
ninety (90) days prior to the date of the withdrawal. Notwithstanding the
foregoing, however, if the special rule for certain profit sharing plan
Participants set forth in Sections 6.03(d) and 7.02(c)(3) hereof applies to a
Participant, then such spousal consent requirement shall not apply to that
Participant.
(a) Withdrawals of Contributions Made by the Employer.
-------------------------------------------------
(1) If the Plan is a profit sharing plan, and if withdrawals from a
Participant's Employer Account or Matching Account are permitted
under the Adoption Agreement, then, unless a withdrawal therefrom
is permitted in the case of hardship, a withdrawal from such
account by an Employee shall be limited to contributions which
have been allocated to such account for two (2) years; provided,
however, that if the Employee is either age fifty-nine and one-
half (59-1/2) or has been a Participant for five (5) or more
years, then this preceding two (2) year limitation on withdrawals
shall not apply; and further provided, however, that in no event
shall a withdrawal of amounts in excess of a Participant's vested
interest in such account be permitted hereunder.
If pursuant to the Adoption Agreement an amount is permitted to
be withdrawn due to hardship, then, unless a written definition
of hardship adopted by the Employer is attached to the Adoption
Agreement, the definition of hardship shall be the same as that
provided under Section 5.01(a)(2).
(2) If withdrawals from a Participant's Elective Deferral Account are
permitted under Item 14 of the Adoption Agreement, such
distributions may be made on account of financial hardship if the
distribution is necessary in light of the immediate and heavy
financial needs of
5-1
<PAGE>
the Participant, provided such Participant lacks other available
resources.
The amount of any hardship withdrawal granted pursuant to this
subsection (a)(2) shall be limited to the lesser of (i) the
actual amount of the Elective Deferral Contributions made to the
Participant's or former Participant's Elective Deferral Account
(and Income thereon accrued as of December 31, 1988), less the
amount of Elective Deferral Contributions previously withdrawn;
and (ii) the amount required to relieve the immediate and heavy
financial need, less the amount that is reasonably available to
the Participant or former Participant from other sources to
satisfy the need. Hardship distributions made pursuant to this
Section 5.01(a)(2) in Plan Years which begin before January 1,
1989, may also be made from the Participant's Qualified Non-
elective Account and may include any Income allocated to the
Elective Deferral Account.
For periods prior to April 1, 1989, the determination of the
existence of financial hardship, and the amount required to be
distributed to meet the need created by the hardship, shall be
made by a person or persons designated by the Employer (unless a
different person or persons are given authority elsewhere in the
Plan to approve hardship distributions). All determinations
regarding financial hardship shall be made in accordance with
written procedures that are established by the person or persons
described above, and applied in a uniform and nondiscriminatory
manner. Such written procedures shall specify the requirements
for requesting and receiving distributions on account of
hardship, including what forms must be submitted and to whom. All
determinations regarding financial hardship must be made in
accordance with objective criteria set forth in the Adoption
Agreement. Such determinations must also comply with applicable
regulations under the Code.
For periods after March 31, 1989, the immediate and heavy
financial needs for which a hardship may be granted shall be
limited to the following:
(i) Medical expenses described in section 213(d) of the Code
which are incurred by the Participant or former Participant,
his spouse, or his dependents (as defined in section 152 of
the Code);
(ii) Purchase (excluding mortgage payments) of a principal
residence of the Participant or former Participant;
5-2
<PAGE>
(iii) Payment of tuition for the next semester or quarter of
post-secondary education for the Participant or former
Participant, his spouse, children, or dependents;
(iv) The need to prevent the eviction of the Participant or
former Participant from his principal residence or
foreclosure on the mortgage of his principal residence.
To qualify for a hardship withdrawal for periods after March 31,
1989, the Participant or former Participant must satisfy the
following requirements:
(i) The Participant or former Participant must have obtained
all distributions, other than hardship distributions, and
all nontaxable loans available under all plans maintained
by the Employer,
(ii) The Participant's or former Participant's elective
contributions under the Plan, and all other plans
maintained by the Employer, will be suspended for twelve
(12) months after receipt of the hardship distribution,
and
(iii) The Participant may not make elective contributions under
the Plan, and all other plans maintained by the Employer,
for the taxable year immediately following the taxable
year of the hardship distribution in excess of the
applicable limit under Code Section 402(g) for such next
taxable year less the amount of such Participant's
elective contributions for the taxable year of the
hardship distribution.
A Participant who has had to suspend Elective Deferral
Contributions to the Plan pursuant to this Section shall be
allowed to resume such contributions on the date indicated in
Item 8(a)(4) of the Adoption Agreement which follows the twelve
(12) month suspension period.
(b) Withdrawals from Contributions Made by the Participant. If withdrawals
------------------------------------------------------
of a Participant's mandatory Employee Contributions from his Employee
Account are permitted under Item 14 of the Adoption Agreement, then a
Participant who receives such a withdrawal and who does not have at
least a fifty percent (50%) vested interest in his Employer Account
and Matching Account determined as of the date of the withdrawal
shall, if so selected by the Employer in such Item 14, have the
balance of that portion of his Employer Account and Matching Account
not attributable to minimum
5-3
<PAGE>
allocations in Top Heavy Plan Years treated as a Forfeiture for the
Plan Year in which the withdrawal is received.
If withdrawals of a Participant's voluntary Employee Contributions are
permitted under the Adoption Agreement, then a Participant receiving
such a withdrawal shall not be permitted to make further voluntary
Employee Contributions for a period not to be less than six (6)
months.
The Participant may withdraw any part of the Voluntary Deductible
Contributions Account or Rollover Account by making a written
application to the Plan Administrator at any time. However, if at the
time the distribution is received the Participant has not attained age
fifty nine and one-half (59-1/2) or is not subject to Disability, then
the Participant may be subject to a federal income tax penalty unless
the distribution is rolled over to a qualified plan or Individual
Retirement Account within sixty (60) days of the date of distribution.
Section 5.02 Loans to Participants and Beneficiaries. If the loan option
----------------------------------------------------
is elected in Item 13 of the Adoption Agreement, the Plan Administrator, upon
receipt of written application of a Participant or Beneficiary in such manner
and form as required by the Plan Administrator, shall authorize and direct the
Trustee to make a loan to the Participant or Beneficiary from the Trust Fund,
provided the Plan's loan requirements of subsections (a) and (b), as applicable,
and subsection (c) are satisfied. For purposes of this Section 5.02 the term
"Participant" shall include former Participants who are parties in interest
within the meaning of Section 3(14) of ERISA.
(a) For loans granted or renewed on or before October 18, 1989, the Plan's
loan requirement shall be those requirements stated in this subsection
5.02(a), subject to uniform rules and regulations which may be
promulgated by the Plan Administrator with respect to the amount of
loans, interest rates, maturity dates and security. If the loan is to
be a directed investment pursuant to Section 10.11, then the amount of
the loan shall be considered to be an asset only of the Accounts of
the borrower, and not of the Accounts of any other person. However,
the following restrictions shall apply to all loans.
(1) Loans shall be made available to all Participants and
Beneficiaries (including for purposes of this Section 5.02
Spouses, who are parties in interest within the meaning of
section 3(14) of ERISA, of deceased Participants entitled to a
death benefit under Section 7.02 hereof) on a reasonably
equivalent basis.
(2) Loans shall not be made available to Highly Compensated Employees
in an amount greater than the amount made available to other
Employees.
5-4
<PAGE>
(3) Loans shall be adequately secured and bear a reasonable interest
rate.
(4) No loan shall exceed the value of the Vested Account Balance of
the Participant or Beneficiary.
(5) If the Plan is not subject to the special rule of Section
6.03(d), a Participant must obtain the consent of his Spouse, if
any, to use of the account balance as security for the loan.
Spousal consent shall be obtained no earlier than the beginning
of the ninety (90)-day period that ends on the date on which the
loan is to be so secured. The consent must be in writing, must
acknowledge the effect of the loan, and must be witnessed by the
Plan Administrator or its representative or a notary public. Such
consent shall thereafter be binding with respect to the
consenting Spouse or any subsequent Spouse with respect to that
loan. A new consent shall be required if the account balance is
used for renegotiation, extension, renewal, or other revision of
the loan.
(6) In the event of default, foreclosure on a note which evidences
the debt created by a loan and which is secured by account
balances, and attachment of such security, shall not occur until
a distributable event occurs under the Plan.
(7) No loans shall be made to any shareholder-employee, Owner-
Employee, or Family Member of a Corporation controlled by a
shareholder-employee or Owner-Employee through ownership directly
or indirectly, of fifty percent (50%) or more of the total value
of shares of classes of stock of the Corporation. For purposes of
this requirement, a shareholder-employee means an Employee or
officer of an electing small business (Subchapter S) corporation
who owns (or is considered as owning within the meaning of
Section 318(a)(1) of the Code), on any day during the taxable
year of such corporation, more than five percent (5%) of the
outstanding stock of the corporation.
Subject to the preceding restrictions, the rate of interest on each
such loan shall be determined by the Plan Administrator according to
rules of uniform application. The rates of interest on loans may be
changed from time to time even though lower or higher rates have been
previously charged. Any such loan or loans shall be repaid by the
borrower within such time or in such manner as the Plan Administrator
may determine. In the event that the Participant or his Spouse or
Beneficiary becomes entitled to a benefit under the Plan, the Plan
Administrator may cause the Trustee to deduct the total unpaid balance
of such loan, plus interest owed thereon, or any portion
5-5
<PAGE>
thereof, from any distribution from the Trust Fund to which the
Participant, his Spouse or his Beneficiary shall become entitled,
provided that, if applicable, a valid spousal consent has been
obtained in accordance with subsection 5.02(a)(5). In the event that
the amount of such distribution is not sufficient to repay the
remaining balance of such loan, the Participant shall be liable for
and shall continue to make payments on any such balance still due from
him. In no event shall any distribution be made to a Participant which
would reduce the balance of his Accounts below the outstanding balance
of the loan.
(b) For loans granted or renewed after October 18, 1989, the Plan's loan
requirements shall be those requirements stated in this Section
5.02(b); provided, however, that if elected in Item 13 of the Adoption
Agreement the Plan Administrator may adopt alternative requirements
for this loan program. If alternate requirements for this loan program
are adopted, those requirements shall be documented in a written
attachment to the Adoption Agreement which shall form a part of the
Plan and which shall be signed by the Plan Administrator and
designated as Attachment B.
Attachment B shall include, but need not be limited to, the following:
(1) The identity of the person or positions authorized to administer
the loan program;
(2) A procedure for applying for loans;
(3) The basis on which loans will be approved or denied;
(4) Limitations (if any) on the types and amount of loans offered;
(5) The procedure under the program for determining a reasonable rate
of interest;
(6) The types of collateral which may secure a Plan loan; and
(7) The events constituting default and the steps that will be taken
to preserve Plan assets in the event of such default.
If alternative requirements are not elected, the following standard
requirements shall apply to all loans; provided however, that for
periods prior to adoption of this plan document, the loan requirements
shall be those requirements stated in the prior plan document.
(i) Loans shall be a directed investment pursuant to Section 10.11
and pursuant to that section the amount
5-6
<PAGE>
of the loan shall be considered to be an asset of such person's
Accounts only, and not of the Accounts of any other person.
(ii) Loans shall be made available to all Participants and
Beneficiaries (including for purposes of this Section 5.02
Spouses of deceased Participants entitled to a death benefit
under Section 7.02 hereof) on a reasonably equivalent basis,
taking into consideration the size of the loan requested, the
size of the borrower's Vested Account Balance, and the
borrower's ability to repay the loan. Loans to former
Participants with a Vested Account Balance and Beneficiaries
may be made on different terms and conditions than for active
Participants where such terms and conditions are based solely
on factors that are legally considered by commercial entities
in the business of making similar loans. A loan of less than
the minimum amount (not to exceed $1,000), as elected in Item
13 of the Adoption Agreement, will not be allowed.
(iii) Loans shall not be made available to Highly Compensated
Employees in an amount greater than the amount made available
to other Employees.
(iv) The Plan Administrator shall determine the adequacy and amount
of security required for each loan. In making these
determinations the Plan Administrator shall consider the type
and amount of security which would be required in the case of
an otherwise identical transaction in a normal commercial
setting between unrelated parties on arm's-length terms. A
portion of a borrower's Vested Account Balance may be used as
security for a loan. However, no more than fifty percent (50%)
of the borrower's Vested Account Balance may be used as
security for the outstanding balance of all loans under this
Plan made to such borrower. If, pursuant to the election in
Item 13 of the Adoption Agreement, the total outstanding
balances of all loans under the Plan to the borrower is
permitted to exceed fifty percent (50%) of the borrower's
Vested Account Balance the Plan Administrator shall require
additional security. Such additional collateral shall take the
form of such real or personal property as the Plan
Administrator shall determine adequately secures the loan.
(v) Loans shall bear a reasonable interest rate which shall be
equal to the interest rate charged by a lending institution for
a loan which would be made under similar circumstances.
(vi) If the Plan is not subject to the special rule of Section
6.03(d), a Participant must obtain the consent of his Spouse,
if any, to use of the account balance as security for the loan.
Spousal consent shall be obtained no earlier than the beginning
of the
5-7
<PAGE>
ninety (90)-day period that ends on the date on which the loan
is to be so secured. The consent must be in writing, must
acknowledge the effect of the loan, and must be witnessed by
the Plan Administrator or its representative or a notary
public. Such consent shall thereafter be binding with respect
to the consenting Spouse or any subsequent Spouse with respect
to that loan. A new consent shall be required if the account
balance is used for renegotiation, extension, renewal, or other
revision of the loan.
(vii) A Participant who is granted a loan from the Plan shall be
required to make payments on such loan through mandatory
payroll deduction. In the event a borrower makes any payment
required hereunder more than fifteen (15) days after the date
on which it is due, such payment shall be increased by the
amount of interest accruing on the unpaid principal balance
from the due date until the date of payment. The borrower shall
be in default if any payment required hereunder is not made by
the date ninety (90) days after it is due, or if the borrower
is adjudicated as bankrupt, makes an assignment for the benefit
of creditors, or files a petition for relief under the
Bankruptcy Act. In the event of a default, all remaining
installment payments on the loan shall be immediately due and
payable. In the event that the Participant or his Spouse or
Beneficiary becomes entitled to a benefit under the Plan, then
if a valid spousal consent has been obtained in accordance with
subsection 5.02(e), the Plan Administrator may cause the
Trustee to deduct the total unpaid balance of such loan, plus
interest owed thereon, or any portion thereof, from any
distribution from the Trust Fund to which the Participant, his
Spouse or his Beneficiary shall become entitled. In the event
that the amount of such distribution is not sufficient to repay
the remaining balance of such loan, the borrower shall be
liable for and shall continue to make payments on any such
balance still due from him. In no event shall any distribution
be made to a borrower which would reduce the balance of his
Accounts below the outstanding balance of the loan. In the
event of default, foreclosure on a note which evidences the
debt created by a loan and which is secured by account
balances, and attachment of such security, shall not occur
until a distributable event occurs in the Plan.
(viii) No loans shall be made to any shareholder-employee, Owner-
Employee, or Family Member or a Corporation controlled by a
shareholder-employee or Owner-Employee through ownership,
directly or indirectly, of fifty percent (50%) or more of the
total value of shares of classes of stock of the Corporation.
For purposes of this requirement, a shareholder-employee means
an Employee or officer of an electing small business
(Subchapter S) corporation who owns (or is considered as owning
within the meaning of Section 318(a)(1) of
5-8
<PAGE>
the Code), on any day during the taxable year of such
corporation, more than five percent (5%) of the outstanding
stock of the corporation.
(c) Loans made on or before December 31, 1986, shall be repaid according
to their terms. If a loan which was made on or before December 31,
1986, is extended, renegotiated or renewed after that date, the loan
shall be considered as first made on the date of extension,
renegotiation or renewal. No loan to any Participant or Beneficiary
shall be made after December 31, 1986, to the extent that such loan
when added to the outstanding balance of all other loans to the
Participant or Beneficiary would exceed the lesser of (i) fifty
thousand dollars ($50,000) reduced by the excess (if any) of the
highest outstanding balance of loans during the one (1) year period
ending on the day before the loan is made, over the outstanding
balance of loans from the Plan on the date the loan is made, or (ii)
one-half (1/2) the Vested Account Balance of such person in the Plan
or, if greater, the total Vested Account Balance of such person up to
ten thousand dollars ($10,000). For the purpose of the preceding
limitation, all loans from all plans of the Employer and other members
of a Controlled Group shall be aggregated. Furthermore, any loan shall
by its terms that require repayment (principal and interest) be
amortized in level payments, no less frequently than quarterly, over a
period not extending beyond five (5) years from the date of the loan,
unless such loan is used to acquire a dwelling unit which within a
reasonable time (determined at the time the loan is made) shall be
used as the principal residence of the Participant. An assignment or
pledge of any portion of the Participant's interest in the Plan and a
loan, pledge, or assignment with respect to any insurance contract
purchased under the Plan, shall be treated as a loan under this
section.
5-9
<PAGE>
ARTICLE 6
RETIREMENT BENEFITS
Section 6.01 Retirement. As of his Normal Retirement Date, a Participant
-----------------------
may retire from Service or he may elect to continue in Service, subject to the
Employer's retirement policy, if any. If such Participant continues in Service,
then he shall continue to be treated in all respects as a Participant until his
actual retirement. For Plan Years commencing before January 1, 1989, no
retirement benefit shall be payable until actual retirement unless such
Participant who could retire requests that his retirement benefit commence
before his actual retirement and the Plan Administrator, at its sole discretion,
permits retirement benefits to commence pursuant to such request. For Plan Years
commencing after December 31, 1988, no retirement benefit shall be payable until
actual retirement unless such Participant who could retire requests that his
retirement benefit commence before his actual retirement and, pursuant to the
election under Item 18 of the Adoption Agreement, the Plan permits retirement
benefits to commence pursuant to such request.
If early retirement is allowed under the provisions of Item 18(b) of the
Adoption Agreement, then the retirement of a Participant who satisfies the
requirements for early retirement and who elects to retire before his Normal
Retirement Date shall be effective on the date so elected. If such a Participant
continues in Service, then he shall be treated in all respects as a Participant
until his actual retirement, and no retirement benefit shall be payable prior to
his Normal Retirement Date. If a Participant separates from Service before
satisfying the age requirement, if any, for early retirement, but has satisfied
the Service requirement, if any, then the Participant shall be entitled to elect
an early retirement benefit upon satisfaction of such age requirement.
Section 6.02 Retirement Benefits. Upon attainment of Normal Retirement
--------------------------------
Age, or upon eligibility for early retirement if permitted under the Plan, a
Participant shall be one hundred percent (100%) vested in his Accounts. Upon
retirement following attainment of his Normal Retirement Age, or upon early
retirement pursuant to Item 18(b) of the Adoption Agreement, a Participant shall
be entitled to receive as the value of his retirement benefit hereunder the
amounts in his Accounts, determined on the Valuation Date immediately preceding
the payment of his benefits, plus any contributions, or Income gain, allocated
to his Accounts after such Valuation Date and less any payments made from his
Accounts, or Income loss allocated against the Accounts, since such preceding
Valuation Date.
Section 6.03 Payment of Retirement Benefits.
-------------------------------------------
(a) In General. The normal form of payment of the value of the
----------
retirement benefit shall be as set forth in subsection (b) or (c)
hereof. In lieu of the normal form of retirement benefit payment
provided therein, a Participant may elect in writing, subject to (if
applicable) the qualified
6-1
<PAGE>
election requirements set forth in subsection (c) hereof, to have
his benefit paid or applied in accordance with one (1), or a
combination, of the optional forms of benefit payment described
hereinafter if available pursuant to the Employer's election in Item
19 of the Adoption Agreement; provided, however, that such option
shall comply with the form of payment limitations set forth in
Section 6.07 hereof. For Plan Years beginning prior to January 1,
1989, the Participant's election of an optional form of benefit
payment shall be subject to the approval of the Plan Administrator
if allowed by the Employer's prior plan document.
(1) Installments. If elected by the Employer in Item 19 of the
------------
Adoption Agreement, the benefit may be paid or applied in
monthly, quarterly, semiannual or annual installments as nearly
equal as practicable for a period not to exceed that permitted
under Section 6.07(c) hereof.
For Plan Years beginning before January 1, 1989, such
installments shall be made either from a segregated fund set
aside on his behalf if requested by the Participant or, without
regard to any such request, from the Trust Fund without such
segregation at the election of the Plan Administrator.
For Plan Years beginning on or after January 1, 1989, such
installments shall be made either from a segregated fund or
from the Trust Fund without such segregation, at the election
of the Participant. If no election is made, such installment
shall be made from the Trust Fund without segregation of such
amount.
(2) Annuities. If elected by the Employer in Item 19 of the
---------
Adoption Agreement, or if payment in the form of a Qualified
Joint and Survivor Annuity is required by this Plan, then the
benefit may be paid in the form of an annuity involving life
contingencies purchased from a Life Insurance Company pursuant
to Section 6.09.
(3) Single Sum. If elected by the Employer in Item 19 of the
----------
Adoption Agreement, then an optional form of benefit payment
may be the benefit paid in a single sum.
(4) Other Options. The Plan shall offer the additional optional
-------------
forms of payment as described in Item 19 of the Adoption
Agreement, if any, provided such optional forms satisfy the
requirements of Section 401(a) of the Code.
Subject to the time limitations set forth in Sections 6.06 and 6.07
hereof, the benefit commencement date of a Retired
6-2
<PAGE>
Participant shall be no later than as soon as practicable after the
later of the following occurs (or as soon thereafter as
determinable): (i) the date the Retired Participant attains his
Normal Retirement Age, (or, if earlier, the date the Participant
elects to receive his early retirement benefit after qualifying for
early retirement, if permitted, under the Plan), or (ii) the date
his Service terminates. However, still subject to the time
limitations set forth in Sections 6.06 and 6.07 hereof, if the
former Participant is to receive an allocation pursuant to Item 12
of the Adoption Agreement for the Plan Year in which his Service
terminated, then the retirement benefit shall be paid after such
time as all Employer contributions for such Plan Year have, in fact,
been allocated.
The retirement benefit election period shall be the ninety (90)-day
period ending on the Annuity Starting Date. Any election hereunder
shall be in writing and in such form as the Plan Administrator shall
uniformly and nondiscriminatorily require.
If a Retired Participant dies while benefit payments are being made
in accordance with option (1) herein, then payment shall be made to
the extent of the unpaid installments to his Beneficiary, or if the
Beneficiary is the estate or will otherwise be the distributee under
Section 7.03, then payment of the remaining interest of the former
Participant shall be in a single sum to his estate. If a former
Participant dies while benefit payments are being made in accordance
with option (2) herein, then any further payments shall be
determined pursuant to the terms of the annuity purchased
thereunder.
(b) Participants Generally With Service Only Before August 23, 1984. The
---------------------------------------------------------------
provisions of this subsection shall apply to any Participant who is
not credited with at least one (1) Hour of Service with the Employer
on or after August 23, 1984. The provisions of this subsection,
except subsection (b)(2), shall also apply to certain other
Participants in profit sharing plans who are eligible for the
special rule set out in subsection (d).
(1) Normal Retirement Benefit Form. In the event that a Participant
------------------------------
does not elect an optional form of benefit payment pursuant to
subsection (a) hereof within the retirement benefit election
period set forth therein, the normal form of the retirement
benefit payment to the Retired Participant shall be in a single
sum.
(2) Retirement Benefit Form - Married Participant Electing Annuity
--------------------------------------------------------------
Option. In the event that a Participant is to receive his
------
benefit under an annuity option involving life contingencies,
and the Participant is married on his Annuity Starting Date,
the form of the retirement
6-3
<PAGE>
benefit payment (other than payment of that portion of the
benefit, if any, attributable to the Retired Participant's
Voluntary Deductible Contributions or Rollover Contributions)
shall be a Qualified Joint and Survivor Annuity to such Retired
Participant and his spouse, unless the Retired Participant
elects otherwise. Any portion of the value of the retirement
benefit attributable to the Retired Participant's Voluntary
Deductible Contributions or Rollover Contributions shall be
paid to the Retired Participant in a single sum, unless the
Retired Participant elects an optional form of benefit payment
or Beneficiary, or both, pursuant to subsection (a) hereof.
The Plan Administrator shall furnish to each Participant a
notice of general information concerning the Qualified Joint
and Survivor Annuity and the availability of more specific
information. Upon written request, the Plan Administrator shall
furnish a Participant with a more specific written explanation,
in nontechnical language, of the terms and conditions of the
Qualified Joint and Survivor Annuity and the financial effect
on the Participant of receiving benefits in such form.
(c) Participants Generally With Service On or After August 23, 1984.
---------------------------------------------------------------
Except as provided in subsection (d) hereof with respect to certain
Participants in a Plan which is a profit sharing plan, the
provisions of this subsection shall apply both (i) to any
Participant who is credited with at least one (1) Hour of Service
with the Employer on or after August 23, 1984 and (ii) to such
former Participants as provided under the transitional rules set
forth in subsection (e) herein.
(1) Normal Retirement Benefit Form - No Spouse. In the event that a
------------------------------------------
Participant does not elect an optional form of benefit payment
pursuant to subsection (a) hereof within the retirement benefit
election period set forth therein (or if, for Plan Years
beginning prior to January 1, 1989, the Plan Administrator
declines to approve an election), and the Participant does not
have a Spouse on his Annuity Starting Date, the normal form of
the retirement benefit payment to the Retired Participant shall
be a payment in a straight life annuity.
(2) Normal Retirement Benefit Form If Spouse. In the event a
----------------------------------------
Participant does not elect an optional form of benefit payment
or Beneficiary, or both, pursuant to subsection (a) hereof
within the retirement benefit election period set forth therein
under a qualified election, and the Participant does have a
Spouse on his Annuity Starting Date, the normal form of the
6-4
<PAGE>
retirement benefit payment shall be a Qualified Joint and
Survivor Annuity to such Participant and his Spouse.
(3) Qualified Election. Any waiver of the normal retirement benefit
------------------
form shall not be effective unless: (i) the Participant's Spouse
consents in writing to the election; (ii) the election designates
a specific Beneficiary, including any class of Beneficiaries or
any contingent Beneficiaries, which may not be changed without
spousal consent (or the Spouse expressly permits designations by
the Participant without any further spousal consent); (iii) the
Spouse's consent acknowledges the effect of the election; and
(iv) the Spouse's consent is witnessed by the Plan Administrator,
or its representative, or by a notary public. Additionally, a
Participant's waiver of the Qualified Joint and Survivor Annuity
shall not be effective unless the election designates a form of
benefit payment which may not be changed without spousal consent
(or the Spouse expressly permits designations by the Participant
without any further spousal consent). If it is established to the
satisfaction of the Plan Administrator, or its representative
that there is no Spouse or that the Spouse cannot be located, a
waiver will be deemed a qualified election.
Any consent by a Spouse obtained under this provision (or
establishment that the consent of a Spouse may not be obtained)
shall be effective only with respect to such Spouse. A consent
that permits designations by the Participant without any
requirement of further consent by such Spouse must acknowledge
that the Spouse has the right to limit consent to a specific
Beneficiary, and a specific form of benefit where applicable, and
that the Spouse voluntarily elects to relinquish either or both
of such rights. A revocation of a prior waiver may be made by a
Participant without the consent of the Spouse at any time before
the Annuity Starting Date. The number of revocations shall not be
limited. No consent obtained under this provision shall be valid
unless the Participant has received notice as provided in
paragraph (4) below.
(4) Notice of Normal Form of Payment. Within the period commencing no
--------------------------------
less than thirty (30) and no more than ninety (90) days prior to
the Annuity Starting Date, the Plan Administrator shall provide
each Participant notice in the form of a written explanation
containing (i) the terms and conditions of the normal form of
benefit payment, (ii) the Participant's right to make, and the
effect of, an election to waive the normal
6-5
<PAGE>
form of benefit payment, (iii) the rights of the Participant's
Spouse and (iv) the right to make, and the effect of, a
revocation of a previous election to waive the normal form of
benefit payment.
If the benefit can be distributed to the Participant (or
surviving Spouse) before the Participant attains (or would have
attained if not deceased) the later of Normal Retirement Age or
age sixty-two (62), then the written explanation shall also
include an explanation of the right to defer any distribution
until the later of Normal Retirement Age and age sixty-two
(62).
(d) Special Rule for Certain Profit Sharing Plan Participants. The
---------------------------------------------------------
provisions of subsection (b) rather than the provisions of
subsection (c) shall apply to a Participant in a profit sharing
plan, and to any distribution, made on or after the first day of the
first Plan Year beginning after December 31, 1988, from or under a
separate account attributable solely to Voluntary Deductible
Contributions maintained on behalf of a Participant in a money
purchase pension plan (including a target benefit plan), regardless
of the fact that such Participant may be credited with one (1) or
more Hours of Service with the Employer on or after August 23, 1984,
if
(1) in Item 19(a) the Employer does not elect normal forms of
payment involving life contingencies, and
(2) the Participant cannot, or does not, elect an annuity option
involving life contingencies, and
(3) on the death of a Participant, the Participant's Vested Account
Balance will be paid to the Participant's surviving Spouse, but
if there is no surviving Spouse, or if the surviving Spouse has
consented in a manner conforming to a qualified election, then
to the Participant's designated Beneficiary. The surviving
Spouse may elect to have distribution of the Vested Account
Balance commence within the ninety (90)-day period following
the date of the Participant's death. The account balance shall
be adjusted for Income occurring after the Participant's death
in accordance with the provisions of the Plan governing the
adjustment of account balances for other types of
distributions.
In addition, if with respect to a Participant, the Plan is a
direct or indirect transferee of a defined benefit pension
plan, a money purchase pension plan, a target benefit pension
plan, a stock bonus plan or any other profit sharing plan which
is subject to the survivor annuity requirements of Section
401(a)(11) and Section 417 of the Code, then the provisions of
6-6
<PAGE>
subsection (b) shall apply as to the Participant's Accounts
attributable to the transfer from such plan, provided that the
amount of such transfer and any gains or losses attributable
thereto are maintained in a separate account.
The Participant may waive the spousal death benefit described
in this subsection at any time provided that no such waiver
shall be effective unless it satisfies the conditions
(described in Section 7.02(c)(4)) that would apply to the
Participant's waiver of the qualified preretirement survivor
annuity.
For purposes of this subsection, "Vested Account Balance" shall
mean, in the case of a money purchase pension plan or a target
benefit plan, the Participant's separate account balance
attributable solely to Voluntary Deductible Contributions.
(e) Transitional Rules for Annuity Benefits to Retired or Separated
---------------------------------------------------------------
Participants Not In-Payment on August 23, 1984.
----------------------------------------------
(1) Election Period. The respective opportunities to make elections
---------------
under this subsection (e) (as described in the two (2)
following paragraphs) shall be afforded to the appropriate
Participants during the period commencing on August 23, 1984,
and ending on the date benefits would otherwise commence to
such Participants.
(2) Service Between January 1, 1976, and August 23, 1984. Any
----------------------------------------------------
living Retired or Separated Participant not receiving benefits
on August 23, 1984, who would otherwise not receive the
benefits prescribed by subsections 6.03(c) and 7.02(c) hereof
shall be given the opportunity to elect to have those
subsections apply if such Participant is credited with at least
one (1) Hour of Service under this Plan, or a predecessor plan
of which this Plan is a continuation, in a Plan Year beginning
on or after January 1, 1976, and such Participant had at least
ten (10) years of Vesting Service when he separated from
Service.
(3) Service Between September 2, 1974, and January 1, 1976. Any
------------------------------------------------------
living Retired or Separated Participant not receiving benefits
on August 23, 1984, who was credited with at least one (1) Hour
of Service under this Plan, or a predecessor plan of which this
Plan is a continuation, on or after September 2, 1974, and who
is not otherwise credited with any Service in a Plan Year
beginning on or after January 1, 1976, shall be given the
opportunity to have his benefits paid in accordance with the
following provisions of subsection (e)(4).
6-7
<PAGE>
(4) ERISA Benefits. Any Participant who has elected to receive
--------------
benefits pursuant to subsection (e)(3) hereof, and any
Participant who does not elect to receive benefits under
subsection (e)(2) or who meets the requirements of such
subsection except that such Participant does not have at least
ten (10) years of Vesting Service when he separates from
Service, shall have his benefits distributed in accordance with
all of the following requirements, if his benefits would have
been payable in the form of a life annuity:
(i) Automatic joint and survivor annuity. If benefits in the
------------------------------------
form of a life annuity become payable to a married
Participant who:
(A) begins to receive payments under the Plan on or
after Normal Retirement Age; or
(B) dies on or after Normal Retirement Age while still
working for the Employer; or
(C) begins to receive payments on or after the
qualified early retirement age; or
(D) separates from Service on or after attaining Normal
Retirement Age (or the qualified early retirement
age) and after satisfying the eligibility
requirements for the payment of benefits under the
Plan and thereafter dies before beginning to
receive such benefits;
then such benefits will be received under this Plan in
the form of a Qualified Joint and Survivor Annuity,
unless the Participant has elected otherwise during the
election period hereunder. The election period hereunder
shall begin at least six (6) months before the
Participant attains his qualified early retirement age
and shall end not more than ninety (90) days before the
commencement of benefits. Any election hereunder shall
be in writing and may be changed by the Participant at
any time by delivering such change of election to the
Plan Administrator.
(ii) Election of early survivor annuity. A Participant who is
----------------------------------
employed after attaining the qualified early retirement
age shall be given the opportunity to elect, during the
election period, to have a survivor annuity payable on
death. If the Participant elects the survivor annuity,
then payments under such annuity shall not be less than
the payments which would have
6-8
<PAGE>
been made to the Spouse under the Qualified Joint and
Survivor Annuity if the Participant had retired on the day
before his death. Any election under this provision shall
be in writing and may be changed by the Participant at any
time by delivering such change of election to the Plan
Administrator. The election period hereunder shall begin
on the later of (1) the ninetieth (90th) day before the
Participant attains the qualified early retirement age, or
(2) the date on which participation begins, and shall end
on the date the Participant terminates employment.
(iii) For purposes of this subsection (e)(4) the term
"qualified early retirement age" shall be the latest of:
(A) the earliest date, under the Plan, on which the
Participant may elect to receive retirement benefits,
(B) the first (1st) day of the one hundred and twentieth
(120th) month beginning before the Participant
reaches Normal Retirement Age, or
(C) the date the Participant begins participation.
Section 6.04 Segregated Accounts. Any segregated account of a Retired
--------------------------------
Participant established pursuant to an optional form of benefit payment under
Section 6.03(a) hereof shall remain a part of the Trust Fund, but shall be
separately invested in certificates of deposit, money market certificates,
collective investment trusts, other short-term debt security instruments or any
other investments acceptable to the Trustee, with all investment income on such
investments credited to the segregated account and all disbursements on behalf
of the Retired Participant charged thereto.
Section 6.05 Subsequent Agreement. If the amount credited to any account
---------------------------------
of the Retired Participant is being paid to him from the Trust Fund in monthly
installments, the Retired Participant may request that the amount then credited
to such Account shall be applied in accordance with the provisions of Section
6.03 hereof providing for payment of the balance of the Retired Participant's
Account in a single sum. For Plan Years commencing prior to January 1, 1989, the
right of the Retired Participant to elect to have the remaining amount of his
account paid in a single sum shall be subject to the Plan Administrator's
consent.
Section 6.06 General Commencement of Benefits Rule. Notwithstanding any
--------------------------------------------------
other provisions of the Plan, but in addition to such provisions (as
applicable), unless the Participant elects otherwise, distribution of benefits
shall begin no later than the sixtieth (60th) day
6-9
<PAGE>
after the close of the Plan Year in which the latest of the following events
occurs:
(a) the date the Participant attains sixty-five (65) years of age, or, if
earlier, his Normal Retirement Age;
(b) the date the tenth (10th) anniversary of the year in which the
Participant commenced participation in the Plan occurs; or
(c) the date the Participant terminates Service with the Employer.
If the amount of the payment required to commence on the date determined
under this section cannot be ascertained by such date, or if it is not possible
to make such payment on such date because the Committee has been unable to
locate the Participant after making reasonable efforts to do so, then a payment
retroactive to such date shall be made no later than sixty (60) days after the
earliest date on which the amount can be ascertained under the Plan or the date
on which the Participant is located (whichever is applicable).
Notwithstanding the foregoing, the failure of a Participant (or, if
applicable, surviving Spouse) to consent to a distribution before the
Participant attains (or would have attained if not deceased) the later of Normal
Retirement Age or age sixty-two (62), shall be deemed to be an
election to defer commencement of payment of any benefit sufficient to satisfy
this Section.
Section 6.07 Special Commencement and Distribution of Benefits Rule.
-------------------------------------------------------------------
(a) General Rules.
-------------
(1) Subject to Section 6.03 pertaining to Qualified Joint and
Survivor Annuities, the requirements of this section shall
apply to any distribution of a Participant's Accounts and will
take precedence over any inconsistent provisions of this Plan.
Unless otherwise specified, the provisions of this section
apply to calendar years beginning after December 31, 1984.
(2) All distributions required under this section shall be
determined and made in accordance with the proposed regulations
under Code Section 401(a)(9), including the minimum
distribution incidental benefit requirement of section
1.401(a)(9)-2 of the regulations.
(b) Required Beginning Date. The Accounts of a Participant must be
-----------------------
distributed or begin to be distributed no later than the
Participant's required beginning date. The consent of the Participant
or of the Participant's Spouse
6-10
<PAGE>
or Beneficiary shall not be required to make a distribution required
under this section.
(c) Limits on Distribution Periods. As of the first distribution calendar
------------------------------
year, distributions, if not made in a single-sum, may only be made
over one of the following periods (or a combination thereof):
(1) the life of the Participant,
(2) the life of the Participant and a designated Beneficiary,
(3) a period certain not extending beyond the life expectancy of
the Participant, or
(4) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
Beneficiary.
(d) Determination of Amount to be Distributed Each Year. If the
---------------------------------------------------
Participant's Accounts are to be distributed in other than a single
sum, the following minimum distribution rules shall apply on or
after the required beginning date:
(1) Individual Account.
------------------
(i) If a Participant's benefit is to be distributed over (A) a
period not extending beyond the life expectancy of the
Participant or joint life and last survivor expectancy of
the Participant and the Participant's designated
Beneficiary or (B) a period not extending beyond the life
expectancy of the designated Beneficiary, the amount
required to be distributed for each calendar year,
beginning with distributions for the first distribution
calendar year, must at least equal the quotient obtained
by dividing the Participant's benefit by the applicable
life expectancy.
(ii) For calendar years beginning before January 1, 1989, if
the Participant's Spouse is not the designated
Beneficiary, the method of distribution selected must
assure that at least fifty percent (50%) of the present
value of the amount available for distribution is paid
within the life expectancy of the Participant.
(iii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with
distributions for the first distribution calendar year
shall not be less than the quotient obtained by dividing
the
6-11
<PAGE>
Participant's benefit by the lesser of (A) the applicable
life expectancy or (B) if the Participant's Spouse is not
the designated Beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the proposed regulations. Distributions
after the death of the Participant shall be distributed
using the applicable life expectancy in paragraph (i)
above as the relevant divisor without regard to proposed
regulations section 1.401(a)(9)-2.
(iv) The minimum distribution required for the Participant's
first distribution calendar year must be made on or before
the Participant's required beginning date. The minimum
distribution for other calendar years, including the
minimum distribution for the distribution calendar year in
which the Employee's required beginning date occurs, must
be made on or before December 31 of that distribution
calendar year.
(2) Other Forms. If the Participant's benefit is distributed in the
-----------
form of an annuity purchased from a Life Insurance Company,
distributions thereunder shall be made in accordance with the
requirements of Section 401(a)(9) of the Code and the
regulations thereunder.
(e) Death Distribution Provisions.
-----------------------------
(1) Distribution Beginning Before Death. If the Participant dies
-----------------------------------
after distribution of his benefit has begun, the remaining
-----
portion of such benefit will continue to be distributed at
least as rapidly as under the method of distribution being used
prior to the Participant's death.
(2) Distribution Beginning After Death. If the Participant dies
----------------------------------
before distribution of his benefit begins, distribution of the
Participant's entire benefit shall be completed by December 31
of the calendar year containing the fifth (5th) anniversary of
the Participant's death except to the extent that an election
is made to receive distributions in accordance with (i) and
(ii) below:
(i) if any portion of the Participant's benefit is payable
to a designated Beneficiary, distributions may be made
over the life or over a period certain not greater than
the life expectancy of the designated Beneficiary
commencing on or before December 31 of the
6-12
<PAGE>
calendar year immediately following the calendar year in
which the Participant died;
(ii) if the designated Beneficiary is the Participant's
surviving Spouse, the date distributions are required to
begin in accordance with (i) above shall not be earlier
than the later of (A) December 31 of the calendar year
immediately following the calendar year in which the
Participant died and (B) December 31 of the calendar
year in which the Participant would have attained age
seventy and one-half (70-1/2).
If the Participant has not made an election pursuant to this
subsection (e)(2) by the time of his death, the Participant's
designated Beneficiary must elect the method of distribution no
later than the earlier of (A) December 31 of the calendar year
in which distributions would be required to begin under this
subsection (e), or (B) December 31 of the calendar year which
contains the fifth (5th) anniversary of the date of death of
the Participant. If the Participant has no designated
Beneficiary, or if the designated Beneficiary does not elect a
method of distribution, distribution of the Participant's
entire interest must be completed by December 31 of the
calendar year containing the fifth (5th) anniversary of the
Participant's death.
(3) For purposes of subsection (e)(2) above, if the surviving
Spouse dies after the Participant, but before payments to such
Spouse begin, the provisions of subsection (e)(2) with the
exception of paragraph (ii) therein, shall be applied as if the
surviving Spouse were the Participant.
(4) For purposes of this subsection (e), any amount paid to a child
of the Participant will be treated as if it had been paid to
the surviving Spouse if the amount becomes payable to the
surviving Spouse when the child reaches the age of majority.
(5) For the purposes of this subsection (e), distribution of a
Participant's benefit is considered to begin on the
Participant's required beginning date (or, if subsection (e)(3)
above is applicable, the date distribution is required to begin
to the surviving Spouse pursuant to subsection (e)(2) above).
If distribution in the form of an annuity irrevocably commences
to the Participant before the required beginning date, the date
distribution is considered to begin is the date distribution
actually commences.
6-13
<PAGE>
(f) Definitions.
-----------
(l) "Applicable life expectancy" shall mean the life expectancy (or
joint and last survivor expectancy) calculated using the attained
age of the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the
applicable calendar year reduced by one (1) for each calendar
year which has elapsed since the date life expectancy was first
calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first
distribution calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
(2) "Designated Beneficiary" shall mean the individual who is
designated as the Beneficiary under the Plan in accordance with
Code Section 401(a)(9) and the regulations thereunder.
(3) "Distribution calendar year" shall mean a calendar year for which
a minimum distribution is required. For distributions beginning
before the Participant's death, the first distribution calendar
year is the calendar year immediately preceding the calendar year
which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first
distribution calendar year is the calendar year in which
distributions are required to begin pursuant to subsection (e)
above.
(4) "Life expectancy" shall mean life expectancy and joint and last
survivor expectancy which are computed by use of the expected
return multiples in Tables V and VI of section 1.72-9 of the
Treasury Regulations.
Unless otherwise elected by the Participant (or Spouse, in the
case of distributions described in section (e)(2)(ii) above) by
the time distributions are required to begin, life expectancies
shall be recalculated annually. Such election shall be
irrevocable as to the Participant (or Spouse) and shall apply to
all subsequent years. The life expectancy of a nonspouse
Beneficiary may not be recalculated.
(5) "Participant's benefit" shall mean the account balance as of the
last Valuation Date in the calendar year immediately preceding
the distribution calendar year ("valuation calendar year")
increased by the amount of any contributions or forfeitures
allocated to the account balance as of dates in the valuation
calendar year after the valuation date and decreased by
6-14
<PAGE>
distributions made in the valuation calendar year after the
valuation date.
Notwithstanding the foregoing, if any portion of the minimum
distribution for the first distribution calendar year is made in
the second distribution calendar year on or before the required
beginning date, the amount of the minimum distribution made in
the second distribution calendar year shall be treated as if it
had been made in the immediately preceding distribution calendar
year.
(6) "Required beginning date" shall mean the first day of April of
the calendar year following the calendar year in which the
Participant attains age seventy and one-half (70-1/2) subject,
however, to the following transition rules.
(i) Transitional rules. The required beginning date of a
------------------
Participant who attains age seventy and one-half (70-1/2)
before January 1, 1988, shall be determined in accordance
with (A) and (B) below:
(A) Non-five-percent (5%) owners. The required beginning
----------------------------
date of a Participant who is not a five-percent (5%)
owner is the first day of April of the calendar year
following the calendar year in which the later of
retirement or attainment of age seventy and one-half
(70-1/2) occurs.
(B) Five-percent (5%) owners. The required beginning date
------------------------
of a Participant who is a five-percent (5%) owner
during any year beginning after December 31, 1979, is
the first day of April following the later of:
1. the calendar year in which the Participant attains
age seventy and one-half (70-1/2), or
2. the earlier of the calendar year with or within
which ends the Plan Year in which the Participant
becomes a five-percent (5%) owner, or the calendar
year in which the Participant retires.
The required beginning date of a Participant who is not a
five-percent (5%) owner and who attains age seventy and one-
half (70-1/2) during 1988 and has not retired as of January
1, 1989, is April 1, 1990.
6-15
<PAGE>
(ii) Five-percent (5%) owner. A Participant is treated as a five-
-----------------------
percent (5%) owner for purposes of this section if such
Participant is a five-percent (5%) owner as defined in
Section 416(i) of the Code (determined in accordance with
Section 416 of the Code but without regard to whether the
Plan is top-heavy) at any time during the Plan Year ending
with or within the calendar year in which such owner attains
age sixty-six and one-half (66-1/2) or any subsequent Plan
Year.
(iii) Once distributions have begun to a five-percent (5%) owner
under this section, they must continue to be distributed,
even if the Participant ceases to be a five-percent (5%)
owner in a subsequent year.
(g) Pre-DEFRA Distribution Designation Savings Rule.
-----------------------------------------------
Notwithstanding the preceding requirements of this section, the
distribution on behalf of any Participant may be made in accordance
with the following requirements (regardless of when such distribution
commences).
(1) The distribution by the Trust is one (1) which would not have
disqualified such Trust under Code Section 401(a)(9) as in
effect prior to amendment by the Deficit Reduction Act of 1984.
(2) The distribution is in accordance with a method of distribution
designated by the Participant whose interest in the Trust is
being distributed or, if the Participant is deceased, by a
Beneficiary of such Participant.
(3) Such designation was in writing, was signed by the Participant or
the Beneficiary, and was made before January 1, 1984.
(4) The Participant had accrued a benefit under the Plan as of
December 31, 1983.
(5) The method of distribution designated by the Participant or the
Beneficiary specifies the time at which distribution shall
commence, the period over which distributions shall be made and,
in the case of any distribution upon the Participant's death, the
Beneficiaries of the Participant listed in order of priority.
A distribution upon death shall not be covered by this subsection
unless the information in the designation contains the required
information described herein with
6-16
<PAGE>
respect to the distributions to be made upon the death of the
Participant.
For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the Participant, or the
Beneficiary, to whom such distribution is being made shall be presumed
to have designated the method of distribution under which the
distribution is being made if the method of distribution was specified
in writing and the distribution satisfies the requirement in
preceding subsections (c)(l) through (5) herein.
If a designation is revoked, any subsequent distribution shall satisfy
the requirements of Code Section 401(a)(9) and the regulations
thereunder. If a designation is revoked subsequent to the date
distributions are required to begin, the Trust must distribute by the
end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would
have been required to have been distributed to satisfy Section
401(a)(9) of the Code and the regulations thereunder, but for the
Section 242(b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum
distribution incidental benefit requirements in section 1.401(a)(9)-2
of the proposed regulations. Any changes in the designation shall be
considered to be a revocation of the designation. However, the mere
substitution or addition of another Beneficiary (not named in the
designation) under the designation shall not be considered to be a
revocation of the designation, so long as such substitution or
addition does not alter the period over which distributions are to be
made under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which an amount
is transferred or rolled over from one plan to another plan, the rules
in Q&A J-2 and Q&A J-3 of section 1.401(a)(9)-2 of the proposed
regulations shall apply.
Section 6.08 Cash-Out Distribution of Small Benefits. For Plan Years
----------------------------------------------------
beginning after December 31, 1986 and before January l, 1989, in the event that
a former Participant or Beneficiary shall become entitled to receive any benefit
under the Plan, and the Participant's Vested Account Balance is not greater than
three thousand five hundred dollars ($3,500), the Plan Administrator reserves
the right to cause the benefit to be paid to such person in a single sum not
later than the maximum period allowed by law for the distribution to still be
made on account of termination of participation in the plan. Such payment shall
be in lieu of the form of benefit otherwise payable under any provision in this
Plan.
For Plan Years beginning after December 31, 1988, in the event that a
former Participant or Beneficiary shall become entitled to receive any benefit
under the Plan, and the Participant's Vested Account Balance is not greater than
three thousand five hundred dollars ($3,500), the Plan
6-17
<PAGE>
Administrator shall, if elected pursuant to Item 16 of the Adoption Agreement,
cause the benefit to be paid to such person in a single sum not later than the
maximum period allowed by law for the distribution to still be made on account
of termination of participation in the plan. Such payment shall be in lieu of
the form of benefit otherwise payable under any provision of this Plan.
No such distribution shall be made after the Annuity Starting Date. No such
distribution shall be made after benefits commence in the form of installment
payments unless the former Participant and the former Participant's Spouse, if
applicable, consent to such a distribution in a manner consistent with the
qualified election requirements of Sections 6.03(c)(3) and 7.02(c)(4) hereof.
Section 6.09 Purchase Of Annuities. If benefits are required to be paid
----------------------------------
in the form of an annuity involving life contingencies under the terms of any
provision of this Plan, then the Trustee shall purchase such annuity contracts
from a Life Insurance Company, utilizing for such purchase the entire
nonforfeitable amount in the Accounts of the Participant. Any annuity contract
which is purchased hereunder to provide benefits otherwise payable under the
Plan, and which is distributed to a Retired or Separated Participant or
Beneficiary, shall be endorsed as "nontransferable." The terms of any annuity
contract purchased and distributed by the Plan to a Participant or Spouse shall
comply with the requirements of this Plan.
Section 6.10 Limitation. Except as provided in Articles 7 or 8 hereof,
-----------------------
the provisions of this article shall not apply to a Separated Participant.
6-18
<PAGE>
ARTICLE 7
DEATH AND DISABILITY BENEFITS
Section 7.01 Death Benefits. In the event of the death of a Participant
---------------------------
or a Retired Participant (other than a Retired Participant receiving retirement
benefits pursuant to Section 6.03 hereof), prior to the complete distribution of
his Accounts, his death benefit shall be one hundred percent (100%) of his
Accounts determined on the Valuation Date immediately preceding the payment of
the benefit, plus any contributions, or Income gain, allocated to his Accounts
after such Valuation Date and less any payments or withdrawals made from his
Accounts, or Income loss allocated against the Accounts, since such preceding
Valuation Date.
Section 7.02 Payment of Death Benefits.
--------------------------------------
(a) In General. The form of payment of the value of the death benefit
----------
shall be as set forth in subsections (b) and (c) hereof. In lieu of
the form of death benefit provided therein, a Participant may elect
in writing, subject to (if applicable) the qualified election
requirements set forth in subsection (c)(4) hereof, to have his
benefit paid or applied in accordance with one (1), or a
combination, of the options described in Section 6.03(a); provided,
however, that such elected option shall comply with the form of
payment limitations set forth in Section 6.07 hereof. For Plan Years
beginning prior to January 1, 1989, any election of an alternative
form of death benefit pursuant to this Section 7.02 shall be subject
to the approval of the Plan Administrator.
Subject to the time limitations set forth in Sections 6.06 and 6.07
hereof, the surviving Spouse or Beneficiary, as applicable, may
elect to have the death benefit commence (or, if applicable, the
annuity contract distributed) within a reasonable time after the
death of the Participant occurs. However, still subject to the time
limitations of Sections 6.06 and 6.07, if the former Participant is
to receive an allocation pursuant to Item 12 of the Adoption
Agreement for the Plan Year in which his Service terminated, then
the death benefit shall be paid, subject to the contrary election by
an eligible Spouse to receive a death benefit immediately without
such additional allocation pursuant to subsection (c)(2) hereof, at
such time as contributions for such Plan Year have, in fact, been
allocated.
The death benefit election period shall be a period which begins on
the date the Participant enters the Plan and ends on the date of the
death of the Participant. Any election hereunder shall be in writing
and in such form as the Plan
7-1
<PAGE>
Administrator shall uniformly and nondiscriminatorily require.
Payment of the death benefit to the Beneficiary of the deceased
Participant shall fully discharge the Trustee, the Plan Administrator
(and the Committee, if appointed pursuant to Section 9.01 hereof) and
the Employer, and each of them, from any and all liability hereunder
as to such deceased Participant. The Trustee, the Plan Administrator
(and the Committee, if appointed pursuant to Section 9.01 hereof), and
the Employer, and each of them, shall not be responsible for the
ultimate disposition of such benefit in accordance with any will or
other testamentary disposition made by such Participant, or in
accordance with the intestacy provisions of any law.
(b) Participants with Service Only Before August 23, 1984. The provisions
-----------------------------------------------------
of this subsection shall apply to any Participant who is not credited
with at least one (1) Hour of Service with the Employer on or after
August 23, 1984.
In the event that such a Participant does not elect an optional form
of benefit payment pursuant to subsection (a) hereof within the death
benefit election period set forth therein (or if as to Plan Years
beginning prior to January 1, 1989 the Plan Administrator declines to
approve the election), regardless of whether or not the Participant
had been married on his date of death, the death benefit shall be paid
to the Beneficiary of the deceased Participant in a single sum;
provided, however, that such Beneficiary may elect to receive this
death benefit in an optional form of benefit payment pursuant to
subsection (a) hereof as if he were the Participant.
(c) Participants with Service On or After August 23, 1984. Except as
-----------------------------------------------------
provided in subsection (c)(3) hereof with respect to certain
Participants in a Plan which is a profit sharing plan, the provisions
of this subsection shall apply to any Participant who is credited with
at least one (1) Hour of Service with the Employer on or after August
23, 1984.
(1) Participants Not Leaving a Surviving Spouse on Death. In the
----------------------------------------------------
event that a Participant does not elect an optional form of
benefit payment pursuant to subsection (a) hereof within the
death benefit election period set forth therein (or if, as to
Plan Years beginning prior to January 1, 1989, the Plan
Administrator declines to approve an election), and the
Participant does not have a Spouse on the date of his death, the
death benefit shall be paid to the Beneficiary of the deceased
Participant in a single sum; provided, however, that such
Beneficiary may elect to receive this death benefit in an
optional
7-2
<PAGE>
form of benefit payment pursuant to subsection (a)
hereof as if he were the Participant.
(2) Participants Leaving a Surviving Spouse on Death - Qualified
------------------------------------------------- ---------
Preretirement Survivor Annuity. In the event that a Participant
------------------------------
has not selected an optional form of benefit payment or
Beneficiary, or both, pursuant to subsection (a) hereof within
the death benefit election period set forth therein pursuant to a
qualified election, and the Participant has a Spouse on the date
of his death, the death benefit shall be paid to the surviving
Spouse in the form of an annuity for the Spouse's life; provided,
however, that if so provided by the Employer in Item 19 of the
Adoption Agreement, the Spouse may elect to receive this death
benefit in an optional form of benefit payment pursuant to
subsection (a) hereof as if the Spouse were the Participant
pursuant to a qualified election at any time prior to ninety (90)
days before payment of the death benefit actually commences. Any
portion of the value of the death benefit which is not payable to
any surviving Spouse shall be paid to the Beneficiary of the
deceased Participant in a single sum; provided, however, that
such Beneficiary may elect to receive his portion of the death
benefit in an optional form of benefit payment pursuant to
subsection (a) hereof as if he were the Participant and no
qualified election requirement shall apply to such election by
the Beneficiary.
(3) Special Rule for Certain Profit Sharing Plan Participants.
---------------------------------------------------------
Notwithstanding the foregoing, if the Plan is a profit sharing
plan, and if the Participant has a Spouse on the date of his
death, then the death benefit (including any proceeds received
under a Policy owned by the Trustee on the Participant's life
purchased by Employer contributions or Forfeitures allocated to
the Participant's Employer Account) shall be paid to the
surviving Spouse in the form of a single sum, unless
(i) the Participant has selected a Beneficiary other than his
Spouse pursuant to a qualified election,
(ii) the Participant can, and does, elect an annuity option
involving life contingencies, or
(iii) with respect to such Participant, the Plan is a direct or
indirect transferee of a defined benefit pension plan, a
money purchase pension plan, a target benefit pension
plan, a stock bonus plan or any other profit sharing plan
which is subject to the survivor annuity
7-3
<PAGE>
requirements of Section 401(a)(11) and Section 417 of the
Code.
(4) Qualified Election. A qualified election shall have the meaning
------------------
for this term set forth in Section 6.03(c)(3) hereof, but shall
apply to a spousal waiver of the form of payment, or the payment,
of the death benefit provided under this subsection instead of
the waiver of the Qualified Joint and Survivor Annuity provided
under Section 6.03(c)(3). However, in the event the preretirement
survivor annuity rules of subsection (c)(2) are applicable as to
the Participant, an election to waive the preretirement survivor
annuity benefit which is made prior to the first day of the Plan
Year in which the Participant attains age thirty-five (35), shall
become invalid on the first day of the Plan Year in which the
Participant attains age thirty-five (35); provided, however,
that, at that time the Participant shall have the right to again
elect to waive the preretirement survivor annuity benefit.
(5) Notice of Qualified Preretirement Survivor Annuity. If the
--------------------------------------------------
Employer provides in the Adoption Agreement that the Participant
may waive the qualified preretirement survivor annuity or allows
a married Participant to designate a nonspouse Beneficiary, then
the Plan Administrator shall provide each Participant whose
Spouse may receive a qualified preretirement survivor annuity for
such Participant, a written explanation of the qualified
preretirement survivor annuity described in subsection (c)(2)
hereof in such terms and in such manner as is comparable to the
explanation provided pursuant to Section 6.03(c)(4) with respect
to the Qualified Joint and Survivor Annuity notice. The Plan
Administrator shall provide such Participant with a written
explanation of the qualified preretirement survivor annuity
within whichever of the following periods ends last: (i) the
period beginning with the first day of the Plan Year in which the
Participant attains age thirty-two (32) and ending with the close
of the Plan Year preceding the Plan Year in which the Participant
attains age thirty-five (35); (ii) a reasonable period ending
after the individual becomes a Participant; (iii) a reasonable
period ending after the qualified preretirement survivor annuity
is no longer fully subsidized; (iv) a reasonable period ending
after this article first applies to the Participant.
Notwithstanding the foregoing, notice must be provided within a
reasonable period ending after separation from service in the
case of a Participant who separates from service before attaining
age thirty-five (35). In addition, notice shall be provided to
7-4
<PAGE>
active Participants who have not attained age thirty five (35) at
such time as may be required by regulation.
For purposes of applying the preceding paragraph, a reasonable
period ending after the enumerated events described in (ii),
(iii) and (iv) is the end of the two (2)-year period beginning
one (1) year prior to the date the applicable event occurs, and
ending one (1) year after that date. In~the case of a Participant
who separates from service before the Plan Year in which age
thirty-five (35) is attained, notice shall be provided within the
two (2)-year period beginning one (1) year prior to separation
and ending one (1) year after separation. If such a Participant
thereafter returns to employment with the Employer, the
applicable period for such Participant shall be redetermined.
(6) Exemptions from Notice Requirement. Notwithstanding the other
----------------------------------
requirements of this Section 7.02(c), the respective notices
prescribed by this section need not be given to a Participant if
(i) the Plan "fully subsidizes" the costs of a qualified
preretirement survivor annuity, and (ii) the Plan does not allow
the Participant to waive the qualified preretirement survivor
annuity and does not allow a married Participant to designate a
Beneficiary who is not his Spouse. For purposes of this section,
a Plan fully subsidizes the costs of a benefit if no increase in
cost, or decrease in benefits to the Participant may result from
the Participant's failure to elect another benefit.
Section 7.03 Designation of Beneficiary. At any time, and from time to
---------------------------------------
time, each Participant, or Retired or Separated Participant shall have the right
to designate the Beneficiary to receive his death benefit, and to revoke any
such designation, but any such designation shall be subject to the spousal
waiver when required under the qualified election provisions of Sections
6.03(c)(3) and 7.02(c)(4). Each such designation, or revocation thereof, shall
be evidenced by a written instrument filed with the Plan Administrator and
signed by the Participant, or Retired or Separated Participant and, if required,
the Spouse of such Participant. If no such designation is on file with the Plan
Administrator at the time of the death of a Participant or Retired or Separated
Participant, or if such designation is not effective for any reason as
determined by the Trustee, then the Participant shall be deemed, unless
otherwise required by the law, to have designated the following Beneficiaries
(if living at the time of the death of the Participant or Beneficiary) in the
following order of priority as elected in Item 19(e) of the Adoption Agreement:
(a) (1) the actual spouse of the Participant,
7-5
<PAGE>
(2) the children, including adopted children, of the 'Participant, in
equal shares per stirpes,
-----------
(3) the natural parents of the Participant, in equal shares and
(4) the estate of the Participant, or
(b) such order as is indicated in Item 19 of the Adoption Agreement.
Section 7.04 Documentary Proof. The Trustee may require the execution and
------------------------------
delivery of such documents, papers and receipts as it may deem reasonably
necessary in order to be assured that the payment of any death benefit is made
to the person or persons entitled thereto.
Section 7.05 Disability Benefits. In the event of the Disability of a
--------------------------------
Participant, and certification thereto by the Plan Administrator to the Trustee,
such Participant shall be entitled to one hundred percent (100~) of his Accounts
determined on the Valuation Date immediately preceding the payment of the
benefit, plus any contributions, or Income gain, allocated to his Accounts after
such Valuation Date and less any payments made from his Accounts, or Income loss
allocated against such Accounts, since such preceding Valuation Date.
Section 7.06 Payment of Disability Benefits. Subject to the provisions
-------------------------------------------
hereof concerning the death of a disabled Participant, any amounts due a
disabled Participant pursuant to this article from his Accounts shall be paid or
applied for his benefit in accordance with the provisions described in Section
6.03 hereof for the payment of retirement benefits, subject to the form of
benefit payment and time limitations of Sections 6.06 and 6.07 hereof, at what
would have been his Normal Retirement Date had he remained in Service. However,
if allowed pursuant to Item 16 of the Adoption Agreement, a Participant may
elect that the commencement date of any Disability benefits shall be any date
after his Disability occurred and prior to his Normal Retirement Date; provided,
however, that, for Plan Years beginning prior to January 1, 1989, a
Participant's election of early commencement of any Disability benefits shall be
subject to the approval of the Plan Administrator.
In the event of the death of a disabled Participant subsequent to the date
his Service terminated and prior to the Annuity Starting Date hereunder, the
amount payable on behalf of such disabled Participant under Section 7.05 hereof
shall be paid in the form provided in Section 7.02 hereof. If the death of a
disabled Participant occurs subsequent to the date his Service terminated and
after the Annuity Starting Date hereunder, then no death benefit shall be
payable, unless provided for under the form of benefit payable pursuant to
Section 6.03.
7-6
<PAGE>
ARTICLE 8
BENEFITS ON SEPARATION FROM SERVICE
Section 8.01 Rights of a Separated Participant. A Participant whose
----------------------------------------------
Service is terminated by causes other than death, Disability, or retirement, or
who incurs a Break in Service, shall have the rights described in this article.
In no case, however, shall such a Separated Participant-receive benefits under
the Plan prior to his Normal Retirement Date while still employed by the
Employer. Failure to return to Service with the Employer by the date on which a
Leave of Absence expires shall be considered to be a termination of Service as
of the date of such expiration.
Section 8.02 Vesting of Employer Contributions. Subject to his returning
----------------------------------------------
to Service at a time when he may increase the nonforfeitable percentage of his
Employer Account or Matching Account (if pursuant to Item 8(b) of the Adoption
Agreement the Matching Account is subject to the vesting schedule of Item 16 of
the Adoption Agreement), a Separated Participant shall be entitled to the
prescribed percentage of such accounts, including all Income allocated thereto,
pursuant to the vesting option elected in Item 16 of the Adoption Agreement,
such percentage to be determined as of the earlier of the date on which his
Service terminates and the date he incurs a Break in Service.
Section 8.03 Forfeitures. The portion of an Employer Account or Matching
------------------------
Account to which a Separated Participant is not entitled, as provided in
Sections 5.01 and 8.02 hereof, shall be a Forfeiture as of the earlier of the
following dates:
(a) the date the Separated Participant is paid the entire vested amount of
such accounts under the Plan pursuant to Sections 6.08 or 8.06 hereof,
or
(b) the date the Separated Participant incurs five (5) consecutive Breaks
in Service (or, in Plan Years beginning before January 1, 1985, the
date the Separated Participant incurs a Break in Service).
For purposes of this Section, if (i) pursuant to Section 6.08 hereof and the
election in Item 16 of the Adoption Agreement the value of benefits with a value
not greater than three thousand five hundred dollars ($3,500) is automatically
cashed-out, and (ii) the value of an Employee's Vested Account Balance is zero,
the Separated Participant shall be deemed to have received a distribution of
such Vested Account Balance and the Employer Account and the Matching Account
shall be treated as a Forfeiture as of the date indicated in Item 16 of the
Adoption Agreement. For purposes of this paragraph, a Separated Participant's
Vested Account Balance shall not include Voluntary Deductible Contributions for
Plan Years beginning prior to January 1, 1989.
8-1
<PAGE>
Forfeitures shall be allocated or applied pursuant to Section 4.02 hereof.
No Forfeitures shall occur solely as a result of an Employee's withdrawal
of Employee Contributions, except in certain cases as provided with respect to
the withdrawal of mandatory Employee Contributions as set forth in Section 5.01
hereof.
If a benefit cannot be paid to the Separated Participant or his Beneficiary
because he cannot be found, such benefit (subject to overruling law) shall be
treated as a Forfeiture but, if treated as a Forfeiture, shall be reinstated if
a claim is made by that Participant or his Beneficiary.
If a Separated Participant receives or is.deemed to receive a distribution
of his Vested Account Balance upon termination of his Service and he resumes
Service before he incurs five (5) consecutive Breaks in Service (or, in Plan
Years beginning before January 1, 1985, before he incurs a Break in Service),
then any amount forfeited shall be reestablished in such Participant's account
from which it was forfeited; provided, if so elected in Item 8 of the Adoption
Agreement, that such Participant shall first repay the full amount of such
distribution attributable to Employer Contributions and Matching Contributions,
if any, before the earlier of (i) five (5) years after the first day the
Employee subsequently resumes Service, and (ii) the date he subsequently incurs
five (5) consecutive Breaks in Service after such distribution.
If a Forfeiture is reestablished as part of an account of a former
Separated Participant who has resumed Service without his having to repay the
full amount of the distribution, then the resulting Employer Account or Matching
Account (as applicable) shall be established on his behalf as a separate
bookkeeping account, separate from any account which may be established on his
behalf due to resumption of Service. In the event that the Participant later
ceases to be a Participant, the amount to which he is entitled from the separate
bookkeeping account shall be computed as of the date he ceases to be a
Participant pursuant to the following formula:
X = P x (AB + (R x D)) - (R x D)
For purposes of solving this equation, "X" is the amount to which the
Participant is entitled, "P" is his vested percentage at the relevant time, "AB"
is his Employer Account or Matching Account (as applicable) balance at the
relevant time, "R" is the ratio of such account balance at the relevant time to
such account balance immediately after the distribution, and "D" is the amount
of the distribution.
Section 8.04 Immediate Vesting of Certain Contributions. All Elective
-------------------------------------------------------
Deferral Contributions, Qualified Non-elective Contributions, Qualified Matching
Contributions, Employee Contributions, Rollover Contributions, and Voluntary
Deductible Contributions and all Income allocated thereon, shall be fully vested
when made and shall be nonforfeitable at all times thereafter.
8-2
<PAGE>
Section 8.05 Benefits Upon Separation from Service. A Separated Participant
--------------------------------------------------
whose Service terminates for reasons other than death, Disability or retirement,
but who has not incurred a Break in Service, shall be entitled to receive the
Vested Account Balance (determined at the date his Service terminates), such
Accounts to be determined as of the Valuation Date immediately preceding the
date of the distribution, increased by any contributions or Income gain,
allocated after such Valuation Date and reduced by any payments or withdrawals
made from the Accounts, or Income loss allocated against the Accounts, since
such preceding Valuation Date.
Section 8.06 Payment of Service Separation Benefits. Subject to the
---------------------------------------------------
provisions hereof concerning the death or Disability of a Separated Participant,
any amounts due the Separated Participant pursuant to this article from his
Accounts shall be paid or applied for his benefit in accordance with the
provisions of Section 6.03 hereof for the payment of retirement benefits,
subject to the form of benefit payment and time limitations of Sections 6.06 and
6.07 hereof, at what would have been his Normal Retirement Date had he remained
in Service. However, if allowed pursuant to Item 16 of the Adoption Agreement, a
Separated Participant may elect that the commencement date of any amounts due
the Separated Participant pursuant to this article shall be any date after his
Service terminates and prior to his Normal Retirement Date; provided, however,
that, for Plan Years beginning prior to January 1, 1989, a Participant's
election of early commencement of any amounts due the Separated Participant
pursuant to this article shall be subject to the approval of the Plan
Administrator.
In the event of the death of a Separated Participant subsequent to the date
his Service terminates and prior to the Annuity Starting Date hereunder, the
amount payable on behalf of such Separated Participant under this article shall
be paid in the form provided in Section 7.02 hereof as if he were a deceased
Participant. If the death of a Separated Participant occurs subsequent to the
date his Service terminates and after the Annuity Starting Date hereunder, then
no death benefit shall be payable unless provided for on his death under the
form of benefit pursuant to Section 6.03.
In the event of the Disability of a Separated Participant, and
certification thereof by the Plan Administrator to the Trustee, subsequent to
the date his Service terminates and prior to the commencement of benefits
hereunder, the amount payable on behalf of such Separated Participant under this
article shall be paid in the form provided in Section 7.06 hereof as if he were
a Participant who sustained a Disability. If benefits have commenced hereunder,
then in the event of the Disability of a Separated Participant benefits shall
continue in the form in which such benefits were being paid on the date of such
Disability.
8-3
<PAGE>
ARTICLE 9
PLAN ADMINISTRATION
Section 9.01 Appointment of the Plan Administrator. The Plan
--------------------------------------------------
Administrator shall be the Employer or other entity or entities set forth in
Item 3 of the Adoption Agreement. The Plan Administrator may at any time be
removed, with or without cause, and a successor appointed by the Employer.
The Plan Administrator shall serve without compensation, but the reasonable
expenses of the Plan Administrator in discharging its responsibilities shall be
borne by the Employer.
The Plan Administrator may appoint a Committee of not less than three (3)
persons to carry out the day to day administrative functions of the Plan in its
stead, but such Committee shall not be Plan Administrator unless so designated
in Item 3 of the Adoption Agreement.
Section 9.02 Powers and Duties of the Plan Administrator. The Plan
--------------------------------------------------------
Administrator shall administer and supervise the operation of the Plan in
accordance with the terms and provisions of the Plan.
The Plan Administrator shall have all power and authority (including
discretion with respect to the exercise of that power and authority) necessary,
properly advisable, desirable or convenient for the performance of its duties,
which duties shall include, but not be limited to, the following:
(a) to construe the Plan in good faith;
(b) to determine eligibility of Employees for participation in the Plan
and to notify Employees of their eligibility and of any requirements
for such participation;
(c) to determine and certify eligibility for benefits under the Plan, to
maintain one or more separate bookkeeping accounts for each
Participant or Beneficiary to which shall be credited the various
types of contributions, if any, made under this Plan, and Income
thereon, and to direct the Trustee concerning the amount, manner and
time of the payment of such benefits and any insurance and annuity
contracts to be purchased on behalf of Participants, Retired or
Separated Participants and Beneficiaries;
(d) to prepare and distribute, in such manner as the Plan Administrator
determines to be appropriate, information explaining the Plan;
(e) to require a Participant to complete and file with the Plan
Administrator an application for a benefit and all other forms
approved by the Plan Administrator, and to furnish
9-1
<PAGE>
all pertinent information requested by the Plan Administrator, which
information may be relied upon by the Plan Administrator;
(f) to adopt such rules as it deems necessary, desirable or appropriate
for the administration of the Plan, provided such rules are consistent
with the terms and provisions of the Plan; all rules and decisions of
the Plan Administrator shall be uniformly and consistently applied to
all Participants in similar circumstances;
(g) to appoint and compensate such agents as it may need in the
performance of its duties, with the consent of the Employer; and
(h) to receive and review the reports from the Trustee.
Section 9.03 Plan Administrator Procedures. The Plan Administrator may
------------------------------------------
adopt such procedures and regulations as it deems desirable for the
administration of the Plan. Such procedures and regulations shall be non-
discriminatory and shall to the extent feasible be maintained in writing.
Section 9.04 Claims and Review Procedures. The Plan Administrator shall
-----------------------------------------
establish reasonable procedures concerning the filing of claims for benefits
hereunder, and shall administer such procedures uniformly. If a claim is wholly
or partially denied, the Plan Administrator shall furnish the claimant, within
ninety (90) days after receipt of the claim by the Plan Administrator, a notice
of such denial, setting forth at least the following information in language
calculated to be understood by the claimant:
(a) the specific reason or reasons for the denial;
(b) specific reference to pertinent Plan provisions on which the denial is
based;
(c) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(d) an explanation of the claims review procedure in the Plan.
Upon receipt of such notice of denial, or if such a notice is not furnished
but the claim has not been granted within ninety (90) days of its filing, the
claimant or his duly authorized representative may appeal to an "Appeals
Committee" or "Appeals Officer" from time to time appointed by the Employer to
hear such appeals, for a full and fair review.
In submitting a request for review, the claimant or his duly authorized
representative may request a review upon written application to the Appeals
Committee or Officer, may review pertinent documents, and may
9-2
<PAGE>
submit comments in writing. Such request for review must be made within sixty
(60) days of the receipt by the claimant of the notice of denial (or within
sixty (60) days of the expiration of the ninety (90) day period beginning with
the date of the filing of the claim, if no such notice is received during such
period).
The Appeals Committee or Officer shall respond promptly to a request for
review and shall deliver a written decision which shall include, in a manner
calculated to be understood by the claimant, the decision itself, specific
reasons therefor and specific references to the pertinent Plan provisions on
which the decision is based. The decision shall be made not later than sixty
(60) days after the Appeals Committee's or Officer's receipt of the request for
review, unless special circumstances (such as, for example, the need to hold a
hearing) require an extension of this time; however, in no case shall a decision
be rendered more than one hundred and twenty (120) days after receipt of a
request for a review. The Plan Administrator and the claimant shall be bound by
the decision of the Appeals Committee or Officer.
Section 9.05 Purchase of Annuities and Incidental Death Insurance. The
-----------------------------------------------------------------
Plan Administrator shall, if so directed in Item 15 of the Adoption Agreement,
or may, if so authorized therein, direct the Trustee ratably to purchase, and
pay premiums from the accounts attributable to Employer contributions of a
Participant for, one (1) or more ordinary or term insurance policies and/or
annuity contracts (hereinafter referred to as Policies) from a Life Insurance
Company, including, but not limited to variable annuities, flexible funds or
contracts involving mortality assumptions, on the life of a Participant, but
such investment shall be subject to the following restrictions:
(a) In any year in which the total of all amounts allocated to the accounts
attributable to Employer contributions of a Participant is insufficient
to meet his premium payments, the Trustee shall apply other amounts in
his accounts attributable to Employer contributions, to the extent
permitted in this article, to the payment of said premiums; provided
that, in no event, shall the aggregate of premiums paid under all
Policies on the Participant's life ever exceed forty-nine percent (49%)
if of the ordinary type, or twenty-four percent (24%) if of the term or
universal type, of the total amount of all Employer's contributions on
behalf of said Participant. If premiums are paid on both ordinary type
Policies and term or universal life type Policies on the life of a
Participant, then the sum of one-half (1/2) of the ordinary life
premiums and all other life insurance premiums shall not exceed one-
fourth (1/4) of the total amount of all Employer contributions on
behalf of said Participant. For purposes of these incidental insurance
provisions, ordinary life insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing premiums.
(b) The Trustee shall pay all proceeds of any Policy it owns in accordance
with the provisions of this Plan, including the
9-3
<PAGE>
qualified election provisions of Sections 6.03(c)(3) and 7.02(c)(4)
hereof where applicable. In conformity with such provisions, however,
the Plan Administrator may direct the Trustee to distribute the Policy
itself instead of the proceeds of any such Policy to the Participant
as a portion (equal in value to the cash surrender value of the
Policy) of the benefit otherwise due said Participant. In the event
that a distribution described in the immediately preceding sentence is
made at a time when the cash surrender value of the Policy exceeds the
value of the Participant's vested benefit, the Participant may
nonetheless receive such a distribution upon paying to the Trustee an
amount equal to the difference between said cash surrender value and
the value of his vested benefit.
(c) Any annuity contract which is purchased hereunder to provide benefits
otherwise payable under the Plan, and which is distributed to a
Retired Participant or Beneficiary, shall be endorsed as
"nontransferable."
The Trustee shall be the owner of all Policies obtained hereunder, and the
application for such Policy or Policies shall be in such manner as may be
necessary for the Trustee to vest in itself all incidents of ownership. Any such
Policy or Policies shall be in such form and substance as the Plan Administrator
shall determine, except as herein expressly provided. The premium payments made
on account of any such Policy shall be considered as an investment of the
accounts attributable to Employer contributions of the Participant on whose life
such Policy is issued, and such premium payments shall be charged to such
accounts.
Any dividends or credits earned on Policies shall be allocated to the
accounts attributable to Employer contributions of the Participant for whose
benefit the Policies are held. In the event of the death of such Participant
prior to retirement, the proceeds of such Policy shall be paid to the Trustee
and the proceeds shall be credited to the accounts attributable to Employer
contributions of such Participant. To the extent the Plan Administrator
establishes the amount to be invested in said Policies, as provided in
subsection (a) hereof, all Policies shall bear a common premium date and
dividends, if any, on said Policies shall be paid in cash to the Trust or shall
be used to reduce premiums and shall not reduce the amount otherwise allocable
to the Participant's Accounts. The Plan Administrator shall specify whether all
Participants shall participate uniformly in the purchase of Policies, or whether
each Participant may specify (within the limits established in (a) hereof) the
amount of Employer contributions on his behalf which shall be used to purchase
such Policies.
If the Plan is a target benefit pension plan, the Plan Administrator may
direct that the amount of the retirement benefit provided to each Participant by
Policies shall not be increased until such Participant's Compensation is large
enough to increase the retirement benefit through such Policies by a specified
minimum amount. This minimum amount may be no greater than one hundred and
twenty dollars ($120) each year or ten dollars ($10) per month, or
alternatively, expressed as an
9-4
<PAGE>
increase in the face amount of the Policy, a minimum increase in the face
amount of the Policy which does not exceed one thousand dollars ($1,000).
In the event of any conflict between the provisions of this Plan and the
terms of any Policy issued hereunder, the provisions of the Plan shall control.
Once instructed by the Plan Administrator to purchase certain Policies, the
Trustee shall continue to pay premiums on such Policies as they fall due,
subject to the limitations of this subsection, during the continued
Participation of the insured and in the absence of direction to the contrary
from the Plan Administrator. In the absence of specific instruction from the
Plan Administrator, if a Participant's Service terminates, the Trustee shall (i)
if the Participant is not entitled to a vested benefit from his
Employer Account, cease to pay premiums, or (ii) if the Participant is entitled
to a vested benefit from his Employer Account, continue to pay premiums until-
the former Participant incurs a Break in Service and shall then cease to pay
premiums. When premiums have ceased, the provisions of subsection (b) hereof
shall apply.
Section 9.06 Correction of Errors. If any error or change in records,
---------------------------------
including an error resulting from an incorrect or incomplete allocation, results
in any Participant, Retired or Separated Participant, or Beneficiary receiving
from the Plan more or less than he would have been entitled to receive had the
records been correct or had the error not been made, the Plan Administrator,
upon discovery of such error, shall correct the error by adjusting, as far as
practicable, the accounts in such a manner that the benefits to which such
person was correctly entitled shall be paid.
9-5
<PAGE>
ARTICLE 10
THE TRUSTEE
Section 10.01 General Duties. The Trustee shall hold all property
----------------------------
received by it hereunder, which, together with the income and gains therefrom
and additions thereto, shall constitute the Trust Fund. The Trustee shall
manage, invest and reinvest the Trust Fund, collect the income thereof, and make
payments therefrom, all as provided in the Plan.
The Trustee shall be responsible only for the property actually received by
it hereunder. It shall have no duty or authority to compute any amount to be
paid to it by the Employer or to bring any action or proceeding to enforce the
collection from the Employer of any contribution to the Trust Fund.
Title to the Trust Fund, including all funds and investments held hereunder
by the Trustee, shall be and remain in the Trustee, and no Participant, Retired
or Separated Participant or Beneficiary shall have any legal or equitable right
or interest in the Trust Fund except to the extent that such rights or interests
are expressly granted under the provisions of the Plan.
Section 10.02 General Powers. The Trustee shall have all the powers
----------------------------
necessary for the performance of its duties as Trustee. The Trustee shall have
the following powers and immunities and be subject to the following duties:
(a) The Trustee shall receive all contributions hereunder and apply such
contributions as hereinafter set forth. The Trustee shall have the
custody of and safely keep all cash, securities, property and
investments, including any Policies, received or purchased in
accordance with the terms hereof.
(b) Subject to any limitations that may be contained elsewhere in the
Plan, the Trustee shall take control and management of the Trust Fund
and shall hold, sell, buy, exchange, invest and reinvest the corpus
and income of the Trust Fund. All contributions paid to the Trustee
under the Plan shall be held and administered by the Trustee as a
single Trust Fund, and the Trustee shall not be required to segregate
and invest separately any part of the Trust Fund representing accruals
or interests of individual Participants in the Plan, except as
provided in Sections 4.11, 6.03, 10.09, 10.10 and 10.11 hereof.
(c) The Trustee may invest and reinvest the funds of the Trust Fund in any
property, real, personal or mixed, wherever situate, or whether or not
productive of income or consisting of wasting assets, including,
without limitation, any and all common and preferred stocks, bonds,
notes,
10-1
<PAGE>
puts, debentures, leaseholds, equipment trust certificates, financial
futures contracts, mortgages (including without limitation, any
collective or part interest in any bond and mortgage or note and
mortgage), certificates of deposit, and oil, mineral or gas
properties, royalties, interests or rights (including equipment
pertaining thereto), without being limited to the classes of property
in which trustees are authorized by law or any rule of court to invest
trust funds and without regard to the proportion any such property may
bear to the entire amount of the Trust Fund.
Nothing to the contrary withstanding, in performing its duties, the
Trustee shall have the power (subject to the provisions of the Plan as
amended from time to time relating to investment discretion and
investment directions) specifically to invest in units of any
collective investment trust or pooled fund sponsored by, or invested
in by, the Trustee or an affiliate of the Trustee, including, without
limiting the foregoing, all existing or future common, collective or
mutual trust funds created, administered and maintained pursuant
thereto for which this Trust may be eligible to be a participating
Trust (including, but not limited to, any temporary investment or
"sweep program" funds or common trust funds designed for investment in
real estate established by, or invested in by, the Trustee or an
affiliate of the Trustee), as presently constituted or hereafter
amended from time to time (the instrument creating each such group
trust or common trust fund, together with any amendments,
modifications or supplements thereof, heretofore or hereafter made
being hereby incorporated herein and made a part hereof as fully, and
for all intents and purposes, as if set forth herein in their
entirety).
The Trustee is expressly authorized to invest all or part of the Trust
Fund in savings accounts, time deposits, certificates of deposit,
money market accounts, repurchase agreements or any other interest-
bearing accounts (regardless of the term of such deposits or
investments) issued by the Trustee or any of its affiliates, which
bear a reasonable interest rate.
The Trustee is further expressedly authorized to utilize the discount
brokerage operation, if any, offered by the Trustee.
(d) The Trustee may sell or exchange any property or asset of the Trust
Fund at public or private sale, with or without advertisement, upon
terms acceptable to the Trustee and in such manner as the Trustee may
deem wise and proper. The proceeds of any such sale or exchange may be
reinvested as is provided hereunder. The purchaser of any such
property from the Trustee shall not be required to look to the
10-2
<PAGE>
application of the proceeds of any such sale or exchange by the
Trustee.
(e) The Trustee shall have full power to mortgage, pledge, lease or
otherwise dispose of the property of the Trust Fund without securing
any order of court therefor, without advertisement, and to execute any
instrument containing any provisions which the Trustee may deem proper
in order to carry out such actions. Any such lease so made by the
Trustee shall be binding, notwithstanding the fact that the term of
the lease may extend beyond the termination of the Plan.
(f) The Trustee shall have the power to borrow money upon terms agreeable
to the Trustee and pay interest thereon at rates agreeable to the
Trustee, and to repay any debts so created.
(g) The Trustee shall have the power to exercise any conversion privilege
or subscription right available in connection with any securities or
other property which it may hold at any time; to oppose, or to consent
to, the organization, consolidation, merger or readjustment of the
finances of any corporation, company or association, or to the sale,
mortgage, pledge or lease of the property of any corporation, company
or association, whose securities it may hold at any time; and to do
any act with reference thereto, including the exercise of options, the
making of agreements or subscriptions and the payment of expenses,
assessments or subscriptions which it may deem necessary or advisable
in connection therewith; to hold and retain any securities or other
property which it may acquire; to write covered listed call options
against existing positions or to close such option contracts; and
generally to exercise any of the powers of any owner with respect to
any stock or other securities or property comprising the Trust Fund.
(h) The Trustee may, through any duly authorized officer or proxy, vote
any share of stock which the Trustee may own from time to time, except
as provided in Section 10.09 if an Investment Manager is appointed.
(i) The Trustee shall retain in cash and keep unproductive of income such
funds as from time to time it may deem advisable. The Trustee shall
not be required to pay interest on any such cash in its hands pending
investment, nor shall the Trustee be responsible for the adequacy of
the Trust Fund to discharge any and all payments under the Plan. All
persons dealing with the Trustee are released from inquiry into the
decision or authority of the Trustee to act.
(j) The Trustee may hold stocks, bonds, or other securities in its own
name as Trustee, with or without the designation of
10-3
<PAGE>
said trust estate, or the name of a nominee selected by it for the
purpose, but said Trustee shall nevertheless be obligated to account
for all securities received by it as part of the corpus of the trust
estate herein created, notwithstanding the name in which the same may
be held.
(k) The Trustee may or may not consult with legal counsel (who may or may
not be of counsel to the Employer or the Plan Administrator)
concerning any questions which may arise with reference to the
construction of this Plan, its duties hereunder, or any action which
it proposes to take or omit, and the Trustee shall not be deemed
imprudent merely by reason of taking, or refraining to take, any
action in accordance with the opinion of such counsel.
(l) The Trustee may employ such counsel, accountants and other agents as
it shall deem advisable. The Trustee may charge the compensation of
such counsel, accountants and other agents, the Trustee's compensation
for its services in such amounts as may be agreed upon from time to
time by the Employer and the Trustee, and any other expenses necessary
in the administration of this Plan against the Trust Fund to the
extent they are not paid by the Employer.
(m) If the Plan Administrator so desires, the Trustee may use the Trust
Fund to purchase insurance policies or annuity contracts issued by a
Life Insurance Company as provided in the Plan.
(n) The Trustee shall have the power to sell for cash or on credit, to
grant options, convert, redeem, exchange for other securities or other
property or otherwise to dispose of the securities or other property
which it holds at any time; and to engage in writing covered options.
(o) The Trustee may settle, compromise or submit to arbitration, any
claims, debts, or damages, alleged or determined due or owing to or
from the Trust; and may commence or defend suits or legal proceedings
on the Trust's behalf.
(p) The Trustee may manage, administer, operate, lease for any number of
years (regardless of any restrictions on leases made by fiduciaries),
develop, improve, repair, alter, demolish, mortgage, pledge, grant
options with respect to, or otherwise deal with any real property or
interest therein which it may hold at any time; and may hold any such
real property in its own name or in the name of a nominee, with or
without the addition of words indicating that such property is held in
a fiduciary capacity; and may cause to be formed a corporation or
trust, with the aforesaid powers, to hold title to any such real
property, all upon the terms and conditions which it may deem
advisable.
10-4
<PAGE>
(q) The Trustee may renew or extend, or participate in the renewal or
extension of, any mortgage upon such terms as it may deem advisable,
and may agree to a reduction in the rate of interest or to any other
modification or change in the terms of any mortgage or guarantee
pertaining thereto, in-any manner and to any extent that it may deem
advisable for the protection of the Trust Fund or the preservation of
the value of the investment; may waive any default, whether in the
performance of any covenant or condition of any mortgage or in the
performance of any guarantee, or may enforce any such default in such
manner and to such extent as it may deem advisable; may exercise and
enforce any and all rights of foreclosure, may bid in property for
foreclosure, may take a deed in lieu of foreclosure, with or without
paying a consideration therefor and in connection therewith, may
release the obligation on the bond secured by such mortgage, and may
exercise and endorse, in any action, suit or proceedings at law or in
equity, any rights or remedies in respect to any such mortgage or
guarantee.
(r) The Trustee may form corporations and create trusts to hold title to
any securities or other property, all upon such terms and conditions
as it may deem advisable.
(s) The Trustee may make, execute and deliver as Trustee, any and all
deeds, leases, mortgages, conveyances, contracts, waivers, releases or
other instruments in writing which are necessary or proper for the
accomplishment of any of its powers.
(t) The Trustee may, if the Plan is a profit sharing plan and if the
Employer consents, invest up to the amount specified in Item 10 of the
Adoption Agreement of the Trust Fund in Qualifying Employer
Securities, subject to its fiduciary duties under this article.
(u) The Trustee may designate a bank or trust company as depositary of the
funds or property of the Trust and may retain investment counsel, and
the Trustee named herein may deposit funds in its name as Trustee
without making bond.
(v) Without diminution or restriction of the powers vested by law or
elsewhere in this Plan, and subject to all the provisions of the Plan,
the Trustee, without the necessity of procuring any judicial
authorization therefor or approval thereof, shall be vested with, and
in the application of its best judgment and discretion on behalf of
the beneficiaries of this Plan, shall be authorized to exercise all or
any of the powers specifically permitted by statute or judicial
decision in, or with respect to, a state in which it does business.
10-5
<PAGE>
(w) The Trustee may do all acts which it may deem necessary to carry out
any of the powers either set forth herein or which it otherwise deems
to be in the best interest of the Trust Fund.
Section 10.03 Reliance on Plan Administrator and Employer. Until notified
---------------------------------------------------------
pursuant to Section 12.03 hereof that the Plan Administrator or other person
authorized to act for the Employer has ceased to act or is no longer authorized
to act for the Employer, the Trustee may continue to rely on the authority of
such Plan Administrator or other person: The Trustee may rely upon any
certificate, notice or direction purporting to have been signed on behalf of the
Employer which the Trustee believes to have been signed by the Plan
Administrator or other person or persons authorized to act for the Employer. The
Trustee may request instructions in writing from the Plan Administrator on other
matters and may rely and act thereon.
Section 10.04 Accounts and Reports. The Trustee shall keep an accurate
----------------------------------
record of its administration of the Trust Fund, including a detailed account of
all investments, receipts and disbursements, and other transactions hereunder.
All accounts, books and records relating hereto shall be open for inspection to
any person designated by the Plan Administrator or the Employer at all
reasonable times. Within sixty (60) days following the close of each Plan Year,
the Trustee shall file with the Plan Administrator a written report setting
forth all investments, receipts and disbursements and other transactions during
the Plan Year, and such report shall contain an exact description of all
securities purchased, exchanged or sold, and the cost or net proceeds of each
transaction, and shall show the securities and investments held at the end of
such Plan Year, and the market value and cost, as carried on the books of the
Trustee, of each item thereof.
The Trustee shall also provide the Employer and the Plan Administrator with
such other information in its possession as may be necessary for the Plan
Administrator to comply with the reporting and disclosure requirements of ERISA.
Upon the expiration of ninety (90) days from the date of filing such report
and information, the Trustee shall be forever released and discharged from all
liability and accountability to anyone with respect to the recording of its acts
or transactions shown in such statement, except with respect to any such acts or
transactions as to which the Employer shall file with the Trustee written
objections within such ninety (90) day period.
Section 10.05 Insurance. It shall be the duty of the Plan Administrator
-----------------------
to direct the Trustee in writing as to the amount and nature of any Policies to
be purchased on the life of any Participant or Separated or Retired Participant
and the name of the Life Insurance Company from which such purchase shall be
made. The Plan Administrator shall also direct the Trustee as to the time that
such Policies may be discontinued or transferred to a Participant or Separated
or Retired Participant and the conditions under which the transfer shall be
made.
10-6
<PAGE>
Section 10.06 Disbursements. The Trustee, upon written instructions from
---------------------------
the Plan Administrator, shall make distributions or payments, including monthly
payments, to the Participants, Retired or Separated Participants, and
Beneficiaries who qualify for such benefits and shall purchase,
transfer, discontinue or surrender any Policies. The Trustee shall have no
liability to the Employer, the Plan Administrator or any other person in making
such distributions or payments. The Trustee shall not be required to determine
or make any investigation to determine the identity or mailing address of any
person entitled to benefits under the Plan and shall have discharged its
obligation in that respect when it shall have sent checks and other papers by
ordinary mail to such person or persons at such addresses as may be certified to
it in writing by the Plan Administrator, except in the case of malfeasance,
gross negligence or willful misconduct in such matters by the Trustee.
Section 10.07 Payment in Kind. Whenever the Trustee is empowered
-----------------------------
hereunder to make any payment or distribution, the Trustee shall have the power,
in its sole discretion, to make such payment in cash or in kind, or partly in
cash and partly in kind. The assets of the Trust Fund shall be valued, for the
purposes of making, or of computing the amount of, such payment or distribution,
at their fair market value at the dates of such payments or distributions or at
any other date, as the Trustee shall, in its absolute discretion, determine.
Section 10.08 Authority of Trustee. At no time during the administration
----------------------------------
of the Trust Fund shall the Trustee be required to obtain any court approval of
any act required of it in connection with the performance of its duties or in
the performance of any act required of it in the administration of its duties as
Trustee. The Trustee shall have full authority to exercise its judgement in all
matters and at all times without court approval of such decisions; provided,
however, that if any application to, or proceeding or action in, the courts is
made, only the Employer and the Trustee shall be necessary parties, and no
Participant in the Plan or other person having an interest in the Trust Fund
shall be entitled to any notice or service of process. Any judgment entered in
such proceeding or action shall be conclusive upon all persons claiming an
interest under the Trust Fund.
Section 10.09 Appointment of Investment Manager. The Employer, if it has
-----------------------------------------------
so elected in Item 10 of the Adoption Agreement, may at any time and from time
to time appoint in writing an Investment Manager or Managers to manage all or
any portion of the assets of the Plan, and may revoke any such appointment
previously made. For purposes hereof, the Employer shall mean only the entity
executing the Adoption Agreement as "Employer", but shall not mean any
organization executing the Plan as an "Adopting Employer." While such an
appointment is in effect, the relations among the Plan Administrator, Employer,
Investment Manager and Trustee shall be governed by the following provisions:
(a) The Employer shall certify to the Trustee the name or names of any
Investment Manager appointed by it to manage the investment or
reinvestment of all or any portion of the Trust Fund. Such certificate
shall also state that the
10-7
<PAGE>
Investment Manager has acknowledged his Fiduciary status with respect
to the Plan in writing.
(b) The Trustee shall segregate any portion of the Trust Fund held by it
which will be subject to the management of an Investment Manager into
one or more separate accounts to be known as investment manager
accounts and shall charge any expenses related to investments directed
by an Investment Manager against such accounts. Each Investment
Manager shall have the right and power to manage the investment and
reinvestment of his investment manager account. The Trustee shall
follow the directions of the Investment Manager with respect to the
account of such Investment Manager and shall not be obligated to
invest or otherwise manage any such investment manager account. All
directions given by an Investment Manager to the Trustee shall be in
writing, signed by an officer or a partner of the Investment Manager
or by such other person or persons as may be designated by such
officer or partner. Subject to such conditions as may be approved by
the Employer and Trustee, the Investment Manager may place direct
orders for the purchase or sale of securities or other property for
its investment manager account, provided, that the Trustee shall
nevertheless retain custody of the assets comprising said account.
(c) If the Employer, by written notice to the Trustee, terminates the
authority of an Investment Manager but does not appoint a successor to
manage the investment and reinvestment of the account of such
Investment Manager, the portion of the Fund then held in such
investment manager account shall return to the unsegregated portion of
the Fund and the Trustee shall have authority to manage the investment
and reinvestment of such account. Until receipt of a written notice
terminating the authority of an Investment Manager, the Trustee shall
be fully protected in relying upon the latest prior written notice of
appointment of an Investment Manager.
(d) Any Investment Manager may, in writing, authorize the Trustee to
invest any portion of his investment manager account in short-term
investments. The Trustee, in its sole discretion, may make such
investments either directly or by investment collectively with other
assets, including but not limited to investment in any common,
commingled, collective, mutual or pooled trust fund established and
maintained by the Trustee, or an affiliate of the Trustee, for the
investment of funds administered in a fiduciary capacity.
(e) The Trustee shall not be responsible for any loss caused by its
acting upon any notice, direction or certification of any Investment
Manager appointed by the Employer which the Trustee reasonably
believes to be genuine. The Trustee
10-8
<PAGE>
shall have no duty to question any direction, action or inaction of
any Investment Manager taken as provided in this section. The Trustee
shall have no duty to review the securities or other property held in
any investment manager account or to make any suggestions to any
Investment Manager or to the Employer with respect to the investment,
reinvestment, or disposition of investments in any investment manager
account. The Trustee shall not be responsible for the results arising
from the Trustee's compliance with the instructions of any Investment
Manager.
(f) The Trustee shall not be responsible for determining the
reasonableness of any compensation paid to or agreed to be paid to an
Investment Manager. Any such compensation to an Investment Manager
shall be paid from the Trust Fund, if the Plan Administrator so
directs.
(g) With respect to any share of stock in the investment manager account,
the Investment Manager may, through any duly authorized officer or
proxy, vote any such stock.
Section 10.10 Direction by the Employer. If so elected by the Employer in
---------------------------------------
Item 10 of the Adoption Agreement, the Employer shall have the right to manage
the investment and reinvestment of all or any portion of the Trust Fund. For
purposes hereof, the Employer shall mean only the entity executing the Adoption
Agreement as "Employer", but shall not mean any organization executing the Plan
as an "Adopting Employer." The Employer shall furnish the Trustee with written
instructions with respect to such investments. The Trustee shall segregate any
portion of the Trust Fund held by it which is subject to the management of the
Employer into one (1) or more separate accounts and shall charge any expenses
related to investments directed by the Employer against such accounts.
Section 10.11 Direction by Participants. If so elected by the Employer in
---------------------------------------
Item 10(a) of the Adoption Agreement, then each Participant shall manage the
investment and reinvestment of all or a portion (as indicated in Item 10(a)) of
his Accounts.
If so elected by the Employer in Item 10(b) of the Adoption Agreement, then
the Plan Administrator may elect, by providing written notice to the Trustee on
a form and in a manner designated by the Trustee, to permit Participants to
direct the investment of their Accounts. The Plan Administrator may limit such
investments to investment options which the Plan Administrator and the Trustee
have jointly approved. The Plan Administrator shall establish uniform and
nondiscriminatory rules and restrictions with respect to such directed
investments.
The Trustee shall carry out the investment directions of a Participant
hereunder as soon as practicable after receipt of each such direction, but
nothing herein shall be construed to compel the Trustee to accept as a directed
investment hereunder an investment which the Trustee, in its sole discretion,
determines inadvisable to make, or to continue to make. Any election hereunder
shall be in writing in a form acceptable to
10-9
<PAGE>
the Trustee and shall remain in effect until a contrary election is properly
submitted by the Participant to the Trustee (including an election to reinvest
the previously Participant directed amount in the general assets of the Trust
Fund), or the Trustee deems it advisable to invoke the preceding sentence and
gives written notice of its intent to the Participant.
For purposes hereof, the Employer shall mean only the entity executing the
Adoption Agreement as the "Employer", but shall not mean any organization
executing the Plan as an "Adopting Employer." The Plan Administrator shall
notify the Trustee in writing of any rules which it has established with respect
to Participant directed investments. The Trustee shall segregate any portion of
the Fund held by it which is subject to the management of a Participant into one
(1) or more separate accounts to be known as "participant directed investment
accounts" and shall charge any expenses related to investments directed by a
Participant against his accounts. All investment income or losses on investments
in such separate accounts shall be credited only to such separate accounts. Such
separate accounts shall not share in any Income of the remaining general assets
of the Trust Fund. If permitted by the Trustee, the Plan Administrator may
direct the Trustee that loans to Participants made pursuant to Section 5.02, to
the extent permissible under the limitations of both Section 5.02 and this
section, shall be deemed to be directed investments hereunder.
However, any investment of assets of a participant directed investment
account in collectibles (within the meaning of Section 408(m)(2) of the Code)
occurring after December 31, 1981, is prohibited, or, if inadvertently made,
shall be considered to be a distribution from the Plan.
Section 10.12 Protection of Trustee and Investment Manager When
---------------------------------------------------------------
Participant or Employer Directs Investments. Neither the Trustee nor any
- -------------------------------------------
Investment Manager shall be responsible for any loss caused by its acting upon
any notice, direction or certification furnished by any Participant or the
Employer pursuant to Section 10.10 or Section 10.11 which the Trustee or
Investment Manager reasonably believes to be genuine. Neither the Trustee nor
any Investment Manager shall have the duty to question any direction, action or
inaction of any Participant or the Employer acting pursuant to Section 10.10 or
Section 10.11. Neither the Trustee nor any Investment Manager shall have the
duty to review the securities or other property held in the account of any such
Participant or to make any suggestions to such Participant or to the Employer
with respect to the investment, reinvestment or disposition of investments made
by any such Participant or by the Employer. Neither the Trustee nor any
Investment Manager shall be responsible for the results arising from their
compliance with the instructions of any such Participant or the Employer.
Section 10.13 Indemnification of Trustee When Acting Pursuant to
----------------------------------------------------------------
Investment Directions. The Employer agrees to hold the Trustee harmless and
- ---------------------
defend the Trustee against any claims alleged to have been caused by its action
pursuant to investment instructions from or by its failure to act in the absence
of investment instructions from any Investment Manager,
10-10
<PAGE>
Participant or the Employer except in the case of malfeasance, gross negligence
or willful misconduct in such matters by the Trustee.
Section 10.14 Right of Trustee to Direct Investments. If no Investment
----------------------------------------------------
Manager has been appointed, if the Employer does not have or has not exercised
the right to manage the investment and reinvestment of all or any portion of the
Fund, and if Participants do not have or have not exercised the right to direct
the investment and reinvestment of all or any portion of their accounts, the
Trustee shall be free to manage the investment and reinvestment of all or any
portion of the Fund under the powers granted by this Trust as if Sections 10.09
through 10.13 were not a part of this Trust.
Section 10.15 Trustee to Trustee Transfers. A direct transfer of plan
------------------------------------------
assets attributable to a Participant's participation in other pension, profit
sharing or stock bonus plans qualified under Section 401(a) of the Code
(including notes evidencing the Participant's debt to the Plan on plan loans) to
this Plan from such other plan by that plan's trustee may be allowed in cash or
other property acceptable to the Trustee pursuant to this Section 10.15. For
Plan Years commencing before January 1, 1989, a direct transfer of assets to
this Plan pursuant to this Section 10.15 may be allowed, subject to the
discretion of the Employer. For Plan Years commencing after December 31, 1988, a
direct transfer of assets to this Plan shall be allowed, if so elected by the
Employer in Item 9 of the Adoption Agreement. However, any restrictions on
distributions of such transferred assets under such other plan which are also
required under current law shall be maintained under this Plan with respect to
such assets. In no event shall transfers be allowed from plans which would
require the Plan to offer forms of benefit payment which are not indicated in
Item 19 of the Adoption Agreement. Likewise, the Trustee may make such a direct
transfer of assets attributable to a Participant's participation in this Plan to
another pension, profit sharing or stock bonus plan qualified under Section
401(a) of the Code from this Plan.
A separate bookkeeping account shall be established on behalf of each
Participant on whose behalf assets have been transferred, and the balance of
each such account shall be fully vested at all times. Such direct trustee to
trustee transfers shall not be considered in determining the maximum benefits
permissible under the Plan pursuant to Section 4.07 hereof or as contributions
by the Employer under Sections 3.01 or 13.03 of this Plan.
A Participant may direct the Trustee to invest the entire amount credited
to such Participant's separate account in a particular manner or in a diversity
of manners, subject to prior written approval by the Trustee and the Plan
Administrator. Such individual election shall be made to the Trustee in writing
on a form, and at such time, as prescribed by the Trustee. The Trustee shall
carry out any such direction of such Participant as soon as practicable after
receipt of the individual election, shall segregate such Participant's account
from the general assets of the Trust Fund, and shall earmark the directed
investment as allocable only to such Participant's account.
10-11
<PAGE>
Any direction by a Participant shall remain in effect until another valid
direction has been made by the Participant or until the Trustee is authorized by
the Participant to permit the amount credited to the Participant's account to be
reinvested as a general asset of the Trust Fund. The Trustee shall be fully
protected in relying upon the latest valid written investment direction of a
Participant, and shall not be responsible for any loss caused by its acting on
any direction which the Trustee reasonably believes to be valid. The Trustee
shall have no duty to question any direction, action or inaction of any
Participant taken pursuant to this section, nor shall the Trustee have a duty
to review any investment or to make any suggestions with respect to the
investment, reinvestment or disposition of investments under an individually
directed account. Notwithstanding the foregoing, however, the Trustee shall be
responsible in such matters in the case of its malfeasance, gross negligence or
willful misconduct.
Unless, upon prior approval by the Trustee, a Participant directs his
separate account be invested apart from the general assets of the Trust Fund,
each such separate account shall be credited each Plan Year with the net rate of
investment return earned by the Trust Fund, as calculated annually by the Plan
Administrator.
Section 10.16 Custodial Duties. The Trustee may delegate any of its
------------------------------
ministerial powers or duties hereunder, including the signing of any checks
drawn on its account, to any one of its agents or employees. In addition, the
Trustee may delegate its responsibility to physically hold and safeguard the
assets of the Plan to a custodian which is a duly licensed bank or such other
person who demonstrates to the satisfaction of the Commissioner of Internal
Revenue that the manner in which that other person shall discharge its custodial
duties shall be consistent with the requirements of the Code.
Section 10.17 Action by Trustee. If there is more than one Trustee, then
-------------------------------
they shall act by a majority of their number, but may authorize one or more of
them to sign documents or papers on their behalf.
10-12
<PAGE>
ARTICLE 11
AMENDMENT AND TERMINATION OF THE PLAN
Section 11.01 Amendment of Regional Prototype Plan Document. By the
-----------------------------------------------------------
authority delegated by the Employer in Item 28 of the Adoption Agreement, the
Sponsor shall have the power, at any time and from time to time, to modify,
alter or amend the Adoption Agreement and/or this regional prototype plan
document, subject to the provisions of this article. A copy of any such
amendment or amendments shall be delivered within thirty (30) days after the
adoption thereof to each Employer who has adopted the regional prototype plan
document, and no such amendment or amendments shall become effective until at
least thirty (30) days after written notice thereof has been given to each such
Employer.
Section 11.02 Amendment of the Adoption Agreement and Plan. The Employer
----------------------------------------------------------
may (i) change the choice of options in the Adoption Agreement, (ii) add
overriding language in the Adoption Agreement when such language is necessary to
satisfy Section 415 or Section 416 of the Code because of the required
aggregation of multiple plans, and (iii) add certain model amendments published
by the Internal Revenue Service which specifically provide that their adoption
will not cause the Plan to be treated as individually designed. The Employer may
also amend administrative provisions involving the Trust of the Plan (such as
provisions relating to investments and the duties of the Trustee), provided the
amended provisions are not in conflict with any other provision of the Plan and
do not prevent the Plan from qualifying under Code Section 401(a), and, provided
further, that if the Employer has adopted a standardized Adoption Agreement, it
may only amend the provisions involving the Trust with regard to the names of
the Plan, the Employer, the Trustee or custodian, Plan Administrator and other
Fiduciaries, the trust year, or the name of any pooled trust fund in which the
Trust will participate. An Employer (i) that amends the Plan for any other
reason, including a waiver of the minimum funding requirement under Section
412(d) of the Code, or (ii) that chooses to discontinue participation in the
Plan as amended by the Sponsor and does not substitute another approved regional
prototype or an approved master or prototype plan, shall no longer participate
in this regional prototype plan and shall be considered to have an individually
designed plan. A copy of any amendments to the Adoption Agreement shall be filed
with the Trustee and the Sponsor. Only the Employer which is the entity
executing the Adoption Agreement as the "Employer," and not any organization
executing the Plan as an "Adopting Employer," shall have the authority to amend
the Plan under this article.
Section 11.03 Limitations on Amendments. Subject to the provisions of
---------------------------------------
Section 12.05 hereof, neither the Trustee nor the Employer shall have the right
to amend the regional prototype plan document, the Plan or the Adoption
Agreement in the following respects.
(a) No amendment may be made which shall vest in any Employer, directly or
indirectly, any interest in, or ownership or
11-1
<PAGE>
control of, any of the present or subsequent funds set aside for
Participants pursuant to the Plan.
(b) No part of funds of the Trust shall, by reason of any amendment, be
used for or diverted to purposes other than for the exclusive benefit
of Participants, Retired or Separated Participants, or their
Beneficiaries or for administration expenses of the Plan.
(c) No amendment to the Plan shall be effective to the extent that it has
the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's account
balance may be reduced to the extent permitted under Section 412(c)(8)
of the Code. For purposes of this paragraph, a Plan amendment which
has the effect of decreasing a Participant's account balance or
eliminating an optional form of benefit, with respect to benefits
attributable to service before the amendment shall be treated as
reducing an accrued benefit. Furthermore, if the vesting schedule of a
Plan is amended, in the case of an Employee who is a Participant as of
the later of the date such amendment is adopted or the date it becomes
effective, the nonforfeitable percentage (determined as of such date)
of such Employee's Accounts will not be less than the percentage
computed under the Plan without regard to such amendment.
(d) No amendment may be made to Item 16 of the Adoption Agreement under
Section 11.02 hereof by the Employer, or to the Plan by Plan amendment
under Section 11.01 hereof by the Sponsor, that may in any way
directly or indirectly affect the computation of the Participant's
nonforfeitable percentage, unless each Participant who has completed
three (3) or more Years of Service at the date of adoption of such
amendment is given the right to elect irrevocably to have his
nonforfeitable benefits computed without regard to such amendment. For
Participants who do not have at least one (l) Hour of Service in any
Plan Year beginning after December 31, 1988, the preceding sentence
shall be applied by substituting "five (5)" for "three (3)" where such
number appears. Such election must be made within the period beginning
on the date of adoption of the amendment and ending sixty (60) days
after the latest of:
(i) the date the amendment is adopted,
(ii) the date the amendment becomes effective, and
(iii) the date on which the Participant is furnished written notice
of the amendment.
Section 11.04 Removal or Resignation of Trustee. The Trustee may at any
-----------------------------------------------
time be removed as Trustee of the Plan by written action of the governing body
of the Employer with or without cause, upon written notice
11-2
<PAGE>
to that effect sent or delivered to the Trustee, such removal to be effective
sixty (60) days after such notice is given. For purposes hereof, the Employer
shall mean only the entity executing the Adoption Agreement as "Employer", but
shall not mean any organization executing the Plan as an "Adopting Employer".
The Trustee may resign as Trustee of the Plan upon written notice to that
effect sent or delivered to the Employer, such resignation to be effective sixty
(60) days after such notice is given.
Upon mutual, written agreement by the Employer and the Trustee, the sixty
(60) day period in this section may be waived or a shorter period substituted.
For purposes hereof, the term "Trustee" shall include any individual
Trustee if more than one (l) Trustee exists.
Section 11.05 Successor Trustee. In the event of the resignation or
-------------------------------
removal of the Trustee, the Employer shall appoint a successor trustee in place
of the resigned or removed Trustee.
Within one hundred and twenty (120) days after written notice of removal
or resignation, the Trustee shall file with the Employer affected a written
report setting forth all investments, receipts and disbursements and other
transactions effected by it since the end of the preceding Plan Year. Such
report shall be in the same form and be subject to the same requirements as the
annual report.
The Trustee, if not paid by the Employer, is authorized to reserve such
sum of money or to liquidate such property and reserve the proceeds thereof as
it may deem advisable for the payment of its expenses and/or charges in
connection with the settlement of its account or otherwise, and any such balance
of such reserve remaining after the payment of such expenses and charges shall
be paid over to the successor trustee or trustees, or to the Participants in the
event of termination.
Section 11.06 Intent to Continue Plan. The Employer has established the
-------------------------------------
Plan with the bona fide intention and expectation that from year to year it will
be able, and will deem it advisable, to continue the Plan and to make its
contributions as herein provided. However, the Employer realizes that
circumstances not now foreseen or circumstances beyond its control may make it
either impossible or inadvisable to continue the Plan or to make such
contributions. The Employer shall have the right to modify, suspend, or
discontinue contributions to the Plan at any time and from time to time, and
such action shall not be deemed to be a termination of the Plan unless it
constitutes a complete discontinuance of contributions by the Employer to the
Plan.
Section 11.07 Termination or Partial Termination of the Plan by the
-------------------------------------------------------------------
Employer. In the event the Employer concludes that it is impossible or
- --------
inadvisable for the Employer to continue the Plan or to continue to make its
contributions as herein provided, the governing body of the Employer shall have
the right to terminate the Plan by an appropriate resolution or resolutions
which shall specify the date of termination. A
11-3
<PAGE>
certified copy of such resolution or resolutions shall be delivered to the Plan
Administrator, the Sponsor and the Trustee, and as soon as possible thereafter
the Plan Administrator shall send or deliver to each then Participant a notice
of such action.
If a determination is made that the Plan has experienced a complete or
partial termination, the accounts of affected Participants shall become
nonforfeitable without regard to Section 8.02 hereof.
Section 11.08 Termination of the Plan on Happening of Certain Events. The
--------------------------------------------------------------------
Plan shall automatically terminate upon the happening of any of the following
events:
(a) Discontinuance or liquidation of the Employer's business;
(b) The merger or consolidation of the Employer with any other
corporation or business organization, or the sale by the Employer of
substantially all of its assets to any corporation or business
organization which shall fail to adopt and continue the Plan within
ninety (90) days from the effective date of such consolidation,
merger or sale of assets.
(c) Complete discontinuance of contributions by the Employer to the
Plan.
Section 11.09 Distribution of Trust Fund Upon Complete Termination. Upon
------------------------------------------------------------------
complete termination of the Plan, each Participant, Retired or Separated
Participant, or Beneficiary shall be entitled to receive any amounts then
credited to his Accounts in the Trust Fund, after payment of all expenses and
proportional adjustment of Participants' Accounts to reflect such expenses,
investment gains or losses and reallocations to the date of termination. The
Trustee shall make payment of such amounts pursuant to the provisions of Section
8.06 hereof as if the former Participants of the Plan upon termination were
Separated Participants; provided, however, that if the Plan does not offer an
annuity option and the Employer does not maintain any other defined contribution
plan (other than an employee stock ownership plan as defined in Section
4975(e)(7) of the Code), the Participant's account balance may, without the
Participant's consent, be distributed to the Participant. Upon the distribution
of all of the Trust Funds as aforesaid, the Trustee shall be discharged from all
obligations under the Trust and no Participant, Retired or Separated
Participant, or Beneficiary shall have any further rights or claim therein.
Section 11.10 Successor Organization. In the event of a merger or
------------------------------------
consolidation of any Employer or transfer of all or substantially all of its
assets to any corporation, partnership or association, provision may be made by
such successor corporation, partnership or association for its election of the
continuance of this Plan as to such successor entity. Such successor shall, upon
its election to continue this Plan, be substituted in place of the transferor
Employer by an instrument duly authorizing such substitution and duly executed
by such Employer and its successor. Upon notice of such substitution,
accompanied by a certified
11-4
<PAGE>
copy of the resolutions of the governing body of such Employer and the governing
body of its successor authorizing such substitution and delivered to the
Trustee, the Trustee shall be authorized to recognize such successor in the
place of the transferor Employer.
Section 11.11 Minimum Benefit Upon Plan Merger, Consolidation or Transfer
-------------------------------------------------------------------------
of Assets. In the event of any merger or consolidation of the Plan with, or the
- ---------
transfer of assets or liabilities of the Plan to, any other plan or trust, each
Participant, Retired or Separated Participant and Beneficiary shall be entitled
upon any subsequent termination of the successor plan or trust immediately after
the merger, consolidation or transfer to a benefit in an amount not less than he
would have been entitled to receive if the Plan had terminated immediately
before the merger, consolidation or transfer.
Section 11.12 Termination of Plan with Respect to an Adopting Employer.
----------------------------------------------------------------------
In the event that two or more Employers participate in a single Trust Fund
pursuant to the provisions of Section 4.08 hereof, each Adopting Employer
reserves the right to terminate its participation in the Plan in accordance with
Section 11.07 hereof, and the occurrence of either of the events set out in
Section 11.08 hereof with respect to an Adopting Employer shall constitute
termination of such Adopting Employer's Plan. In the event of any such
termination, the Trustee shall segregate the portion of the Trust Fund
attributable to participation in the Plan by the Employees of such Employer, and
the amount so segregated shall be subject to the provisions of Section 11.09
hereof.
Section 11.13 Special Distribution Rules. Elective Deferrals, Qualified
----------------------------------------
Non-elective Contributions, and Qualified Matching Contributions, and Income
allocable to each are not distributable to a Participant or his Beneficiary in
accordance with such Participant's or Beneficiary's election, earlier than upon
separation from Service, death, or Disability. However, such amounts may also be
distributed upon:
(a) termination of the Plan without the establishment of another defined
contribution plan;
(b) the disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of section
409(d)(2) of the Code) used in a trade or business of such
corporation if such corporation continues to maintain this Plan
after the disposition, but only with respect to Employees who
continue employment with the corporation acquiring such assets;
(c) the disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of
section 409(d)(3) of the Code) if such corporation continues to
maintain this Plan, but only with respect to Employees who continue
employment with such subsidiary.
(d) the attainment of age fifty-nine and one-half (59-1/2) in the case
of a profit-sharing plan.
11-5
<PAGE>
(e) the hardship of the Participant as described in Section 5.01.
All distributions that may be made pursuant to one or more of the
foregoing distributable events are subject to the spousal and Participant
consent requirements (if applicable) contained in Sections 401(a)(11) and 417 of
the Code.
11-6
<PAGE>
ARTICLE 12
CERTAIN PROVISIONS AFFECTING THE EMPLOYER
Section 12.01 Duties of the Employer. The Employer shall furnish the
------------------------------------
Trustee and the Plan Administrator with the information required herein. The
Employer shall make its contributions as the same may be appropriated by due
action, which contributions may be in cash or in other property acceptable to
the Trustee. The Employer shall keep accurate books and records with respect to
its Employees and their compensation.
Section 12.02 Right of Employer to Discharge Employees. The adoption and
------------------------------------------------------
maintenance of the Plan shall not be deemed to constitute a contract between the
Employer and any Employee, or to be a consideration for, or an inducement or
condition of, the employment of any person. Nothing herein contained, nor any
action taken hereunder, shall be deemed to give to any Employee the right to be
retained in the Service of the Employer or to interfere with the right of the
Employer to discharge any Employee at any time, nor shall it be deemed to give
to the Employer the right to require the Employee to remain in its Service, nor
shall it interfere with the Employee's right to terminate his Service at any
time.
Section 12.03 Information to be Furnished. As soon as practicable after the
-----------------------------------------
close of each Plan Year, the Employer shall deliver to the Plan Administrator a
full and complete list of all Employees entitled to participate in the Plan
during such Plan Year, together with the information required to perform the
allocation described in Article 4 hereof with respect to such Plan Year. As soon
as possible after the completion of the Adoption Agreement, and from time to
time thereafter, the Employer and the Plan Administrator shall certify to the
Trustee the names and specimen signatures of any representatives of the Employer
who have authority to act on its behalf with respect to the Plan.
Section 12.04 Communications from Employer to Trustee. All notices,
-----------------------------------------------------
certifications, directions, information and other communications from the
Employer to the Trustee shall be in writing subscribed by an officer of the
Employer. The Trustee may rely upon and shall be protected in acting upon any
information furnished to it by the Employer as aforesaid. Any certification by
the Employer of the information required or permitted to be certified to the
Trustee pursuant to the provisions of the Plan, shall, for all purposes of the
Plan, be binding upon all parties in interest; provided that whenever any
Employee proves to the satisfaction of the Employer that his age, period of
employment or his compensation as so certified is incorrect, the Employer shall
correct such certification unless the Employee is deemed to be estopped.
Section 12.05 No Reversion to Employer. The Employer has no beneficial
--------------------------------------
interest in the Trust Fund, and no part of the Trust Fund shall revert or be
repaid to the Employer, directly or indirectly, except:
12-1
<PAGE>
(a) in the event of initial non-qualification as described in Section
15.07 hereof, in which case the contribution with interest, if any,
shall be returned to the Employer within one (1) year after the date
such initial qualification is denied;
(b) in the event that a contribution is made to the Plan conditioned
upon qualification of the Plan as amended, such contribution shall
be returned to the Employer upon the determination that the amended
Plan fails to qualify under the Code; provided that:
(i) the Plan amendment is submitted to the Internal Revenue
Service for qualification within one (1) year after the date
the amendment is adopted, and
(ii) such contribution that was made conditioned upon the Plan's
requalification is returned to the Employer within one (1)
year after the date the Plan's requalification is denied;
(c) in the event that the deduction of an Employer contribution to the
Plan under Section 404 of the Code is disallowed, in which case the
contribution (to the extent disallowed) shall be returned to the
Employer, upon the request of the Employer, within one (1) year
after the disallowance of the deduction; or
(d) in the event that any Employer contribution is made by mistake of
fact, in which case the amount of such mistaken contribution shall
be returned to the Employer provided no more than one (1) year has
elapsed since the date of payment by the Employer of the mistaken
contribution.
Section 12.06 Indemnification by Sponsor. The right of
----------------------------------------
indemnification granted to each director, officer or employee of the Employer
under the governing articles of organization of the Employer, as from time to
time amended, shall apply to any action taken by the Plan Administrator or by
any individual member of the Plan Administrator in connection with the Plan.
12-2
<PAGE>
ARTICLE 13
TOP HEAVY PLANS
Section 13.01 Top Heavy Plans. The provisions of this article are designed
-----------------------------
to meet the requirements of Section 416 of the Code and shall apply in every
Plan Year beginning after December 31, 1983, in which this Plan is a Top Heavy
Plan. Accordingly, if the Plan is a Top Heavy Plan in any Plan Year beginning
after December 31, 1983, the provisions of this article shall automatically
supersede any conflicting provisions in the Plan or Adoption Agreement. If the
Plan covers employees of two or more Employers who are not members of the same
Controlled Group, the determination as to whether the Plan is a Top Heavy Plan
and the application of the minimum benefit and vesting requirements shall apply
separately as to such Employers.
Section 13.02 Definitions. For purposes of this article, and only this
-------------------------
article, unless a term defined in this article is the subject of explicit
reference elsewhere in the Plan, the following terms when used herein, unless
the context specifically or clearly indicates otherwise, shall have the meanings
set forth hereinafter:
(a) "Compensation" shall mean, for each Employee, compensation as that
-------------
term is defined in Section 415(c)(3) of the Code, plus amounts contributed
by the Employer pursuant to a salary reduction agreement which are
excludible from the employee's gross income under Section 125, Section
402(a)(8), Section 402(h) or Section 403(b) of the Code. However,
"Compensation" shall not include compensation in excess of two hundred
thousand dollars ($200,000), as adjusted by the Secretary at the same time
and in the same manner as under Section 415(d) of the Code.
(b) "Determination Date" shall mean, with respect to any Plan Year
-------------------
subsequent to the first Plan Year, the last day of the preceding
Plan Year. For the first Plan Year of the Plan, the Determination
Date shall be the last day of such Plan Year.
(c) "Key Employee" shall mean any Employee or former Employee (or
-------------
Beneficiary of such Employee or former Employee) who, at any time
during the determination period, was (i) an officer of the Employer
having an annual Compensation greater than fifty percent (50%) of
the maximum dollar limitation in effect under Section 415(b)(1)(A)
of the Code for any such Plan Year, (ii) an owner (or a person
considered an owner under Section 318 of the Code) of one (1) of the
ten (10) largest interests in the Employer if such interest is
directly or indirectly greater than one half percent (1/2%), and
such individual's Compensation exceeds the maximum dollar limitation
under Section 415(c)(1)(A) of the Code for any such Plan Year, (iii)
an owner of more than five percent (5%) of the Employer or
13-1
<PAGE>
(iv) an owner of more than one percent (1%) of the Employer who has
an annual Compensation of more than one hundred and fifty thousand
dollars ($150,000). The determination period is the Plan Year
containing the Determination Date and the four (4) preceding Plan
Years. The determination of who is a Key Employee shall be made in
accordance with Section 416(i)(1) of the Code and regulations
thereunder.
(d) "Non-Key Employee" shall mean any Employee who is not a Key
-----------------
Employee.
(e) "Permissive Aggregation Group" shall mean the Required Aggregation
-----------------------------
Group of plans plus any other plan or plans of the Employer which,
when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Sections 401(a)(4) and
410 of the Code.
(f) "Present Value" shall mean the present value of a benefit based only
--------------
on the interest and mortality rates specified in Item 20 of the
Adoption Agreement if the Employer also maintains a defined benefit
pension plan.
(g) "Required Aggregation Group" shall mean as follows:
---------------------------
(1) each qualified plan of the Employer in which at least one (1)
Key Employee participates or participated at any time during
the determination period (regardless of whether the plan
terminated), and
(2) any other qualified plan of the Employer which enables a plan
described in the preceding subsection (1) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
(h) "Super Top Heavy Plan" shall mean, for any Plan Year beginning after
---------------------
December 31, 1983, the Plan if it would be a Top Heavy Plan under
Section 13.02(i) hereof if the words "ninety percent (90%)" were
substituted for the words "sixty percent (60%)" in subsection
13.02(i) hereof.
(i) "Top Heavy Plan" shall mean, for any Plan Year beginning after
---------------
December 31, 1983, the Plan if any of the following conditions
exists:
(1) If the Top Heavy Ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any Required Aggregation
Group or Permissive Aggregation Group of plans.
(2) If this Plan is a part of a Required Aggregation Group of
plans, but not part of a Permissive Aggregation Group, and the
Top Heavy Ratio for the Required Aggregation Group of plans
exceeds sixty percent (60%).
13-2
<PAGE>
(3) If this Plan is a part of a Required Aggregation Group and is
also a part of a Permissive Aggregation Group, and the Top
Heavy Ratio for the Permissive Aggregation Group exceeds sixty
percent (60%).
(j) "Top Heavy Ratio" shall mean as follows:
----------------
(1) If the Employer maintains one (1) or more qualified defined
contribution plans (including any simplified employee pension
plan under Section 408(k) of the Code), but the Employer has
not maintained any qualified defined benefit pension plan which
during the five (5) year period ending on the Determination
Date(s) has or has had accrued benefits, then the Top Heavy
Ratio for this Plan alone or for the Required or Permissive
Aggregation Group, as appropriate, is a fraction, the numerator
of which is the sum of the account balances of all Key
Employees thereunder as of the Determination Date(s) (including
any part of any account balance distributed in the five (5)
year period ending on the Determination Date(s)), and the
denominator of which is the sum of all account balances
(including any part of any account balance distributed in the
five (5) year period ending on the Determination Date(s)), both
computed in accordance with Section 416 of the Code and the
regulations thereunder. Both the numerator and denominator of
the Top Heavy Ratio are increased to reflect any contribution
not actually made as of the Determination Date(s), but which is
required to be taken into account on that date under Section
416 of the Code and the regulations thereunder.
(2) If the Employer maintains one (1) or more qualified defined
contribution plans (including any simplified employee pension
plan under Section 408(k) of the Code), and the Employer
maintains or has maintained one (1) or more qualified defined
benefit pension plans which during the five (5) year period
ending on the Determination Date(s) has or has had accrued
benefits, then the Top Heavy Ratio for the Required or
Permissive Aggregation Group, as appropriate, is a fraction,
the numerator of which is the sum of account balances for all
Key Employees thereunder determined in accordance with
subsection (j)(l) herein and the present value of accrued
benefits for all Key Employees thereunder as of the
Determination Date(s), and the denominator of which is the sum
of the account balances for all Participants thereunder
determined in accordance with subsection (j)(l) herein and the
present value of accrued benefits for all Participants
thereunder as of the Determination Date(s), all determined in
accordance with Section 416 of the Code and regulations
thereunder. The accrued benefits under a qualified defined
benefit pension plan in both
13-3
<PAGE>
the numerator and denominator of the Top Heavy Ratio are
increased for any distribution of an accrued benefit made in
the five (5) year period ending on the Determination Date(s).
(3) For purposes of the preceding subsections (j)(l) and (j)(2),
the value of account balances and the present value of accrued
benefits shall be determined as of the most recent Top Heavy
Valuation Date that falls within or ends with the twelve (12)
month period ending on the Determination Date, except as
provided in Section 416 of the Code and the regulations
thereunder for the first and second plan years of a qualified
defined benefit pension plan. The account balances and accrued
benefits of a Participant (i) who is a Non-Key Employee, but
who was a Key Employee in a prior year, or (ii) who has not
been credited with at least one (1) Hour of Service with any
Employer maintaining the relevant qualified plan at any time
during the five (5) year period ending on the Determination
Date shall be disregarded. The calculation of the Top Heavy
Ratio, and the extent to which distributions, rollovers and
transfers are taken into account shall be made in accordance
with Section 416 of the Code and the regulations thereunder.
Deductible employee contributions shall not be taken into
account for purposes of computing the Top Heavy Ratio. 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.
The accrued benefit of a Participant other than a Key Employee
shall be determined under (i) the method, if any, that
uniformly applies for accrual purposes under all defined
benefit plans maintained by the Employer, or (ii) if there is
no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional
rule of Section 411(b)(C) of the Code.
(k) "Top Heavy Valuation Date" shall mean, with respect to any Plan
-------------------------
Year, for this Plan, the Determination Date, and shall mean with
respect to any Plan Year for a defined benefit pension plan maintained
by the Employer, the day within the twelve (12) month period ending on
the determination date for such defined benefit pension plan as of
which the actuarial determination of the minimum funding standard is
calculated.
Section 13.03 Minimum Allocations in Single Plan. Notwithstanding the
------------------------------------------------
provisions of Section 4.01 hereof, and before any contributions are allocated
thereunder, minimum Employer Contributions shall be made and allocated pursuant
to this section in a Plan Year in which the Plan is Top Heavy.
13-4
<PAGE>
(a) Profit Sharing Plans. If the Plan is a profit sharing plan, then the
--------------------
Employer contributions (and Forfeitures, if Forfeitures are to be
allocated in the same manner as Employer contributions) shall be
allocated to the Employer Account of each Participant as follows.
(1) Minimum Allocation. First, Employer contributions (and
------------------
Forfeitures, if to be allocated) shall be allocated to each
Participant in the proportion which his Compensation bears to
the total Compensation paid to all Participants; provided,
however, that no Employee shall receive under this stage of the
minimum top-heavy allocation more than three percent (3%) of
his Compensation as an allocation. In any Plan Year in which
the Plan has elected to be subject to the provisions of
Section 13.05(a), the figure of three percent (3%) shown in the
immediately preceding sentence may be modified pursuant to the
provisions of Section 13.05(a) or 13.06, as applicable.
(2) Integrated Minimum Allocation. Second, if an integrated
-----------------------------
allocation formula has been elected in Item 13(b) of the
Adoption Agreement, additional Employer contributions (and
Forfeitures, if to be allocated) shall be allocated to each
Participant who is eligible to share in the allocation of
Employer Contributions pursuant to Section 4.01, in the
proportion which his Compensation in excess of the integration
level elected in Item 13(b)(1) of the Adoption Agreement bears
to the total such excess Compensation paid to all such
Participants; provided, however, that no Employee shall receive
under this stage of the allocation a higher percentage of his
Compensation in excess of said integration level than the
lesser of (i) the percentage of his Compensation allocated to
him in the first stage of the minimum top-heavy allocation
described in (1) above, or (ii), the percentage specified in
Item 13(b)(2) of the Adoption Agreement.
(3) Restricted Regular Allocation. Third, any Employer
-----------------------------
contributions (and Forfeitures, if to be allocated) remaining
unallocated shall be allocated pursuant to the provisions of
Section 4.01 hereof; provided, however, that all allocations
under the Plan pursuant to Section 4.01 shall be determined
with respect to Compensation as that term is defined in Section
1.10 hereof, but subject to the dollar limitation set forth in
Section 13.02(a) hereof. Further, if an integrated allocation
formula has been elected in item 13(b) of the Adoption
Agreement, the percentage disparity selected in Item 13(b)(2)
of the Adoption Agreement shall be reduced, for purposes of the
allocation pursuant to Section 4.01, by the percentage of the
Participant's Compensation in excess of the
13-5
<PAGE>
integration level which has been allocated to him pursuant to
the "Integrated Minimum Allocation" described in (2) above.
(b) Money Purchase Pension Plans and Target Benefit Pension Plans. If
-------------------------------------------------------------
the Plan is either a money purchase pension plan or a target
benefit pension plan, then the Employer contributions allocated to
the Employer Account of each Participant shall be the greater of
the following.
(1) Minimum Allocation. A minimum allocation equal to the lesser
-----------------
of (i) three percent (3%) of such Participant's Compensation
or (ii) an amount equal to such Participant's Compensation
multiplied by the largest percentage of Employer
contributions which would have been allocated on behalf of
any Key Employee for that Plan Year with respect to such Key
Employee's Compensation under Section 4.01 hereof; or
(2) Restricted Regular Allocation. The regular allocation equal to
-----------------------------
an amount determined pursuant to Section 4.01 hereof; provided,
however, that the allocation pursuant to Section 4.01 hereof
shall be determined with respect to Compensation as that term is
defined in Section 1.10 hereof, but subject to the dollar
limitation set forth in Section 13.02(a) hereof.
If the allocation performed according to this Section 13.03(b)
results in the allocation of Employer contributions in excess of the
amount of such contributions which would have been allocated if the
Plan had not been Top Heavy, then the Employer shall contribute an
amount equal to the amount of such excess, in addition to the
contribution required under Section 3.01(c) for the Plan Year.
(c) Minimum Allocation Requirements. The minimum allocation provided for
-------------------------------
in subsections (a)(l) and (b)(l) hereof 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 Plan Year because of the following:
(1) the Participant's failure to complete one thousand (1,000)
Hours of Service.
(2) the Participant's failure to make mandatory Employee
contributions, if any, required for participation in the Plan;
or
(3) the Participant's Compensation was less than any stated
required amount.
13-6
<PAGE>
This subsection shall not apply, however, to any Participant
who was not employed by the Employer on the last day of the
Plan Year.
In determining Employer contributions under this section,
Elective Deferral Contributions, Matching Contributions or
benefits under Chapter 2 of the Code (relating to taxes on
self-employed income), Chapter 21 of the Code (relating to the
Federal Insurance Contribution Act) or any other Federal or
State laws (including Title II of the Social Security Act)
shall not be taken into account.
The minimum allocations required hereunder (to the extent
required to be nonforfeitable under Section 416(b) of the Code)
shall not be forfeitable under subsections 411(a)(3)(B)
(regarding the suspension of benefits upon reemployment of a
retiree) or 411(a)(3)(D) (regarding withdrawal of mandatory
contributions) of the Code.
Section 13.04 Minimum Vesting Schedules. For any Plan Year in which this
---------------------------------------
Plan is a Top Heavy Plan, the minimum vesting schedule as elected by the
Employer in Item 20(b) of the Adoption Agreement shall automatically apply to
the Plan; provided, however, that if the Employer has selected a regular vesting
schedule in Item 16 of the Adoption Agreement under which the vested percentage
for that Plan Year is greater than that provided in Item 20(b) of the Adoption
Agreement, then the greater vested percentage under Item 16 shall apply. This
vesting provision applies to all benefits within the meaning of Section
411(a)(7) of the Code (except those which are otherwise immediately
nonforfeitable when contributed to the Plan, if any), including benefits accrued
before the effective date of Section 416 of the Code and benefits accrued before
the Plan became a Top Heavy Plan. Further, no decrease in a Participant's
nonforfeitable percentage may occur in the event the Plan's status as a Top
Heavy Plan changes for any Plan Year. However, this section does not apply to
the account balances of any Employee who does not have an Hour of Service after
the Plan has initially become a Top Heavy Plan, and such Employee's vested
interest in his Employer Account and Matching Account shall be determined
without regard to this section.
In the absence of an alternative affirmative election by the Employer, the
vesting schedule stated at option (ii) of Item 20(b) shall apply hereunder.
Section 13.05 Special Limitations on Top Heavy Allocations in Multiple
----------------------------------------------------------------------
Plans: "Code Section 415(e) Buy-Back". If for any Plan Year the Plan is a Top
- ------------------------------------
Heavy Plan, and the Employer maintains or has ever maintained a qualified
defined benefit pension plan, then in applying the limitations of Section 4.07
of the Plan the words "one hundred percent (100%)" shall be substituted for the
words "one hundred and twenty-five percent (125%)" in both the Defined Benefit
Fraction and the Defined Contribution Fraction, as such terms are defined in
Section 4.07 of the Plan, unless the Employer elects to "buy-back" the use of
the "one hundred twenty-five percent (125%)" limit with respect to any Plan Year
in which the Plan is not Super Top Heavy by providing minimum benefits in excess
of those otherwise required pursuant to the provisions of Section 13.03. An
13-7
<PAGE>
Employer accomplishes this "Code Section 415(e) Buy-Back" by electing to retain
the use of the "one hundred twenty-five percent (125%)" limit in Item
20(c)(1)(i) of the Adoption Agreement and by agreeing in such Item either (1) to
provide the required increased minimum benefits under the defined benefit plan
or (2) to provide the required increased minimum benefits in this Plan according
to one (1) of the following methods.
(a) The Employer may elect to provide the minimum accruals set out in
this Section 13.05(a) by electing (in Item 20(c)(1)(ii) of the
Adoption Agreement) to be subject to the following provision.
(1) Any Employee who is a Participant otherwise entitled to receive
top heavy allocations from this Plan, but who is not entitled
to receive a minimum benefit from the defined benefit pension
plan, shall receive a minimum nonintegrated allocation of four
percent (4%) of Compensation under subsections 13.03(a)(1) or
13.03(b)(1) of this Plan instead of three percent (3%) of
Compensation.
(2) If the Employer has elected to provide the required increased
minimum benefits in this Plan, then each Employee who
participates in this Plan and who also participates in the
defined benefit pension plan shall receive a minimum
nonintegrated allocation of seven and one-half percent (7-1/2%)
of Compensation under subsections 13.03(a)(1) or 13.03(b)(1) of
this Plan instead of three percent (3%) of Compensation.
(3) If the Employer has elected to provide the required increased
minimum benefits in the defined benefit pension plan, then each
Employee who participates in this Plan and who also
participates in the defined benefit pension plan shall not be
entitled to receive a minimum allocation under this Plan.
(b) The Employer may elect (by setting out overriding provisions in Item
20(c)(1)(ii) of the Adoption Agreement) to provide the minimum
accruals required by Code Section 416(h)(2) by some method other
than that set out in Section 13.05(a).
If the Plan is one (1) of multiple qualified plans maintained by the
Employer and has not elected to provide the required minimum benefits under
Section 13.05(a), and the Employer has not elected to utilize the Code Section
415(e) Buy-Back provisions, then the Employer shall provide (by setting out
overriding provisions in Item 20(c)(1)(ii) of the Adoption Agreement) minimum
benefit accruals pursuant to Section 416(f) of the Code.
Section 13.06 Minimum Defined Contribution Plan Allocations Under Super
-----------------------------------------------------------------------
Top Heavy Multiple Plans or Without Code Section 415(e) Buy Back. In any Plan
- ----------------------------------------------------------------
Year in which the Plan and a defined benefit pension plan maintained by the
Employer are subject to the Employer's election
13-8
<PAGE>
under Item 20(c)(1)(ii) of the Adoption Agreement, if the plans are considered
Super Top Heavy or if the Employer has elected not to utilize the Code Section
415(e) Buy-Back, then minimum nonintegrated allocations shall be made under this
section.
(a) Any Employee who is a Participant otherwise entitled to receive top
heavy allocations from this Plan, but who does not participate in
the defined benefit pension plan, shall receive a minimum
nonintegrated allocation of three percent (3%) of Compensation under
13.03(a) (15 of this Plan.
(b) If the Employer has elected to provide the required increased
benefits in this Plan, then each Employee who is a Participant in
this Plan and who also participates in the defined benefit pension
plan shall receive a minimum nonintegrated allocation of five
percent (5%) of such Participant's Compensation under subsections
13.03(a)(1) or 13.03(b)(1) this Plan instead of three percent (3%)
of Compensation.
(c) If the Employer has elected to provide the required increased
minimum benefits in the defined benefit pension plan, then each
Employee who participates in this Plan and who also participates in
the defined benefit pension plan shall not be entitled to receive a
minimum allocation under this Plan.
13-9
<PAGE>
ARTICLE 14
PAIRED PLANS
Section 14.01 Paired Plans. The provisions of this article shall apply if
--------------------------
this Plan is a Paired Plan. Under this article, Sections 14.02 and 14.03 shall
apply with respect to Plan Years in which the Plan is paired hereunder with
another defined contribution plan maintained by the Employer.
With respect to such Paired Plans, the term "Compensation" shall have the
meaning set forth in Section 13.02(a) hereof.
Section 14.02 Defined Contribution Paired,Plans Prevention of Duplication
-------------------------------------------------------------------------
of Allocations. In any Plan Year in which the Plan is a Paired Plan with another
- --------------
defined contribution plan, the Employer shall provide each Employee who is a
Participant in this Paired Plan and who participates in the other defined
contribution Paired Plan the minimum nonintegrated allocation specified under
this article only in that Paired Plan indicated in Item 20(c)(1)(iii) of the
Adoption Agreement.
Section 14.03 Forfeitures in Paired Plans. If this Plan is a Paired Plan,
-----------------------------------------
then the minimum nonintegrated allocations provided by this Plan under this
article shall include in their computation Forfeitures, if Forfeitures are to be
allocated in the same manner as Employer contributions pursuant to Item 8 of the
Adoption Agreement.
Section 14.04 Integrated Paired Plans. If the Paired Plans involve
-------------------------------------
integration with Social Security, then only one (1) Paired Plan shall be
integrated.
14-1
<PAGE>
ARTICLE 15
MISCELLANEOUS PROVISIONS
Section 15.01 Allocation of Responsibility Among Fiduciaries for Plan and
-------------------------------------------------------------------------
Trust Administration. The Employer, the Plan Administrator (and the Committee,
- --------------------
if appointed pursuant to Section 9.01 hereof), the Investment Manager, if any,
and the Trustee shall be named Fiduciaries under the Plan, but only with respect
to their respective specific responsibilities under the Plan.
Each Fiduciary shall have only those specific powers, duties,
responsibilities and obligations as are specifically given it under the Plan.
Each Fiduciary warrants that any directions given, information furnished, or
action taken by it shall be in accordance with the provisions of the Plan
authorizing or providing for such direction, information or action. Furthermore,
each Fiduciary may rely upon any such direction, information or action of any
other Fiduciary as being proper under the Plan and is not required under the
Plan to inquire into the propriety of any such direction, information or action.
It is intended under the Plan that each Fiduciary shall be responsible for the
proper exercise of its own powers, duties, responsibilities and obligations
under the Plan and shall not be responsible for any act or failure to act of
another Fiduciary. No Fiduciary guarantees the Trust Fund in any manner against
investment loss or depreciation in asset value.
Each Fiduciary shall discharge its duties set forth in the Plan solely in
the interests of the Participants, Retired or Separated Participants and their
Beneficiaries and:
(a) for the exclusive purpose of:
(1) providing benefits to such persons; and
(2) defraying reasonable expenses of administering the Plan;
(b) with the care, skill, prudence and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise
of a like character and with like aims.
Section 15.02 Alienation or Assignment of Benefits. The right of any
--------------------------------------------------
Participant, Separated or Retired Participant, or Beneficiary in any benefit or
to any payment hereunder or to any segregated account shall not be anticipated,
conveyed, assigned, mortgaged or encumbered either by voluntary or involuntary
action or by operation of law, except as permitted herein; nor shall any such
right or interest be in any manner subject to levy, attachment, execution,
garnishment or any other seizure under legal, equitable or other process, except
pursuant to a qualified domestic relations order, as defined in Section 414(p)
of the Code, or pursuant to a domestic relations order entered before January 1,
1985, under which payment of benefits under that order has commenced as of such
date. Otherwise, such interest in this Plan shall be payable only in
15-1
<PAGE>
accordance with the provisions hereof; provided, however, that distributions
pursuant to a qualified domestic relations order may be made without regard to
the age or employment status of the Participant.
Section 15.03 Headings. The headings and sub-headings of Articles and
----------------------
Sections are included solely for convenience of reference, and if there be any
conflict between such headings and the text of the Plan, the text shall control.
Section 15.04 Construction of the Plan. All legal questions pertaining to
--------------------------------------
the Plan shall be determined in accordance with the laws of the state in which
the Employer principally does business, except insofar as they have been
superseded by the provisions of ERISA, and all contributions hereunder shall be
deemed to have been made in that state. For purposes hereof, the Employer shall
mean only the entity executing the Adoption Agreement as "Employer", but shall
not mean any organization executing the Plan as an "Adopting Employer."
In the construction of the Plan, the masculine gender shall include the
feminine, and the singular shall include the plural, unless the context clearly
indicates otherwise.
Section 15.05 Claims to Plan Benefits. Each Participant, Retired or
-------------------------------------
Separated Participant, Beneficiary or any other person who shall claim the right
to any payment or benefit under the Plan, shall look only to the Trust Fund for
such payment or benefit and shall not have any right, claim or demand therefor
against the Employer.
Section 15.06 Legally Incompetent. If any Participant, Retired or
---------------------------------
Separated Participant, or Beneficiary is a minor, or is in the judgment of the
Plan Administrator otherwise legally incapable of personally receiving and
giving a valid receipt for any payment due him hereunder, the Plan Administrator
may, unless and until claim shall have been made by a guardian or conservator of
such person duly appointed by a court of competent jurisdiction, direct that
such payment, or any part thereof, be made to such person or to such person's
spouse, child, parent, brother or sister, or other person deemed by the Plan
Administrator to be a proper person to receive such payment. Any payment so made
shall be, to the extent of the payment, a complete discharge to the Employer,
the Plan Administrator (and the Committee, if appointed pursuant to Section 9.01
hereof) and the Trustee of any liability under the Plan.
Section 15.07 Non-Qualification Exclusion. The Employer which is the
-----------------------------------------
entity executing the Adoption Agreement as the "Employer" (but not any
organization executing the Plan as an "Adopting Employer"), if required for
evidence of qualification under Revenue Procedure 89-13, shall apply to the
Internal Revenue Service for a determination of the qualification of its Plan
and Trust under the provisions of Sections 401(a) and 501(a), respectively, of
the Code within ninety (90) days after the date of adoption of the Plan by the
Employer, or within ninety (90) days after the date of any amendment to the
Plan, unless an extension of time for such filing is approved by the Sponsor.
Such application for a determination shall be made with due regard for the
requirement that notice of such application be given to each person who
qualifies as an interested party.
15-2
<PAGE>
If an Employer's Plan fails to meet the requirements for qualification, the
Employer shall be precluded from including this regional prototype plan document
as part of its Plan until such time as all requirements are met. If the Plan
established by an Adopting Employer at any time fails to retain qualification,
such Plan shall cease to participate as a regional prototype plan under Revenue
Procedure 89-13. If the Employer's Plan fails to attain or retain qualification,
such Plan shall be considered an individually designed plan. Funds held in Trust
on behalf of the Employer shall be segregated, or otherwise disposed of, for the
exclusive benefit of the Employer's Employees within sixty (60) days after the
date of determination of disqualification. Provided, however, that if the
Employer which is the entity executing the Adoption Agreement as the "Employer"
shall fail to receive an initial letter of qualification from the Internal
Revenue Service, all contributions to the Plan by the Employer or any Adopting
Employer shall be returned to such Employer pursuant to Section 12.05 hereof and
the Trustee shall be discharged from all obligation thereunder.
Section 15.08 Control of Trades or Businesses by Owner-Employee. If this
---------------------------------------------------------------
Plan provides contributions or benefits for one (1) or more Owner-Employees who
control both the business for which this Plan is established and one (1) or more
other trades or businesses, then this Plan and the plan established for other
trades or businesses shall, when considered as a single plan, satisfy Code
Sections 401(a) and (d) for the employees of this and all other trades or
businesses.
If the Plan provides contributions or benefits for one (1) or more Owner-
Employees who control one (1) or more other trades or businesses, then the
employees of the other trades or businesses shall be included in a plan which
satisfies Code Sections 401(a) and (d) and which provides contributions and
benefits not less favorable than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two
(2) or more trades or businesses which are not controlled, and the individual
controls a trade or business, then the contributions and benefits of the
employees under the plan of the trades or businesses which are controlled shall
be as favorable as those provided for the Owner-Employee under the most
favorable plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two (2)
or more Owner-Employees, shall be considered to control a trade or business if
the Owner-Employee, or two (2) or more Owner-Employees together:
(1) own the entire interest in an unincorporated trade or business, or
(2) in the case of a partnership, own more than fifty percent (50%) of
either the capital interest or the profits interest in the
partnership.
For purposes of the preceding sentence, an Owner-Employee, or two (2) or
more Owner-Employees shall be treated as owning any interest in a partnership
which is owned, directly or indirectly, by a partnership which such Owner-
Employee, or such two (2) or more Owner-Employees, are considered to control
within the meaning of the preceding sentence.
15-3
<PAGE>
IN WITNESS WHEREOF, Bryan, Pendleton, Swats & McAllister has caused this
Regional Prototype Defined Contribution Plan and Trust to be executed by its
duly authorized representative on this 19th day of September, 1990.
BRYAN, PENDLETON, SWATS & MCALLISTER
By: /s/ Joseph P. McAllister
------------------------------------------
Title: Partner
---------------------------------------
15-4
<PAGE>
BPS&M
REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN AND TRUST
ADOPTION AGREEMENT
SAVINGS PLAN
ADOPTED BY
CAVALRY BANKING, A FEDERAL SAVINGS BANK
---------------------------------------
(Name of Employer)
AS THE
Cavalry Banking 401(k) Savings Plan
-----------------------------------
(Name of Plan)
Adoption Agreement #002 (Non-standardized)
Defined Contribution Basic Plan Document #01
- --------------------------------------------------------------------------------
WHEN YOU COMPLETE THIS FORM IT BECOMES AN IMPORTANT DOCUMENT WITH LEGAL AND TAX
IMPLICATIONS AND SHOULD BE REVIEWED BY YOUR ATTORNEY. BPS&M DOES NOT PRACTICE
LAW AND CANNOT GIVE THE EMPLOYER LEGAL ADVICE.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
ITEM PAGE
---- ----
<C> <S> <C>
1 PLAN INFORMATION 1
2 EMPLOYER INFORMATION 1
3 PLAN ADMINISTRATION 2
4 EMPLOYEE CLASSES EXCLUDED 2
5 ELIGIBILITY AND PARTICIPATION 3
6 MEASURING SERVICE 4
7 COMPENSATION 5
8 EMPLOYER CONTRIBUTIONS AND FORFEITURES 6
9 PARTICIPANT CONTRIBUTIONS AND TRANSFERS 13
10 INVESTMENTS 15
11 ALLOCATION OF EMPLOYER CONTRIBUTIONS 15
12 ALLOCATION IN YEAR OF TERMINATION 17
13 LOANS 18
14 IN-SERVICE WITHDRAWALS 18
15 INSURANCE 20
16 TERMINATION OF EMPLOYMENT (VESTING SCHEDULE) 20
17 VESTING SERVICE EXCLUSIONS 23
18 RETIREMENT REQUIREMENTS 23
19 FORMS OF BENEFIT PAYMENT 24
20 TOP HEAVY PLANS (CODE SECTION 416) 25
21 MULTIPLE PLANS-LIMITATION ON TOTAL BENEFITS 27
(CODE SECTION 415)
22 SERVICE WITH PREDECESSOR EMPLOYER 29
23 CONTROLLED GROUPS 29
24 OTHER ADOPTING EMPLOYERS 29
25 COMPENSATION OF TRUSTEE 30
26 APPOINTMENT OF TRUSTEE 30
27 COORDINATION OF PLAN ADMINISTRATOR AND TRUSTEE 30
28 AMENDMENT BY EMPLOYER 30
</TABLE>
<PAGE>
ADOPTION INFORMATION
--------------------
THIS ADOPTION AGREEMENT, and the provisions of the BPS&M Regional Prototype
Defined Contribution Plan and Trust, are hereby adopted by the Employer named
hereinafter in order to establish a qualified plan and trust for the exclusive
benefit of participating Employees of the Employer and their beneficiaries.
Plan Name: Cavalry Banking 401(k) Savings Plan
---------------------------------------------------------------
ITEM 1 PLAN INFORMATION.
- -----------------------
(a) The Employer hereby
[_] establishes the above-named Plan
[_] amends, restates and continues the above-named Plan, which was
originally effective on __________________________________,
[X] amends, restates and continues as the above-named Plan the plan
previously named the Cavalry Banking Money Purchase Pension Plan,
-------------------------------------------
which was originally effective on April 1, 1978,
--------------
by adopting the BPS&M REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN
AND TRUST as established on September 19 1990.
------------------
(b) The Effective Date of this Plan adoption or amendment shall be
January 1, 1993.
--------- --
(c) The Plan Year shall end on December 31.
-----------
(d) The Limitation Year shall be [X] the Plan Year.
[_] the 12 consecutive month period
ending on .
----------
(e) The Plan is a profit sharing plan which [X] does [_] does not contain
---- --------
Elective Deferral Contributions. (Note: the "does" box should be
elected only if Elective Deferral Contributions are allowed in Item
8(a)).
ITEM 2 EMPLOYER INFORMATION.
- ---------------------------
The Employer furnishes the following information:
Name: Cavalry Banking, A Federal Savings Bank
-----------------------------------------------------
Business address: 114 West College Street Murfreesboro. TN 37130
------------------------------------------------------
Telephone number (including area code): (615) 893-1234
--- --- ----
1
<PAGE>
Nature and principal location(s) of business: Mutual Savings Bank
--------------------------
------------------------------------------------------------------------
------------------------------
Four-digit business code number used on Form 5500: 6 0 3 0
--- --- --- ---
Date of incorporation or commencement of business: 1929
----------------------
Employer's I.R.S. Employer Identification Number: 62-0302550
-----------------------
Three-digit number assigned to the Plan: 0 0 2
----------
Employer's tax year ends: December 31
-----------------------------------------------
Employer contributes to the following additional pension or profit sharing
plans: Cavalry Banking Defined Benefit Plan
------------------------------------------------------------------
------------------------------------------------------------------------
Type of Entity: [X] Corporation [_] S Corporation
[_] Sole Proprietorship [_] Partnership [_] Tax Exempt
Organization
[_] Professional Corporation [_] Professional Association
Note: Tax Exempt Organizations may not elect Elective Deferral
----
Contributions in Item 8(a).
ITEM 3 PLAN ADMINISTRATION.
- --------------------------
The Trustee shall be
(specify) Name: N. Gary Brown. Frank Crosslin, W. Henry Huddleston
---------------------------------------------------------
Address: 114 West College Street, Murfreesboro, TN 37130
----------------------------------------------------------------
Telephone Number: (615) 893-1234
-------------------------------------------------------
The Plan Administrator, whose duties are set forth in Article 9 of the
Plan, and the agent for service of process shall be
[X] The Employer, Attn: Mr. Ed C. Loughry. Jr.
------------------------------------------------
Telephone Number: (615) 893-1234
--------------------------------------------------
[_] Other (specify):
---------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
Telephone Number:
--------------------------------------------------
Address:
-----------------------------------------------------------
ITEM 4 EMPLOYEE CLASSES EXCLUDED.
- --------------------------------
The following class(es) of persons employed by the Employer shall not be
eligible to participate in the Plan:
[_] (a) No exclusions.
2
<PAGE>
[_] (b) Hourly paid
[_] (c) Salaried
[_] (d) Piece work paid
[_] (e) Commission paid
[X] (f) Employees covered by a collective bargaining agreement between the
Employer and representatives of such Employees in which retirement
benefits were the subject of good faith bargaining, except as
otherwise provided in the collective bargaining agreement. For
this purpose, the term "representatives of such Employees" shall
not include any organization more than 1/2 of whose members are
Employees who are owners, officers or executives of the Employer.
[_] (g) Leased Employees.
[_] (h) Others (specify): __________________________________________
ITEM 5 ELIGIBILITY AND PARTICIPATION
- ------------------------------------
(a) Eligibility: Employees shall become eligible to participate in the
-----------
Plan upon satisfaction of the following age and/or service
requirements:
(1) Age requirement (check one block):
[_] The Plan shall have no age requirement for eligibility.
[X] Attainment of age 21 (note: not more than age 21).
--
(2) Service requirement (check one block):
[_] The Plan shall have no service requirement for eligibility.
[X] 1** (note: not more than 1*) Years of Service.
--- ----
[_] the date _______ note: not more than 12*) months after the
----
day the Employee was first employed by the Employer.
*If this Adoption Agreement applies to any Plan Year beginning
prior to January 1, 1989, then the service requirement for each
such Plan Year shall be ____________ (note: the same as in the
----
prior plan document).
Each Employee who has satisfied the above age and service requirements
as of the Effective Date of this adoption shall be eligible to become
a Participant on the Effective Date. If this is an amendment of a
plan, no Employee who has been a Participant under the Plan prior to
this amendment and who is otherwise eligible to participate in this
Plan shall be excluded from participation because of failure to
satisfy the above age and service requirements.
**See Attachment A.
3
<PAGE>
(b) Entry into Participation: An Employee who has satisfied the
------------------------
requirements for eligibility set out in (a) above shall become a
Participant in the Plan on the entry date (as defined in this Item
5(b)) coincident with or immediately following the date on which he
satisfies the eligibility requirements.
The Plan shall have (check one block):
[_] An annual entry date (the Anniversary Date). (Note: You can elect
----
an annual entry date only if the Plan's age requirement is 20-1/2
or less and the Plan's service requirement is 6 months or less.)
[X] Semi-annual entry dates (the Anniversary Date and the day 6
months after the Anniversary Date).
[_] Quarterly entry dates (the Anniversary Date and the days 3, 6,
and 9 months after the Anniversary Date).
[_] Monthly entry dates (the first day of each calendar month).
[_] Daily entry dates.
ITEM 6 MEASURING SERVICE.
- ------------------------
Service shall be determined for all purposes under the Plan on the basis
selected as follows. (Note: Only one method from options (a) through (f)
----
may be selected for any class of Employees; if different methods are
selected for different classes of Employees, then the combination of
methods selected cannot result in discrimination. If only one method is
selected, it shall apply to all classes of Employees covered by the Plan.)
Counting Hours of Service
-------------------------
Hours of Service shall be counted:
[X] (a) On the basis of actual hours for which an Employee is paid or
entitled to payment.
[_] (b) On the basis of days worked: an Employee shall be credited with
10 Hours of Service if under Section 1.31 of the Plan such
Employee would be credited with at least 1 Hour of Service during
the day.
[_] (c) On the basis of weeks worked: an Employee shall be credited with
45 Hours of Service if under Section 1.31 of the Plan such
Employee would be credited with at least 1 Hour of Service during
the week.
[_] (d) On the basis of semi-monthly payroll periods: an Employee shall
be credited with 95 Hours of Service if under Section 1.31 of the
Plan such Employee would be credited with at least 1 Hour of
Service during the semi-monthly payroll period.
[_] (e) On the basis of months worked: an Employee shall be credited with
190 Hours of Service if under Section 1.31 of the Plan such
Employee would be credited with at least 1 Hour of Service during
the month.
4
<PAGE>
Elapsed Time
------------
Instead of counting Hours of Service, Service under the Plan shall be
determined:
[_] (f) On the basis of "elapsed time," as provided for in Section 1.31
of the Plan.
Classes of Employees
--------------------
If more than one method of measuring Service is elected from options (a)
through (f) above then complete the following:
[_] Option _____ shall apply to hourly paid Employees covered by the Plan.
[_] Option _____ shall apply to salaried Employees covered by the Plan.
[_] Option _____ shall apply to (specify) __________________ covered by
the Plan.
Note: If you elect different options for different classes of employees
----
you may be considered to have separate "plans" for each class
pursuant to Code Section 401(a)(4). Code Section 401(a)(4) requires
that each "plan" satisfy certain nondiscrimination requirements.
ITEM 7 COMPENSATION.
- -------------------
(a) Compensation shall mean all of each Participant's (select one)
[X] (1) W-2 Earnings as defined in Section 4.07(e)(13)
[_] (2) total "compensation" (as that term is defined in Section
4.07(e)(2)(ii))
which is actually paid to the Participant during the Plan Year.
Note: Compensation for a Self-Employed Individual shall mean Earned
----
Income as defined in Section 1.15.
(b) Compensation
[X] shall include
[_] shall not include
employer contributions made pursuant to a salary reduction agreement which
are not includible in the gross income of the Employee under a 401(k) plan
(including this Plan, if applicable), a cafeteria plan pursuant to Code
Section 125, a simplified employee pension (SEP) pursuant to Code Section
402(h), a tax sheltered annuity pursuant to Code Section 403(b), or a
deferred compensation plan pursuant to Code Section 457(b) or employee
contributions under a governmental plan described in Code Section 414(h)(2)
that are picked up by the employing unit.
5
<PAGE>
(c) Compensation shall exclude:
[X] safe harbor exclusions - reimbursements or other expense
allowances, fringe benefits (cash and noncash), moving expenses,
deferred compensation, and welfare benefits (Note: If only this
exclusion is elected the definition of compensation will be
deemed to be nondiscriminatory)
[_] overtime compensation
[_] discretionary bonuses
[_] contractual bonuses
[_] ______% of commissions
[_] other extraordinary remuneration:
(specify)
---------------------------------------------------------
[_] compensation during the year in excess of $__________.
Note: If the Plan is integrated with Social Security, no compensation may
----
be excluded in (c).
(d) Compensation of a Participant shall include:
[_] his Compensation for the entire Plan Year.
[X] only his Compensation for the portion of the Plan Year during
which he was a Participant.
[_] only his Compensation for the portion of the Plan Year commencing
with the first day of the month during which he became a
Participant.
Note: The above definition in Items 7(a) through (d) will apply as of the
----
Effective Date of this adoption or amendment; provided, however,
that if this is an amendment of the Plan for the changes required by
the Tax Reform Act of 1986, then (i) the above definition will first
apply as of the first Plan Year beginning after the adoption of this
amendment, and (ii) the definition of "Compensation" for earlier
Plan Years to which this Adoption Agreement applies shall be the
definition from the prior plan document, which shall be incorporated
herein by reference.
(e) For Plan Years beginning before the later of January 1, 1992 and the
date that is 60 days after the publication of final regulations,
N/A Compensation used in determining the Average Deferral Percentage under
Section 3.05 and the Average Contribution Percentage under Section
3.06 [_] shall [_] shall not be limited to Compensation received by
------ ----------
the Participant during the period for which he is a Participant.
ITEM 8 EMPLOYER CONTRIBUTIONS AND FORFEITURES.
- ---------------------------------------------
Contributions Made by the Employer.
----------------------------------
Matching Contributions, Employer Contributions and Qualified Matching
Contributions shall be (elect one) [_] out of Net Profits [X] without
------------------- -------
regard to Net Profits.
---------------------
6
<PAGE>
(a) Elective Deferral Contributions. Elective Deferral Contributions are
-------------------------------
"pre-tax" contributions made by Participants; however, they are
technically considered contributions made by the Employer. They are
always 100% vested.
(1) Elective Deferral Contributions to the Plan
[_] shall not be allowed.
[X] shall be allowed. (If this item is checked complete (2)
through (6) below).
(2) A Participant may elect to have his or her Compensation reduced
by the following percentage or amount per pay period, or for a
specified pay period or periods, as designated in writing to the
Plan Administrator (check applicable boxes and fill in blanks):
[X] a percentage of Compensation of not less than 1 % and not
---
more than 15 %.
----
[X] The Participant's elective deferral percentage must be in
whole percentages.
[_] a dollar amount not less than $_________________ each pay
period and not more than ______% of Compensation.
Elective Deferral Contributions made on behalf of a Participant
in any taxable year may not exceed
[X] $7,000 as adjusted annually pursuant to Code Section 402(g).
[_] $___________ (note: if you want to apply a lower dollar
----
limit insert a dollar amount not exceeding the $7,000 limit
under Code Section 402(g)).
(3) A Participant's Elective Deferral Contributions shall be based on
total Compensation as defined in Item 7(a) and subject to the
exclusions in 7(c) while a Participant.
Elective Deferral Contributions [X] shall [_] shall not be based
----- ---------
on bonuses, notwithstanding any contrary election. If Elective
Deferral Contributions shall be based on bonuses, then in order
to have Elective Deferral Contributions based on bonuses a
Participant [X] does [_] does not need to make a special
---- --------
election.
(4) A Participant may elect to begin Elective Deferral Contributions
-----
as of the first payroll period following: (elect each one that
applies).
[X] the first day of the Plan Year.
[X] the first day of the seventh month of the Plan Year (note:
----
for example, if the Plan Year is a calendar year this would
be July 1st).
7
<PAGE>
[_] any date.
[X] other: With regard to the special election for bonuses, on
---------------------------------------------------
any date before the bonus is earned.
---------------------------------------------------
(5) A Participant's election to have Elective Deferral Contributions
begin shall remain in effect until changed or terminated.
A Participant may make a written election to change the amount or
------
percentage of his or her future Elective Deferral Contributions
as of the first payroll period following: (elect each one that
applies).
[X] the first day of the Plan Year.
[X] the first day of the seventh month of the Plan Year (note:
----
for example, if the Plan Year is a calendar year this would
be July 1st).
[_] other:
------------------------------------------------------
------------------------------------------------------------
(6) Participants who claim Excess Elective Deferrals for the
preceding taxable year must submit their claims in writing to the
Plan Administrator by January 31 (specify a date before
----------
April 15).
(b) Matching Contributions. Matching Contributions are contributions made
----------------------
by the Employer, the amounts of which are based on the amount of
N/A Elective Deferral Contributions and/or Employee (after-tax)
Contributions (depending on the Employer's elections) which the
Participant makes. Matching Contributions may be subject to a vesting
schedule.
(1) The Employer [_] shall [_] shall not make Matching Contributions
----- ---------
to the Plan on behalf of certain Participants who make "eligible
contributions." (If Matching Contributions shall be made complete
items (2) through (5) below.)
(2) "Eligible contributions" shall include (elect one or both, as
applicable)
[_] Elective Deferral (Pre-Tax) Contributions.
[_] Employee (After-Tax) Contributions.
(3) Matching Contributions shall be made on behalf of [_] all
---
Participants [_] only Non-Highly Compensated Participants who
------------- -----------------------------------------
(elect one):
[_] (i) make eligible contributions during the Plan Year.
[_] (ii) make eligible contributions during the Plan Year and
---
satisfy the service requirements of Section 4.01(c),
subject to the election in Item 12 regarding
termination during the year.
8
<PAGE>
[_] (iii) have made eligible contributions since the last
Valuation Date and who are still employed on the
Valuation Date.
[_] For purposes of allocating Matching Contributions
only, the term Valuation Date shall include
interim valuation dates specified in Section
4.09.
(4) The Employer shall make the following amount of Matching
Contributions on behalf of "eligible Participants" as defined in
Item 8(b)(3) above (elect one and fill in blanks):
[_] an amount equal to __________ percent of the portion of the
eligible contributions of each eligible Participant for the
Plan Year which does not exceed __________ percent of the
Participant's Compensation for the Plan Year
PLUS
an amount equal to __________ percent of the portion of the
eligible contributions which exceeds __________ percent of
the eligible Participant's Compensation for the Plan Year,
but does not exceed __________ percent of the Participant's
Compensation for the Plan Year.
The Employer [_] shall [_] shall not have discretion to
----- ---------
increase the contribution percentage.
[_] an amount equal to __________ percent of the first
$___________ of each eligible Participant's eligible
contributions for the Plan Year
PLUS
an amount equal to __________ percent of the portion of the
eligible contributions for the Plan Year exceeds
$______________ of the Participant's eligible contributions
for the Plan Year but does not exceed $_____________.
The Employer [_] shall [_] shall not have discretion to
----- ---------
increase the contribution percentage.
[_] an amount which shall be determined at the discretion of the
Employer; any amount so contributed shall be allocated among
Participants based on
[_] each eligible Participant's eligible contributions not
exceeding _____________ percent of the Participant's
Compensations for the Plan Year.
[_] the first $____________ of each eligible Participants
eligible contributions for the Plan Year.
9
<PAGE>
(5) Matching Contributions shall be vested in accordance with the
following schedule (elect one):
[_] 100% vested when made.
[_] the general vesting schedule elected in Item 16.
Note: Choosing to make Matching Contributions 100% vested is not
----
sufficient to allow them to be used in the ADP special
nondiscrimination test. If you want matching-type
contributions to be used in the ADP test, you should elect
Qualified Matching Contributions under 8(d) below.
(c) Qualified Non-elective Contributions. Qualified Non-elective
------------------------------------
Contributions are contributions made by the Employer which are used to
help the Plan pass the special nondiscrimination test. The amount of
Qualified Non-elective Contributions made for each Plan Year shall be
determined by the Employer. Qualified Non-elective Contributions are
always 100% vested.
(1) The Employer [X] may [_] may not make Qualified Non-elective
--- -------
Contributions to the Plan. (If Qualified Non-elective
Contributions shall be made complete items (2) and (3) below.)
(2) Qualified Non-elective Contribution shall be made on behalf of
[X] all Employees [_] only Non-Highly Compensated Employees who
------------- -------------------------------------
(elect one):
[_] are eligible to make Elective Deferral Contributions at any
--------
time during the Plan Year.
[X] satisfy the service requirements of Section 4.01(c), subject
to the election in Item 12 regarding termination during the
year.
(3) Qualified Non-elective Contributions shall be allocated to the
Qualified Non-elective Contributions Account of "eligible
Employees" as defined in Item 8(c)(2) (elect one):
[X] In the ratio in which each eligible Employee's Compensation
for the Plan Year bears to the total Compensation of all
eligible Employees for such Plan Year.
[_] In the ratio in which each eligible Employee's Compensation
not in excess of $______________ for the Plan Year bears
to the total Compensation of all eligible Employees not in
excess of $___________ for such Plan Year.
(d) Qualified Matching Contributions. Qualified Matching Contributions are
--------------------------------
contributions made by the Employer which are used to help the Plan
pass the special nondiscrimination tests. The amount of Qualified
Matching Contribution is based on the amount of Elective Deferral
Contributions which eligible Participants elect. Qualified Matching
Contributions are always 100% vested.
(1) The Employer [X] shall [_] shall not make Qualified Matching
----- ---------
Contributions to the Plan on behalf of eligible Participants who
10
<PAGE>
make Elective Deferral Contributions. (If Qualified Matching
Contributions shall be made complete items (2) and (3) below.)
(2) Qualified Matching Contributions shall be made on behalf of [X]
all Participants [_] only Non-Highly Compensated Participants who
---------------- ----------------------------------------
(elect one):
[_] make Elective Deferral Contributions during the Plan Year.
[X] make Elective Deferral Contributions during the Plan Year
and satisfy the service requirements of Section 4.01(c),
---
subject to the election in Item 12 regarding termination
during the year.
(3) The Employer shall make the following amount of Qualified
Matching Contributions to "eligible Participants" as defined in
Item 8(d)(2) (elect one):
[X] an amount equal to 100 percent of the portion of the
---
Elective Deferral Contributions of each eligible Participant
for the Plan Year which does not exceed 3 percent of the
---
Participant's Compensation for the Plan Year
PLUS
an amount equal to _____ percent of the portion of the
Elective Deferral Contributions which exceeds _____ percent
of the eligible Participant's Compensation for the Plan
Year, but does not exceed _____ percent of the Participant's
Compensation for the Plan Year.
The Employer [_] shall [_] shall not have discretion to
----- ---------
increase the contribution percentage.
[_] an amount equal to _____ percent of the first $________ of
each eligible Participant's Elective Deferral Contributions
for the Plan Year
PLUS
an amount equal to _____ percent of the portion of the
Elective Deferral Contributions for the Plan Year which
exceeds $__________ of the Participant's Elective Deferral
Contributions for the Plan Year but does not exceed
$____________.
The Employer [_] shall [_] shall not have discretion to
----- ---------
increase the contribution percentage.
[_] a percentage which shall be determined at the discretion of
the Employer based on
[_] each eligible Participant's Elective Deferral
Contributions not exceeding _____ percent of the
Participant's Compensations for the Plan Year.
11
<PAGE>
[_] the first $____________ of each eligible Participants
Elective Deferral Contributions for the Plan Year.
(e) Employer Contributions. Employer Contributions are contributions made
----------------------
by the Employer which are profit sharing-type contributions. These
contributions shall be subject to a vesting schedule.
(1) The Employer [_] shall [X] shall not make Employer Contributions
----- ---------
to the Plan on behalf of eligible Participants. (If Employer
Contributions shall be made, complete item (2) below.)
(2) The amount of Employer Contributions made to the Plan for each
Plan Year shall be (elect one):
[_] such amount as the Employer, in its sole discretion, shall
elect to contribute for the Plan Year.
[_] other (describe, but note: must be in accordance with
----
generally accepted accounting principles):__________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
(f) Calendar Year Election. For purposes of determining which Employees
----------------------
are Highly Compensated Employees pursuant to Section 1.30 of the Plan,
the Employer [X] shall [_] shall not make the "look-back year
----- ---------
calculation" on the basis of the calendar year ending with or within
the applicable Plan Year, rather than the "look-back year."
Note: If the Plan Year is already a calendar year, then if you elect
---- "shall" above, you will not need to make separate look-back
year and determination year calculations.
Forfeitures.
-----------
(g) Forfeitures of Employer Contributions shall be (note: elect one):
----
[_] allocated in the same manner as Employer Contributions.
N/A
[_] treated as if they are Employer contributions and thus reduce the
amount otherwise to be made as an actual contribution by the
Employer.
(h) Forfeitures of Matching Contributions shall be (elect one):
[_] allocated in the same manner as Matching Contributions.
[_] treated as if they are Employer contributions and thus reduce the
amount otherwise required as an actual contribution by the
Employer.
(i) If a Participant receives a distribution from his Employer Account or
Matching Account upon termination of Service and is reemployed by the
Employer before he incurs 5 consecutive Breaks in Service (or in Plan
Years beginning before January 1, 1985, before he incurs a Break in
12
<PAGE>
Service), then he [_] will be required [_] will not be required to
----------------- ---------------------
repay the entire amount of the distribution in order to have his
Forfeiture reestablished under the Plan.
Note: See Item 16(d) for additional provisions affecting Forfeitures.
----
ITEM 9 PARTICIPANT CONTRIBUTIONS AND TRANSFERS.
- -----------------------------------------------
Participant Contributions.
-------------------------
The following Participant contributions may be made, subject to the
provisions of Section 3.03 of the Plan,
(a) Employee Contributions. Employee Contributions are nondeductible
----------------------
"after-tax" contributions made by Participants which are always 100%
vested.
(1) Employee Contributions to the Plan
[X] shall not be allowed.
[_] shall be allowed but shall not be required for participation
in the Plan. (If this item is checked complete (2) through
(6) below)
[_] shall be required for participation in the Plan, in the
amount of _____________% of Compensation. (If this item is
checked complete (2) through (6) below)
(2) Employee Contributions
[_] shall be made regularly by payroll deduction, and shall
share in investment Income for the Plan Year for which made.
[_] shall be made as determined by the Participant, and [_]
shall [_] shall not share in investment Income for the Plan
----
Year for which made.
(3) A Participant may elect to contribute the following percent or
amount of Compensation, as defined in Item 7(a) and subject to
the exclusions in 7(c), per pay period (if contributions are made
regularly by payroll deduction) or per Plan Year (if Employee
Contributions are made as determined by the Participant):
[_] a percentage of Compensation of not less than ___________%
and not more than ________%.
[_] The Participant's contribution percentage must be in
whole percentages.
[_] a dollar amount not less than $______________ and not more
than _____________% of Compensation.
13
<PAGE>
(4) A Participant may elect to begin Employee Contributions as of the
-----
first payroll period following: (elect each one that applies)
[_] the first day of the Plan Year.
[_] the first day of the seventh month of the Plan Year (note:
----
for example, if the Plan Year is a calendar year this would
be July 1st).
[_] other:
-----------------------------------------------------
-----------------------------------------------------------
(5) A Participant's election to have Employee Contributions begin
shall remain in effect until changed or terminated.
A Participant may make a written election to change the amount or
-------
percentage of his or her Employee Contributions as of the first
payroll period following: (elect each one that applies).
[_] the first day of the Plan Year.
[_] the first day of the seventh month of the Plan Year (note:
----
for example, if the Plan Year is a calendar year this would
be July 1st).
[_] other:
-----------------------------------------------------
-----------------------------------------------------------
(6) Employee Contributions shall be (elect one):
[_] combined with other Plan assets for investment purposes.
[_] invested separately from other Plan assets in an account
consisting of certificates of deposit, money market
certificates, collective investment trusts, other short-term
debt security instruments or any other investments
acceptable to the Trustee.
(b) Rollover Contributions from other qualified plans and individual
-----------------------
retirement accounts which were conduits for distributions from other
qualified plans
[_] shall not be allowed.
[X] shall be allowed.
Trustee-to-Trustee Transfers
----------------------------
(c) Direct Trustee-to-Trustee Transfers (pursuant to Section 10.15 of the
------------------------------------
Plan) from other qualified plans
[_] shall not be allowed.
[X] shall be allowed.
14
<PAGE>
ITEM 10 INVESTMENTS.
- -------------------
(a) Investment decisions shall be controlled by (note: choose only one
----
option from (a))
[X] the Trustee in its sole discretion.
[_] an Investment Manager appointed by the Employer pursuant to the
provisions of Section 10.09 of the Plan.
[_] the Employer, pursuant to the provisions of Section 10.10 of the
Plan.
[_] each Participant, with respect to his Accounts, pursuant to the
provisions of Section 10.11 of the Plan.
[_] (b) Although the Trustee, the Employer, or an Investment Manager has
been designated above to control investments, the Plan
Administrator may elect to permit each Participant to have the
right at his discretion, to control the investment of his
Account(s), if permitted by the Committee, pursuant to the
provisions of Section 10.11 of the Plan. (Note: this option
should not be chosen if the last option in (a) was chosen.)
[_] (c) Investment by the Plan in Qualifying Employer Securities shall be
permitted to a maximum of _______% (note: not more than 100%) of
----
[_] that portion of the Trust Fund attributable to Employer
-------------------------------------------------------
contributions and Forfeitures [_] the value of the entire Trust
----------------------------- -----------------------------
Fund (note: election of this second option may require the
---- ----
registration of such securities with the Securities and Exchange
Commission). With respect to the voting of such Qualifying
Employer Securities, the following entity shall vote such shares
(note: select only one):
----
[_] the Trustee.
[_] the Participant to whose account the shares have been
allocated.
[_] the Plan Administrator or, if appointed, the Committee.
ITEM ll ALLOCATION OF EMPLOYER CONTRIBUTIONS.
- ---------------------------------------------
This Plan may be either non-integrated or integrated with Social Security.
(Note: Choose one method only. Complete only if Employer Contributions may
----
be made under the Plan.)
N/A
[_] (a) NON-INTEGRATED
--------------
Employer Contributions (and Forfeitures, if to be allocated in the
same manner as Employer Contributions pursuant to Item 8) shall be
allocated, pursuant to the provisions of Sections 4.01 and 4.02 of the
Plan, to each Participant's Employer Account in the proportion that
such Participant's Compensation for the Plan Year bears to the total
Compensation for the Plan Year of all Participants entitled to share
in the allocation.
------------------------------------------------------
15
<PAGE>
[_] (b) INTEGRATED
----------
(1) The integration break-point for the Plan shall be
[_] the Taxable Wage Base in effect at the beginning of the Plan
Year.
[_] $___________ (note: not greater than the Taxable Wage Base
----
in effect as of the beginning of the first Plan Year to
which this election applies)
[_] ____________% of the Taxable Wage Base in effect at the
beginning of the Plan Year (not to exceed 100%).
(2) The disparity between the percentage of Compensation allocated
below the integration break-point and the percentage of
Compensation allocated above the integration break-point shall
not exceed _______% of Compensation. Note: if the maximum
----
permissible degree of integration is desired, insert the term
"Max" in this blank. "Max" shall mean the greater of (i) 5.7%,
and (ii) the Employer's Social Security tax rate which is
attributable to old-age insurance. If the second option has been
elected in Item ll(b)(l) and if the integration break-point
exceeds the greater of $10,000 or one-fifth of the Taxable Wage
Base in effect as of the beginning of the Plan Year but is less
than the Taxable Wage Base, then the "Max" shall be reduced based
on the following chart:
<TABLE>
<CAPTION>
If the integration break-point the 5.7
------------------------------ percent factor
in the maximum
Is more But not more disparity allowance
than than is reduced to -
-----------------------------------------------------------------
<S> <C> <C>
X* 80% of Taxable 4.3%
Wage Base
80% of Y** 5.4%
Taxable
Wage Base
-----------------------------------------------------------------
</TABLE>
* X = the greater of $10,000 or 20% of the Taxable Wage Base.
** Y = any amount more than 80% of the Taxable Wage Base but less
than 100% of the Taxable Wage Base.
16
<PAGE>
(3) If an Employee's entry date for participation in the Plan is not
the Anniversary Date, then the integration break-point elected
above [_] shall [_] shall not be prorated in the Plan Year in
------ ----------
which the Participant enters or reenters the Plan in the ratio
that the length of the Participant's participation in the Plan
that Plan Year bears to the length of that entire Plan Year.
Note: If this Adoption Agreement applies to any Plan Year beginning
----
prior to January 1, 1989, then the method for allocating
Employer Contributions and applying Forfeitures for each such
Plan Year shall be the method provided for in the prior plan
document, which shall be incorporated herein by reference. The
elections under this Item shall also be subject to such
modifications as may be necessary pursuant to the Employer's
election under IRS Notice 88-131, or subsequent IRS relief
procedures, related to benefit accruals which occur before the
adoption of this Adoption Agreement.
ITEM 12 ALLOCATION IN YEAR OF TERMINATION.
- -----------------------------------------
In performing each allocation of Employer Contributions (and Matching
Contributions, Qualified Non-elective Contributions, or Qualified Matching
Contributions if pursuant to the elections in Item 8 those contributions
are subject to this Item 12) former Participants who are no longer employed
on the allocation date shall be:
[_] included, if they meet the Service requirement.
[_] excluded, except that any former Participant whose Service terminated
due to death, disability, or retirement shall be included,
[_] if they meet the Service requirement.
[_] regardless of whether they meet the Service requirement.
[X] excluded.
Notes: (1) Service Requirement. If the Plan provides in Item 6 for
----- -------------------
counting Hours of Service, then the Service requirement for
sharing in the annual allocation of Employer Contributions
shall be 1000 Hours during a Plan Year. If the Plan provides
in Item 6 for using the "elapsed time" method then the
Participant is required to have an Hour of Service during the
Plan Year to share in the annual allocation of Employer
Contributions.
(2) Exclusion of such persons may under certain circumstances
endanger the continued qualification of the Plan by the
Internal Revenue Service.
17
<PAGE>
ITEM 13 LOANS.
- -------------
(a) The Plan Administrator [_] shall [X] shall not permit loans to
------ ---------
Participants and Beneficiaries pursuant to the provisions of Section
5.02 of the Plan. (If shall is checked please complete (b) below)
-----
(b) The Plan's loan requirements shall be (check one)
[_] (1) those standard requirements described in Section 5.02,
subject to the following elections:
(i) Plan loans may not be made for amounts less than
$____________ (note: fill in the blank with a dollar
----
amount not exceeding $1,000).
(ii) The total amount of a person's loan balance from the
Plan [_] shall [_] shall not be limited to an amount
----- ---------
equal to 50% of such person's Vested Accounts Balance
(note: if shall not is elected only 50% of such
---------
person's Vested Account Balance may be considered
security and additional security will be required).
[_] (2) those requirements stated in Attachment B.
[_] (c) (Note: Do not elect this option if the Plan is integrated with Social
----
Security). In the event of default while on a leave of absence, the
Employee will be deemed to have requested an in-service withdrawal
from the Plan in order to repay any outstanding balance (including
interest) of the loan, and to insure no loss of income to the Trust,
provided that the Employee qualifies for an in-service withdrawal
under the terms of the Basic Plan Document regardless of whether in-
service withdrawals are allowed pursuant to the elections in Item 14
of this Adoption Agreement. However, in the event more than one-half
of the Vested Account Balance is available for a loan, and if the Plan
is not subject to the special rule of Section 6.03(d), then only fifty
percent (50%) of the Vested Account Balance will be available for an
in-service withdrawal if the Employee has a Spouse.
ITEM 14 IN-SERVICE WITHDRAWALS.
- ------------------------------
Withdrawals - Employer Contributions
------------------------------------
N/A [_] Withdrawals from a Participant's Employer Account shall not be
----
permitted.
18
<PAGE>
[_] (Note: do not elect this option if Item ll(b) has been elected). If
----
the requirements under Section 5.01(a) of the Plan are met,
withdrawals of up to _______% (note: not more than 100%) of a
----
Participant's vested interest in his Employer Account may be
permitted.
Withdrawals of Employer Contributions shall be limited to the
following instances (note: 1 and 2 are optional; any combination (or
----
neither) may be selected).
[_] (1) A withdrawal shall be permitted only in the case of financial
hardship, as determined by the Plan Administrator in a uniform
and nondiscriminatory manner.
[_] (2) A withdrawal shall be permitted only to those Participants (note:
----
if more than one is selected, the earliest shall apply).
[_] who have ___ Years of Service.
[_] who are eligible for early retirement under this Plan.
[_] who are at least age 59-1/2.
Withdrawals - Elective Deferral Contributions
---------------------------------------------
Hardship withdrawals of the Participant's Elective Deferral Contributions
[_] shall not be allowed.
[X] shall be allowed.
N/A If hardship withdrawals of the Participant's Elective Deferral
Contributions are allowed for Plan Years after December 31, 1988 such
withdrawals [_] may [_] may not be made as to Income on Elective Deferral
--- -------
Contributions as of December 31, 1988.
N/A Withdrawals - Mandatory Employee Contributions. Mandatory Employee
----------------------------------------------
Contributions are after-tax contributions that are required in order for
the Employee to be eligible to receive an allocation of contributions made
by the Employer.
[_] Withdrawals from a Participant's Employee Account of mandatory
Employee Contributions shall not be permitted.
---
[_] Withdrawals of up to ________% (note: not more than 100%) of a
----
Participant's Employee Account arising from mandatory Employee
Contributions may be permitted. [_] If the Participant is less than
50% vested in his Employer Account, then his withdrawal of mandatory
Employee Contributions shall result in a Forfeiture of that portion of
his Employer Account not attributable to minimum allocations in Top
Heavy Plan Years.
N/A Withdrawals - Voluntary Employee Contributions
----------------------------------------------
[_] Withdrawals from a Participant's Employee Account of voluntary
Employee Contributions shall not be permitted.
----
19
<PAGE>
[_] Withdrawals of up to ________% (note: not more than 100%) of a
Participant's Employee Account arising from voluntary Employee
Contributions may be permitted.
N/A Withdrawal Restrictions
-----------------------
If withdrawals of Employee Contributions are permitted they shall be
limited to the following instances (note: 1, 2, 3 and 4 are optional: any
----
one or any combination of more than one (or none) may be selected):
[_] (1) A withdrawal shall be permitted only if the right of a
Participant to make Employee Contributions to his Employee
Account shall be suspended for (note: select only one)
----
[_] the next __________ (note: not less than 6) months.
----
[_] the later of the next __________ (note: not less than 6) months
----
or the time the withdrawal from the Employee Account is paid back
in full by the Participant.
[_] (2) A withdrawal shall be permitted in the case of financial
hardship, as determined by the [_] Employer [_] Plan
-------- ----
Administrator in a uniform and nondiscriminatory manner.
-------------
[_] (3) A withdrawal shall be permitted only to those Participants (note:
----
if more than one is selected, the earliest shall apply)
[_] who have ______ Years of Service.
[_] who are eligible for early retirement under this Plan.
[_] who have terminated employment with the Employer.
[_] (4) Other (specify, but note: vested benefits may not be forfeited
----
under this option):
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
ITEM 15 INSURANCE.
- -----------------
Insurance Policies [_] shall [_] may [X] shall not be purchased to provide
----- --- ---------
incidental death benefits on behalf of Participants, pursuant to the
provisions of Section 9.05 of the Plan, in addition to the purchase of any
annuity contract which is required under Item 19 or under the provisions of
the Plan.
ITEM 16 TERMINATION OF EMPLOYMENT (VESTING SCHEDULE).
- ----------------------------------------------------
(a) Vesting Schedule. A Participant's Employer Account (and Matching
----------------
Account if pursuant to Item 8 the Matching Account is subject to this
vesting schedule) shall be vested in him according to the following
schedule:
20
<PAGE>
<TABLE>
<CAPTION>
Full Years of [_] [_] [_] [X]
Vesting Service (i) (ii) (iii) (iv)
---------------- ---- ---- ----- ----
<S> <C> <C> <C> <C>
Less than l 100% 0% 0% 0%
1 100 0 0 100
2 100 0 0 100
3 100 20 0 100
4 100 40 0 100
5 100 60 100 100
6 100 80 100 100
7 or more 100 100 100 100
-----------------------------
</TABLE>
Note: No schedule shall be elected under option (iv) which is not at least
----
as favorable at each duration as either option (ii), applied
uniformly, or option (iii), applied uniformly.
If this election represents a change in the Plan's vesting schedule, then
as to Participants who were Participants on the day prior to the effective
date of this change (elect one)
[_] such Participant's vesting percentage shall remain the same as it was
under the prior schedule until such time as it would increase to a
higher vesting percentage under the new schedule.
[_] such Participant's vesting percentage for any Plan Year following such
change shall be determined under whichever of the old schedule or the
new schedule would produce the higher vesting percentage.
Note: If this election represents a change in the Plan's vesting schedule,
----
each Participant with at least 3 Years of Service with the Employer
may elect within a reasonable period after the adoption of the
change to have his nonforfeitable percentage computed under the Plan
without regard to the change.
If this Adoption Agreement applies to any Plan Year beginning prior to
January 1, 1989, then the vesting schedule for each such Plan Year shall be
the schedule from the prior plan document, which shall be incorporated
herein by reference.
(b) Vesting of Insurance. If the Plan includes or may in the future
--------------------
include any insurance Policies, check one of the following blocks:
[_] The vesting schedule elected shall apply to the value of the
Policies as well as to the remainder of the Participant's
Employer Account.
[_] Vesting schedule ______ shall apply to the value of the Policies,
and vesting schedule ______ shall apply to the remainder of the
Participant's Employer Account.
21
<PAGE>
(c) Timing of Payments. Benefits under the Plan due a former Participant
------------------
who is not eligible for normal retirement or early retirement on his
separation from Service shall be paid to such former Participant or
applied for his benefit from his Accounts as follows (note: select
----
only one):
[_] (1) within 60 days following the close of the Plan Year during
which the former Participant attains what would have been
his Normal Retirement Age. (If this option is selected
select the suboption below if it is applicable.)
[_] unless such former Participant has a Disability, in which
case his benefit shall be paid within 60 days following the
close of the Plan Year during which such former Participant
incurs a Break in Service, or as soon thereafter as
determinable, if the Participant requests such early
payment.
[_] (2) within 60 days following the close of the Plan Year during
which the Separated Participant incurs
________________________________________ (note: not greater
----
than 5) Break in Service, or as soon thereafter as
determinable, if the Participant requests such early
payment.
[X] (3) Other: upon Participant's request any time after
-----------------------------------------
termination of Service
-------------------------------------------------
(note: not later than 60 days following the close of the
----
Plan Year during which the Participant attains what would
have been his Normal Retirement Age).
(d) Small Benefits. The Plan Administrator (select one) [X] shall [_]
-------------- -----
shall not automatically cause the benefit attributable to Employer and
----- ---
Employee contributions which is not greater than $3,500 to be paid to
the former Participant or Beneficiary in a single sum as provided in
Section 6.08 of the Plan. If "shall" is elected then the benefits of a
Separated Participant who has no vested benefits shall be treated as a
Forfeiture on the last day of the Plan Year in which the Participant
[X] terminates employment with the Employer.
[_] incurs ________ (not more than 5) consecutive Breaks in Service.
If the election above represents a change in the timing of Forfeitures
and if the effective date of such change is other than the effective
date of this amendment to the Plan, indicate the effective date of
such change here:__________, 19___. If this election does represent a
change and if this Adoption Agreement applies to Plan Years beginning
prior to this change, then the provisions of the prior plan document
shall apply in those prior Plan Years and shall be incorporated by
reference.
Note: If Forfeitures are to occur before 5 consecutive Breaks in
----
Service, a restoration of the non-vested account balance may be
required under Section 8.03 of the Basic Plan Document if the
Separated Participant is reemployed.
22
<PAGE>
ITEM 17 VESTING SERVICE EXCLUSIONS.
- -----------------------------------
In determining a Participant's years of Vesting Service, the following
periods of Service shall be excluded in addition to the exclusions set out
in Section 1.73 of the Plan:
[ ] (a) Service prior to the Plan Year during which a Participant
attains age __ (note: not more than 18) years.
----
[ ] (b) Service during any period for which the Employer did not
maintain this Plan or a predecessor plan.
[ ] (c) Service during any period for which the Employee made no
contributions to the Plan, if Employee Contributions were
required to participate in the Plan for such period.
[ ] (d) Pre-Break Service excluded under the "Rule of Parity" pursuant
to Section 1.73 dealing with the relationship between periods
of absence and pre-Break Service.
[ ] (e) None of the above exclusions.
ITEM 18 RETIREMENT REQUIREMENTS.
- --------------------------------
(a) The Normal Retirement Age of a Participant shall be (elect one)
[X] age 65 __ (note: not to exceed 65).
----
[ ] the later of age (note: not to exceed 65) or the _______*
(note: not to exceed "5th") anniversary of his participation
commencement date. The participation commencement date is the
date on which the Participant commenced participation in the
Plan.
*If this Adoption Agreement constitutes an amendment to an
existing plan, then, for any Plan Year to which this Adoption
Agreement applies beginning prior to the Plan Year following
the adoption of this amendment, the number indicated above
shall be replaced with the following number which was used in
the prior plan document _____________________________ (note:
----
not to exceed "10th").
(b) [X] (Note: this selection is optional.) A Participant may retire
----
early with full vesting on the first day of any month
following his attainment of age
55 (note: between 55 and 65 years) if he has then
---------- ----
completed
10 years of [ ] Vesting Service.
----------
[X] Service with the Employer.
(c) A Participant who has reached his Normal Retirement Date
[ ] must wait until actual retirement, subject to Section 6.07
(the age 70-1/2 benefit commencement requirement) before he
can begin to receive his retirement benefit pursuant to
Article 6 of the Plan.
[X] may, upon his request, begin to receive his retirement
benefit before his actual retirement, subject to the
restrictions of Section 11.13.
23
<PAGE>
(d) [ ] (Note: this selection is optional.) For purposes of the Plan,
Disability shall not include the following:
[ ] a physical or mental condition which results directly or
indirectly from (note: select one or more):
[ ] injury intentionally self-inflicted .
[ ] injury or disease resulting from military service
[ ] injury or disease suffered or contracted prior to
the last date of an Employee's commencement of
Service
[ ] Other (specify):
-----------------------------------
--------------------------------------------------------
(e) For purposes of determining the existence of Disability, the Plan
Administrator shall (check one or both, as applicable)
[X] require medical evidence.
[ ] allow receipt of Social Security or any insured disability
benefits to be conclusive evidence of Disability.
ITEM 19 FORMS OF BENEFIT PAYMENT.
- ---------------------------------
(a) The normal form of payment shall be
[ ] a single sum.
[X] a straight life annuity for a Participant who does not have a
Spouse on his Annuity Starting Date and a Qualified Joint and
Survivor Annuity if the Participant does have a Spouse on his
Annuity Starting Date.
(b) (Note: this selection is optional.) The Plan shall offer the
----
following optional forms of payment pursuant to Section 6.03
[X] installments
[X] annuities
[X] single sum
[ ] A combination of single sums, on the dates and in the amounts
selected by the Participant (subject to a minimum for any
single distribution of $100).
Others: (describe in detail or reference a specific attachment,
------
such as "Attachment A," which describes the elected
option(s) in detail)
[ ]
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
24
<PAGE>
[ ]
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
[ ]
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
(Note: Optional forms of benefit payment may not be eliminated.)
(c) If benefits may be paid in the form of an annuity, then the Qualified
Joint and Survivor Annuity shall be an annuity with [X] 50% [ ] 75%
---- ----
[ ] 100% of the annuity benefit continuing to a Participant's
----
surviving Spouse at the Participant's death.
(d) If ever a death benefit is to be paid to a Spouse of a Participant in
the form of annuity described in Section 7.02(c)(2) of the Plan (i.e.,
a qualified preretirement survivor annuity), then that Spouse [X] may
---
[ ] may not elect an optional form of death benefit payment (such as a
--------
lump sum) provided under the Plan.
Note: If the Employer has previously allowed benefits under the Plan
----
to be paid in the form of an annuity involving life contingencies,
but would like to eliminate the availability of that form of
payment as to contributions and forfeitures allocated in the
future, the following provision should be completed.
Contributions and Forfeitures (if applicable) allocated to a
Participant's account under the Plan plus any Income allocated to
such amounts on or after ___________, 19__, shall not be paid in
the form of an annuity.
(e) If at the Participant's death there is no effective Beneficiary
designation on file with the Plan Administrator then the Participant
shall be deemed to have designated the Beneficiaries (if living at the
time of the death of the Participant or Beneficiary) in the following
order of priority (check one):
[ ] in the order provided in Section 7.03(a) of the Plan.
[X] in the following order: to the Spouse; if no Spouse, then the
-------------------------------------
estate.
--------------------------------------------------------------
--------------------------------------------------------------
ITEM 20 TOP HEAVY PLANS (CODE SECTION 416).
- -------------------------------------------
This item automatically applies only in Plan Years in which the Plan is a
Top Heavy Plan, but all options herein must be completed by every Employer
in case the Plan ever becomes Top Heavy.
(a) Single Plan-Minimum Contributions and Allocations. Notwithstanding the
-------------------------------------------------
provisions of Item 11, and before any contributions are allocated
thereunder, minimum Employer contributions shall be made and allocated
pursuant to Section 13.03 of the Plan in a Plan Year in which the Plan
is Top Heavy.
25
<PAGE>
(b) Minimum Vesting. Notwithstanding the provisions of Item 16, the vested
-----------------
interest of each Employee in his Employer Account in a Plan Year in
which the Plan is Top Heavy shall be determined pursuant to Section
13.04 of the Plan on the basis of the following vesting schedule,
unless a more rapid vesting schedule has been selected in Item 16:
<TABLE>
<CAPTION>
Full Years of [ ] [ ]
Vesting Service (i) (ii)
----------------------- --- ----
<S> <C> <C>
Less than 1 0% 0%
1 0 0
2 0 20
3 100 40
4 100 60
5 100 80
6 or more 100 100
</TABLE>
(Note: If you do not make an election, then option (ii) shall apply).
If the vesting schedule under the Plan shifts in or out of the above
schedule for any Plan Year because of a change in the Plan's Top Heavy
status, then such shift shall be considered an amendment to the
vesting schedule and the election rule for Participants with 3 or more
Years of Service set forth in Section 11.03(d) of the Plan applies.
Furthermore, any portion of the Employer Account that becomes vested
under this minimum vesting schedule for a Top Heavy Plan shall remain
nonforfeitable if the Plan shifts out of Top Heavy status.
(c) Multiple Plans-Minimum Contributions and Allocations. This subsection
-----------------------------------------------------
shall only apply if you sponsor another qualified retirement plan.
(1) Minimum Contributions and Allocations.
--------------------------------------
(i) Code Section 415 (e) Buy-Backs. If another retirement plan
------------------------------
is a qualified defined benefit plan, and if for a Plan Year
the plans are Top Heavy (but not Super Top Heavy), then the
"Code Section 415(e) buy back" provisions, as defined in
Section 13.05 of the Plan,
[X] shall be utilized, so that 125%
[ ] shall not be utilized, so that 100%
of the dollar limitations set out in Section 4.07 of the
Plan shall be used in computing the Defined Benefit Fraction
and the Defined Contribution Fraction. If the 125% limit is
to be used, then the required extra minimum contributions or
benefits shall be provided in [X] this Plan [ ] the defined
---------- -----------
benefit plan.
------------
(ii) Minimum Accruals. If another retirement plan is a qualified
----------------
defined benefit plan
[X] the Plan shall be considered to be subject to the
minimum allocation provisions of Section 13.05(a) or
13.06, whichever is applicable.
26
<PAGE>
[ ] the following overriding provisions shall control
instead of the provisions regarding minimum accruals
under Section 13.05(a) or 13.06.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
N/A (iii) No Duplicate Benefits. If another retirement plan is a
----------------------
qualified defined contribution plan which is a Paired Plan,
then any additional required minimum Employer contributions
and allocations shall be provided only under [ ] this Plan
---------
[ ] the other qualified defined contribution plan.
---------------------------------------------
(2) Present Value. For purposes of establishing Present Value to
-------------
compute the Top Heavy Ratio for the Plan as set forth in Section
13.02(j), any benefit under a qualified defined benefit pension
plan maintained by the Employer shall be discounted only for
mortality and interest based on the following factors, which, if
a lump sum benefit is available, should be the factors used to
compute a lump sum benefit:
Mortality Table: [X] the UP-1984 Mortality Table
[ ] as provided in the qualified defined benefit
pension plan
[ ] Other:
--------------------------------------
Interest Rate: [ ] the rates which would be used by the Pension
Benefit Guaranty Corporation for a trusteed
single-employer plan to value a benefit upon
termination of an insufficient trusteed
single-employer plan
[ ] as provided in the qualified defined benefit
pension plan
[X] Other: 7%
-------------------------------------
ITEM 21 MULTIPLE PLANS-LIMITATION ON TOTAL BENEFITS (CODE SECTION 415).
- ----------------------------------------------------------------------
The Employer must complete (a) and (b) below. If the Employer maintains or
ever maintained another qualified plan in which any Participant in this
Plan is (or was) a Participant or could possibly become a Participant, the
Employer must indicate how it will deal with benefits under the plans that
exceed the limits under Code Section 415. If the Employer maintains a
welfare benefit fund, as defined in Section 419(e) of the Code, or an
individual medical account, as defined in Section 415(1)(2) of the Code,
27
<PAGE>
under which amounts are treated as Annual Additions with respect to any
Participant in this Plan, then it must also indicate how it will deal with
benefits which under such fund or account in combination with benefits
under this Plan exceed the limits under Code Section 415.
(a) If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master or
prototype plan (note: select only one option):
----
[X] This situation is not applicable.
[ ] The provisions of subsection 4.07(b)(1) through subsection
4.07(b)(6) of the Plan shall apply, as if the other plan was a
master or prototype plan.
[ ] The amount of Annual Additions allocated to any Participant's
Accounts under this Plan shall be limited to the Maximum
Permissible Amount, and Excess Amounts will be properly reduced,
as follows:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
(b) If the Participant is or ever has been a Participant in a defined
benefit plan maintained by the Employer (note: select only one
----
option):
[ ] This situation is not applicable.
[ ] In any Limitation Year, the Annual Additions credited under this
Plan to the Participant may not cause the sum of the Defined
Benefit Fraction and Defined Contribution Fraction to exceed 1.0.
If the Employer's contribution that would otherwise be made on
the Participant's behalf during the Limitation Year would cause
the 1.0 limitation to be exceeded, the rate of contribution under
this Plan will be reduced so that the sum of the fractions equals
1.0. If the 1.0 limitation is exceeded because of an Excess
Amount, such Excess Amount will be reduced in accordance with
subsection 4.07(a)(4) of the Plan.
[X] In any Limitation Year, the additional benefit accrued under the
defined benefit plan to the Participant may not cause the sum of
the Defined Benefit Fraction and Defined Contribution Fraction to
exceed 1.0. If the additional benefit that the Participant would
normally accrue would cause the 1.0 limitation to be exceeded,
the rate of benefit accrued under the defined benefit plan will
be reduced so that the sum of the fractions equals 1.0.
28
<PAGE>
[ ] The amount of Annual Additions allocated to any Participant's
Accounts under this Plan shall be limited to the Maximum
Permissible Amount, and Excess Amounts will be properly reduced,
as follows:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
ITEM 22 SERVICE WITH PREDECESSOR EMPLOYER.
- ------------------------------------------
Employment with the following predecessor employer(s) (and such other
predecessor employers as the Employer shall subsequently designate in
writing) shall be considered Service with the Employer for all purposes of
the Plan (note: if the Employer is maintaining a tax-qualified plan of a
----
predecessor employer, that predecessor employer must be listed; place an
-----
asterisk (*) after the name of any such predecessor employer):
[X] There are no such predecessor employers.
[ ]
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
ITEM 23 CONTROLLED GROUPS.
- --------------------------
The following employers are members of a Controlled Group:
[ ] (a) There are no such employers.
[X] (b) Cavalry Enterprises, Inc.
-------------------------------------------------------------
Forest Cove Development. Inc.
-------------------------------------------------------------
-------------------------------------------------------------
ITEM 24 OTHER ADOPTING EMPLOYERS.
- ---------------------------------
The following adopting Employers are affiliates of the Employer which,
pursuant to Section 4.08 of the Plan, have adopted the Plan and for which a
single Trust Fund may be used for the investment of the Trust Fund:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
29
<PAGE>
Each such adopting Employer which is a member of a Controlled Group [ ]
shall [X] shall not be considered to be a separate Employer for purposes of
----- ---------
allocating Employer contributions and Forfeitures.
Note: If you elect "shall" above, you may be considered to have different
----
"plans" for each adopting Employer for purposes of Code Section
401(a)(26). Code Section 401(a)(26) requires that each "plan"
benefit the lesser of 50 Employees or 40% of all Employees of all
members of the Controlled Group.
ITEM 25 COMPENSATION OF TRUSTEE.
- --------------------------------
The Employer agrees to pay and/or reimburse the Trustee for expenses on the
basis set out in the Plan, provided the Trustee is not a full-time Employee
of the Employer, and to pay the Trustee an annual fee according to its
schedule of fees. The Trustee's annual compensation shall be charged to the
Trust Fund, unless paid or reimbursed by the Employer.
ITEM 26 APPOINTMENT OF TRUSTEE.
- -------------------------------
The Trustee, by execution of this Adoption Agreement, accepts its
appointment as Trustee under the aforesaid Plan.
ITEM 27 COORDINATION OF PLAN ADMINISTRATOR AND TRUSTEE.
- -------------------------------------------------------
At the commencement of this Plan and at the end of each Plan Year
thereafter, the Plan Administrator appointed by the Employer shall deliver
to the Trustee such information as the Trustee may require for the proper
installation and administration of the Plan.
ITEM 28 AMENDMENT BY EMPLOYER.
- ------------------------------
The elective features of this Adoption Agreement may be amended by the
Employer as provided in Article 11 of the Plan, but all authority to amend
the portions of the Plan which constitute a regional prototype plan
approved by the Internal Revenue Service under Revenue Procedure 89-13 is
specifically delegated irrevocably to the Sponsor, subject to the
provisions of Article 11 of the Plan.
30
<PAGE>
IN WITNESS WHEREOF, the following parties hereto have caused this Adoption
Agreement to be executed this the 25th day of November, 1992.
Cavalry Banking, A Federal Savings Bank N. Gary Brown
- --------------------------------------- ---------------------------
EMPLOYER TRUSTEE
By: [SIGNATURE APPEARS HERE] By: /s/ N. Gary Brown
------------------------------------ ------------------------------
Title: President Title: Trustee
--------------------------------- ---------------------------
Frank Crosslin
---------------------------------
TRUSTEE
By: /s/ Frank Crosslin
------------------------------
Title: Trustee
---------------------------
W. Henry Huddleston
---------------------------------
TRUSTEE
By: /s/ W. Henry Huddleston
------------------------------
Title: Trustee
---------------------------
NOTICE TO EMPLOYER AND ADOPTING EMPLOYER(S)
-------------------------------------------
An Employer may not rely on the notification letter issued by the Key District
-------------
Office of the Internal Revenue Service as evidence that this Plan is qualified
under Section 401 of the Code. In order to obtain reliance with respect to Plan
qualification, the Employer must apply to the appropriate Key District Office of
the Internal Revenue Service for a determination letter pursuant to Revenue
--------------
Procedure 89-13.
This Adoption Agreement may be used only in conjunction with BPS&M Defined
Contribution Basic Plan Document #01.
ASSIGNMENT OF AUTHORIZATION NUMBER
----------------------------------
Use of this form for preparation of a plan document is not allowed without the
approval of BPS&M. The authorization number assigned by BPS&M to the form is
N2070.
- -----
31
<PAGE>
BPS&M
REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN AND TRUST
SUPPLEMENTAL ADOPTION AGREEMENT
ADOPTED BY
CAVALRY BANKING, A FEDERAL SAVINGS BANK
----------------------------------------
(Name of Employer)
AMENDING THE
CAVALRY BANKING 401(k) SAVINGS PLAN
-----------------------------------
(Name of Plan)
Defined Contribution Basic Plan Document #01
<PAGE>
ATTACHMENT A
For Item 5(a)(2), the Service requirement for eligibility shall be 3 months for
Employees who were employed as of January 1, 1993, the effective date of the
restatement of the Plan as a 401(k) plan. Such Employees shall be eligible to
make Elective Deferral Contributions as of January 1, 1993 but must meet the
1 year Service requirement in order to receive Qualified Nonelective
Contributions and Qualified Matching Contributions. This waiver of the 1 year
Service requirement for eligibility to make Elective Deferral Contributions
shall apply only on a one-time basis to Employees who were employed 3 months as
of January 1, 1993.
<PAGE>
ADOPTION INFORMATION
THIS SUPPLEMENTAL ADOPTION AGREEMENT is hereby adopted by the Employer
named hereinafter in order to amend the Plan named hereinafter.
PLAN INFORMATION
- ----------------
Plan Name: Cavalry Banking 401(k) Savings Plan
---------------------------------------------------------------
Name of Employer: Cavalry Banking. A Federal Savings Bank
--------------------------------------------------------
Employer Identification Number: 62-0302550
------------------------------------------
Plan Number: 002
-------------------
Adoption Agreement Number:
[_] 001 Profit Sharing Plan (Non-standardized)
[X] 002 Savings Plan (Non-standardized)
[_] 003 Money Purchase Pension Plan (Non-standardized)
[_] 004 Profit Sharing Plan (Standardized)
[_] 005 Savings Plan (Standardized)
[_] 006 Money Purchase Pension Plan (Standardized)
Authorization Number: N2070
----------
Effective Date of this Amendment: January 1, 1993
---------------------
The Plan is hereby amended in accordance with the following selections.
ITEM 7 COMPENSATION
- -------------------
(a) Compensation shall mean all of each Participant's (select one)
[_] (1) W-2 Earnings as defined in Section 4.07(e)(13)(i) (box 10 -
wages, tips, other compensation)
[_] (2) total "compensation" (as that term is defined in Section
4.07(e)(2)(ii) (415 Safe-Harbor Compensation
[_] (3) W-2 Earnings as defined in Section 4.07(e)(13)(ii) (Social
Security wages, but not limited to the Taxable Wage Base)
* * *
(NOTE: Complete Item 7(e) only if Adoption Agreement Number 002 or 005 is
indicated above.)
(e) Compensation used in determining the Average Deferral Percentage under
Section 3.05 and the Average Contribution Percentage under Section
3.06 [X] shall [_] shall not be limited to Compensation received by
----- ---------
the Participant during the period for which he is a Participant.
* * *
<PAGE>
(NOTE: Complete Item 8(j) only if Adoption Agreement Number 002 or 005 is
indicated above.)
ITEM 8 EMPLOYER CONTRIBUTIONS AND FORFEITURES
- ---------------------------------------------
Gap Period Income
- -----------------
(j) Corrective distributions under Section 3.04 (Limit on Elective
Deferrals), Section 3.05 (ADP Test), Section 3.06 (ACP Test), and
Section 4.07()(4) (Maximum Annual Additions)
[_] (1) Shall not include Gap Period Income.
----------
[_] (2) Shall include Gap Period Income.
-----
IN WITNESS WHEREOF, the following parties hereto have caused this
Supplemental Adoption Agreement to be executed this the 22nd day of July, 1993.
----- ----
Cavalry Banking, A Federal Savings Bank N. Gary Brown
- ---------------------------------------- ---------------------------
EMPLOYER TRUSTEE
By: /s/ Ed C. Loughry, Jr. By: /s/ N. Gary Brown
--------------------------- -----------------------------
Title: President Title: Trustee
----------------------- -------------------------
Frank Crosslin
- ------------------------------ --------------------------------
ADOPTING EMPLOYER TRUSTEE
By: By: /s/ Frank Crosslin
--------------------------- -----------------------------
Title: Title: Trustee
----------------------- -------------------------
W. Henry Huddleston
- ------------------------------ --------------------------------
ADOPTING EMPLOYER TRUSTEE
By: By: /s/ W. Henry Huddleston
--------------------------- ----------------------------
Title: Title: Trustee
----------------------- --------------------------
<PAGE>
Description of The Amendment
(For Adopting Employers)
1. The amendment clarifies the definition of "W-2 earnings." This applies to
your plan only if you selected "W-2 earnings" in your adoption agreement as
the definition of compensation.
W-2 earnings is defined as the amount shown in the wages, tips, etc. box of
the W-2 form (wages, tips, etc.) subject to adjustments as provided for in
the adoption agreement. Another definition of "W-2 earnings" is available
by completing a supplemental adoption agreement. This definition is Social
Security wages calculated without being limited to the Social Security
Taxable Wage Base.
2. The amendment provides that, if the adoption agreement has been filled out
to accept rollover contributions, then the plan will also accept "direct
rollover contributions." These are rollovers that are transferred directly
to the plan from another qualified retirement plan of a participant's
former employer.
3. If your plan permits hardship withdrawals, the rules have been liberalized
in three ways. First, distributions for tuition for post secondary
education of the Participant, or his or her beneficiary, spouse or
dependents, may now include "related educational fees" and may now cover
anticipated costs for 12 months instead of just one semester or quarter.
Second, hardship distributions are now permitted for anticipated medical
expenses, where the distribution is needed to obtain medical services.
Previously, hardship distributions were permitted only after the services
had been rendered. Third, the Plan Administrator now has discretion to
increase all hardship distributions by the amount of estimated income taxes
and penalties that result from the distribution.
4. Two changes have been made to the manner in which the discrimination tests
are administered. First, in calculating the contribution and deferral
percentages, you may continue to use compensation only for the period
during which the employee was eligible to participate. If you elected this
method for years commencing before 1992, it will automatically be carried
forward unless you make a contrary election in the Supplemental Adoption
Agreement.
Second, if you fail the test and have to return contributions to some
employees, you may avoid returning investment earnings on those
contributions for the "Gap Period" (the period between the end of the plan
year and the date the contributions are returned). Under the amendment, Gap
Period Income will not be paid to the employee unless you make an
affirmative election in the Supplemental Adoption Agreement.
5. The amendment permits the plan administrator to elect to determine who is a
highly compensated employee on the basis of the "Calendar Year" election.
Under the amendment, this election can be made, or not made, regardless of
how Item 8(f) of the adoption agreement has been filled out. The calendar
year election, in some cases, permits you to consider some employees as
non-highly compensated, who otherwise would be highly compensated.
<PAGE>
EXHIBIT 23.1
[Letterhead of Rayburn, Betts & Bates, P.C.]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Cavalry Bancorp, Inc.
Murfreesboro, Tennessee
We consent to the use in this Amendment No. 1 to Registration Statement on
Form S-1 of Cavalry Bancorp, Inc., of our report dated September 25, 1997,
relating to the consolidated financial statements of Cavalry Banking and
Subsidiaries contained in the Prospectus, which is a part of such Registration.
We also consent to the reference to our firm under the heading "EXPERTS"
contained in such Prospectus.
/s/ Rayburn, Betts & Bates, P.C.
Rayburn, Betts & Bates, P.C.
Nashville, Tennessee
January 5, 1998
<PAGE>
Conversion Valuation Report
-----========================-----
Valued as of November 7, 1997
Cavalry Banking
Murfreesboro, Tennessee
Prepared By:
Ferguson & Company
Suite 305
860 West Airport Freeway
Hurst, TX 76054
817-577-9558
<PAGE>
[LETTERHEAD OF FERGUSON & COMPANY APPEARS HERE]
STATEMENT OF APPRAISER'S INDEPENDENCE
Cavalry Banking
---------------
Murfreesboro, Tennessee
-----------------------
We are the appraiser for Cavalry Banking, Murfreesboro, Tennessee, in
connection with its conversion, reorganization and issuance of Public Shares.
We are submitting our independent estimate of the pro forma market value of the
Cavalry Banking's stock to be issued in the conversion and reorganization. In
connection with our appraisal of the to-be-issued stock, we have received a fee
which was not related to the estimated final value. The estimated pro forma
market value is solely the opinion of our company and it was not unduly
influenced by Cavalry Banking, its conversion counsel, its selling agent, or any
other party connected with the conversion.
Cavalry Banking has agreed to indemnify Ferguson & Company under certain
circumstances against liabilities arising out of our services. Specifically, we
are indemnified against liabilities arising from our appraisal except to the
extent such liabilities are determined to have arisen because of our negligence
or willful conduct.
Ferguson & Company
/s/ Charles M. Hebert
Charles M. Hebert
Principal
November 20, 1997
<PAGE>
[LETTERHEAD OF FERGUSON &
COMPANY APPEARS HERE]
November 20, 1997
Board of Directors
Cavalry Banking
114 West College Street
Murfreesboro, Tennessee
Dear Directors:
We have completed and hereby provide, as of November 7, 1997, an independent
appraisal of the estimated pro forma market value of Cavalry Banking ("Cavalry"
or the "Bank"), Murfreesboro, Tennessee, in connection with the conversion of
Cavalry from the mutual form to the stock form of organization ("Conversion").
This appraisal report is furnished pursuant to the regulatory filing of the
Bank's Application for Conversion ("Form AC") with the Office of Thrift
Supervision ("OTS").
Ferguson & Company ("F&C") is a consulting firm that specializes in providing
financial, economic, and regulatory services to financial institutions. The
background and experience of F&C is presented in Exhibit I. We believe that,
except for the fees we will receive for preparing the appraisal and assisting
with Cavalry's business plan, we are independent. F&C personnel are prohibited
from owning stock in conversion clients for a period of at least one year after
conversion.
In preparing our appraisal, we have reviewed Cavalry's Application for
Approval of Conversion, including the Proxy Statement as filed with the OTS. We
conducted an analysis of Cavalry that included discussions with Rayburn, Betts &
Bates, P.C., the Bank's independent auditors, and with Breyer & Aguggia, the
Bank's conversion counsel. In addition, where appropriate, we considered
information based on other available published sources that we believe is
reliable; however, we cannot guarantee the accuracy or completeness of such
information.
We also reviewed the economy in Cavalry's primary market area (assessment
area) and compared the Bank's financial condition and operating results with
that of selected publicly traded thrift institutions. We reviewed conditions in
the securities markets in general and in the market for thrifts stocks in
particular.
Our appraisal is based on Cavalry's representation that the information
contained in the Form AC and additional evidence furnished to us by the Bank and
its independent auditors are truthful, accurate, and complete. We did not
independently verify the financial statements and other information provided by
Cavalry and its auditors, nor did we independently value the Bank's assets or
liabilities. The valuation considers Cavalry only as a going concern and should
not be considered an indication of its liquidation value
It is our opinion that, as of November 7, 1997, the estimated pro forma market
value of Cavalry was $57,000,000, or 5,700,000 shares at $10.00 per share. The
resultant valuation range was $48,450,000 at the minimum (4,845,000 shares at
$10.00 per share) to $65,550,000 at the maximum (6,555,000 shares at $10.00 per
share), based on a range of 15 percent below and above the midpoint valuation.
The supermaximum was $75,382,500 (7,538,250 shares at $10.00 per share).
<PAGE>
Board of Directors
November 20, 1997
Page 2
Our valuation is not intended, and must not be construed, as a recommendation
of any kind as to the advisability of purchasing shares of common stock in the
conversion. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons who purchase
shares of common stock in the conversion will thereafter be able to sell such
shares at prices related to the foregoing estimate of the Bank's pro forma
market value. F&C is not a seller of securities within the meaning of any
federal or state securities laws and any report prepared by F&C shall not be
used as an offer or solicitation with respect to the purchase or sale of any
securities.
Our opinion is based on circumstances as of the date hereof, including current
conditions in the United States securities markets. Events occurring after the
date hereof, including, but not limited to, changes affecting the United States
securities markets and subsequent results of operations of Cavalry, could
materially affect the assumptions used in preparing this appraisal.
The valuation reported herein will be updated as provided in the OTS
conversion regulations and guidelines. All updates will consider, among other
things, any developments or changes in Cavalry's financial performance and
condition, management policies, and current conditions in the equity markets for
thrift shares. Should any such new developments or changes be material, in our
opinion, to the valuation of the shares, appropriate adjustments will be made to
the estimated pro forma market value. The reasons for any such adjustments will
be explained in detail at the time.
Respectfully,
Ferguson & Company
/s/ Charles M. Hebert
Charles M. Hebert
Principal
<PAGE>
FERGUSON & COMPANY
- ------------------
TABLE OF CONTENTS
Cavalry Banking
Murfreesboro, Tennessee
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION 1
SECTION I. - FINANCIAL CHARACTERISTICS 3
PAST & PROJECTED ECONOMIC CONDITIONS 3
FINANCIAL CONDITION OF INSTITUTION 4
Balance Sheet Trends 4
Asset/Liability Management 5
Income and Expense Trends 10
Regulatory Capital Requirements 10
Lending 11
Nonperforming Assets 18
Loan Loss Allowance 18
Mortgage Backed Securities and Investments 21
Savings Deposits 22
Borrowings 23
Subsidiaries 23
Legal Proceedings 23
EARNINGS CAPACITY OF THE INSTITUTION 23
Asset-Size-Efficiency of Asset Utilization 24
Intangible Values 24
Effect of Government Regulations 24
Office Facilities 25
</TABLE>
i
<PAGE>
FERGUSON & COMPANY
- ------------------
TABLE OF CONTENTS - CONTINUED
Cavalry Banking
Murfreesboro, Tennessee
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION II - MARKET AREA 1
DEMOGRAPHICS 1
SECTION III - COMPARISON WITH PUBLICLY TRADED THRIFTS 1
COMPARATIVE DISCUSSION 1
Selection Criteria 1
Profitability 2
Balance Sheet Characteristics 2
Risk Factors 2
Summary of Financial Comparison 3
FUTURE PLANS 3
SECTION IV - CORRELATION OF MARKET VALUE 1
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED 1
Financial Aspects 1
Market Area 3
Management 3
Dividends 3
Liquidity 3
Thrift Equity Market Conditions 4
EFFECT OF INTEREST RATES ON THRIFT STOCK 4
TENNESSEE ACQUISITIONS 5
</TABLE>
ii
<PAGE>
FERGUSON & COMPANY
- ------------------
TABLE OF CONTENTS - CONTINUED
Cavalry Banking
Murfreesboro, Tennessee
<TABLE>
<CAPTION>
PAGE
----
SECTION IV - CORRELATION OF MARKET VALUE - continued
<S> <C>
Adjustments Conclusion 7
Comparison to Banks 7
Valuation Approach 7
Valuation Conclusion 8
</TABLE>
iii
<PAGE>
FERGUSON & COMPANY
- ------------------
LIST OF TABLES
Cavalry Banking
Murfreesboro, Tennessee
<TABLE>
<CAPTION>
TABLE
NUMBER TABLE TITLE PAGE
- ------- ----------- ----
<C> <S> <C>
SECTION I - FINANCIAL CHARACTERISTICS
1 Selected Financial and Other Data 6
2 Selected Operating Ratios 7
3 Loan Maturity Schedule 8
4 Maturities by Rate Type 8
5 Interest Rate Sensitivity 9
5a Net Portfolio Value 10
6 Regulatory Capital Compliance 11
7 Analysis of Loan Portfolio 12
8 Loan Activity 13
9 Average Balances, Yields, Costs 14
10 Rate/Volume Analysis 16
11 Non-Performing Assets 17
12 Schedule of Classified Assets 18
13 Analysis of Allowance for Loan Losses 19
14 Allocation of Allowance for Loan Losses 20
15 Classification of Investment Securities 21
16 Deposit Portfolio 22
17 Jumbo CD's at June 30, 1997 23
18 Office Facilities and Locations 25
SECTION II - MARKET AREA
1 Key Economic Indicators 2
2 Employment by Industry 4
3 Market Area Deposits 5
</TABLE>
iv
<PAGE>
FERGUSON & COMPANY
- ------------------
LIST OF TABLES - continued
Cavalry Banking
Murfreesboro, Tennessee
<TABLE>
<CAPTION>
TABLE
NUMBER TABLE TITLE PAGE
- ------ ----------- ----
<C> <S> <C>
SECTION III - COMPARISON WITH PUBLICLY
TRADED THRIFTS
1 Comparatives General 4
2 Key Financial Indicators 5
3 Pro Forma Comparisons 6
4 Comparative Selection 8
SECTION IV - CORRELATION OF MARKET VALUE
1 Appraisal Adjustments to Earnings 2
2 Acquisitions Since January 1, 1996 9
3 Recent Conversions 12
4 Comparison of Pricing Ratios 15
5 Other Thrift Conversions 17
6 Pink Sheet Banks 18
</TABLE>
v
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBITS
Cavalry Banking
Murfreesboro, Tennessee
EXHIBIT TITLE
Exhibit I - Ferguson & Co., LLP. Qualifications
Exhibit II - Selected National, Region, State, and Comparatives Information
Exhibit III - Financial Highlights Cavalry Banking
Exhibit IV - Comparative Group TAFS and BankSource Reports
Exhibit V - Pro Forma Calculations
Pro Forma Assumptions
Pro Forma Effect of Conversion Proceeds at the Minimum of the Range
Pro Forma Effect of Conversion Proceeds at the Midpoint of the Range
Pro Forma Effect of Conversion Proceeds at the Maximum of the Range
Pro Forma Effect of Conversion Proceeds at the SuperMax of the Range
Pro Forma Analysis Sheet
vi
<PAGE>
SECTION I
FINANCIAL CHARACTERISTICS
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
INTRODUCTION
CAVALRY BANKING
Cavalry Banking ("Cavalry" or "Bank") operates as a federally chartered
mutual savings bank located in Murfreesboro, Tennessee. Founded in 1929 as a
Tennessee-chartered mutual building association, the original title was
"Murfreesboro Building and Loan Association." The Bank converted to a federally
chartered association in 1936, and adopted the name "Murfreesboro Federal
Savings and Loan Association. In 1936, when the Association received its
federal charter, it received insurance of accounts (currently insured by the
FDIC under the SAIF). In 1984, the Bank adopted the name "Cavalry Banking
Federal Savings and Loan Association." In 1991, the Bank adopted the name
"Cavalry Banking, A Federal Savings Bank," and in 1996, the Bank amended its
mutual charter to adopt its current name. The Bank now conducts its business
through its main office, eight branch offices, and one loan production office.
The main office (114 West College Street) and four branches are located in
Murfreesboro, Tennessee; one branch in Shelbyville, Tennessee (Bedford County);
and three branch offices in Smyrna, Tennessee (Rutherford County). The loan
production office is located in Franklin, Tennessee (Williamson County). At
September 30, 1997, the Bank had $275.5 million in total assets, $242.0 million
in deposits, and equity capital of $29.5 million which equated to 10.71% of
total assets.
CAVALRY BANCORP, INC.
Cavalry Bancorp, Inc. ("the Company" or "CB"), a Tennessee Corporation, was
organized by the Bank in 1997 for the purpose of holding all of the common stock
of the Bank. The Company has received conditional approval from the Office of
Thrift Supervision ("OTS") to become a savings and loan holding company through
the acquisition of 100% of the capital stock of the Bank. Upon completion of
the Conversion and Reorganization, the only significant assets of the Company
will be all of the Bank's outstanding Common Stock, 50% of the net proceeds of
the Offering as permitted by the OTS to be retained by it, less the note
evidencing the loan to the ESOP to enable the purchase of 8% of the Common Stock
issued in the Conversion. That portion of the net proceeds from the offering
retained by the company are to be used for general business activities.
Cavalry is not a traditional thrift. The asset composition of the
institution suggests that it is primarily managed as a traditional commercial
bank. A traditional thrift mainly makes long-term residential loans that are
funded primarily with certificates of deposits and savings accounts. A
traditional commercial bank primarily originates commercial business, consumer
and other short-term non-real estate loans funded by non-interest bearing demand
accounts and other short-term liabilities. To illustrate the change in assets,
at December 31, 1992, the one-to-four-family loans were 50.6% of total loans. At
September 30, 1997, one-to-four-family loans represented only 32.7% of total
loans. Funding sources have also changed. At December 31, 1994, certificates of
deposits comprised 61.2%. At September 30, 1997, certificates were only 54.6% of
total deposits. Moreover, unlike a traditional thrift, Cavalry offers trust
services to its customer base.
The Bank offers a variety of loan products to accommodate its customer
base. Single family loans, both fixed rate and adjustable rate mortgages
("ARM's"), are originated. Generally, the ARM's are retained in the Bank's
portfolio, and the fixed rate mortgages are sold into the secondary market. The
bank is active in interim construction lending. At September 30, 1997,
construction loans were $68.8 million, or 26.7% of the total loan portfolio. At
the same period, acquisition and development loans totaled $10.6 million (4.1%
of total loans). Also at September 30, 1997, commercial real estate loans were
$37.1 million (14.4% of total loans), and commercial business loans were $22.1
million (8.6% of total loans). Clearly, the asset
1
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
composition of the Bank and the risk component of the portfolio more closely
resemble that of a traditional commercial bank than the asset composition of a
traditional thrift. Cavalry Banking's management has recognized the higher risk
levels associated with its portfolio by providing a depth of management and an
array of lending skills and expertise often lacking in a traditional thrift. In
addition, the Bank has provided adequate loan and lease loss reserves, not based
on historical data, but in recognition of the inherent risk in a bank-type loan
portfolio.
Cavalry had $59 thousand in non-performing assets at September 30, 1997
(0.02% of total assets) as compared to $51 thousand at September 30, 1996 (0.02%
of total assets). At September 30, 1997, assets classified as "Substandard" were
$863 thousand (0.39% of net loans and 0.31% of total assets). The current level
of nonperforming assets and classified loans is nominal. Management has adequate
control of the problem assets and does a more than adequate job of managing such
assets. The current nonperforming or classified asset level is not likely to
have a significant impact on the future earning capacity or capital position of
the Bank.
Deposit accounts have increased during the four years and nine months from
December 31, 1992, to September 30, 1997, by $61.7 million. Between December
31, 1992, and December 31, 1993, deposits increased from $180.3 million to
$185.2 million. In 1994, deposits decreased $4.9 million. Following 1994,
growth continued between 1994 and 1995 with deposits increasing $16.4 million.
December 31, 1996, saw another increase of $17.8 million to $214.5 million.
Between December 31, 1996, and September 30, 1997, deposits continued growing by
$27.5 million to their current level of $241.95 million.
The Bank's capital to assets ratio has shown steady growth. Equity capital,
as a percentage of average assets, increased from 8.13% at December 31, 1992, to
9.11% at December 31, 1993. Between December 31, 1993, and December 31, 1994,
capital increased as a percentage of assets, to 10.17%. December 31, 1995, saw
equity capital as a percentage of assets climb to 10.91%. Between December 31,
1995, and December 31, 1996, equity capital increased further to 11.12% of
assets. In the nine months ended September 30, 1997, capital decreased to 10.71%
of assets due to asset growth, but it increased in real dollars. The period
between December 31, 1992 and September 30, 1997, reflects an increase in equity
accounts of 31.73%. This growth in equity supported asset growth of 38.71%, and
pre-conversion capital levels remain ample. Equity capital, in dollars, has
increased from $16.2 million to $29.5 million in four years and nine months.
Calvary's profitability, as measured by return on average assets ("ROAA"),
was above its peer group average of thrifts filing TFR's with the OTS,
consisting of OTS supervised thrifts with assets from $100 million to $300
million, between December 31, 1994, and June 30, 1997. For the years ending
December 31, 1994, 1995, 1996, and the six months ended June 30, 1997, Cavalry
ranked in the 80th, 94th, 94th, and 90th, percentile, respectively, in ROAA. In
return on equity (ROAE) for the same periods, Cavalry ranked in the 70th, 87th,
89th, and 78th percentile, respectively./1/ The disparity between the peer
rankings on ROAA and ROAE reflect the higher capital ratios of the institution.
Although considered "Well Capitalized" by any regulatory standard, the lower
performance in ROAE is, of course, the result of having higher than peer average
capital. After conversion, the return on equity ratios will trend downward as
equity capital levels increase.
- -------------------------------
/1/ "TAFS" by Sheshunoff Information Services, Inc., as of June 30, 1997.
2
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
I. FINANCIAL CHARACTERISTICS
PAST & PROJECTED ECONOMIC CONDITIONS
Fluctuations in thrift earnings in recent years have occurred within the
time frames as a result of changing temporary trends in interest rates and other
economic factors. However, the year-to-year results have been upward, while the
general trends in the thrift industry have been improving as interest rates
declined. Interest rates began a general upward movement during late 1993,
followed by a decline in interest margins and profitability. Rates began a
general decline in mid 1995. Since early 1996, rates have moved in a narrow
band. From mid-March until early June there was a slight upward trend, with the
spread between the short end and the long end increasing. Early July saw the
jobless rate dip, and responding to inflation fears, the rates rose slightly. In
late July, Greenspan's comments sparked a rise in the Dow-Jones, but rates
remained steady. Mid-August's report on the rising CPI caused a slight increase
in rates, but they remained within the narrow band. The recent pass by the
Federal Reserve in October 1997, to raise rates provided some stability in rates
and the equities market until the latter days of October when the equities
market demonstrated its ability to stage a market event by falling and rising
rapidly without real stimulus from the economy.
The overall economic environment has been conducive to profitability in the
industry as well as in the area of equity markets. The economy continues to
expand slowly, unemployment is at recent record low levels, and for the moment,
inflation seems to be in restraint. However, there is some preemptive concern
that the lower unemployment rates could be a harbinger of higher inflation
rates. Currently, a consensus indicates that although growing, the economy is
not as robust as some would desire, that inflation is for the moment under
control, and that the chance of a rate increase is nominal, for the moment.
These factors have caused the equities market to rise beyond the expectations of
most reasonable analysts. In addition, there is tremendous pressure on the
general equities market produced by the volume of new dollars entering the
mutual funds market. It is unreasonable to assume that the thrift equities
market would escape the buying pressures that have driven up other markets.
The general rise in the equity market has translated into overall gains in
the thrift equity market. Recently, conversion stocks have become of interest to
some mutual funds and institutional buyers. These factors, coupled with the
circumstances of having fewer conversions in 1996 and 1997, have produced some
dramatic results in the thrift equities market. The number of "conversion stock
speculators" has grown as thrift and bank acquisitions have continued. The hope
of a quick profit has many speculative dollars chasing fewer good conversion
opportunities, bringing into play the principal of supply and demand.
In the recent months, the thrift equities market has generally paralleled
the other major equities markets. Some interim fluctuations have been caused by
changes or anticipated changes in interest rates or other economic conditions
that influence, or that are perceived to influence the market. In the general
equities market, increased prices usually response to improved profits or
anticipated improvements in profits, with price-to-earnings ratios increasing as
increased earnings potentials are anticipated. There is little economic news
that would indicate that the market will stop its upward trend although there
may be periodic adjustments similar to the one in late October. However, it is
not realistic to think that any market can continue to rise at a 15% to 20% rate
per annum for an indefinite period, but accurately anticipating the change is
unlikely.
The thrift industry generally is better equipped to cope with changing
interest rates than it was in the past, and investors have recognized the
demonstrated ability of the thrift industry to maintain interest margins in
spite of rising interest rates. However, much of the industry is still a long
lender and, for the most part, a short borrower. Periods of gradually rising
interest rates can be readily managed, but periods of
3
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
rapidly rising rates and interest rate spikes can negate, to a certain degree,
the positive impact of adjustable rate loans and investments.
FINANCIAL CONDITION OF INSTITUTION
Balance Sheet Trends
As Table I.1 shows, Cavalry demonstrated an increase in assets during the
four year and nine month period between December 31, 1992, and September 30,
1997. Assets increased from $198.60 million at December 31, 1992, to $206.10
million at December 31, 1993, to $208.84 million at December 31, 1994, to
$223.90 million at December 31, 1995, to $244.96 million at December 31, 1996,
and finally to $278.49 million at September 30, 1997. The loan portfolio
reflects an overall upward trend from $162.54 million at December 31, 1992, to
$216.41 million at September 30, 1997. Although the trend in lending has been
up, loans dropped from $162.54 million in 1992, to $154.14 million at December
31, 1993. Loans decreased once more at year end December 31, 1994, to $159.94
million. However, since the end of 1994, loans have recorded a steady increase.
Cavalry's ratio of interest earning assets ("IEA's") to interest bearing
liabilities ("IBL's") has been on an upward trend, reflecting 105.29%, 106.51%,
108.20%, 109.11%, 109.31%, and 108.45% at December 31, 1992, 1993, 1994, 1995,
1996, and September 30, 1997, respectively (see Table I.2). A consistent
average interest spread and a strong net interest margin have served to
ascertain the sustainability of earnings. The general upward trend in IEA's and
the strong net interest margins have provided for excellent returns on average
equity and average assets. The capital infused by the Conversion will improve
profitability measured by return on assets, but the additional capital will
likely have a negative impact on the return on equity calculation. It is
unlikely that in the coming years Cavalry will have to bear expenses like the
SAIF assessment in 1976. Prospects for continued high earnings are excellent
with but one serious caveat--the high levels of risk lending could present some
problems in an uncertain economic environment. However, for the present,
Management apparently has the high-risk lending well monitored and controlled.
Equity accounts increased steadily from $16.16 million at December 31,
1992, to $18.78 million at December 31, 1993, and to $21.24 million in 1994.
Equity further increased to $24.44 million in 1995, to $27.25 million at
December 31, 1996. Equity was $29.50 million at the end of September 30, 1997.
During this period, net interest margins, net interest spread, and net interest
income have been stable, reflecting some changes due to interest rate
variations, but have maintained remarkable stability. Profitability has trended
upwards during the entire five year and nine month period. The SAIF assessment
recorded in 1996 did not produce a noticeable impact on net income when the net
income for the year is compared to other years. Net interest income was $2.24
million in 1992, $2.62 million in 1993, $2.46 million in 1994, $3.20 million in
1995, and $2.81 million in 1996, and $2.26 million for the first nine months of
1997. The income for the year ended December 31, 1996, was negatively impacted
by the SAIF assessment of $1.65 million. The earnings for the 12 months ending
September 30, 1997, included an excessive allocation to the reserve for loan and
lease losses of $390 thousand, pretax. Adjusting the trailing 12 months for the
excess loan loss allocation, earnings for the 12 months ending September 30,
1997, were $3.47 million. This level of income is close to the historical
earnings capacity of the Bank. Net interest spread paralleled net interest
income at 3.85% in 1992, 4.18% in 1993, 4.28% in 1994, 4.11% in 1995, 4.50% in
1996, and 4.75% for the first nine months of 1997. Net interest margin, which is
net interest income divided by average interest earning assets, was 4.07%,
4.38%, 4.54%, 4.44%, 4.83%, and 4.75% at December 31, 1992, 1993, 1994, 1995,
1996, and September 30, 1997, respectively. Net interest margins are high for a
thrift by any reasonable comparison and reflect the commercial banking
characteristics of the loan portfolio. Deposit composition has not changed as
much as loans. Cavalry is still dependent on certificates of deposit and does
not have the transaction accounts of a bank.
4
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Asset/Liability Management
Managing interest rate risk is a major and necessary component of the
strategy used in operating a financial institution. Most of a thrift's interest
earning assets are long term, while most of the interest bearing liabilities
have short to intermediate terms to contractual maturity. To compensate,
asset/liability management techniques include: (1) making long-term loans with
interest rates that adjust to market periodically, (2) investing in assets with
shorter terms to maturity, (3) lengthening the terms of savings deposits, and
(4) seeking to employ any combination of the aforementioned techniques
artificially through the use of synthetic hedge instruments.
Table I.3 contains information on contractual loan maturities at September
30, 1997. However, this table must be read in conjunction with Table I.4, Table
I.5, and Table I.5(a). Table I.3 shows that $85.4 million of the loan portfolio
(38.14%) matures in one year. Loans with maturities more than one year through
three years total $32.57 million (14.53% of the portfolio). Loans with
maturities between three and five years total $27.70 million (12.36% of the
portfolio). Five through 10 years maturities total $19.44 million (8.67% of the
portfolio). Loans that mature in excess of 10 years total $58.94 million (26.30%
of the portfolio). Table I.4 shows that loans that mature after September 30,
1998 (one year) total $138.65 million, and $57.92 million of the $138.65 million
are fixed rate loans, and the remaining $80.72 million are adjustable rate
loans. Table I.5, shows the interest rate sensitivity of the interest earning
assets ("IEA's") in comparison to the interest bearing liabilities ("IBL's").
This table reveals that in the first year there are $111.20 million in IEA's
maturing to offset the $129.27 million in IBL's that are also maturing. This
asset-liability mix results in a one year cumulative negative gap position of
only $18.07 million, which is 7.10% cumulative gap to total assets. The negative
gap position progresses until the end of the five year maturities to a total
cumulative negative gap position of $40.68 million, or a negative 15.99% gap to
total assets. This is a very limited interest rate risk position. This limited
level of interest rate risk is not usual in thrift portfolios. Efforts on the
part of Management to mitigate interest rate risk have been successful and are
reflected in the asset composition. The lack of interest rate risk reflected in
Tables I.3, I.4, and I.5 are confirmed by table I.5(a), which shows only a
limited amount of change in the net portfolio value in a scenario where interest
rates increase 200 basis points and 400 basis points. At the 400 basis point
level the net portfolio value would decrease only $7.65 million. In addition,
the additional capital that comes with the Conversion can be used to help with
interest rate risk.
The Bank has no significant interest rate risk and would suffer minor
deterioration in profitability, as well as an erosion in the value of its
portfolio equity.
5
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.1 - SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
At
At December
September 31,
30 ----------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets. 275,490 244,964 223,882 208,844 206,078 198,600
Loans receivable, net. 216,411 200,600 159,943 165,481 154,139 162,537
Loans held-for-sale. 4,149 5,253 3,689 1,452 4,804 7,378
Investment securities held-to-maturity. 3,700 7,705 35,550 19,898 13,535 7,522
Investment securities available-for-sale. 10,107 0 0 0 0 0
Mortgage-backed securities held-to-maturity. 1,333 1,419 1,541 1,665 2,108 2,446
Mortgage-backed securities available for sale. 0 0 0 0 0 0
Cash, federal funds sold and overnight
interest-bearing deposits 26,690 19,519 13,935 11,978 22,660 9,954
Deposit accounts. 241,950 214,533 196,734 180,283 185,174 180,294
Borrowings. 0 0 0 5,000 0 0
Total equity, substantially restricted 29,501 27,250 24,436 21,236 18,778 16,155
</TABLE>
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income 16,160 14,380 19,584 17,222 15,394 14,963 15,849
Interest expense 6,815 6,117 8,268 7,696 6,299 6,317 8,116
Net interest income 9,345 8,263 11,316 9,526 9,095 8,646 7,733
Provision for loan losses 700 90 120 80 113 690 366
Net interest income
after provision for losses 8,645 8,173 11,196 9,446 8,982 7,956 7,367
Gains (losses ) from sale of loans 674 733 890 882 531 1,552 945
Gains (losses ) from sale of securities 0 0 0 0 0 0 46
Other income. 1,840 1,580 2,267 2,082 1,484 1,618 1,418
Other expenses. 7,154 7,517 9,786 7,498 7,001 7,000 6,263
Income before income taxes
and extraordinary item 4,005 2,969 4,567 4,912 3,996 4,126 3,513
Provision for income taxes (benefit) 1,748 1,129 1,754 1,711 1,538 1,504 1,272
Income before extraordinary items 2,257 1,840 2,813 3,201 2,458 2,622 2,241
Extraordinary item, net of tax 0 0 0 0 0 0 0
Net income. 2,257 1,840 2,813 3,201 2,458 2,622 2,241
</TABLE>
6
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.2 - Selected Operating Ratios and Other Data
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------- --------------------------------------------------------
1997 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Number of:
Real estate loans outstanding 4,816 4,693 4,559 4,690 5,912 5,469
Deposit accounts 22,772 20,687 18,891 17,812 17,610 16,960
Full-service offices. 9 7 7 6 6 6
<CAPTION>
At or For Nine
Months Ended
September 30,
---------------
1997 1996
------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
KEY FINANCIAL RATIOS(1):
Performance Ratios:
Return on average assets(2) 1.168% 1.058% 1.200% 1.479% 1.185% 1.296% 1.154%
Return on average equity(3). 10.791% 9.676% 10.885% 14.017% 12.286% 15.012% 14.905%
Interest rate spread(5). 4.844% 4.466% 4.498% 4.111% 4.279% 4.175% 3.847%
Net interest margin(6). 4.749% 4.834% 4.826% 4.438% 4.537% 4.383% 4.073%
Average interest-earning assets
to average interest-bearing
liabilities. 108.448% 110.077% 109.305% 109.111% 108.199% 106.519% 105.293%
Noninterest expense as a
percent of average total
assets. 2.597% 3.133% 3.995% 3.349% 3.352% 3.397% 3.154%
Efficiency ratio(7) 60.325% 71.076% 67.616% 60.032% 63.015% 59.242% 61.753%
Asset Quality Ratios:
Nonaccrual and 90 days or more
past due loans as a percent
of total loans, net 0.027% 0.015% 0.025% 0.066% 0.223% 0.487% 0.841%
Nonperforming assets as a
percent of total assets. 0.021% 0.013% 0.021% 0.048% 0.224% 0.721% 1.231%
Allowance for losses as a
percent of gross
loans receivable. 1.089% 1.038% 0.866% 1.005% 0.932% 0.924% 0.812%
Allowance for losses as a
percent of nonperforming loans 4747.46% 6986.67% 8492.00% 672.39% 829.91% 491.52% 191.92%
Net charge-offs to average
outstanding loans -0.010% -0.001% 0.003% 0.089% -0.011% -0.313% -0.125%
Capital Ratios:
Total equity-to-assets ratio. 10.71% 10.95% 11.12% 10.91% 10.17% 9.11% 8.13%
Average equity to average
assets.(4) 10.90% 11.04% 11.02% 10.55% 9.64% 8.63% 7.74%
</TABLE>
(1) Annualized, where appropriate, for the nine months ended September 30,
1997, and 1996
(2) Net earnings divided by average total assets.
(3) Net earnings divided by average equity.
(4) Average total equity divided by average total assets.
(5) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(6) Net interest income as a percentage of average interest-earning assets.
(7) Other expenses divided by the sum of net interest income and other income.
Source: Offering Circular
7
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.3 - Loan Maturity Schedule
<TABLE>
<CAPTION>
After After
One Year 3 Years 5 Years
Within Through Through Through
One Year 3 Years 5 Years 10 Years 10 Years Total
-------- -------- -------- -------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential.......................... $ 6,801 $10,488 $11,972 $14,802 $56,831 $100,894
Construction............................ $44,144 $ 3,672 $ - $ - $ - $ 47,816
Commercial........................... $14,212 $ 6,272 $ 9,117 $ 4,046 $ 289 $ 33,936
Consumer and other loans................ $ 9,462 $ 6,956 $ 4,608 $ 203 $ 165 $ 21,394
Commercial business loans............... $10,858 $ 5,177 $ 2,004 $ 387 $ 1,656 $ 20,082
Total............................... $85,477 $32,565 $27,701 $19,438 $58,941 $224,122
</TABLE>
Source: Offering circular
Table I.4 - Loan Maturities by Rate Type
<TABLE>
<CAPTION>
All Loans Due After September 30, 1998
Fixed Floating or
Rates Adjustable Rates
----------------- ----------------
(In thousands)
<S> <C> <C>
Mortgage loans:
Residential $ 21,508 $ 72,586
Construction 0 3,673
Commercial 18,886 838
Consumer and other loans 8,358 3,574
Commercial business loans 9,171 52
---------- ----------
Total $ 57,923 $ 80,723
========== ==========
</TABLE>
Source: Offering circular
8
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.5 Interest Rate Sensitivity
<TABLE>
<CAPTION>
Within 6 Months One to Three Over
Six to One Three to Five Ten
Months Year Years Years Years Total
------- --------- -------- -------- ------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net. 46,632 38,484 31,846 26,981 76,616 220,559
Mortgage-backed securities 15 15 67 77 1,159 1,333
FHLB Stock 160 160 641 641 - 1,602
Investment securities 3,698 5,038 5,072 - - 13,808
Federal funds sold and overnight
interest-bearing deposits 17,000 - - - - 17,000
----------------------------------------------------------
Total rate sensitive assets 67,505 43,697 37,626 27,699 77,775 254,302
==========================================================
Interest-bearing liabilities:
Deposits:
NOW accounts 2,999 2,999 11,996 11,996 - 29,990
Passbook savings accounts 1,520 1,520 6,081 6,081 - 15,202
Money market deposit accounts 3,990 3,990 15,961 15,961 - 39,902
Certificates of deposit. 66,916 45,334 17,412 2,446 - 132,108
Other
----------------------------------------------------------
Total rate sensitive liabilities. 75,425 53,843 51,450 36,484 217,202
==========================================================
Excess (deficiency) of interest sensitive
assets over interest sensitive
liabilities (7,920) (10,146) (13,824) (8,785) 77,775 37,100
Cumulative excess(deficiency) of
interest sensitive assets (7,920) (18,066) (31,890) (40,675) 37,100 37,099
Cumulative ratio of interest-earning
assets
to interest-bearing liabilities 89.50% 86.02% 82.35% 81.27% 117.08% 117.08%
Interest sensitivity gap to total assets -3.11% -3.99% -5.44% -3.45% 30.58% 14.59%
Ratio of interest-earning assets to
interest -bearing liabilities 89.50% 81.16% 73.13% 75.92% N/A 117.08%
Ratio of cumulative gap to total assets. -3.11% -7.10% -12.54% -15.99% 14.59% 14.59%
</TABLE>
9
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.5 (a) - Net Portfolio Value
As of June 30, 1997
<TABLE>
<CAPTION>
Changes (In Basis Points) Estimated Change in
in Interest Rates /(1)/ Net Portfolio Value
----------------------- -------------------
(Dollars in Thousands)
<S> <C>
+400 bp -7,654
+300 bp -5,302
+200 bp -3,120
+100 bp -1,297
0 bp 0
-100 bp 632
-200 bp 709
-300 bp 842
-400 bp 1,738
</TABLE>
/(1)/ Assumes an instantaneous and sustained uniform change in interest rates
at all maturities.
Source: Office of Thrift Supervision, Risk Management Division
Income and Expense Trends
Cavalry was profitable for the five years and nine months ending September
30, 1997. Profits stated as a return on average assets have been remarkably
stable. Return on average assets was 1.15%, 1.30%, 1.19%, 1.48%, 1.20% and
1.17%, at December 31, 1992, 1993, 1994, 1995, 1996, and for the nine months
ending September 30, 1997, respectively (see Table I.2). As discussed earlier,
this earnings performance is above thrift peer average and reflects the bank-
like composition of the portfolio. In addition, having the ability to reprice a
large portion of the loan portfolio frequently adds to the overall
profitability, especially in the rate environment of the last three to five
years. The earnings for the year ending December 31, 1996, is one of the lowest
in the five years and nine months reported above, yet the earning level was
acceptable and that was the period that absorbed the SAIF assessment. The
ability to generate core earnings will further improve with the anticipated
infusion of capital generated by the Conversion. It is likely that Cavalry will
continue to outperform its peers when measured in relation to return on average
assets.
Regulatory Capital Requirements
As Table I.6 demonstrates, Cavalry Banking meets all regulatory capital
requirements and meets the regulatory definition of a "Well Capitalized"
institution. Moreover, the additional capital raised in the stock conversion
will add to the existing capital cushion.
10
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
<TABLE>
<CAPTION>
Table I.6 - Regulatory Capital Compliance
September 30, 1997
Capital
--------------------------------------------------
Required Actual Excess
-------- ------ (Deficit)
---------
(In thousands)
<S> <C> <C> <C>
Tangible Capital $ 4,089 $29,507 $25,418
Core Capital $ 8,178 $29,507 $21,329
Risk-based Capital $19,746 $32,308 $12,562
</TABLE>
Source: Cavalry Banking TFR, Form S-1, and F&C calculations.
Lending
Table I.7 provides an analysis of the Bank's loan portfolio by type of
loan security. This analysis shows that Cavalry's loan composition still
reflects a commitment to one-to-four-family dwelling loans. However, there is a
noticeable increase in the amount of commercial real estate loans, construction
loans, land loans, and consumer loans that are being added to the portfolio.
This trend is consistent with the Bank's business strategy of developing a loan
portfolio that is similar to a community oriented bank. In effect, Cavalry will
be a thrift that is operating like a commercial bank.
Table I.8 provides information with respect to loan originations,
purchases, and repayments. It also clearly shows the changing structure of the
loan portfolio. Moreover, the table relates the impact upon the types of loans
originated by changing interest rates. In the year ended December 31, 1995, the
Bank originated $178.0 million in loans. As rates fell in the years ending
December 31, 1995, and 1996, we can see the impact of the refinancing activity.
In 1996, $235.86 million in loans were originated. A large portion of the
increase in these two years can be attributed to refinancing activity. This is
the only year showing a marked increase in residential originations. However, in
1995, and in 1996, the Bank sold $145.93 million and $71.23 million,
respectively. This was consistent with the strategy of selling the majority of
fixed rate residential loans into the secondary market. The only conclusion that
can be drawn from the information in Table I.8 is that the strategy of changing
the portfolio is in place and is working.
Table I.9 provides rates, yields, and average balances for the three years
ended December 31, 1994, 1995, 1996, and for the nine month periods that ended
September 30, 1996, and 1997. Net interest income increased from $9.07 million
at December 31, 1994, to $9.53 million at December 31, 1995. From December 31,
1995, to December 31, 1996, it increased once again to $11.40 million. For the
nine months ending September 30, 1997, net interest income was $9.36 million,
which annualized to $12.47 million. Net interest margins show the same rate of
improvement. Net interest margins were 4.58%, 4.78%, 5.19%, and 5.24%, at the
end of December 31, 1994, 1995, 1996, and the nine months ended September 30,
1997, respectively. Also contributing to the increase in earnings is the
general upward trend in the relationship between interest earning assets
("IEA's"), and interest bearing liabilities ("IBL's"). In 1994, IEA's were
115.31% of IBL's. In 1995, they were 116.64%, and 117.96% in 1996. This ratio
fell slightly in the nine months ending September 30, 1997, when IEA's were
116.77% of IBL's. The impact of higher priced loan transactions, and more
adjustable rate transactions can be seen. Coupled with a general rise in a more
efficient use of assets, the profitability of the Bank seems sustainable. The
high risk portion of the portfolio could eventually present some problems, but
currently that risk seems to be well managed--but not impervious to problems.
11
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
<TABLE>
<CAPTION>
Table I.7 - Loan Portfolio Composition
At December 31,
-----------------------------------------
1996 1995
----------- --------
Amount Percent Amount Percent
----------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage Loans:
One-to four-family 81,278 33.1% 72,302 36.4%
Multi-family 2,847 1.2% 1,705 0.9%
Commercial 30,099 12.3% 22,140 11.1%
Construction 61,032 24.9% 47,416 23.9%
Land. 18,799 7.7% 13,815 6.9%
------------------------------------------
Total mortgage loans 194,055 79.1% 157,378 79.2%
------------------------------------------
Consumer Loans:
Home equity and second mortgage 1,964 0.8% 941 0.5%
Automobile 3,716 1.5% 2,736 1.4%
Credit card 0 0.0% 0 0.0%
Loans secured by deposits 32 0.0% 70 0.0%
Unsecured 1,779 0.7% 1,996 1.0%
Other 23,005 9.4% 20,912 10.5%
------------------------------------------
Commercial Business Loans. 20,697 8.4% 14,771 7.4%
------------------------------------------
Total loans 245,248 100.0% 198,804 100.0%
==========================================
Less:
Undisbursed portions of loans in process 36,573 32,615
Net deferred loans fees 701 561
Allowance for loan losses 2,123 1,997
------------- -----------
Total loans receivable, net 205,851 163,631
============= ===========
------------- -----------
Loans available for sale 5,253 3,689.00
------------- -----------
</TABLE>
Source: Offering Circular
12
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.8 - Loan Activity -Origination's - Sales - Repayments
Table I.8 clearly demonstrates why Cavalry cannot be considered a
traditional thrift. The information reveals that commercial real estate loans,
construction loans, consumer and business type loans are becoming more common
and are the growing portion of the loan portfolio. The residential loan
portfolio, although still a significant portion of the portfolio of the Bank, is
being replaced by more traditional banking-type assets. The major portion of
loans sold are fixed-rate one-to-four residential loans.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
------------------ -----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans Originated:
Mortgage loans:
One- to four- family 54,597 57,501 73,075 63,175 57,145
Multi-family - - - - 730
Commercial 7,291 13,749 20,041 17,314 12,333
Construction 59,137 63,335 78,901 66,798 63,196
Land - - - - -
Consumer 21,326 16,641 22,625 15,842 15,653
Commercial business loans. 30,599 30,601 41,222 14,875 16,142
-----------------------------------------------------------
Total loans originated 172,950 181,827 235,864 178,004 165,199
-----------------------------------------------------------
Loans purchased.
Mortgage loans
One- to four-family - 3,947 3,947 - -
Multi-family - - - - -
Commercial. - - - - -
Construction - - - - -
Land - - - - -
Consumer - - - - -
Commercial business loans - - - - -
-----------------------------------------------------------
Total loans purchased. - 3,947 3,947 - -
-----------------------------------------------------------
Total loans originated. 172,950 185,774 239,811 178,004 165,199
-----------------------------------------------------------
Loans sold:
Total whole loans sold. 46,208 49,670 71,234 145,932 48,939
Participation loans - - - -
-----------------------------------------------------------
Total loans sold 46,208 49,670 71,234 145,932 48,939
-----------------------------------------------------------
Loan principal repayments 64,499 52,670 81,711 72,743 46,981
-----------------------------------------------------------
Increase (decrease) in other items, net (47,535) (48,012) (44,646) 37,372 (61,293)
-----------------------------------------------------------
Net increase (decrease) in loans receivable, net 14,708 35,422 42,220 (3,299) 7,986
-----------------------------------------------------------
</TABLE>
Source: Offering Circular
13
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.9 - Rates, Yields, & Average Balances
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividend Cost Balance Dividend Cost
---------- ---------- ----------- ---------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(1) 212,161 15,062 9.47% 180,579 13,691 10.11%
Mortgage-backed securities 1,387 70 6.73% 1,509 78 6.89%
Investment securities 6,857 316 6.14% 24,754 1,039 5.60%
FHLB stock. 1,544 83 7.17% 1,442 76 7.03%
Federal funds sold and overnight
interest-bearing deposits. 15,658 629 5.36% 7,948 332 5.57%
Total interest-earning assets 237,607 16,160 9.07% 216,232 15,216 9.38%
Non-interest-earning assets 17,823 14,766
Total assets 255,430 230,998
Interest-bearing liabilities:
Passbook accounts 15,354 217 1.88% 16,821 272 2.16%
Money Market accounts 33,243 1,040 4.17% 25,286 795 4.20%
NOW accounts. 27,892 356 1.70% 25,849 386 1.99%
Certificates of Deposits 126,987 5,192 5.45% 115,675 4,664 5.39%
Total deposits 203,476 6,805 4.46% 183,631 6,117 4.45%
Securities sold under agreements to repo. 0 0 0
FHLB advances. 0 0 0
Total interest-bearing liabilities 203,476 6,805 4.46% 183,631 6,117 4.45%
Non-interest-bearing liabilities. (.2) 23,625 21,890
Total liabilities 227,101 205,521
Retained earnings 28,329 25,477
Total liabilities and retained earnings 255,430 230,998
Net interest income 9,355 9,099
Interest rate spread 4.61% 4.93%
Net interest margin 5.24% 5.62%
Ratio of average interest-earning assets to
average interest bearing liabilities 116.77% 117.75%
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividend Cost Balance Dividend Cost
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(1) 186,393 17,768 9.53% 158,043 14,901 9.43%
Mortgage-backed securities 1,497 101 6.75% 1,626 109 6.70%
Investment securities 21,933 1,236 5.64% 29,090 1,550 5.33%
FHLB stock. 1,454 102 7.02% 1,357 93 6.85%
Federal funds sold and overnight
interest-bearing deposits. 8,293 464 5.60% 9,160 570 6.22%
Total interest-earning assets 219,570 19,671 8.96% 199,276 17,223 8.64%
Non-interest-earning assets 15,028 13,648
Total assets 234,598 212,924
Interest-bearing liabilities:
Passbook accounts 16,581 351 2.12% 17,943 398 2.22%
Money Market accounts 25,851 1,090 4.22% 16,352 681 4.16%
NOW accounts. 26,257 505 1.92% 22,052 464 2.10%
Certificates of Deposits 116,828 6,287 5.38% 113,498 6,096 5.37%
Total deposits 185,517 8,233 4.44% 169,845 7,639 4.50%
Securities sold under agreements to repo. 0 0 0 0
FHLB advances. 628 36 5.73% 1,000 56 5.60%
Total interest-bearing liabilities 186,145 8,269 4.44% 170,845 7,695 4.50%
Non-interest-bearing liabilities. (.2) 22,726 19,556
Total liabilities 208,871 190,401
Retained earnings 25,727 22,523
Total liabilities and retained earnings 234,598 212,924
Net interest income 11,402 9,528
Interest rate spread 4.52% 4.14%
Net interest margin 5.19% 4.78%
Ratio of average interest-earning assets to
average interest bearing liabilities 117.96% 116.64%
<CAPTION>
Year ended December 31,
--------------------------------
1994
--------------------------------
Interest
Average and Yield/
Balance Dividend Cost
---------- ---------- -------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(1) 163,370 13,881 8.50%
Mortgage-backed securities 1,882 86 4.57%
Investment securities 22,873 1,014 4.43%
FHLB stock. 1,299 74 5.70%
Federal funds sold and overnight
interest -bearing deposits. 8,540 339 3.97%
Total interest-earning assets 197,964 15,394 7.78%
Non-interest-earning assets 11,577
Total assets 209,541
Interest-bearing liabilities:
Passbook accounts 21,202 472 2.23%
Money Market accounts 12,258 396 3.23%
NOW accounts. 21,535 431 2.00%
Certificates of Deposits 114,438 4,908 4.29%
Total deposits 169,433 6,207 3.66%
Securities sold under agreements to repo. 0
FHLB advances. 2,245 119 5.30%
Total interest-bearing liabilities 171,678 6,326 3.68%
Non-interest-bearing liabilities. (.2) 16,553
Total liabilities 188,231
Retained earnings 21,310
Total liabilities and retained earnings 209,541
Net interest income 9,068
Interest rate spread 4.09%
Net interest margin 4.58%
Ratio of average interest-earning assets to
average interest bearing liabilities 115.31%
</TABLE>
(1) Does not include interest on loans 90 days or more past due. Includes loans
originated for sale
(2) Includes non-interest bearing deposits of $19 million and $17 million for
the nine months ended September 30,1997 and 1996, respectively, and $18
million,$15 million, and $14 million for the years ended December 31, 1996,
1995 and 1994, respectively. Source: Offering Circular/
14
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.10 provides a rate volume analysis, measuring differences in interest
earning assets ("IEA's") and interest bearing liabilities ("IBL's"), and the
interest rates thereon comparing the year ended December 31, 1995, with December
31, 1994, and then comparing the year ended December 31, 1996, with December 31,
1995, and finally comparing the nine months ending September 30, 1997, with the
nine months ending September 30, 1996. The table shows the effect of the
changes in interest income and funding cost between 1995 and 1994 produced an
increase in net interest income of $427 thousand. A positive $1.70 million in
interest income can be attributed to rate (rates increased), and a positive $102
thousand can be attributed to volume (loans increased). The increase in
interest income totaled $1.80 million. For the same period, the interest
expense increased $1.41 million due to rate and decreased $31 thousand due to
volume. The increase in interest expense was $1,377 million. Increased income
of $1.80 million and increased interest expense of $1.38 million result in the
income increase of $427 thousand. Comparing 1996 with 1995, income increased
$2.39 million (both rate and volume increased) and interest expense increased
$585 thousand ($689 thousand due to volume and a decrease of $103 thousand due
to falling rates), resulting in an increase in income of $1.80 million. The
nine months ending September 30, 1996, compared to the same period in 1997, saw
income decrease $670 thousand due to rates falling and income increase $2.00
million due to increases in volumes, netting $1.34 million in increase interest
income. Interest expense increased $901 thousand, both rates and volumes were
slightly higher. The net effect was an increase in net interest income of $434
thousand for the period. Clearly, the major factor in changes in net interest
income in 1994, 1995, 1996, and the nine months ending September 30, 1997, has
been increases in volume. This is reflecting the growth of Cavalry and it also
is indicative of the large number of adjustable rate loans.
15
<PAGE>
FERGUSON & COMPANY
- ------------------
Table I.10 Rate Volume Analysis
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
1997 Compared to Nine Months 1996 Compared to Year
Ended September 30, 1996 Ended December 31, 1995
Increase (Decrease) Increase (Decrease)
Due to Due to
Rate Volume Total Rate Volume Total
---- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $ (1,156) $ 3,193 $ 2,037 $ 158 $ 2,673 $ 2,831
Mortgage-backed securities $ (2) (9) $ (11) $ 2 $ (9) $ (7)
Investments $ 134 $ (1,002) $ (869) $ 90 $ (381) $ (291)
FHLB stock. $ 2 $ 7 $ 9 $ 2 $ 7 $ 9
Federal funds sold and overnight.
interest-bearing deposits. $ (17) $ 429 $ 413 $ (57) $ (54) $ (111)
Total net change in income
on interest-earning assets $ (670) $ 2,005 $ 1,335 $ 638 $ 1,753 $ 2,391
Interest-bearing liabilities:
Passbook accounts. $ (47) $ (32) $ (79) $ (18) $ (30) $ (48)
NOW accounts $ (74) $ 41 $ (33) $ (40) $ 88 $ 49
Money market accounts. $ (8) $ 334 $ 327 $ 10 $ 395 $ 405
Certificate accounts. $ 69 $ 505 $ 574 $ 11 $ 179 $ 190
Securities sold under agreements
to repurchase. $ - $ - $ - $ - $ - $ -
FHLB advances. $ - $ - $ - $ 1 $ (21) $ (20)
Total net change in expense
on interest-bearing liabilities. $ 18 $ 883 $ 901 $ (103) $ 689 $ 586
Net Change in net interest income. $ (688) $ 1122 $ 434 $ 740 $ 1,065 $ 1,805
<CAPTION>
Year Ended December 31,
1995 Compared to Year
Ended December 31,1994
Increase (Decrease)
Due to
Rate Volume Total
---- ------ -----
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $ 1,519 $ (453) $ 1,067
Mortgage-backed securities $ 40 $ (12) $ 28
Investments $ 206 $ 275 $ 481
FHLB stock. $ 15 $ 3 $ 18
Federal funds sold and overnight.
interest-bearing deposits. $ 192 $ 25 $ 217
Total net change in income
on interest-earning assets $ 1,702 $ 102 $ 1,805
Interest-bearing liabilities:
Passbook accounts. $ (2) $ (73) $ (75)
NOW accounts $ 22 $ 10 $ 32
Money market accounts. $ 114 $ 132 $ 246
Certificate accounts. $ 1,236 $ (40) $ 1,196
Securities sold under agreements
to repurchase. $ - $ - $ -
FHLB advances. $ 7 $ (66) (59)
Total net change in expense
on interest-bearing liabilities. $ 1,408 $ (31) $ 1,377
Net Change in net interest income. $ 295 $ 133 $ 427
</TABLE>
(1) Does not include interest on 90 days or more past due. Includes loans
originated for sale.
16
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.11 - Non-Performing Assets
<TABLE>
<CAPTION>
At
September 30, At December 31,
------------- ---------------
1997 1996 1995 1994 1993 1992
-------- -----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One- to four- family - 9 37 204 657 968
Multi-family - - - - -
Commercial - - 61 4 187
Construction - - - - -
Land - - - -
Consumer loans 59 42 71 108 113 274
Home equity and second mortgage. - - - -
Automobile - -
Credit card - - - -
Loans secured by deposits - - - -
Unsecured - -
Other - - - -
-------------------------------------------------------------
Total 59 51 108 373 774 1,429
-------------------------------------------------------------
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans - - - - -
Consumer loans - - - - - -
Commercial business loans - - - -
-------------------------------------------------------------
Total - - - - - -
-------------------------------------------------------------
Total of nonaccrual and 90 days past
due loans 59 51 108 373 774 1,429
Real estate owned - - - 95 711 1,015
Other repossessed assets - - - - -
-------------------------------------------------------------
Total nonperforming assets 59 51 108 468 1,485 2,444
-------------------------------------------------------------
Restructed loans - - - 95 711 1,015
-------------------------------------------------------------
Nonaccrual and 90 days or more past due loans - - - - - -
as a percentage of loans receivable, net - - - - - -
Nonaccrual and 90 days or more past due loans - - - - - -
as a percentage of total assets - - - - - -
-------------------------------------------------------------
Nonperforming assets as a percentage of
total assets - - - - - -
-------------------------------------------------------------
Loans receivable net 220,560 205,847 163,622 166,921 158,923 170,217
-------------------------------------------------------------
Total assets 275,490 242,750 223,845 208,828 206,073 199,161
-------------------------------------------------------------
</TABLE>
Source: Offering Circular
17
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Non-performing Assets
As shown in Table I.11 above, Cavalry's total non-performing loans as of
September 30, 1997, were a nominal $59 thousand and represented 0.027% of total
loans and 0.021% of total assets. All of the non-performing loans as of that
date were secured. The level of non-performing assets does not appear to be a
significant threat to the capitalization or future earnings of the institution.
Table I.12 - Schedule of Classified Assets
<TABLE>
<CAPTION>
At September 30, At December 31,
1997 1996 1995
---------------- ------------------------
(In thousands)
------------
<S> <C> <C> <C>
Loss. Assets - - -
Doubtful Assets - - -
Substandard assets 863 735 748
Special mention Assets 1,398 245 252
General loss allowances 2,801 2,128 2,006
Specific loss allowances - - -
</TABLE>
Source: Offering Circular
The volume of total classified assets is nominal for an institution this size,
and the classified assets are centered in Special Mention at $1,398 million
(0.63% of loans and 0.51% of total assets), with an additional Substandard
classification of $863 thousand (0.39% of loans and 0.31% of assets). It is
apparent that Management has developed adequate management techniques for
dealing with the classified assets of the Bank. In addition, the low level of
classified assets is currently indicative that Management has also developed
techniques for managing the high--risk portion of the portfolio. Equally as
important is the fact that the majority of the assets classified by the examiner
had already been identified as problem assets by Management. In other words,
the portfolio is believed to hold only a minimum of asset quality surprises.
Loan Loss Allowance
The following table (Table I.13) sets forth an analysis of the Bank's
allowance for possible loan losses for the periods indicated: As of September
30, 1997, the provision for loan and lease losses was equal to1.27% of gross
loans and 47 times non-performing loans. Considering the conservative
underwriting of Management and the management of credit risk in the recent past,
the Allowance for Loan and Lease Losses is adequate.
Significant increases to the loan loss reserves were made during the quarter
ended September 30, 1997. These increases in loan loss reserves were not
dictated by historical experience or anticipated losses, but instead were
provisions made adjust the percentage to levels that were more near a banking
peer average.
29
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.13 - Analysis of Allowance for Loan Losses
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
------------- -----------------------
1997 1996 1996 1995 1994 1993 1992
----------------------- ------------------------------------------
(Dollars in thousands)
--------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance at beginning of period. 2,122 1,997 1,997 1,776 1,681 1,520 1,353
Provision for loan losses 700 90 120 80 113 690 366
Recoveries
Mortgage loans
One-to four-family 2 14 8 8 6 -
Multi-family - 68 26 - -
Commercial 1 101 7 - -
Construction 3 - - -
Land - - - - -
Consumer loans 14 -
Home equity and second mortgage - - - - -
Automobile - - - - -
Credit card - - - -
Loans secured by deposit accounts - - - -
Unsecured 194 191 - - - -
Other 15 12 12 17 12
Commercial business loans 1 - - 1 -
-------------------------------------------------------------------
Total recoverie 15 211 218 192 59 18 9
-------------------------------------------------------------------
Charge-offs
Mortgage loans
One-to four-family 10 - 54 -
Multi-family - - - -
Commercial. - - - -
Construction - 6 - -
Land - - - -
Consumer loans 10 - - -
Home equity and second mortgage - - - -
Automobile 25 - -
Credit card 1 - - - -
Loans secured by deposit accounts - - -
Unsecured. 196 196 - - -
Other 16 7 34 23 547 208
Commercial business loans - - 7 - -
-------------------------------------------------------------------
Total charge-offs 36 212 213 51 77 547 208
-------------------------------------------------------------------
Net charge-offs (21) (1) 5 141 (18) (529) (199)
-------------------------------------------------------------------
Balance at end of period 2,801 2,086 2,122 1,997 1,776 1,681 1,520
-------------------------------------------------------------------
Allowance for loan losses as a % of total loans
outstanding at the end of the period 1.270% 1.048% 1.031% 1.220% 1.064% 1.058% 0.894%
</TABLE>
Source: Offering Circular
30
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.14 shows the allocation of the loan loss allowance among the
various loan categories for the years ending December 31, 1992, 1993, 1994,
1995, 1996 and September 30, 1997.
Table I.14 - Allocation of Loan Loss Allowance
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------
1997 1996 1995
---- ---- ----
Percent Percent Percent
of Loans of Loans of Loans
In Category In Category In Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to four-family $ 840 32.7% $ 122 33.0% $ 108 36.4%
Multi-family $ 14 0.5% $ 4 1.2% $ 3 0.9%
Commercial $ 464 14.4% $ 301 12.3% $ 221 11.1%
Construction $ 445 26.7% $ 245 24.9% $ 148 23.9%
Land $ 133 4.0% $ 188 7.7% $ 138 6.9%
Nonmortgage loans
Consumer loans
Home equity and
second
mortgage $ 35 1.1% $ 24.6 0.8% $ 9 0.5%
Automobile $ 51 1.9% $ 46.5 1.5% $ 27 1.4%
Credit card. $ 2 0.1% $ - 0.0% $ - 0.0%
Loans secured by
deposits
accounts $ 0 0.0% $ 0.4 0.0% $ 1 0.0%
Unsecured $ 21 0.6% $ 22.2 0.7% $ 20 1.0%
Other $ 297 9.2% $ 287.6 9.4% $ 209 10.5%
Commercial business
loans $ 277 8.6% $ 258.7 8.4% $ 148 7.4%
Unallocated $ 222 $ 623.0 $ 964
Total allowance
for loan losses $ 2,801 100% $ 2,123 100% $ 1,997 100.0%
<CAPTION>
At December 31,
---------------
1994 1993 1992
---- ---- ----
Percent Percent Percent
of Loans of Loans of Loans
In Category In Category In Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to four-family $ 124 43.6% $ 115 42.1% $ 142 50.5%
Multi-family $ 3 1.2% $ 13 4.7% $ 12 4.4%
Commercial $ 168 8.8% $ 176 9.7% $ 72 3.8%
Construction $ 190 21.1% $ 153 19.8% $ 126 14.6%
Land $ 100 5.2% $ 75 4.1% $ 86 4.6%
Nonmortgage loans
Consumer loans
Home equity and
second
mortgage $ 2 0.1% $ 0 0.0% $ 0 0.0%
Automobile $ 21 1.1% $ 21 1.2% $ 9 0.5%
Credit card. $ - 0.0% $ - 0.0% $ - 0.0%
Loans secured by
deposits
accounts $ 1 0.2% $ 6 0.3% $ 7 0.4%
Unsecured $ 20 1.1% $ 21 1.1% $ 1 0.1%
Other $ 209 11.6% $ 220 12.1% $ 208 11.1%
Commercial business
loans $ 148 6.0% $ 88 4.9% $ 187 10.0%
Unallocated $ 789 $ 793 $ 670
Total allowance
for loan losses $ 1,776 100.0% $ 1,681 100.0% $ 1,520 100.0%
</TABLE>
Source: Offering Circular
20
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
The preceding table (Table I.14) allocates the allowance for loan losses by
loan category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any other category.
Mortgage-Backed Securities and Investments
Table I.15 provides a breakdown of mortgage-backed securities and
investments as of September 30, 1997.
Table I.15 - Classification of Investment Securities
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------
1997 1996
------------------------------- -----------------------------
Amortized Percent of Amortized Percent of
Cost(1) Total Cost Total
---------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Held to Maturity:
Debt Securities:
U.S. Treasury obligations. 3,000 17.91% 7,005 65.82%
U.S. Government agency obligations. 700 4.18% 700 6.58%
Mortgage backed securities. 1,333 7.96% 1,419 13.33%
FHLB stock 1,602 9.56% 1,519 14.27%
---------------------------------------------------------------------
Total held to maturity securities. 6,635 39.60% 10,643 100.00%
---------------------------------------------------------------------
Available for Sale:
Debt Securities
U.S. Treasury obligations 3,052 18.22% - 0.00%
U.S. Government agency obligations. 7,066 42.18% - 0.00%
Mortgage backed securities - 0.00% - 0.00%
Marketable equity securities(2) - 0.00% - 0.00%
---------------------------------------------------------------------
Total available for sale securities 10,118 60.40% - 0.00%
---------------------------------------------------------------------
Total portfolio 16,753 100.00% 10,643 100.00%
=====================================================================
<CAPTION>
At December 31,
---------------
1995 1994
---------------------------------------------------------------------
Amortized Percent of Amortized Percent of
Cost(1) Total Cost Total
---------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Held to Maturity:
Debt Securities:
U.S. Treasury obligations. 12,062 31.32% 8,109 35.48%
U.S. Government agency obligations. 23,488 60.99% 11,789 51.55%
Mortgage backed securities. 1,541 4.00% 1,665 7.27%
FHLB stock 1,418 3.68% 1,304 5.70%
---------------------------------------------------------------------
Total held to maturity securities. 38,509 100.00% 22,867 100.00%
---------------------------------------------------------------------
Available for Sale:
Debt Securities
U.S. Treasury obligations - 0.00% - 0.00%
U.S. Government agency obligations. - 0.00% - 0.00%
Mortgage backed securities - 0.00% - 0.00%
Marketable equity securities(2) - 0.00% - 0.00%
---------------------------------------------------------------------
Total available for sale securities - 0.00% - 0.00%
---------------------------------------------------------------------
Total portfolio 38,509 100.00% 22,867 100.00
=====================================================================
</TABLE>
(1) The market value of the Savings Bank's investment portfolio was
$16,760, at September 30, 1997
Source: Offering Circular
Table I.15 is notable for showing that as of September 30, 1997, the
portion of the investment portfolio that was classified as "Held to
Maturity" totaled $6.64 million or 39.60% of investment securities.
Investment securities that were classified as "Available for Sale" totaled
$10.12 million or 60.40% of the portfolio. At September 30, 1997, Cavalry
had no trading securities. Having a large portion of all investments
classified "Available for Sale" enhances actual liquidity of the
institution and provides Management with the flexibility to properly manage
the investment portfolio of the Bank. All securities classified as
"Available for Sale" are carried at their fair value as of September 30,
1997. In addition, as of September 30, 1997, the market value of the
portfolio was $16.76 million.
Management has not committed a significant amount of its assets to
Mortgage-Backed Securities ("MBS's"). This is due mainly to the strong
demand for loans in the primary assessment area. Except for MBS's, the
investment portfolio of Cavalry is short. The majority U.S. Government
securities and agencies have a maturity that is less than three years. The
deposits in domestic banks and Fed funds have a maturity that is less than
one year.
21
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.16 - Deposit Portfolio
Deposits in the Bank at September 30, 1997, were represented by the various
types of deposit programs described below.
<TABLE>
<CAPTION>
At December 31,
At September 30, ---------------
1997 1996 1995
-----------------------------------------------------------------------------------------------------
Percent Percent Percent
of Increase of Increase of Increase
Amount Total (Decrease) Amount Total (Decrease) Amount Total (Decrease)
---------- -------- ---------- ---------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Non-interest-
bearing 24,744 10.23% 4,900 19,844 9.25% (31) 19,875 10.10% 5,141
NOW checking 29,989 12.39% 2,253 27,736 12.93% 3,410 24,326 12.36% 1,838
Passbook savings
accounts 15,202 6.28% (604) 15,806 7.37% (1,422) 17,228 8.76% (2,552)
Money market
deposits 39,902 16.49% 11,403 28,499 13.28% 8,054 20,445 10.39% 6,553
Fixed-rate
certificates
which mature:
Within 1 year 116,778 48.27% 24,674 92,104 42.93% 4,453 87,651 44.55% 11,434
1 year, to
2 years 14,157 5.85% (8,329) 22,486 10.48% 8,654 13,832 7.03% (3,365)
2 years, to
5 years 1,178 0.49% (6,876) 8,054 3.75% (5,290) 13,344 6.78% (2,540)
CD's maturing
thereafter - 0.00% (4) 4 0.00% (29) 33 0.02% (58)
Other - 0.00% - - 0.00% - - 0.00% -
-----------------------------------------------------------------------------------------------------
Total... 241,950 100.0% 27,417 214,533 100.0% 17,799 196,734 100.0% 16,451
-----------------------------------------------------------------------------------------------------
<CAPTION>
At December 31,
---------------
1994
-----------------------------
Percent
of Increase
Amount Total (Decrease)
------- -------- ----------
<S> <C> <C> <C>
(Dollars in thousands)
Non-interest-
bearing 14,734 8.17% 384
NOW checking 22,488 12.47% 3,078
Passbook savings
accounts 19,780 10.97% (1,497)
Money market
deposits 13,892 7.71% 2,655
Fixed-rate
certificates
which mature:
Within 1 year 76,217 42.28% (7,006)
1 year, to
2 years 17,197 9.54% (7,692)
2 years, to
5 years 15,884 8.81% 5,097
CD's maturing
thereafter 91 0.05% 91
Other - 0.00% -
--------------------------------
Total... 180,283 100.0% (4,890)
--------------------------------
</TABLE>
Source: Offering circular
Savings Deposit
The Bank offers a variety of deposit products that have a wide range of
interest rates and terms. As the general customer base continues to become more
sophisticated, Cavalry is likely to become more susceptible to short-term
interest rate changes. The Bank experiences a higher cost of funds than its
peers mainly due to its mix of transaction accounts and certificate accounts.
However, the margins of the Bank are ample due to the composition of the lending
portfolio.
At September 30, 1997, Cavalry's deposit portfolio of $241.95 million was
composed as follows: total transaction type accounts--$94.64 million, or
39.12%; savings deposits and passbook account--$15.20 million, or 6.28%%, and
certificate accounts--$132.11 million, or 54.60%. Certificates totaling $116.78
million, or 48.27% of total deposits, mature in less than one year.
Table I.16 displayed above shows the totals of certificates of deposits and
their maturity ranges at September 30, 1997. This clearly shows the cost of
funds for the institution is affected more by rate than term.
22
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Cavalry has limited dependency on jumbo certificates of deposit. At
September 30, 1997, the Bank had $25.91 million in certificates that were issued
for $100 thousand or more, or 10.71% of its total deposits (see Table I.17). The
jumbo dependency is not considered excessive.
Table I.17 - Jumbo CD's at September 30, 1997
Time Deposits over $100,000 - Maturity Schedules
<TABLE>
<CAPTION>
Certificates of
Maturity Period Deposits
--------------------------- ----------------
<S> <C>
Three months or less $ 4,286
Over three through six months 6,770
Over six through 12 months 11,395
Over 12 months 3,458
-----------
$25,909
===========
</TABLE>
Source: Offering circular
Borrowings
At September 30, 1997, Cavalry was a member of FHLB of Atlanta and had the
availability of advances from the FHLB. However, no advances were used.
Advances are not being utilized at this time, but remain a viable alternative
source of funding to the Bank.
Subsidiaries
At September 30, 1997, Cavalry had no subsidiaries. Prior to September 30,
1997, all subsidiaries were in dissolution into the Bank.
Legal Proceedings
From time to time, Cavalry becomes involved in legal proceedings
principally related to the enforcement of its security interest in real estate
loans. In the opinion of Management of the Bank, no legal proceedings are in
process or pending that would have a material effect on Cavalry's financial
position, results of operations, or liquidity.
EARNINGS CAPACITY OF THE INSTITUTION
As in any interest sensitive industry, the future earnings capacity of
Cavalry will be affected by the interest rate environment. Historically, the
thrift industry has performed at less profitable levels in periods of rising
interest rates. This performance is due principally to the general composition
of the assets and the limited repricing opportunities afforded even the
adjustable rate loans. The converse earnings situation (falling rates) does not
afford the same degree of profitability potential for thrifts due to the
tendency of borrowers to refinance both high rate loans, fixed rate loans, and
adjustable loans as rates decline.
Cavalry is no exception to the aforementioned paradox. However, with its
current asset and liability structure, the effect of rising interest rates will
have less negative impact on earnings. Management's strategy of offering an
array of loan products that provide additional repricing opportunities through
the cash flow of payments or in the adjustability of rates will mitigate the
effects of interest rate risk, and help sustain the Bank's profitability.
23
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
The addition of capital through the conversion will allow Cavalry to grow.
As growth is attained, the leverage of that new capital should, from a ratio of
expenses to total assets standpoint, reduce the operating expense ratio.
However, growth and additional leverage will likely be well controlled to
maintain the current acceptable risk levels inherent in the Bank's asset base.
Asset-Size-Efficiency of Asset Utilization
At its current size and in its current asset configuration, Cavalry is an
efficient operation. With total assets of approximately $275.9 million, Cavalry
has 151 full time equivalent employees. Cavalry has the infrastructure, the
officers and the employees to grow without significant growth in staff.
Intangible Values
Cavalry's greatest intangible value lies in its loyal deposit base, its
diversified portfolio and in its excellent staff of officers and employees.
Cavalry has a 68 year history of sound operations, well managed growth, and
consistent earnings. The Bank currently has 13.23% of the deposit market in its
area, and it has the ability to increase market share (see Table II.3 in Section
II). In addition, the Bank has an active Trust Department that manages
approximately $184 million in trust assets and the Bank has generated mortgage
loan servicing by selling loans into the secondary market, service retained.
Cavalry has no significant intangible values that could be attributed to
unrecognized asset gains on investments and real estate.
Effect of Government Regulations
Government regulations will have the greatest impact in the area of cost of
compliance and reporting. The Conversion will create an additional layer of
regulations and reporting, and thereby increase the cost to the Bank. Moreover,
no future plans currently exist to make additional acquisitions, purchase
additional branches, or complicate operations with matters that would add to
reporting and regulatory compliance. However, economic situations change, and
if an appropriate opportunity arises, it will be considered, and a proper
request will be made of the regulators, if necessary.
24
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Office Facilities
Cavalry's main office is an adequately maintained facility. Table I.18
provides information on all of the Bank's offices. The Bank's facilities are
currently adequate for the convenience and needs of the Bank's customer base.
Table I.18 - Office Facilities and Locations
<TABLE>
<CAPTION>
Year Square Deposits.
Physical address Opened Footage September 30
- ---------------- ------ ------- ------------
<S> <C> <C> <C>
($000's)
Main Office:
- -----------
114 West College Street, Murfreesboro, TN 1974 32,385 $174,076
Branch Office
- -------------
804 Tennessee Blvd., Murfreesboro, TN (1) 1983 578 2,477
1745 Memorial Blvd., Murfreesboro, TN 1984 1,500 8,858
1645 N. W. Broad Street, Murfreesboro, TN 1995 1,500 5,525
12 Cason Lane, Murfreesboro, TN (2) 1997 1,500 10,810
604 North Main Street, Shelbyville, TN 1958 1,500 17,647
269 South Lowry Street, Smyrna, TN 1972 3,898 22,202
Hazelwood Dr. and Nashville Hwy., Smyrna, TN 1997 1,100 253
Almaville Road and Interstate 24 East, Smyrna, TN (3) 1997 935 112
Loan Production Office
- ----------------------
236 Public Square, Franklin, TN (4)
</TABLE>
(1) Bank has OTS approval to relocate office to Manchester Hwy. & Rutherford
Blvd.
(2) The Bank relocated this office June 16, 1997.
(3) Leased month--to--month.
(4) Lease expires in April 2001, with a 5--year option to renew.
Source: Cavalry unaudited financial statement and the Offering Circular.
25
<PAGE>
SECTION II
MARKET AREA
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
II. MARKET AREA
DEMOGRAPHICS
Cavalry operates from its main office in Murfreesboro, Tennessee. In
addition, to its home office, it has 8 banking offices. Four are located in
Murfreesboro, three in Smyrna, and one in Shelbyville. All of its offices are in
central Tennessee, southeast of Nashville.
Cavalry considers its primary Assessment Area to be the counties of
Rutherford and Bedford. In addition, there is a loan production office located
in Franklin, which is in Williamson County. Table II.1, below, presents
historical and projected trends for the United States, Tennessee, Rutherford
County, and Bedford County, along with the two zip codes that include the City
of Murfreesboro. The information addresses population, income, employment, and
housing trends.
As indicated in Table II.1, below, the State of Tennessee, the counties of
Rutherford and Bedford, and the two zip codes have experienced extraordinary
growth rates in terms of population. The State of Tennessee experienced a
growth rate from 1990 to 1996, of 9.39%, which is higher than the recorded
growth rate of 6.69% for the U. S. Within the trade area, Bedford County grew
10.59%, Rutherford County grew 30.38%, one of the Murfreesboro Zip Codes (37129)
grew 34.62% and the other (37130) grew 21.89%. Future prospects are similar to
historical growth rates. Between 1996 and 2001, the State is expected to grow
6.87%; the Bedford and Rutherford Counties are expected to grow 7.66% and
18.64%, respectively. The two Zip Codes are expected to grow 20.42% and 14.68%.
Growth rates between 1996 and 2001 are not expected to be as great as those
recorded in the previous six years, but the growth rates are still dramatic.
Another impressive demographic factor about Cavalry's assessment area is
the Estimated Household Income for 2001. All of the surrounding area is
anticipated to have the majority of its population in the two household income
ranges that are between $25,000 to $100,000. Rutherford County will have 66% in
that range and the Zip Code will have 53%. This compares to the 58% of the
population in that range in the United States and 54% of the State population in
that range. Moreover, Rutherford County and the Zip Code 37129 areas are
expected to have a disproportionate percentage of their population in the
$100,000 to $150,000 household income range Clearly, the economic base of the
assessment area is excellent. It records high household incomes and rapid growth
of this successful population base.
These growth rates are obviously being pushed along by the population and
industrial growth rates that have been experienced in the assessment area.
1
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
Table II.1 Demographic Trends
United States, State of Tennessee, Rutherford County,
Bedford County and Zip Codes 37129 & 37130
<TABLE>
<CAPTION>
==============================================================================================================
United State County County Zip Code Zip Code
Key Economic Indicator States Tennessee Bedford Rutherford 37129 37130
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Population, 2001 Est. 278,802,003 5,701,304 36,209 183,416 54,290 48,715
1996 - 2001 Percent Change, Est. 5.09 6.87 7.66 18.64 20.42 14.68
Total Population, 1996 Est. 265,294,885 5,335,034 33,633 154,596 45,084 42,478
1990 - 96 Percent Change, Est. 6.67 9.39 10.59 30.38 34.62 21.89
Total Population, 1990 248,709,873 4,877,185 30,411 118,570 33,490 34,849
- --------------------------------------------------------------------------------------------------------------
Household Income, 2001 Est. 33,189 30,044 28,178 38,050 44,596 29,727
1996 - 2001 Percent Change, Est. (3.88) 0.98 2.43 3.02 2.99 3.92
Household Income, 1996 Est. 34,530 29,752 27,510 36,935 43,301 28,606
- --------------------------------------------------------------------------------------------------------------
Per Capita Income, 1990 16,738 15,058 13,281 15,509 17,474 14,861
- --------------------------------------------------------------------------------------------------------------
Household Income Distribution-2001 Est. (%)
$15,000 and less 20 23 26 16 12 25
$15,000 - $25,000 16 18 19 14 11 17
$25,000 - $50,000 34 34 36 39 37 37
$50,000 - $100,000 24 20 17 27 34 17
$100,000 - $150,000 4 3 2 3 5 3
$150,000 and over 2 2 1 1 1 1
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Unemployment rate, 1990 6.24 6.34 5.09 4.70 4.63 5.93
- --------------------------------------------------------------------------------------------------------------
Median Age of Population, 1996 Est. 34.3 35.2 36.2 31.4 31.7 31.7
Median Age of Population, 1990 32.9 33.6 34.9 29.8 30.3 30.6
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Average Housing Value, 1990 79,098 70,769 55,103 79,174 91,229 77,704
- --------------------------------------------------------------------------------------------------------------
Total Households, 2001 Est. 103,293,062 2,173,336 13,873 65,599 19,038 19,971
1996 - 2001 Percent Change, Est. 5.14 6.94 7.78 18.90 20.35 14.81
Total Households, 1996 98,239,161 2,032,277 12,871 55,170 15,819 17,395
1990 - 96 Percent Change, Est. 6.84 9.63 10.88 30.99 34.53 22.21
Total Households, 1990 91,947,410 1,853,725 11,608 42,118 11,759 14,234
- --------------------------------------------------------------------------------------------------------------
Total Housing Units, 1990 101,641,260 2,026,067 12,638 45,755 10,118 14,647
% Vacant 10.07 8.51 8.15 7.95 6.77 9.18
% Occupied 89.93 91.49 91.85 92.05 93.23 90.82
% By Owner 57.78 62.24 65.90 60.82 65.62 42.17
% By Renter 32.15 29.25 25.95 31.24 27.61 48.65
==============================================================================================================
</TABLE>
(*) These two ZIP Codes contain the City of Murfreesboro, Tennessee.
Source: Scan/US, Inc.
2
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
Tennessee, one of the East South Central states of the United States. It is
bordered on the north by Kentucky and Virginia; on the east by North Carolina;
on the south by Georgia, Alabama, and Mississippi; and on the west by Arkansas
and Missouri. The Mississippi River forms the western boundary. Nashville is the
capital of Tennessee. Memphis is the largest city. Tennessee is the 36th largest
state in the United States. The population estimate for 1996 is 5,335,034.
Tennessee was predominately an agricultural state as late as 1940. Following
World War II, the growth of manufacturing has been rapid, encouraged by low--
cost power provided by the Tennessee Valley Authority ("TVA"). Currently,
manufacturing remains an important source of income, along with trade, tourism
and other services and government. /1/
Important to any financial institution that is in the business of financing
the construction and purchase of homes is the growth in the number of
households. Table II.1 shows that the prospects for the establishment of new
households in the trade area are excellent. From 1990 until 1996, all of the
counties in the trade area experienced an increase in the number of households.
The greatest increase was seen in Zip Code 37129. Between 1990 and 1996, the
number of household increased 34.53%, and an additional 20.35% is expected
between 1996 and 2001. Rutherford County's households increased 30.99% between
1990 and 1996, and an additional 18.90% growth is expected between 1996 and
2001. Zip Code 37130's growth rate between 1990 and 1996 was 22.21% and an
additional 14.81% is expected in the coming five years. Bedford County
experienced 10.88% growth between 1990 and 1996, and it also expects to grow
7.78% in the next five years. Such levels of household growth presents an
aggressive and well managed financial institution with multiple lending
opportunities. Some of the opportunities are the construction of new houses and
commercial businesses, the financing of the purchase of these houses and
businesses, consumer goods, such as autos, boats and RV's, plus the financing of
businesses to serve the new and existing population.
When home ownership is compared to the United States and the State of
Tennessee, all, except one of the trade area has a higher incidence of home
ownership than the United States and the State of Tennessee. Occupancy rates
can also reflect the economic viability of an area. Cavalry's assessment area
has occupancy levels that range from a low of 90.82% up to 93.23%.
The principal sources of employment in Cavalry's assessment area are shown
in Table II.2 below. On average, the major sources of employment are
manufacturing, trade, services, and public administration. The counties in the
delineated trade area show significantly more people engaging in manufacturing
activity than the State. People engaged in trade in Rutherford County exceed
those engaged in trade in Bedford County, and both counties are slightly below
that percentage for the State. Services, the third highest category in both
Rutherford and Bedford Counties are below that of the State. The State has 28%
employed in trade, while Rutherford county reports 23.0% and Bedford County has
15.5%. The manufacturing portion of the economic base contributes to the
generous measure of the local household incomes and gives some dimension to the
stability of the local economy.
- -----------------------------------
/1/ Tennessee, Encarta 96 Encyclopedia
3
<PAGE>
FERGUSON & COMPANY SECTION II.
- ------------------ -----------
Table II.2 - EMPLOYMENT BY INDUSTRY
<TABLE>
<CAPTION>
As of Year End 1995
United State of Bedford Rutherford
State Tennessee County County
----------------------------------------------------
Employment by Industry (percent (%)
- -------------------------------
<S> <C> <C> <C> <C>
Construction/Agriculture/Mining 9.5% 7.0% 3.4% 5.0%
Manufacturing 17.7% 18.0% 43.3% 28.0%
Transportation/Utilities 7.1% 5.0% 5.0% 3.0%
Trade 21.2% 23.0% 16.2% 22.0%
Finance/Insurance 6.9% 6.0% 2.0% 6.0%
Services 32.7% 28.0% 15.5% 23.0%
Public Administration 4.9% 13.0% 14.6% 13.0%
----------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0%
====================================================
</TABLE>
Source: State of Tennessee, Department of Economic Development
This information gives rise to understanding the other demographic
information. With manufacturing, trade, services, and public administration
employing such high percentages of the population and contributing to the
earnings of the citizenry, the concentration of income in the middle range is
more clear, as is the estimated increase in household income. Obviously, on
average, the population within the assessment area of Cavalry is better employed
than the State average. This should equate to continued economic growth which
should translate into more home buyers, more consumer goods being purchased,
more businesses being started, and a growing, stable economy.
In summary, the demographics of the assessment area are very favorable. The
area has and is expected to have an overall growth in population. This growth in
population is being accompanied with an anticipated increase in household income
that is creating a more stable per capita income and an anticipated increase in
the number of new households that will be created. These factors, coupled with a
strong tradition of home ownership in the area, should translate into an
increased number of housing units being built and a good market for previously
owned housing. Moreover, the robust economic growth of the area should provide
more than an average amount of business opportunity to Cavalry. The change in
business strategy that allows Cavalry to participate in more than just the
business benefits of increased home ownership, should produce varied lending
opportunities in the area of consumer loans, business loans, construction loans,
development loans, trusts and other ancillary business stimulated by the
economic growth.
Based on information publicly available on deposits as of June 30, 1996
(see Table II.3), in the two counties and the two Zip Code areas which Cavalry
considers its assessment area, there are $1.55 billion in total deposits. Banks
controlled $1.24 billion, credit unions $81.53 million, and other thrifts $20.10
million. As of that date, Cavalry had 13.23% of the total deposit market, or
$204.55 million.
4
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
The Bank is a major player in the total market area that is located within
the delineated market area. The statistics reveal success and opportunities for
the institution. Additional capital infused by the Conversion will assist the
Bank in becoming more competitive.
Table II.3 - Market Area Deposits
<TABLE>
<CAPTION>
As of June 30,
1996 1995 1994
(Dollars in Thousands)
<S> <C> <C> <C>
Cavalry Banking - Total $ 204,546 $ 185,714 $ 184,899
----------------------------------------
Number of Offices 7 7 6
Other Savings and Loan Associations $ 20,060 $ 21,033 $ 27,869
----------------------------------------
Number of Branches 1 1 2
Total Savings and Loan Association Deposits $ 244,606 $ 206,747 $ 212,768
----------------------------------------
Total Number of Branches 8 8 8
Total Credit Union Deposits $ 81,532 $ 72,777 $ 69,135
----------------------------------------
Total Number of Branches 7 7 7
Total Bank Deposits $1,239,730 $1,180,237 $1,037,806
----------------------------------------
Total Number of Branches 41 42 43
Total Market Area Deposits $1,545,868 $1,459,761 $1,319,709
========================================
Cavalry Banking - Market Share 13.23% 12.72% 14.01%
- ------------------------------
========================================
</TABLE>
Source: BranchSource, June 30, 1996, a product of Sheshunoff Information
Services.
Growth opportunities for Cavalry can be assessed by reviewing economic
factors in its market area. The salient factors include growth trends, economic
trends, and competition from other financial institutions. We have reviewed
these factors to assess the potential for the market area. In assessing the
growth potential of Cavalry Banking, we must also assess the willingness and
flexibility of Management to respond to the competitive factors that exist in
the market area. It is our analysis that the economic environment and the
potential of the area is excellent, moreover, we feel that the current
Management team can readily realize the potential afforded by the area's
economic base. Our analysis of the economic potential and the potential of
Management has a positive effect on the valuation of the institution.
5
<PAGE>
SECTION III
COMPARISON WITH PUBLICLY
TRADED THRIFTS
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
III. COMPARISON WITH PUBLICLY TRADED THRIFTS
COMPARATIVE DISCUSSION
This section presents an analysis of Cavalry relative to a group of 12
publicly traded thrift institutions ("Comparative Group"). Such analysis is
necessary to determine the adjustments that must be made to the pro forma market
value of Cavalry's stock. Table III.1 presents a listing of the comparative
group with general information about the group. Table III.2 presents key
financial indicators relative to profitability, balance sheet composition and
strength, and risk factors. Table III.3 presents a pro forma comparison of
Cavalry to the comparative group. Exhibits III and IV contain selected
financial information on Cavalry and the comparative group. This information is
derived from quarterly TFR's filed with the OTS. The selection criteria and
comparison with the Comparative Group are discussed below.
Selection Criteria
Ideally, the comparative group would consist of thrifts in the same geographic
region with identical local economies, asset size, capital level, earnings
performance, asset quality, etc. However, there are few comparably sized
institutions with stock that is liquid enough to provide timely, meaningful
market values. Therefore, we have selected a group of comparatives that are
listed on either the New York Stock Exchange ("NYSE"), the American Stock
Exchange ("AMEX"), or NASDAQ. We excluded companies that are apparent takeover
targets and companies with unusual characteristics that tend to distort both
mean and median calculations. For example, we have excluded all companies with
losses during the trailing 12 months (see Exhibit II.1).
The principal source of data was SNL Securities, Charlottesville, Virginia.
There are approximately 414 publicly traded thrifts listed on NYSE, AMEX, or
NASDAQ. In developing statistics for the entire country, we eliminated certain
institutions that skewed the results, in order to make the data more meaningful:
. We eliminated companies with losses,
. We eliminated indicated acquisition targets,
. We eliminated companies with price/earnings ratios in excess of 35,
. We eliminated companies that had not reported as a stock institution for
one complete year, and
The resulting group of approximately 282 publicly traded thrifts is included
in Exhibit II.1.
Because of the limited number of similar size thrifts with sufficient trading
volume, we refined the search looking for members of the comparative groups
among thrifts with assets between $200 million and $300 million. From that
group we then eliminated the following:
. Merger Targets,
. Eliminated MHC's,
. Eliminated companies with loans to deposits less than 50%,
. Eliminated companies with loans to deposits greater than 100%,
. Eliminated companies with non-performing assets greater than 1%,
. Eliminated companies with BIF insurance,
. Eliminated companies with equity to assets greater than 20%,
. Eliminated companies with equity to assets less than 7.5%, and
. Eliminated companies with equity to assets less than 10%.
I
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
The result was a group of 12 thrifts. Normally, we consider 10 to be the
desired sample, but provided the extra two comparative in case there are changes
before this Conversion is completed.
The selected group of comparatives has sufficient trading volume to provide
meaningful price data. Four of the comparative group members are located in the
Midwest, seven in the Mid-Atlantic, and one in the Southwest. Three of the
group are located in New Jersey, two in Pennsylvania, two in Ohio, and one each
in Illinois, Indiana, Maryland, Texas, and New York. With total assets of
approximately $275.9 million, Cavalry is near the group selected, which has
average assets of $251.1 million and median assets of $245.5 million.
Profitability
Using the comparison of profitability components as a percentage of average
assets and using appraisal earnings, Cavalry was above the comparative group in
return on assets, 1.35% to 0.90%, based on appraisal earnings; and core income,
1.19% to 0.99%. Cavalry was above the comparative group in other operating
income, 0.72% to 0.21% and net interest income, 3.64% to 3.40%; but above the
group in operating expense, 2.86% to 1.75%. After conversion, deployment of the
proceeds will provide additional income, and Cavalry will compare even more
favorably with the comparative group in terms of return on average assets, with
a return of 1.51% at the midpoint of the appraisal range. Pro forma return on
average equity is 6.00% at the midpoint, versus a mean of 7.12%, and median of
6.40% for the comparative group. After conversion, the employment of funds and
the growth of asset and liabilities will improve the profitability of this
institution.
Balance Sheet Characteristics
The general asset composition of the Bank is more oriented to loans than that
of the comparative group. Cavalry has a lower level of passive investments with
15.16% of its assets invested in cash, investments, and mortgage-backed
securities, versus 38.06% for the comparative group. In the investment
portfolio, Cavalry has 14.68% in cash and investment securities, and 0.48% in
mortgage backed securities. The comparative group has 22.96% in cash and
investments, and 15.10% in mortgage backed securities. Cavalry has a higher
percentage of its assets in loans at 78.43%, versus 58.05% for the comparative
group. The Bank's percentage of interest earning assets to interest bearing
liabilities is about equal to that of the group. Cavalry has 116.77%, and the
comparative group averages 116.00%. Cavalry is considered "Well Capitalized"
has 10.69% of assets in equity capital, and the comparative group has an average
of 13.22% in equity to assets. After conversion, and after the utilization of
the capital infusion for earning assets and supporting growth, Cavalry's ratio
will be higher than that of the group of comparatives. Management plans to
utilize the capital from the Conversion to increase asset and liabilities, but
does not plan to lower lending and underwriting standards. Consequently, the
capital will not be completely utilized for some time, and the ROAE will be
lower until the capital can be leveraged.
The liability side differs mainly in that the Bank has no borrowings and a
higher percentage of deposits. The Bank funds its assets with 87.69% deposits,
expressed as a percentage of total assets. On the other hand, the comparative
group has deposits of 73.75% and borrowings of 12.50%. The comparison between
the Bank's capital level and that of the comparative group will improve after
conversion. After the Conversion, the Bank's equity to assets will be 24.17%,
at the midpoint. The average equity to assets of the comparative group is
13.22% and the median is 13.17%.
Risk Factors
Both Cavalry and the comparative group have well controlled levels of non-
performing assets, with the Bank being lower than the comparative group, 0.02%
to 0.43% of assets. Cavalry's loan loss allowance is 1.27% of net loans, which
compares favorably with the comparative group's 0.84%. However, the composition
of Cavalry's loan portfolio has a greater level of risk than the comparable
group. Management
2
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
has recognized that risk and provided accordingly. In the area of interest rate
risk and the implications of one year gap assets, Cavalry and the comparative
group are not far apart. Cavalry has a negative one year gap of 7.10%, and the
group has a negative 11.35%. Cavalry's low level of interest rate risk is
managed in the portfolio by making loans that have adjustable rates, loans that
produce cash flow, and loans that have shorter maturities. The comparatives
manage interest rate risk with short term investments. Both methods lower
interest rate risk but the latter is more debilitating to profitability than the
former.
Summary of Financial Comparison
Based on the above discussion of operational, balance sheet, and risk
characteristics of Cavalry compared with the group, we believe that Cavalry's
performance is superior to that of the comparative group. Moreover, the
profitability of Cavalry is sustainable due to the composition of the loan
portfolio and the lack of significant interest rate risk. The Bank's appraisal
profitability levels are higher than the comparative group, capital levels are
almost equal to the comparative group, the conversion proceeds will increase its
capital levels above comparative levels, and will enhance profitability.
FUTURE PLANS
Cavalry's future plans are to remain an independent, well capitalized,
profitable institution with good asset quality, a commitment to serving the
needs of its trade area, and emphasizing all types of lending. The current
strategy, which is reflected in the business plan, projects increased growth in
commercial real estate lending, commercial loans, consumer loans and
construction loans. Management recognizes that it will take time to invest the
proceeds of its capital infusion in a manner consistent with its historic
performance and current lending policies. During that period of time,
Management is willing to accept a lower return on assets, as well as a lower
return on equity capital.
Cavalry has adhered to a measured-growth policy. In fact, the Bank has
experienced asset and liability growth in the last five years and nine months.
However, that growth has been supported by simultaneous growth in the equity
accounts. Total assets, total loans, and total deposits have increased
approximately 38.9% during that period, and equity has increased 82.6%, growing
from 8.13% of assets to 10.69% of assets The additional capital raised by the
sale of Common Stock will initially be used to purchase short term investment
securities. Adjustable rate and short term loans will continue to be
emphasized. The Bank will continue to minimize long term, fixed rate loans.
The Bank's business plan projects that it will experience growth in loans,
deposits, and liquidity.
Cavalry anticipates continued growth. It will continue to diversify the
assets of the institution including increasing the market penetration of it
trust department. The additional capital and the continuation of the holding
company concept would make the acquisition of another institution or branches a
viable option, along with de novo branching. At this time there are no plans
for acquisition of institutions or new branches, but the business plan does call
for the opening of two additional branches in the next year. If an economically
viable opportunity arises, proper approval will be sought from the regulatory
agencies.
Increasing market penetration by increasing the number of services and
products available, coupled with expanded marketing efforts and improved
service, are the most likely methods to be employed to achieve growth.
3
<PAGE>
FERGUSON & COMPANY Section III
- ------------------ -----------
Table III.1 - Comparative General Characteristics
<TABLE>
<CAPTION>
Total Current Current
Number Type Assets Stock Market
of of ($000) Price Value
Ticker Short Name City State Offices Thrift Mst RctQ IPO Date ($) ($M)
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC Big Foot Financial Corp. Long Grove IL 3 Traditional 212,245 12/20/96 18.38 46.17
FBER 1st Bergen Bancorp Wood-Ridge NJ 4 Traditional 284,739 04/01/96 18.38 52.64
HRBF Harbor Federal Bancorp Inc. Baltimore MD 9 Traditional 217,202 08/12/94 21.50 36.41
JXVL Jacksonville Bancorp Inc. Jacksonville TX 6 Traditional 226,182 04/01/96 18.88 46.12
LARL Laurel Capital Group Inc. Allison Park PA 6 Traditional 209,980 02/20/87 26.50 38.32
LFBI Little Falls Bancorp Inc. Little Falls NJ 6 Traditional 299,989 01/05/96 18.63 48.57
MFFC Milton Federal Financial Corp. West Milton OH 3 Traditional 209,958 10/07/94 15.00 34.57
OHSL OHSL Financial Corp. Cincinnati OH 5 Traditional 234,600 02/10/93 27.50 33.95
PFDC Peoples Bancorp Auburn IN 6 Traditional 287,564 07/07/87 35.00 79.58
WVFC WVS Financial Corp. Pittsburgh PA 5 Traditional 294,693 11/29/93 33.38 58.34
WYNE Wayne Bancorp Inc. Wayne NJ 5 Traditional 267,285 06/27/96 21.75 43.80
YFCB Yonkers Financial Corporation Yonkers NY 4 Traditional 312,956 04/18/96 18.50 55.88
Maximum 9 312,956 35.00 79.58
Minimum 3 209,958 15.00 33.95
Average 5 254,783 22.78 47.86
Median 5 250,943 20.19 46.15
</TABLE>
Source: SNL Securities and F&C calculations.
4
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
TAble III.2 - Key Financial Indicators
<TABLE>
<CAPTION>
Cavalry Comparative
Banking Group
--------------- ---------------
<S> <C> <C>
Profitability
(% of average assets)
Net income 1.35(*) 0.90
Net interest income 3.64 3.40
Loss (recovery) provisions 0.27 0.07
Other operating income 0.72 0.21
Operating expense 2.86 1.75
Core income (excluding gains
and losses on asset sales) 1.19 0.99
Balance Sheet Factors
(% of assets)
Cash and investments 14.68 22.96
Mortgage-backed securities 0.48 15.10
Loans 78.43 58.05
Savings deposits 87.69 73.75
Borrowings - 12.50
Equity 10.69 13.22
Tangible equity 10.69 13.15
Risk Factors
(%)
Earning assets/costing liabilities 116.77 116.00
Non-performing assets/assets 0.02 0.43
Loss allowance/non performing assets 4,747.46 232.16
Loss allowance/loans 1.27 0.84
One year gap/assets (7.10) (11.35)
</TABLE>
(*) Based on Appraisal Earnings
Source: SNL Securities and F&C calculations.
5
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
Table III.3 - Pro Forma Comparison
Converting Institution to Comparative Group
<TABLE>
<CAPTION>
As of November 7, 1997
Ticker Name Price Mk Value PE P/Book P/TBook P/Assets Div Yld Assets
($) ($Mil) (X) (%) (%) (%) (%) ($000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cavalry Banking
---------------
Before Conversion N/A N/A N/A N/A N/A N/A N/A 275,925
Pro Forma Supermax 10.000 75.383 15.13 79.80 79.80 22.11 2.00 340,889
Pro Forma Maximum 10.000 65.550 13.70 76.27 76.27 19.72 2.00 332,371
Pro Forma Midpoint 10.000 57.000 12.36 72.57 72.57 17.54 2.00 324,965
Pro Forma Minimum 10.000 48.450 10.91 68.11 68.11 15.26 2.00 317,559
Comparative Group
-----------------
Averages 22.781 47.86 20.92 141.89 142.78 18.81 1.99 254,783
Medians 20.188 46.15 19.48 130.17 133.66 18.06 1.90 250,943
Tennessee Public Thrifts
------------------------
Averages 14.250 18.13 23.75 131.09 131.09 16.96 2.81 106,931
Medians 14.250 18.13 23.75 131.09 131.09 16.96 2.81 106,931
Southeast Region Thrifts
------------------------
Averages 26.280 132.32 21.66 178.01 184.97 22.72 1.91 618,859
Medians 22.250 78.62 22.44 152.97 166.67 19.21 2.09 338,857
All Public Thrifts
------------------
Averages 25.964 271.41 19.87 164.93 173.16 17.71 1.65 1,735,205
Medians 23.500 65.50 18.87 152.02 159.37 16.35 1.66 382,984
Comparative Group
-----------------
BFFC BigFootFinancl-IL 18.375 46.17 28.65 128.05 128.05 21.75 - 212,245
FBER 1stBergenBancrp-NJ 18.375 52.64 25.17 135.41 135.41 18.49 1.09 284,739
HRBF HarborFedBancp-MD 21.500 36.41 22.87 128.43 128.43 16.76 2.23 217,202
JXVL Jacksonville-TX 18.875 46.12 8.28 139.30 139.30 20.78 2.65 226,182
LARL LaurelCapitalGp-PA 26.500 38.32 14.02 174.34 174.34 18.25 1.96 209,980
LFBI LittleFallsBncp-NJ 18.625 48.57 35.14 128.36 138.99 17.04 1.07 299,989
MFFC MiltonFedFinCrp-OH 15.000 34.57 26.79 121.85 121.85 16.47 4.00 209,958
OHSL OHSLFinancial-OH 27.500 33.95 17.30 128.38 128.38 14.47 3.20 234,600
PFDC PeoplesBancorp-IN 35.000 79.58 18.82 182.01 182.01 27.68 1.83 287,564
WVFC WVSFinancialCp-PA 33.375 58.34 15.89 177.34 177.34 19.79 3.60 294,693
WYNE WayneBancorp-NJ 21.750 43.80 20.14 131.90 131.90 16.39 0.92 267,285
YFCB YonkersFinCorp-NY 18.500 55.88 17.96 127.32 127.32 17.86 1.30 312,956
</TABLE>
Note: Stock prices are closing prices or last trade. Pro forma
calculations for Cavalry Banking are based on sales at $10 per share
with a midpoint of $57,000,000, minimum of $48,450,000, and maximum of
$65,550,000.
Source: SNL Securities and F&C calculations.
6
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
Table III.3 - Pro Froma Comparison
Converting Institution to Comparative Group
<TABLE>
<CAPTION>
As of November 7, 1997
Ticker Name Eq/A TEq/A EPS ROAA ROAE
(%) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
Cavalry Banking
---------------
Before Conversion 10.69 10.69 N/A 1.35 10.61
Pro Forma Supermax 27.71 27.71 0.66 1.55 5.37
Pro Forma Maximum 25.86 25.86 0.79 1.53 5.67
Pro Forma Midpoint 24.17 24.17 0.87 1.51 6.00
Pro Forma Minimum 22.40 22.40 0.99 1.49 6.39
Comparative Group
-----------------
Averages 13.22 13.15 1.27 0.97 7.12
Medians 13.17 12.82 1.06 0.87 6.40
Tennessee Public Thrifts
------------------------
Averages 12.94 12.94 0.60 0.72 5.59
Medians 12.94 12.94 0.60 0.72 5.59
Southeast Region Thrifts
------------------------
Averages 14.50 14.28 1.26 1.12 9.00
Medians 12.94 12.94 1.23 1.06 8.26
All Public Thrifts
------------------
Averages 11.59 11.33 1.41 0.98 9.48
Medians 9.74 9.63 1.24 0.94 8.78
Comparative Group
-----------------
BFFC BigFootFinancl-IL 16.98 16.98 0.64 0.70 4.13
FBER 1stBergenBancrp-NJ 13.65 13.65 0.73 0.77 4.94
HRBF HarborFedBancp-MD 13.06 13.06 0.94 0.71 5.50
JXVL Jacksonville-TX 14.92 14.92 2.28 1.33 8.42
LARL LaurelCapitalGp-PA 10.47 10.47 1.89 1.41 13.60
LFBI LittleFallsBncp-NJ 13.28 12.39 0.53 0.47 3.43
MFFC MiltonFedFinCrp-OH 12.57 12.57 0.56 0.65 4.52
OHSL OHSLFinancial-OH 10.92 10.92 1.59 0.88 7.86
PFDC PeoplesBancorp-IN 15.20 15.20 1.86 1.46 9.55
WVFC WVSFinancialCp-PA 11.16 11.16 2.10 1.32 10.71
WYNE WayneBancorp-NJ 12.43 12.43 1.08 0.86 6.01
YFCB YonkersFinCorp-NY 14.02 14.02 1.03 1.07 6.79
</TABLE>
Source: SNL Securities and F&C calculations.
7
<PAGE>
FERGUSON & COMPANY Section III
- ------------------ -----------
Table III.4 - Selection of Comparatives
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<C> <S> <C> <C> <C> <C> <C> <C> <C>
BFFC Big Foot Financial Corp. Long Grove IL MW SAIF NASDAQ 12/20/96 17.375
FBER 1st Bergen Bancorp Wood-Ridge NJ MA SAIF NASDAQ 04/01/96 18.375
HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 22.750
JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 17.250
LARL Laurel Capital Group Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 24.875
LFBI Little Falls Bancorp Inc. Little Falls NJ MA SAIF NASDAQ 01/05/96 18.500
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 15.250
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 26.000
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 29.250
WVFC WVS Financial Corp. Pittsburgh PA MA SAIF NASDAQ 11/29/93 29.125
WYNE Wayne Bancorp Inc. Wayne NJ MA SAIF NASDAQ 06/27/96 24.500
YFCB Yonkers Financial Corporation Yonkers NY MA SAIF NASDAQ 04/18/96 19.875
Maximum 29.250
Minimum 15.250
Average 21.927
Median 21.313
</TABLE>
---------------------------------------
Start With 400 Thrifts
---------------------------------------
1. Delete all merger targets.
Remaining 380
2. Delete less than $100 million and greater than $500 million
Remaining 186
3. Delete MHC's
Remaining 171
4. Delete Loans to Deposits less than 50%
Remaining 167
5. Delete Loans to Deposits greater than 100%
Remaining 100
6. Eliminate NPA's greater than 1.0%
Remaining 74
7. Eliminate BIF insured
Remaining 65
8. Eliminate equity to Assets greater than 20%
Remaining 56
9. Eliminate equity to assets less than 7.5%
Remaining 47
10. Eliminate total assets greater than $300 million
Remaining 32
11. Eliminate total assets less than $200 million
Remaining 15
12. Eliminate equity to assets less than 10%
Remaining 12
Source: SNL Securities and F&C calculations.
8
<PAGE>
FERGUSON & COMPANY Section III
- ------------------ -----------
Table III.4 - Selection of Comparatives
<TABLE>
<CAPTION>
Current Price/ Price/ Current Current Current Total Equity/
Market LTM Core Price/ Price/ Tang Price/ Dividend Assets Assets
Value Core EPS EPS Book Value Book Value Assets Yield ($000) (%)
Ticker ($M) (x) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC 43.66 NA 27.15 121.08 121.08 20.57 - 212,245 16.98
FBER 55.13 26.63 21.88 136.41 136.41 19.36 1.09 284,765 14.19
HRBF 38.53 24.46 22.75 138.05 138.05 17.81 2.11 216,370 12.89
JXVL 42.54 7.57 10.52 127.31 127.31 18.99 2.90 226,182 14.92
LARL 35.89 13.30 12.96 168.76 168.76 16.93 2.09 211,987 10.03
LFBI 48.25 34.91 30.83 127.50 138.06 16.93 1.08 299,989 13.28
MFFC 35.15 27.23 25.42 124.39 124.39 17.59 3.93 200,238 13.12
OHSL 31.09 17.45 16.25 122.58 122.58 13.52 3.39 230,035 11.03
PFDC 66.51 15.73 15.23 152.11 152.11 23.13 2.19 287,564 15.20
WVFC 50.89 13.87 14.56 154.76 154.76 17.27 2.75 294,693 11.16
WYNE 49.34 22.07 22.69 149.03 149.03 19.90 0.82 261,027 13.35
YFCB 60.04 19.30 18.40 140.56 140.56 20.94 1.21 288,089 14.90
Maximum 66.51 34.91 30.83 168.76 168.76 23.13 3.93 299,989 16.98
Minimum 31.09 7.57 10.52 121.08 121.08 13.52 - 200,238 10.03
Average 46.42 20.23 19.89 138.55 139.43 18.58 1.96 251,099 13.42
Median 45.96 19.30 20.14 137.23 138.06 18.40 2.10 245,531 13.32
</TABLE>
Source: SNL Securities F&C calculations.
9
<PAGE>
FERGUSON & COMPANY Section III
- ------------------ -----------
Table III.4 - Selection of Comparatives
<TABLE>
<CAPTION>
Tangible Return on Return on ROACE ROACE
Equity/ Core Core Avg Assets Avg Assets Before Before
Tang Assets EPS EPS Before Extra Before Extra Extra Extra Merger Current
(%) ($) ($) (%) (%) (%) (%) Target? Pricing
Ticker Mst RctQ LTM Mst RctQ LTM Mst RctQ LTM Mst RctQ (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC 16.98 NA 0.16 NA 0.70 NA 4.13 N 09/30/97
FBER 14.19 0.69 0.21 0.45 0.85 2.72 5.57 N 09/30/97
HRBF 12.89 0.93 0.25 0.46 0.74 3.53 5.80 N 09/30/97
JXVL 14.92 2.28 0.41 1.02 1.75 6.42 11.48 N 09/30/97
LARL 10.03 1.87 0.48 1.13 1.42 10.82 14.00 N 09/30/97
LFBI 12.39 0.53 0.15 0.27 0.63 1.94 4.75 N 09/30/97
MFFC 13.12 0.56 0.15 0.50 0.74 3.14 5.44 N 09/30/97
OHSL 11.03 1.49 0.40 0.60 0.90 5.27 8.25 N 09/30/97
PFDC 15.20 1.86 0.48 1.12 1.53 7.29 10.08 N 09/30/97
WVFC 11.16 2.10 0.50 1.06 1.21 8.63 10.92 N 09/30/97
WYNE 13.35 1.11 0.27 0.43 0.83 2.90 6.02 N 09/30/97
YFCB 14.90 1.03 0.27 0.86 1.11 5.07 7.37 N 09/30/97
Maximum 16.98 2.28 0.50 1.13 1.75 10.82 14.00
Minimum 10.03 0.53 0.15 0.27 0.63 1.94 4.13
Average 13.35 1.31 0.31 0.72 1.03 5.25 7.82
Median 13.24 1.11 0.27 0.60 0.88 5.07 6.70
</TABLE>
Source: SNL Securities and F&C calculations.
10
<PAGE>
FERGUSON & COMPANY Section III
- ------------------ -----------
Table III.4 - Selection of Comparatives
<TABLE>
<CAPTION>
Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced
Assets Deposits Assets Assets Assets For Others
(%) (%) (%) (%) (%) ($000)
Ticker Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C>
BFFC - 69.60 41.04 58.97 21.96 -
FBER 0.83 57.50 43.27 75.25 9.60 69
HRBF 0.05 86.74 68.38 78.84 6.24 355
JXVL 0.78 91.84 75.36 82.06 0.88 NA
LARL 0.43 84.81 70.02 82.56 5.21 1,229
LFBI 0.98 57.32 43.07 75.13 11.17 -
MFFC 0.15 87.20 60.39 69.26 16.79 10,017
OHSL 0.01 95.77 72.64 75.85 12.52 24,527
PFDC 0.34 95.85 79.92 83.38 0.99 -
WVFC 0.30 93.72 54.34 57.99 28.72 985
WYNE 0.91 93.13 65.99 70.86 15.25 -
YFCB 0.57 51.38 36.41 70.87 13.84 14,517
Maximum 0.98 95.85 79.92 83.38 28.72 24,527
Minimum - 51.38 36.41 57.99 0.88 -
Average 0.45 80.41 59.24 73.42 11.93 4,700
Median 0.39 86.97 63.19 75.19 11.85 355
</TABLE>
Source: SNL Securities and F&C calculations.
11
<PAGE>
SECTION IV
CORRELATION OF MARKET VALUE
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
IV. CORRELATION OF MARKET VALUE
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED
This section addresses the aforementioned factors and the estimated pro forma
market. Certain factors must be considered to determine whether adjustments are
required in correlating Cavalry's market value to the comparative group. Those
factors include financial aspects, market area, management, dividends,
liquidity, thrift equity market conditions, and subscription interest value of
the to-be-issued common shares, and compares the resulting market value of the
Bank to the members of its comparative group and the selected group of publicly
held thrifts.
Financial Aspects
Section III includes a discussion regarding a comparison of Cavalry's
earnings, balance sheet characteristics, and risk factors with its comparative
group. Table III.2 presents a comparison of certain key indicators, and Table
III.3 presents certain key indicators on a pro forma basis after conversion.
As shown in Table III.2, from an earnings viewpoint, Cavalry is above its
comparative group in return on assets (based on appraisal earnings) as a
percentage of average assets. This is principally a result of Cavalry's higher
net interest income and higher net interest margins. Another comparison is the
core earnings of Cavalry to the comparative group. In that comparison Cavalry
is higher than the comparative group in core earnings to assets (1.19% to
0.99%). Cavalry has a higher net interest income than the comparables, 3.64% to
the comparative group's 3.40%. Cavalry has a higher loss provision than the
comparative group (0.27% vs. 0.07%). However, if you adjust Cavalry's 0.23%
provision to a normal provision, the comparison would be 0.12% to 0.07%.
Cavalry has a higher other operating income (0.72% vs. 0.21%), and higher
operating expenses than the comparative group (2.86% vs. 1.75%). After
considering all of the analytical factors, and adjusting to core earnings,
Cavalry has higher earnings, but is similar in results to the comparative
group. After Cavalry completes its stock conversion, its return on average
assets and core income as a percentage of average assets will increase, and it
will continue to out perform the comparative. Table III.3 projects that Cavalry
will out-perform the comparative group in return on assets with 1.51% at the
midpoint, versus a mean of 0.97% and median of 0.87% for the comparative group.
Cavalry's pro forma equity to assets ratio at the midpoint is 24.17%, versus a
mean of 13.22%, and median of 13.17% for the comparative group. Cavalry's pro
forma return on equity is lower than the comparative group--6.00% at the
midpoint versus a mean of 7.12% and median of 6.40% for the comparative group.
The post--conversion ROAE is lower due to the high post--conversion capital
levels.
Cavalry's recorded earnings have been adjusted for appraisal purposes (see
Table IV.1). The Bank recorded loan loss provisions of $730 thousand for the
twelve months ending September 30, 1997. A study of banks in its peer group,
determined by size, showed that the average loan loss provision was $340
thousand. The difference in provisions was $390 thousand, pretax. This was
the only earnings adjustment made. During the twelve months discussed above,
the Bank opened one new branch and relocated an existing branch. These openings
occurred early in 1997 and the significant portion of the related expenses were
recorded in 1996. No major advertising campaigns were associated with the
branch activities and no significant funds were spent on opening parties or
ceremonies.
1
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
<TABLE>
<CAPTION>
Table IV.1 - Appraisal Earnings Adjustments
for the Twelve Months Ending September 30, 1997
(In Thousands)
Appraisal Earnings
<S> <C>
Year End September 30, 1997 $3,232
----------
Excess Loss Provision 390
----------
390
Tax @ 38% (148)
Net Adjustments 242
----------
Adjusted Earnings $3,474
==========
</TABLE>
Source: Cavalry Banking's audited financial statements and F&C calculations.
Cavalry's asset composition is lending oriented, with 78.43% of total assets
dedicated to lending. The comparative group is also lending oriented (more than
50% of total assets are in loans); however, the percentage of total assets
assigned to lending is only 58.05%. The comparative group uses mortgage--backed
securities to augment loans (15.10%). Taking loans and MBS's as a total,
Cavalry has 78.91% of total assets in that combination and the comparable group
has 73.15%. The different combinations also will produce different income
results. Cavalry's mixture of loans and MBS's is more profitable that the mix
reported by the comparative group. Another area of significant difference in
assets is in cash and investments. Cavalry has 14.68% of its assets in that
category and the comparable group has 22.99. Another notable difference in
Cavalry and the comparative group, is the funding sources for the earning
assets, besides capital. Cavalry has a line of credit with the FHLB, but has
not used it in the recent past. Instead, assets are funded with deposits, which
are 87.69% of total assets. The comparative group has deposits of only 73.75%
of assets and borrowings of 12.5% of total assets. Cavalry has an extensive and
efficient branching operation that has the potential of capturing a larger
segment of the market at a lower cost of funds. Branch systems like the branch
system of Cavalry are not prevalent in the comparative group.
From the viewpoint of risk, Cavalry is similar to the comparative group.
Cavalry has 0.02% in nonperforming assets, and the comparative group has 0.43%
in nonperforming assets. Obviously, Cavalry's percentage is much smaller, but
both levels are indicative of quality portfolios, and neither should present any
problems related to capital or future earnings of Cavalry or the comparative
group. Cavalry's loan loss allowance is1.27% of net loans, comparing favorably
with the comparative group, which is 0.84%. Cavalry's loan loss reserve is
greater, mainly due to Management's recognition that its asset composition has
more risk than a traditional thrift and resembles the risk normally found in
banking institutions. The increase in provisions for loan and lease losses
recorded in the quarter ending September 1997, was designed to bring the
reserves to near peer--levels of a banking peer group. Its ratio of interest
earning assets to interest bearing liabilities (116.77%) is nearly the same as
the comparative group (116.0%). Cavalry's earnings ratios will be greater than
the comparative group due to its composition of the lending portfolio and the
repricing opportunities within that portfolio. After the Conversion, Cavalry's
earnings capacity will increase even more due to the capital infusion. From an
interest rate risk factor, Cavalry has
2
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
less risk than the comparative group. Both Cavalry and the comparative group
have amounts of interest rate risk that is manageable. The Bank's interest rate
risk will decrease further after the Conversion with the employment of the
subsequent capital infusion.
We believe that an upward adjustment is necessary relative to financial
--------------------
aspects of Cavalry Banking.
Market Area
Section II describes Cavalry's market area.
We believe that an upward adjustment is required for Cavalry's market area.
--------------------
Management
The CEO has served as President, CEO, and Director since 1982. He joined
the Bank in 1968, and has significant experience in financial institution
management. He is well qualified for the position he holds.
The senior staff is extremely well qualified and possess the necessary
intellect, skills, levels of expertise, and experience to maintain the integrity
of the assets and to implement the strategic goals of the organization. This
management team has depth and experience seldom seen in a thrift. Cavalry's
results are well above the comparative group. Therefore, the Bank's Management
has done a higher quality job than its selected comparatives. There is a
management succession plan in effect. There is sufficient depth of management
that the Bank would not be vulnerable to the loss of the CEO.
We believe that an upward adjustment is required for Cavalry's Management.
--------------------
Dividends
Table III.3 provides dividend information relative to the comparative group
and the thrift industry as a whole. The comparative group is paying a mean
yield on a market price of 1.99% and a median of 1.90%, while all public thrifts
are paying a mean of 1.65% and median of 1.66%. Tennessee public thrifts are so
few in number that the comparison is moot, but they are paying a mean of 2.81%
and a median of 2.81%. Cavalry intends to pay a dividend at an initial annual
rate of 2.0%, on an offering price of $10.00 per share ($0.20 per share). With
market appreciation, Cavalry's dividend rate will be slightly less than the
comparative group.
We believe that no adjustment is required relative to Cavalry's intention
-------------
to pay dividends.
Liquidity
The Holding Company has never issued capital stock to the public, and as a
result, there is no existing market for the Common Stock. Although the Holding
Company has applied to list its Common Stock on NASDAQ, there can be no
assurance that a liquid trading market will develop.
A public market having the desirable characteristics of depth, liquidity,
and orderliness depends upon the presence in the marketplace of both willing
buyers and sellers of the Common Stock. These characteristics are not within the
control of the Association or the market.
The peer group includes companies with sufficient trading volume to develop
meaningful pricing characteristics for the stock. The market value of the
comparative group ranges from $33.95 million to $79.58 million, with a mean
value of $47.86 million. The midpoint of Cavalry's valuation range is $57.0
million at $10.00 a share, or 5,700,000 shares. The liquidity of the stock can
be affected by the size of the issue ($57.00 million at the midpoint at $10.00
per share). Of the 5,700,000 shares in the offering, approximately 1,100,000
shares will be purchased by insiders, 456,000 by the ESOP, leaving approximately
3
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
4,144,000 shares available to the market. Such a number of shares should
produce the trading volume necessary to develop a meaningful, liquid market.
We believe that no adjustment is required relative to the liquidity of Cavalry
-------------
Banking.
Thrift Equity Market Conditions
As shown in Figure IV.1, which is a graph of the SNL Thrift Index covering
from January 31, 1994, through November 7, 1997, the market, as reflected by the
index, experienced fluctuations but ended in 1994-down 13.74, which is only
5.3%. Since year end 1994, the market has continued with a well defined
increase and has moved from 244.7 at December 31, 1994, to 376.51 at December
29, 1995, an increase of 53.84%. From that point, the SNL Index rose
consistently from the 376.51 reported at December 31, 1995, to 486.67 at
December 31, 1996. The Index increased further until the end of February 1997,
reaching 569.67. March 1997 brought the first retrenchment of the Index and it
fell to 517.63 in April of 1997. From April 11, 1997, forward, the Index
increased, with one noticeable decline in value in the third week of April 1997.
By the end of the month of April, the Index rebounded, and has rebounded
robustly since then, increasing from 537.21 at April 30, 1997, to 684.51
reported July 31, 1997. From July through the first three week of October 1997,
the market continued to climb. Late October saw significant market adjustments.
The market fell sharply then started an unsure rise. The SNL Index fell from
773.33 at October 21, 1997, to 745.83 at October 28, 1997. At November 7, 1997,
the index had reclaimed some of its loss and closed at 755.07.
EFFECT OF INTEREST RATES ON THRIFT STOCK
The current interest rate environment and the anticipated rate environment
will affect the pricing of thrift stocks and all other interest sensitive
stocks. As the economy continues to expand, the fear of inflation can return.
The Federal Reserve, in its resolve to curb inflation, has increased rates in
the past, but has more recently relented and passed several opportunities to
increase rates, until March 25, 1997, when the Federal Open Market Committee
(FOMC) increased the discount rate 25 basis points. In some minds, this was an
attempt to head off inflationary trends. According to the FOMC, "This action
was taken in light of persisting strength in demand, which is progressively
increasing the risk of inflationary imbalances developing in the economy that
would eventually undermine the long expansion."/1/ This increase was clearly
telegraphed by Chairman Greenspan who voiced concern about the levels of the
equity markets. Following the March 25 increase, unemployment rates were
announced at the 5.2% level, down from the 5.5% level at the beginning of 1996,
and significantly down from the 6.7% level at the beginning of 1994./2/ The good
news about unemployment gave way to speculation that the March 25 increase was
just the first of at least two or three increases, and the speculation was given
some credence at that time by rises in the Employment Cost Index, an increase in
Unit Labor Cost and an upward trend in the price of crude oil. By April 1,
1997, following the rate increase, the equities markets lost all of the gains
registered since the first of the year. By the end of April 1997, the market
had begun a rebound and has trended upward since then. There have been specific
days of price adjustment, but the overall trend is up notwithstanding recent
dramatic ups and downs. Chairman Greenspan, in recent public appearances, has
not articulated concerns about market levels and inflation. Since the
adjustment recorded October 21st, the Fed has publicized inaction. The market
reaction to the inaction has been mixed--generally regarded as a neutral
response.
- ----------------------
/1/ US Financial Data, November 6, 1997, published by the Research Division of
the Federal Reserve Bank of St. Louis, MO.
/2/ National Economic Trends, The Federal Reserve Bank of St. Louis, MO.
4
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
The thrift equities market is following the market in general. However, the
thrift equities market will continue to be influenced by the speculation that
there will eventually be a buyout, and the knowledge
that thrift IPO stock can be purchased at significant discounts from book value.
These two facts could keep the thrift equities market from falling as much as
the other general markets. The large mergers are likely to slow, but at the
regional level, merger activity is likely to continue.
What is likely to happen in the short to intermediate term is that rates will
float around current levels for the next few months. The yield curve will
continue to be of normal configuration, but exceedingly flat Some economists
feel that a flattening yield curve could be signaling a business slowdown. The
current spread (see Figure II) is less than 1% between the one year T-Bill and
the 30 year long bond. Historically, when the yield curve become flat, the
"GDP" growth also slows. Admittedly, the yield curve is flatter now than in the
third quarter, but the GDP did rise at an annual rate of 3.5%, in the third
quarter, compared to the annual rate of increase in the second quarter of 3.3%.
With the Federal Reserve always ready to raise (or lower) rates as economic
conditions warrant, it is likely that during the next few months, rates will be
stable. The supply and demand portion of the equation is nicely balanced, and a
continuation of such equilibrium will probably restrain rising rates in the near
term. It is even possible that in the short-term, interest rates might ease a
bit.
The consumer seems to be happier now than in the past. Job markets remain
strong and the unemployment rate is at 4.7%--the lowest since November of 1973.
Consumer confidence is at a 28 year high. Our continuing economic health has
always been dependent upon meaningful consumer participation, because consumers
(household sector) actually account for 68% of the Gross Domestic Product
("GDP").
In the second quarter of 1997, consumers seemed to rein in their consumption.
However, consumer expenditures rebounded nicely in the third quarter.
Manufacturing is still strong (new factory orders rose 2.4% in the third
quarter), as are home purchases and other big ticket items.
With consumer confidence at a high level, jobs plentiful, inflation seemingly
in check, and the economy healthy and continuing to expand, why shouldn't the
economy continue to roll onward and upward. From an analytical view, there is
little on the economic horizon at this time that would interfere with continuing
economic expansion for at least another 6 to 9 months.
Thrift net interest margins have remained stable. The equilibrium in the
supply and demand portion of the interest rate market has helped continue the
profitability mode of the industry that started in 1993. Access to mortgage-
backed securities and derivatives has made it possible for many to be profitable
without making loans in significant volumes. With reduced deposit insurance
premiums, perhaps they will become more willing to compete for customer
deposits. However, even with portfolios replete with adjustable rate loans and
adjustable MBS's, there remains a real fear that a quickly rising rate
environment can cause the cost of funds to rise faster than the adjustable
assets can accommodate, and accordingly, spreads would narrow. If rates rise in
a slow and orderly manner, then the negative impact on spreads will be less, and
the adjustable rate assets will have time to rise and protect rate spreads.
Figure IV.2 graphically displays the rate environment since March 14, 1997.
Since then, the yield curve has flattened with the high spread between the 1
year T-Bill and the 30 year long bond being 124 BP and the low 79 BP. Mortgage
rates follow closely the long term government obligations.
TENNESSEE ACQUISITIONS
Table IV.2 provides information relative to acquisitions of financial
institutions in Tennessee between January 1, 1996, and November 7, 1997. There
were 9 acquisitions announced during that time frame. Currently there is only
one publicly held thrift in the State of Tennessee. There are 57 publicly held
5
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
thrifts in the Southeast region of the country. Acquisitions of financial
institutions in Tennessee completed since January 1, 1996, have averaged 219.64%
of tangible book value and 15.91 times earnings. The median price has been
204.08% of tangible book value and 13.16 times earnings. Thrifts generally sell
at lower price/book multiples than do banks. This data reflects that, but the
limited number of thrifts in the database makes it dangerous to deduce that the
overall price of thrifts are nearing the price of banks. Disparity, or the lack
thereof, between the price of thrifts and banks aside, there is ample data shown
to conclude that speculators in thrift IPO stock have good reason to believe
that, in the event of a sell out, there would be a generous profit. Such
knowledge and hope for profits have created a whole new level of professional
investors (speculators) and that, in turn, has increased the demand for thrift
IPO stocks.
Table IV.3, which has information on recent conversions since January 1, 1997,
shows that recent price appreciation has been more vigorous than it was in past
periods. Table IV.4 provides information on 19 conversions completed since
January 1997. The average change in price since conversion is a gain of 68.02%,
and the median change is a gain of 68.13%. All thrifts within that group have
increased in value, ranging from a low of 25.0% to a high of 118.75%. The
average increase in value at one day, one week, and one month after conversion
has been 42.80%, 44.89%, and 47.33%, respectively. The median increase in value
at one day, one week, and one month after conversion has been 41.25%, 45.00%,
and 43.75%, respectively. A notable change in pricing patterns is that it is
taking longer for the stocks to increase in value. In the recent past, it was
not uncommon for a stock to gain 75% to 80% of its total price increase in the
first day or week. However, more recent conversions gained 62.92% of their
total price increase in the first day, and 65.99% of the total price increase in
the first week. This is mainly due to the trend toward higher price to pro
forma book values at closings. Since January 2, 1997, only three issues have
closed at a price to pro forma book value of less than 70.00%, and they closed
as 68.10%, 63.80%, and 63.30% of pro forma book value. The remainder closed
between 70.70% and 76.60% price to pro forma book value.
Because of the lack of complete earnings information on recent conversions, a
meaningful comparison of the price earnings ratios is difficult to make.
However, there is sufficient information to review the current price-to-book
ratio. The average price-to-book ratio as of November 7, 1997, is 118.10%, and
the median is 116.13%. That compares to the offering price to pro forma book,
where the average was 71.05%, and the median was 71.90%.
We believe that a slight downward adjustment is required for the new issue
--------------------------
discount.
6
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Adjustments Conclusion
Adjustments Summary
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
No Change Upward Down
<S> <C> <C> <C>
Financial Aspects X
Market Area X
Management X
Dividends X
Liquidity X
Thrift Equity Market
Conditions X
- --------------------------------------------------------------------------------
</TABLE>
Comparison to Banks
Cavalry Banking is currently considering the possibility of converting to a
bank in the future. Although the decision to convert to a bank charter has not
been made, it is obvious that the asset composition of the Bank has been
changing to a configuration that is more like a bank than a thrift. Provided in
Table IV.6 is some information on thrifts that have undertaken a conversion from
mutual to stock form, then converted from a thrift to a bank. Information is
provided on IFB Holdings, Inc., Chillicothe, Missouri; Heartland Bancshares,
Inc., Herrin, Illinois; Community Financial Corp., Olney, Illinois; and First
Southern Bancshares, Florence, Alabama.
At the time of conversion, Community Financial Corp., had made progress in
converting its balance sheet structure to a bank. First Southern Bancshares was
making progress in converting its balance sheet, but at conversion only has
17.2% of its portfolio in non--real estate transactions. The remaining two, IFB
Holdings, Inc., and Heartland Bancshares, maintained balance sheets of thrifts.
First Southern and Heartland have performed better in the market than have IFB
Holdings and Community Financial. Analytically, this produces a split as far as
balance sheet structure is concerned and its relation to market price. However,
market pricing of these two institutions seems to be driven mainly by
expectations of higher future earnings as well as hopes of acquisition.
Table IV.4 (a) provides a comparison of Cavalry's pricing ratios to those of
the "banks" listed above. Cavalry's ratios compare well to the "charter flip
banks".
Valuation Approach
Typically, investors rely on the price/earnings ratio as the most appropriate
indicator of value. We consider price/earnings to be one of the important
pricing methods in valuing a thrift stock. Price/book is a well recognized
yardstick for measuring the value of financial institution stocks in general.
Another method of viewing thrift values is price/assets, which is more
meaningful in situations where the subject is thinly capitalized. Given the
healthy condition of the thrift industry today, more emphasis is placed on
price/earnings and price/book. Generally, price/earnings and price/book should
be considered in tandem.
Table III.3 presents Cavalry's pro forma ratios and compares them to the
ratios of its comparative group and the publicly held thrift industry as a
whole. Cavalry's reported earnings for the 12 months ended
7
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
September 30, 1997, were approximately $3,232,000, with adjustments of $390,000
($242,000 after tax @ 38%) required to determine appraisal earnings of
$3,474,000 (see Table IV.1). Management has exhibited, through its
diversification of deposit and loan products, the flexibility in operations
needed to serve both the public and the institution. The Bank is well positioned
to manage interest rate variations. The Bank projects approximately an 8% rate
of growth for the next three years.
The comparative group traded at an average of 20.92 times earnings at November
7, 1997, and at 141.89% of book value. The comparative group traded at a median
of 19.48 times earnings and a median of 130.17% of book value. At the midpoint
of the valuation range, Cavalry is priced at 12.36 times earnings and 72.57% of
book value. At the maximum end of the range, Cavalry is priced at 13.70 times
earnings and 76.27% of book value. At the supermaximum, Cavalry is priced at
15.13 times earnings and 79.80% of book value.
The midpoint valuation of $57,000,000 represents a discount of 48.9% from the
average and a discount of 44.2% from the median of the comparative group on a
price/book basis. The price/earnings ratio for Cavalry at the midpoint
represents a discount of 40.9% from the comparative group's mean and 36.6% from
the median price/earnings ratio.
The maximum valuation of $65,550,000 represents a discount of 46.2% from the
average and 41.4% from the median of the comparative group on a price/book
basis. The price/earnings ratio for Cavalry at the maximum represents a
discount of 34.5% from the average and a discount of 29.7% from the median of
the comparative group.
As shown in Table IV.3, conversions closing since January 2, 1997, have closed
at an average price to book ratio of 71.05% and median of 71.90%. Cavalry's pro
forma price to book ratio is 72.57% at the midpoint, 76.27% at the maximum, and
79.80% at the supermaximum of the range. At the midpoint, Cavalry is 2.14%
above the average and 0.93% above the median. At the maximum of the range,
Cavalry is 7.35% above the average and 6.08% above the median. At the
supermaximum of the range, Cavalry's pro forma price to book ratio is 12.31%
above the average and 10.99% above the median.
Addressing the discounts between the pro forma book value of Cavalry and the
current price to book values of the comparative group (see Table IV.4), there
are some notable factors. Should the issue close at the supermaximum, which is
likely, then it would be closing at a premium of 11.0% on the average of recent
conversion. It is important to realize that there is some point beyond which
most knowledgeable investors will not travel as it relates to the price of
thrift IPO stock. This valuation provides for a 15% increase between midpoint
and maximum and an additional 15% to supermaximum, which would take the value
higher than all of the most recent conversions.
Valuation Conclusion
- --------------------
We believe that as of November 7, 1997, the estimated pro forma market value
of Cavalry was $57,000,000. The resulting valuation range was $48,450,000 at
the minimum to $65,550,000 at the maximum, based on a range of 15% below and 15%
above the midpoint valuation. The supermaximum is $75,382,500, based on 1.15
times the maximum. Pro forma comparisons with the comparative group are
presented in Table III.3 based on calculations shown in Exhibit V.
8
<PAGE>
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.2 Whole Bank and Thrift Acquisition in Tennessee since January 1, 1996
<TABLE>
<CAPTION>
Total
Bank/ Bank/ Assets
Buyer City ST Thrift Seller City ST Thrift ($000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Southeast Bancorp Inc. Corbin KY Bank First Bank of East Tennessee La Follette TN Bank 216,301
Union Planters Corporation Memphis TN Bank Citizens of Hardeman County
Financial Services Whiteville TN Bank 11,499,785
First American Corporation Nashville TN Bank Hartsville Bancshares Hartsville TN Bank 9,873,845
Union Planters Corporation Memphis TN Bank SBT Bancshares, Inc. Selmer TN Bank 11,367,625
First Commercial Corporation Little Rock AR Bank W.B.T. Holding Company Memphis TN Bank 5,221,391
Chester County Bancshares, Inc. Henderson TN Bank Southwest Tennessee Bancshares Adamsville TN Bank 33,653
Union Planters Corporation Memphis TN Bank Leader Financial Corp. Memphis TN Thrift 11,277,116
Union Planters Corporation Memphis TN Bank Franklin Financial Group, Inc. Morristown TN Thrift 11,277,116
Peoples First Corporation Paducah KY Bank Guaranty Federal Savings Bank Clarksville TN Thrift 1,269,003
Maximun
Minimum
Average
Median
</TABLE>
Source: SNL Securities LC, Charlottesville, VA
9
<PAGE>
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.2 Whole Bank and Thrift Acquisitions in Tennessee since January 1, 1996
<TABLE>
<CAPTION>
Total Completed/ Deal Deal Deal Pr/ Deal Pr/
Assets Announce Terminated Value Pr/Bk Tg Bk 4-Qtr
Seller ($000) Date Status Date ($M) (%) (%) EPS (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Bank of East Tennessee 82,065 2/4/97 Pending NA 18.80 161.55 161.55 29.75
Citizens of Hardeman County
Financial Services 57,751 12/13/96 Pending NA NA NA NA NA
Hartsville Bancshares 91,447 10/11/96 Completed 1/1/97 12.00 209.72 245.15 21.47
SBT Bancshares, Inc. 97,432 10/9/96 Pending NA 21.70 174.44 174.44 16.19
W.B.T. Holding Company 274,150 10/4/96 Completed 2/13/97 45.00 NA NA NA
Southwest Tennessee Bancshares 32,414 4/5/96 Pending NA 2.80 NA NA NA
Leader Financial Corp. 3,098,577 3/8/96 Completed 10/1/96 504.70 192.54 192.54 13.05
Franklin Financial Group, Inc. 135,822 3/6/96 Completed 10/1/96 20.80 152.47 188.89 23.29
Guaranty Federal Savings Bank 54,875 2/20/96 Completed 8/30/96 6.60 219.71 219.71 17.60
Maximun 504.70 219.71 245.15 29.75
Minimum 2.80 152.47 161.55 13.05
Average 79.05 185.07 197.05 20.23
Median 19.80 183.49 190.72 19.54
</TABLE>
Source: SNL Securities LC, Charlottesville, VA
10
<PAGE>
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.2 Whole Bank and Thrift Acquisitions in Tennessee since January 1, 1996
<TABLE>
<CAPTION>
Deal Deal Deal Pr/ Deal Pr/
Value Pr/Bk Tg Bk 4-Qtr
Seller ($M) (%) (%) EPS (x)
-------
<S> <C> <C> <C> <C>
First Bank of East Tennessee NA NA NA NA
Citizens of Hardeman County
Financial Services NA NA NA NA
Hartsville Bancshares 12.40 216.17 252.69 22.18
SBT Bancshares, Inc. NA NA NA NA
W.B.T. Holding Company 52.80 NA NA NA
Southwest Tennessee Bancshares NA NA NA NA
Leader Financial Corp. 571.10 202.16 202.16 12.39
Franklin Financial Group, Inc. 23.60 196.06 NA NA
Guaranty Federal Savings Bank 6.50 204.08 204.08 13.16
Maximun 571.10 216.17 252.69 22.18
Minimum 6.50 196.06 202.16 12.39
Average 133.28 204.62 219.64 15.91
Median 23.60 203.12 204.08 13.16
</TABLE>
Source: SNL Securities LC, Charlottesville, VA
11
<PAGE>
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.3 Recent Conversions
<TABLE>
<CAPTION>
Conversion Gross Offering
Assets Proceeds Price
Ticker Short Name State IPO Date ($000) ($000) ($)
<C> <S> <C> <C> <C> <C> <C>
AFBC Advance Financial Bancorp WV 01/02/97 91,852 10,845 10.00
RSLN Roslyn Bancorp Inc. NY 01/13/97 1,596,744 423,714 10.00
FAB FirstFed America Bancorp Inc. MA 01/15/97 723,778 87,126 10.00
EFBC Empire Federal Bancorp Inc. MT 01/27/97 86,810 25,921 10.00
MRKF Market Financial Corp. OH 03/27/97 45,547 13,357 10.00
GSLA GS Financial Corp. LA 04/01/97 86,521 34,385 10.00
HMLK Hemlock Federal Financial Corp IL 04/02/97 146,595 20,763 10.00
PSFC Peoples-Sidney Financial Corp. OH 04/28/97 86,882 17,854 10.00
HCBB HCB Bancshares Inc. AR 05/07/97 171,241 26,450 10.00
CFBC Community First Banking Co. GA 07/01/97 352,532 48,271 20.00
MONT Montgomery Financial Corp. IN 07/01/97 NA NA 10.00
FBNW FirstBank Corp. ID 07/02/97 133,194 19,838 10.00
FSPT FirstSpartan Financial Corp. SC 07/09/97 375,526 88,608 20.00
GOSB GSB Financial Corp. NY 07/09/97 96,323 22,483 10.00
FSNJ Bayonne Bancshares Inc. NJ 08/22/97 NA NA NA
OSFS Ohio State Financial Services OH 09/29/97 33,929 6,332 10.00
SHSB SHS Bancorp Inc. PA 10/01/97 81,688 8,200 10.00
OTFC Oregon Trail Financial Corp. OR 10/06/97 204,213 46,949 10.00
FSFF First SecurityFed Financial IL 10/31/97 260,002 64,080 10.00
Maximum 1,596,744 423,714 20.00
Minimum 33,929 6,332 10.00
Average All Recent Conversions 269,022 56,775 11.11
Median Since January 1, 1997 133,194 25,921 10.00
Maximum 375,526 88,608 20.00
Minimum 33,929 6,332 10.00
Average All Recent Conversions 192,176 38,095 12.22
Median Since July 1, 1997 168,704 34,716 10.00
</TABLE>
Source: SNL Securities and F&C calculations.
12
<PAGE>
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.3 Recent Conversions
<TABLE>
<CAPTION>
Conversion Pricing Ratios
---------------------------------------------------
Price/ Price/ Price/ Price/ Current Current Current Price One Price One
Pro-Forma Pro-Forma Pro-Forma Adjusted Stock Price/ Price/ Tang Day After Week After
Book Value Tang. Book Earnings Assets Price Book Value Book Value Conversion Conversion
Ticker (%) (%) (x) (%) ($) (%) (%) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AFBC 71.10 71.09 16.80 10.60 17.750 119.37 119.37 12.88 12.94
RSLN 72.00 71.98 9.30 21.00 21.875 155.80 156.59 15.00 15.94
FAB 72.00 72.02 13.60 10.70 20.375 130.36 130.36 13.63 14.13
EFBC 68.10 68.09 21.50 23.00 16.625 106.23 106.23 13.25 13.50
MRKF 71.10 71.07 26.20 22.70 15.125 101.99 101.99 12.94 12.25
GSLA 63.80 63.75 38.70 28.40 17.750 107.97 107.97 13.38 13.75
HMLK 71.60 71.62 37.50 12.40 17.000 112.88 112.88 12.88 12.88
PSFC 71.20 71.24 11.50 17.00 17.625 122.40 122.40 12.56 12.88
HCBB 72.00 71.95 29.00 13.40 13.375 93.73 97.41 12.63 12.75
CFBC 72.70 72.74 36.10 12.00 38.125 NA NA 31.88 33.00
MONT NA NA NA NA 12.500 NA NA 11.13 11.25
FBNW 71.90 71.93 19.20 13.00 17.000 NA NA 15.81 15.56
FSPT 73.00 72.98 26.00 19.10 38.000 130.27 130.27 36.69 37.00
GOSB 73.40 73.44 23.20 18.90 15.375 NA NA 14.63 14.88
FSNJ NA NA NA NA 12.375 NA NA 11.75 11.88
OSFS 63.30 63.33 17.00 15.70 15.250 NA NA 15.50 15.37
SHSB 70.70 70.73 13.90 9.10 15.750 NA NA 14.75 16.25
OTFC 76.60 76.63 18.50 18.70 15.875 NA NA 16.75 16.38
FSFF 73.40 73.44 21.30 19.80 15.125 NA NA 15.06 15.13
Maximum 76.60 76.63 38.70 28.40 38.125 155.80 156.59 36.69 37.00
Minimum 63.30 63.33 9.30 9.10 12.375 93.73 97.41 11.13 11.25
Average 71.05 71.06 22.31 16.79 18.572 118.10 118.55 15.95 16.19
Median 71.90 71.93 21.30 17.00 16.625 116.13 116.13 13.63 14.13
Maximum 76.60 76.63 36.10 19.80 38.125 130.27 130.27 36.69 37.00
Minimum 63.30 63.33 13.90 9.10 12.375 130.27 130.27 11.13 11.25
Average 71.88 71.91 21.90 15.79 19.538 130.27 130.27 18.39 18.67
Median 72.85 72.86 20.25 17.20 15.563 130.27 130.27 15.28 15.47
</TABLE>
Source: SNL Securities and F&C calculations.
13
<PAGE>
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.3 Recent Conversions
<TABLE>
<CAPTION>
Post Conversion Increases (Decreases)
--------------------------------------------------------------
Price One % Increase % Increase % Increase % Increase
Month After Price One Price One Price One To
Conversion Day After Week After Month After Date
Ticker ($) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C>
AFBC 14.00 28.75 29.38 40.00 77.50
RSLN 16.00 50.00 59.38 60.00 118.75
FAB 14.88 36.25 41.25 48.75 103.75
EFBC 13.75 32.50 35.00 37.50 66.25
MRKF 12.63 29.38 22.50 26.25 51.25
GSLA 14.00 33.75 37.50 40.00 77.50
HMLK 13.00 28.75 28.75 30.00 70.00
PSFC 13.25 25.63 28.75 32.50 76.25
HCBB 12.88 26.25 27.50 28.75 33.75
CFBC 34.00 59.38 65.00 70.00 90.63
MONT 12.06 11.25 12.50 20.63 25.00
FBNW 17.75 58.13 55.63 77.50 70.00
FSPT 35.63 83.44 85.00 78.13 90.00
GOSB 14.38 46.25 48.75 43.75 53.75
FSNJ 12.69 NA NA NA NA
OSFS 14.96 55.00 53.70 49.60 52.50
SHSB 16.00 47.50 62.50 60.00 57.50
OTFC 16.13 67.50 63.75 61.25 58.75
FSFF NA 50.63 51.25 NA 51.25
Maximum 35.63 83.44 85.00 78.13 118.75
Minimum 12.06 11.25 12.50 20.63 25.00
Average 16.55 42.80 44.89 47.33 68.02
Median 14.19 41.25 45.00 43.75 68.13
Maximum 35.63 83.44 85.00 78.13 90.63
Minimum 12.06 11.25 12.50 20.63 25.00
Average 19.29 53.23 55.34 57.61 61.04
Median 16.00 55.00 55.63 60.63 57.50
</TABLE>
Source: SNL Securities and F&C calculations.
14
<PAGE>
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.4 - Comparison of Pricing Ratios
<TABLE>
<CAPTION>
Group Percent Premium
Compared to (Discount) Versus
Cavalry ------------------------- ------------------------
Banking Average Median Average Median
---------------- ------------ ------------ ----------- -----------
Comparison of PE ratio at
midpoint to:
- ------------------------------
<S> <C> <C> <C> <C> <C>
Comparative group 12.36 20.92 19.48 (40.9) (36.6)
Tennessee Thrifts 12.36 23.75 23.75 (48.0) (48.0)
Southeast Region Thrifts 12.36 21.66 21.66 (42.9) (42.9)
All public thrifts 12.36 19.87 18.87 (37.8) (34.5)
Recent conversions 12.36 21.90 20.25 (43.6) (39.0)
Comparison of PE ratio at
maximum to:
- ------------------------------
Comparative group 13.70 20.92 19.48 (34.5) (29.7)
Tennessee Thrifts 13.70 23.75 23.75 (42.3) (42.3)
Southeast Region Thrifts 13.70 21.66 21.66 (36.7) (36.7)
All public thrifts 13.70 19.87 18.87 (31.1) (27.4)
Recent conversions 13.70 21.90 20.25 (37.4) (32.3)
Comparison of PE ratio at
supermaximum to:
- ------------------------------
Comparative group 15.13 20.92 19.48 (27.7) (22.3)
Tennessee Thrifts 15.13 23.75 23.75 (36.3) (36.3)
Southeast Region Thrifts 15.13 21.66 21.66 (30.1) (30.1)
All public thrifts 15.13 19.87 18.87 (23.9) (19.8)
Recent conversions 15.13 21.90 20.25 (30.9) (25.3)
Comparison of PB ratio at
midpoint to:
- ------------------------------
Comparative group 72.57 141.89 130.17 (48.9) (44.2)
Tennessee Thrifts 72.57 131.09 131.09 (44.6) (44.6)
Southeast Region Thrifts 72.57 178.01 152.97 (59.2) (52.6)
All public thrifts 72.57 164.93 152.02 (56.0) (52.3)
Recent conversions 72.57 71.88 72.85 1.0 (0.4)
Comparison of PB ratio at
maximum to:
- ------------------------------
Comparative group 76.27 141.89 130.17 (46.2) (41.4)
Tennessee Thrifts 76.27 131.09 131.09 (41.8) (41.8)
Southeast Region Thrifts 76.27 178.01 152.97 (57.2) (50.1)
All public thrifts 76.27 164.93 152.02 (53.8) (49.8)
Recent conversions 76.27 71.88 72.85 6.1 4.7
Comparison of PB ratio at
supermaximum to:
- ------------------------------
Comparative group 79.80 141.89 130.17 (43.8) (38.7)
Tennessee Thrifts 79.80 131.09 131.09 (39.1) (39.1)
Southeast Region Thrifts 79.80 178.01 152.97 (55.2) (47.8)
All public thrifts 79.80 164.93 152.02 (51.6) (47.5)
Recent conversions 79.80 71.88 72.85 11.0 9.5
</TABLE>
Source: SNL Securities and F&C calculations.
15
<PAGE>
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.4 (a) - Comparison of Pricing Ratios With Banks
<TABLE>
<CAPTION>
Group Percent Premium
Compared to (Discount) Versus
Cavalry ------------------------- ------------------------
Banking Average Median Average Median
----------------- ------------ ------------ ----------- -----------
Comparison of PE ratio at
midpoint to:
- -------------------------------------------
<S> <C> <C> <C> <C> <C>
Other charter flips - Current 12.36 18.50 15.90 (33.2) (22.3)
Other charter flips - Conversion 12.36 15.10 13.20 (18.1) (6.4)
All pink sheet banks 12.36 16.26 13.62 (24.0) (9.3)
Tennessee pink sheet banks 12.36 11.92 11.92 3.7 3.7
Comparison of PE ratio at
maximum to:
- -------------------------------------------
Other charter flips - Current 13.70 18.50 15.90 (25.9) (13.8)
Other charter flips - Conversion 13.70 15.10 13.20 (9.3) 3.8
All pink sheet banks 13.70 16.26 13.62 (15.7) 0.6
Tennessee pink sheet banks 13.70 11.92 11.92 14.9 14.9
Comparison of PE ratio at
supermaximum to:
- -------------------------------------------
Other charter flips - Current 15.13 18.50 15.90 (18.2) (4.8)
Other charter flips - Conversion 15.13 15.10 13.20 0.2 14.6
All pink sheet banks 15.13 16.26 13.62 (6.9) 11.1
Tennessee pink sheet banks 15.13 11.92 11.92 26.9 26.9
Comparison of PB ratio at
midpoint to:
- -------------------------------------------
Other charter flips - Current 72.57 112.10 106.90 (35.3) (32.1)
Other charter flips - Conversion 72.57 72.30 71.95 0.4 0.9
All pink sheet banks 72.57 172.84 163.27 (58.0) (55.6)
Tennessee pink sheet banks 72.57 132.58 132.58 (45.3) (45.3)
Comparison of PB ratio at
maximum to:
- -------------------------------------------
Other charter flips - Current 76.27 112.10 106.90 (32.0) (28.7)
Other charter flips - Conversion 76.27 72.30 71.95 5.5 6.0
All pink sheet banks 76.27 172.84 163.27 (55.9) (53.3)
Tennessee pink sheet banks 76.27 132.58 132.58 (42.5) (42.5)
Comparison of PB ratio at
supermaximum to:
- -------------------------------------------
Other charter flips - Current 79.80 112.10 106.90 (28.8) (25.4)
Other charter flips - Conversion 79.80 72.30 71.95 10.4 10.9
All pink sheet banks 79.80 172.84 163.27 (53.8) (51.1)
Tennessee pink sheet banks 79.80 132.58 132.58 (39.8) (39.8)
</TABLE>
Source: SNL Securities and F&C calculations.
16
<PAGE>
FERGUSON & COMPANY Section IV
- ------------------ ----------
Table IV.5 - Other Thrifts Converting
to Stock and Commercial Banks
<TABLE>
<CAPTION>
Heartland Community First
IFB Bancshares, Financial Southern
Holdings, Inc. Incorporated Corp. Bancshares
Chillicothe, Herrin, Olney, Florence,
Missouri Illinois Illinois Alabama Average
-------------- ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Ticker IFBH HLAG CFIC FSTH
Stock conversion date 12/30/96 6/28/96 6/29/95 4/13/95
Conversion assets $ 52,587,000 $ 61,309,000 $ 164,633,000 $ 148,968,000 $ 106,874,250
Conversion pricing ratios:
Price to book 73.1% 70.8% 76.4% 68.7% 72.3%
Price to earnings 14.3 21.3 10.3 14.6 15.1
Price to assets 10.1% 12.8% 13.8% 12.1% 12.2%
Conversion loan composition:
Non-real estate loans/loans 12.4% 3.7% 53.0% 17.2% 21.6%
Loans/assets 54.1% 57.2% 67.6% 78.3% 64.3%
Stock issue:
Shares issued 592,523 876,875 2,645,000 2,049,875 1,541,068
Price per share $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Gross proceeds $ 5,925,000 $ 8,768,750 $ 26,450,000 $ 20,499,000 $ 15,410,688
Price November 11, 1997 $ 14.38 $ 16.00 $ 17.25 $ 14.56 $ 15.55
Price appreciation:
One day 22.50% 0.00% 15.00% 30.00% 16.9%
One week 25.00% 3.75% 16.25% 30.00% 18.8%
One month 23.75% 1.25% 12.50% 25.00% 15.6%
To date 25.00% 60.00% 45.00% 99.(1) 57.4%
Current pricing ratios:
Price to book 100.3% 111.9% 102.0% 134.1% 112.1%
Price to earnings 10.5 N/M 23.6 21.4 18.5
</TABLE>
(1) To date increase in value takes into consideration $5.40 in return of
capital dividends of First Southern.
Source: SNL, Trident Securities and F&C calculations.
17
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Current Current Current
Stock Market Price/
Price Value Book Value
Ticker Short Name City State Region Exchange ($) ($M) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AANB Abigail Adams National Bancorp Washington DC MA OTC Bul 26.000 7.41 109.11
ABCU Alliance Bank Culver City CA WE OTC Bul 1.000 3.52 97.09
ACNB ACNB Corp. Gettysburg PA MA OTC Bul 23.250 122.14 240.68
AMNB American National Bankshares Danville VA SE OTC Bul 27.500 83.92 175.94
ARBC Republic Bank Torrance CA WE OTC Bul 6.562 7.57 159.66
ATLV Antelope Valley Bank Lancaster CA WE OTC Bul 34.750 26.67 146.44
BALX Bank of Alexandria Alexandria VA SE OTC Bul 14.875 10.21 132.69
BATH Bath National Corp. Bath NY MA OTC Bul 39.250 53.18 169.11
BBNK Business Bank of California San Bernardino CA WE OTC Bul 12.250 17.88 126.16
BCDO Bank of Coronado Coronado CA WE OTC Bul 6.625 4.99 136.32
BCSV Bay Commercial Services San Leandro CA WE Pink Sh 16.125 17.36 174.89
BDGE Bridge Bancorp Inc. Bridgehampton NY MA OTC Bul 37.500 51.58 273.52
BHEM Bank of Hemet Riverside CA WE OTC Bul 32.000 27.02 139.31
BKAO Bank of Astoria Astoria OR WE Pink Sh 15.000 17.35 196.34
BKHB Blackhawk Bancorp Inc. Beloit WI MW OTC Bul 14.000 32.08 142.13
BKTI Bank of Tidewater Virginia Beach VA SE OTC Bul 22.000 39.70 246.91
BLCA Borel Bank & Trust Co. San Mateo CA WE OTC Bul 17.750 50.80 247.56
BLOU BOL Bancshares Inc. New Orleans LA SW Pink Sh 7.000 1.25 35.21
BMRC Bank of Marin Corte Madera CA WE OTC Bul 32.000 40.86 229.23
BNKA Bank of Amador Jackson CA WE OTC Bul 11.750 15.81 170.29
BPLU Bank of Petaluma Petaluma CA WE OTC Bul 29.000 17.83 178.90
BSMC BSM Bancorp Santa Maria CA WE OTC Bul 23.500 70.05 205.42
BVNC Beverly National Corp. Beverly MA NE OTC Bul 31.750 23.95 150.90
BWCF BWC Financial Corp. Walnut Creek CA WE OTC Bul 31.500 35.32 190.45
BWCK Brunswick Bancorp New Brunswick NJ MA OTC Bul 23.750 17.15 89.72
BWND Bank of South Windsor South Windsor CT NE Pink Sh 14.500 13.65 139.42
BYAR Bay Area Bancshares Redwood City CA WE OTC Bul 27.250 24.25 228.03
BYLK Baylake Corp. Sturgeon Bay WI MW OTC Bul 27.875 68.34 168.33
CADL Cardinal Bancorp Inc. Everett PA MA OTC Bul 30.500 30.20 188.04
CAFP Carolina First Bancshares Lincolnton NC SE Pink Sh 28.000 115.38 305.01
CAPXX Capital Bank NA Rockville MD MA Pink Sh 6.000 5.84 58.14
CBAN Colony Bankcorp Inc. Fitzgerald GA SE Pink Sh 17.500 38.03 93.09
CBIV Community Bankshares Inc. Petersburg VA SE OTC Bul 19.000 36.12 187.93
CBTD Christiana Bank & Trust Co. Greenville DE MA OTC Bul 15.500 12.25 221.11
CBTN CB&T Inc. McMinnville TN SE OTC Bul 135.000 35.66 105.32
CBTXX Capitol City Bank & Trust Co. Atlanta GA SE Pink Sh NA 5.59 NA
CCBN Central Coast Bancorp Salinas CA WE OTC Bul 21.250 92.74 223.21
CCFN CCFNB Bancorp Inc. Bloomsburg PA MA OTC Bul 21.625 29.90 140.70
CCNE CNB Financial Corp. Clearfield PA MA OTC Bul 39.000 67.19 161.76
CESR Central Sierra Bank San Andreas CA WE OTC Bul 13.000 11.26 135.14
CFCXX C&F Financial Corp. West Point VA SE Pink Sh 23.500 44.85 146.14
CHMG Chemung Financial Corp. Elmira NY MA OTC Bul 39.500 81.83 140.62
CHTP Charter Pacific Bank Agoura Hills CA WE OTC Bul 2.063 9.70 141.30
CIBN California Independent Bancorp Yuba City CA WE OTC Bul 22.000 31.93 163.69
CIWV Citizens Financial Corp. Elkins WV SE OTC Bul 27.250 18.63 119.31
CLDB Cortland Bancorp Cortland OH MW OTC Bul 53.000 58.56 152.43
CMOH Commercial Bancshares Inc. Upper Sandusky OH MW Pink Sh 26.000 27.08 183.23
CMTV Community Bancorp. Derby VT NE Pink Sh 23.750 35.54 176.58
CNAF Commercial National Fincl Corp Latrobe PA MA OTC Bul 23.500 42.30 126.34
CNBB CNB Bancorp Inc. Gloversville NY MA OTC Bul 32.000 51.20 174.96
CNBC Center Bancorp, Inc. Union NJ MA OTC Bul 32.250 48.51 172.55
CNBD CNBC Bancorp Worthington OH MW Pink Sh 36.000 19.09 206.78
CPKF Chesapeake Financial Shares Kilmarnock VA SE OTC Bul 15.000 12.59 98.36
CSBB CSB Bancorp Inc. Millersburg OH MW Pink Sh 54.000 70.36 276.50
CSCB Crescent Banking Co. Jasper GA SE Pink Sh 13.500 9.54 120.32
CTLN Cortland First Financial Corp. Cortland NY MA OTC Bul 25.500 51.41 198.29
CTRY Century Bancshares Inc. Washington DC MA OTC Bul 8.625 10.50 148.45
CTVB Catawba Valley Bank Hickory NC SE OTC Bul 14.583 12.25 165.15
</TABLE>
Source: SNL Securities and F&C calculations.
18
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Current Current Current
Stock Market Price/
Price Value Book Value
Ticker Short Name City State Region Exchange ($) ($M) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CTZV Citizens Savings Bank & Trust St. Johnsbury VT NE OTC Bul 46.875 7.13 76.00
CVIC Clovis Community Bank Clovis CA WE OTC Bul 21.750 23.86 138.98
CVLY Codorus Valley Bancorp Inc. Glen Rock PA MA OTC Bul 30.000 32.93 145.00
CWBS Commonwealth Bankshares Inc. Norfolk VA SE OTC Bul 11.750 11.80 118.69
CYBK County Bank Corp. Lapeer MI MW OTC Bul 52.000 30.85 145.50
CYFN Century Financial Corporation Rochester PA MA OTC Bul 15.750 53.11 165.62
CZFS Citizens Financial Services Mansfield PA MA OTC Bul 18.000 49.44 195.02
CZNC Citizens & Northern Corp. Wellsboro PA MA OTC Bul 33.000 167.07 218.40
DCBF DCB Financial Corp Delaware OH MW OTC Bul 20.875 89.20 260.94
DEBC Delta National Bancorp Manteca CA WE OTC Bul 37.000 13.94 127.89
DIMC Dimeco Inc. Honesdale PA MA OTC Bul 27.875 20.05 143.39
DNBF DNB Financial Corp. Downingtown PA MA OTC Bul 29.375 40.62 234.81
DNIG Dana Niguel Bank NA Dana Point CA WE Pink Sh 3.000 2.80 73.89
DROV Drovers Bancshares Corp. York PA MA OTC Bul 32.500 91.31 227.11
EMBM Empire Banc Corp. Traverse City MI MW OTC Bul 50.250 88.32 258.75
EPNB Ephrata National Bank Ephrata PA MA OTC Bul 38.750 116.25 277.38
EVGS EvergreenBank Seattle WA WE Pink Sh 19.250 13.42 111.34
EVNB Evans Bancorp Inc. Angola NY MA Pink Sh 42.000 71.36 438.41
FBMI Firstbank Corp. Alma MI MW OTC Bul 43.625 88.84 167.08
FBSYA First Busey Corp. Urbana IL MW OTC Bul 26.250 152.01 232.51
FBTT First Bankers Trustshares Inc. Quincy IL MW OTC Bul 46.000 14.57 146.59
FCBC FCFT Inc. Princeton WV SE OTC Bul 36.000 203.41 216.61
FCBK First Charter Bank NA Beverly Hills CA WE OTC Bul 0.500 1.14 34.97
FCBN First Citizens Bancorp. of SC Columbia SC SE OTC Bul 310.000 276.77 205.73
FCZA First Citizens Banc Corp. Sandusky OH MW OTC Bul 37.625 114.81 323.80
FDDB Fidelity Deposit & Discount Dunmore PA MA OTC Bul 49.000 40.92 147.41
FDNM First National Community Bank Dunmore PA MA OTC Bul 34.750 37.89 128.99
FETM Fentura Bancorp Inc. Fenton MI MW OTC Bul 51.000 34.96 136.80
FGYH First Guaranty Bank Hammond LA SW Pink Sh 9.500 24.45 202.56
FINN First National of Nebraska Omaha NE MW OTC Bul 3,800.000 1,273.00 270.23
FIOW First Financial Bancorp. Iowa City IA MW OTC Bul 27.250 95.24 173.46
FIVR First Evergreen Corp. Evergreen Park IL MW Pink Sh 430.000 172.27 91.33
FJMY First Jermyn Corp. (The) Jermyn PA MA OTC Bul 51.000 45.12 149.82
FKYS First Keystone Corp. Berwick PA MA OTC Bul 51.000 49.87 162.84
FLFL First Litchfield Financial Litchfield CT NE Pink Sh 30.125 15.40 120.45
FLHI First Lehigh Corp. Allentown PA MA OTC Bul 5.000 10.00 134.05
FLLC First Financial Bancorp Lodi CA WE OTC Bul 12.125 16.11 130.10
FMBH First Mid-Illinois Bancshares Mattoon IL MW OTC Bul 30.250 58.94 147.99
FMNB Farmers National Banc Corp. Canfield OH MW OTC Bul 30.875 106.93 272.75
FNAN First NB of Anchorage Anchorage AK WE OTC Bul 2,400.000 480.00 131.63
FNBB FNB Financial Corp. McConnellsburg PA MA Pink Sh 41.000 16.40 148.17
FNBP FNB Corp. Christiansburg VA SE OTC Bul 22.500 74.79 194.64
FNLB First National Bancorp Inc. Joliet IL MW Pink Sh 58.250 141.65 191.30
FOBT Four Oaks Fincorp Inc. Four Oaks NC SE OTC Bul 28.500 24.03 152.16
FPHN First Philson Financial Corp. Berlin PA MA OTC Bul 62.000 27.01 121.02
FRAF Franklin Financial Services Chambersburg PA MA OTC Bul 39.750 75.91 202.91
FRMS Farmers & Merchants Bancorp Archbold OH MW Pink Sh 35.250 45.83 99.77
FTAB First American Bank Rosemead CA WE OTC Bul 4.750 10.32 144.82
FWCC First West Chester Corp. West Chester PA MA OTC Bul 31.000 71.05 205.84
FXNC First National Corp. Strasburg VA SE OTC Bul 25.250 19.59 126.06
GABS Georgia Bancshares Inc. Tucker GA SE Pink Sh 12.000 7.01 111.01
GBBK Mid-Peninsula Bancorp Palo Alto CA WE OTC Bul 19.500 31.75 139.29
GBFP Georgia Bank Financial Corp. Augusta GA SE Pink Sh 18.750 28.92 166.81
GDBC GrandBanc Inc. Rockville MD MA OTC Bul 2.500 10.10 149.70
GFLS Greater Community Bancorp Totowa NJ MA OTC Bul 18.000 33.95 155.57
GLBT Glastonbury Bank and Trust Co Glastonbury CT NE OTC Bul 10.625 19.44 127.55
GRBC GreatBanc Inc. Aurora IL MW Pink Sh 11.250 15.06 89.00
GREXX Greer State Bank Greer SC SE Pink Sh 25.000 16.44 174.83
</TABLE>
Source: SNL Securities and F&C calculations.
19
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Current Current Current
Stock Market Price/
Price Value Book Value
Ticker Short Name City State Region Exchange ($) ($M) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GRGN Grange National Banc Corp. Tunkhannock PA MA OTC Bul 44.000 16.28 139.15
GRYB Guaranty State Bancorp Durham NC SE OTC Bul 34.750 31.00 277.78
HABN Harbor Bancorp Long Beach CA WE OTC Bul 23.500 33.26 203.99
HBIN HBancorp. Lawrenceville IL MW Pink Sh 16.000 7.42 93.84
HBKS Heritage Bankshares Inc. Norfolk VA SE OTC Bul 16.500 13.06 200.00
HBNC Horizon Bancorp Michigan City IN MW OTC Bul 58.000 51.99 152.71
HBSI Highlands Bankshares Inc. Petersburg WV SE OTC Bul 46.000 23.09 113.05
HEOP Heritage Oaks Bancorp Paso Robles CA WE OTC Bul 12.667 13.09 176.67
HLAG Heartland Bancshares Inc. Herrin IL MW Pink Sh 15.500 13.59 111.91
HOVB Hanover Bancorp Inc. Hanover PA MA OTC Bul 22.750 66.88 208.52
HRDXX Bank of Hampton Roads Chesapeake VA SE Pink Sh 14.000 46.35 246.91
HRFD Harford National Bank Aberdeen MD MA OTC Bul 56.250 18.27 153.10
HTLF Heartland Financial USA Inc. Dubuque IA MW Pink Sh 29.875 141.97 194.37
HWNB Hawaii National Bancshares Honolulu HI WE OTC Bul 38.000 27.02 96.89
IBDB Ironbound Bancorp Newark NJ MA Pink Sh 14.750 15.36 141.42
IBNC International Bancshares Corp. Laredo TX SW OTC Bul 67.500 744.29 245.63
IFBH IFB Holdings Inc. Chillicothe MO MW Pink Sh 14.625 8.67 100.31
IFNC Intrust Financial Corp. Wichita KS MW OTC Bul 82.750 182.14 143.09
IFST Iowa First Bancshares Corp. Muscatine IA MW OTC Bul 27.000 47.39 179.16
IGSV Illinois Community Bncp Inc. Effingham IL MW Pink Sh 14.250 7.16 100.99
JFBC Jeffersonville Bancorp Jeffersonville NY MA OTC Bul 25.687 30.38 137.14
JUVF Juniata Valley Financial Corp. Mifflintown PA MA OTC Bul 36.500 51.13 183.32
LAYB Lafayette Bancorp. Lafayette IN MW OTC Bul 28.750 62.14 170.72
LKFN Lakeland Financial Corp. Warsaw IN MW OTC Bul 39.000 113.20 249.68
LNBB LNB Bancorp Inc. Lorain OH MW OTC Bul 28.750 118.57 267.44
LNBS Lanier Bankshares Inc. Gainesville GA SE OTC Bul 21.000 12.96 144.63
MARB Marathon Bancorp Los Angeles CA WE OTC Bul 3.938 7.23 184.88
MBKT Monroe Bank and Trust Monroe MI MW OTC Bul 35.000 175.00 154.19
MCBF MCB Financial Corp. San Rafael CA WE OTC Bul 15.000 15.28 133.10
MFRM Mechanics and Farmers Bank Durham NC SE OTC Bul 16.000 9.11 60.72
MGNB Mahoning National Bancorp Inc. Youngstown OH MW OTC Bul 28.000 176.40 209.11
MIPN Mid Penn Bancorp Inc. Millersburg PA MA OTC Bul 26.000 67.80 265.85
MMBI Merchants and Manufacturers New Berlin WI MW OTC Bul 38.375 33.24 122.84
MNOC Monocacy Bancshares Inc. Taneytown MD MA OTC Bul 20.500 33.26 151.74
MSHN Merchants of Shenandoah Shenandoah PA MA OTC Bul 26.750 7.79 119.69
MTMB Maritime Bank & Trust Co. Essex CT NE OTC Bul 20.562 9.66 158.05
MTTB Mid-State Bank Arroyo Grande CA WE OTC Bul 28.750 189.10 256.93
NBMXX First National Bank of Manatee Bradenton FL SE Pink Sh NA NA NA
NBOH National Bancshares Corp. Orrville OH MW OTC Bul 42.125 48.12 187.97
NCBH North County Bancorp Escondido CA WE OTC Bul 10.625 19.98 113.15
NCFD NCF Financial Corporation Bardstown KY MW OTC Bul 14.125 11.20 92.93
NECA New Canaan B & T Co. New Canaan CT NE OTC Bul 72.000 23.84 167.33
NKSH National Bankshares Inc. Blacksburg VA SE OTC Bul 24.250 91.98 172.23
NOAB North American Bank & Trust Waterbury CT NE Pink Sh 3.500 9.01 74.79
NOTW Northwest Bank & Trust Co. Davenport IA MW OTC Bul 33.625 28.58 172.44
NOVB North Valley Bancorp Redding CA WE OTC Bul 32.375 59.21 231.91
OHSB Ohio State Bancshares Inc. Marion OH MW Pink Sh 37.000 4.48 133.33
ORRB Orrstown Financial Services Shippensburg PA MA OTC Bul 38.000 37.10 220.67
PABK Pan American Bank Los Angeles CA WE OTC Bul 3.375 5.16 103.53
PABN Pacific Capital Bancorp Salinas CA WE OTC Bul 25.875 70.64 156.91
PACXX Pacific Northwest Bank Seattle WA WE Pink Sh 75.000 29.23 201.61
PAHC Pioneer American Holding Co. Carbondale PA MA OTC Bul 22.000 62.95 204.65
PATD Patapsco Bancorp Inc. Dundalk MD MA Pink Sh 31.000 11.25 132.82
PCHB Pocahontas Bankshares Corp. Bluefield WV SE OTC Bul 21.000 42.00 164.71
PCLF Pinnacle Financial Corp. Elberton GA SE Pink Sh 66.000 50.69 145.31
PFCY Peoples Financial Corp. Ford City PA MA Pink Sh 36.000 31.68 102.10
PLBA Plumas Bank Quincy CA WE OTC Bul 17.000 22.76 182.40
PNBF PNB Financial Group Newport Beach CA WE OTC Bul 21.000 47.59 211.06
</TABLE>
Source: SNL Securities and F&C calculations.
20
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Current Current Current
Stock Market Price/
Price Value Book Value
Ticker Short Name City State Region Exchange ($) ($M) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PPBK Peoples Bank of Oxford Oxford PA MA OTC Bul 26.500 72.19 227.47
PRFS PennRock Financial Services Blue Ball PA MA OTC Bul 19.250 116.52 199.90
PSBT Penn Security B&TC Scranton PA MA OTC Bul 101.000 54.24 130.00
PSEB Peoples State Bank (The) East Berlin PA MA OTC Bul 34.750 51.76 256.65
PSHR Pioneer Bancshares Inc. Chattanooga TN SE OTC Bul 41.000 153.08 159.84
PWOD Penns Woods Bancorp Inc. Jersey Shore PA MA OTC Bul 63.250 80.88 216.76
QNBC QNB Corp. Quakertown PA MA OTC Bul 33.750 48.20 201.25
RBNF Rurban Financial Corp. Defiance OH MW OTC Bul 29.500 67.49 155.18
REFN Regency Bancorp Fresno CA WE OTC Bul 10.375 19.41 161.10
SBGA Summit Bank Corporation Atlanta GA SE OTC Bul 14.750 20.76 132.29
SBHC Security Bank Holding Company Coos Bay OR WE OTC Bul 8.250 22.79 164.34
SBTL Salisbury Bank & Trust Co. Lakeville CT NE OTC Bul 77.250 20.06 102.10
SBVA Salem Bank and Trust NA Salem VA SE OTC Bul 19.375 25.79 177.75
SFBC Slade's Ferry Bancorp Somerset MA NE OTC Bul 15.500 49.95 194.48
SHBI Shore Bancshares Inc. Centreville MD MA Pink Sh 41.000 41.30 182.71
SLFI Sterling Financial Corp. Lancaster PA MA OTC Bul 26.000 161.61 223.18
SLNB Santa Lucia Bank Atascadero CA WE OTC Bul 25.000 9.86 131.58
SMAL Summit Bancshares Inc. Oakland CA WE OTC Bul 43.875 18.76 153.41
SMTB Smithtown Bancorp Inc. Smithtown NY MA OTC Bul 53.000 22.96 148.00
SNBN Security National Bank & Trust Newark NJ MA OTC Bul 30.500 8.25 127.30
SOJB Southern Jersey Bancorp of DE Bridgeton NJ MA OTC Bul 59.000 64.09 153.73
SOMC Southern Michigan Bancorp Inc. Coldwater MI MW OTC Bul 29.500 56.45 229.57
SOVY Sonoma Valley Bank Sonoma CA WE OTC Bul 29.000 17.21 206.70
SRCK Slippery Rock Financial Corp. Slippery Rock PA MA OTC Bul 39.875 54.95 259.77
SRTB Saratoga Bancorp Saratoga CA WE OTC Bul 17.750 18.87 149.54
STYB Security Banc Corp. Springfield OH MW OTC Bul 55.000 333.27 313.21
SXSX Sussex County State Bank Franklin NJ MA OTC Bul 17.750 12.31 151.06
TBLC Timberline Bancshares Inc. Yreka CA WE OTC Bul 15.000 15.05 202.98
TOBC Tower Bancorp Inc. Greencastle PA MA OTC Bul 41.500 36.70 185.10
TRCY Tri City Bankshares Corp. Oak Creek WI MW Pink Sh 25.000 62.38 122.55
UBFO United Security Bank NA Fresno CA WE Pink Sh 37.750 63.69 309.43
UNBO UNB Corp. Canton OH MW OTC Bul 39.500 228.13 309.56
UNNF Union National Financial Corp. Mount Joy PA MA OTC Bul 22.750 56.62 246.75
UPBN Upbancorp Inc. Chicago IL MW OTC Bul 101.500 22.40 113.62
USBI United Security Bancshares Thomasville AL SE Pink Sh 35.000 123.78 246.31
UVSP Univest Corp. of Pennsylvania Souderton PA MA OTC Bul 50.500 194.54 188.57
VADO Valle de Oro Bank NA El Cajon CA WE OTC Bul 26.000 32.09 200.31
VAIB Valley Independent Bank El Centro CA WE OTC Bul 17.000 93.62 326.30
VCBK Virginia Commerce Bank Arlington VA SE OTC Bul 15.500 22.07 205.30
VNBC Vineyard National Bancorp Rancho Cucamonga CA WE OTC Bul 5.125 9.55 118.36
VRBA VRB Bancorp Rogue River OR WE OTC Bul 9.750 70.08 318.63
VTGB Vintage Bank Napa CA WE OTC Bul 16.750 21.65 168.17
WCBC West Coast Bancorp Newport Beach CA WE OTC Bul 1.500 13.75 208.33
WIBW Wilton Bank Wilton CT NE OTC Bul 28.625 11.58 154.15
WMFR West MI National Bank & Trust Frankfort MI MW Pink Sh 18.000 7.32 88.15
WNNB Wayne Bancorp Wooster OH MW OTC Bul 29.000 114.14 285.43
YAVY Yadkin Valley Bank & Trust Co. Elkin NC SE Pink Sh 31.750 111.63 348.90
YOBK Yosemite Bank Mariposa CA WE OTC Bul 16.375 10.96 131.84
Maximum 3,800.000 1,273.00 438.41
Minimum 0.500 1.14 34.97
Average 59.960 59.71 172.84
Median 26.875 32.09 163.27
</TABLE>
Source: SNL Securities and F&C calculations.
21
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Price/ Price/ Price/ Price/ Tangible
Current Current Core Core LTM LTM Total Equity/ Equity/
Price/ Tang Dividend EPS EPS Core EPS Core EPS Assets Assets Tang Assets
Book Value Yield (x) (x) (x) (x) ($000) (%) (%)
Ticker (%) (%) Mst RctQ LTM Mst RctQ LTM Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AANB 109.11 3.85 7.37 6.99 6.99 6.99 88,889 7.64 7.64
ABCU 97.09 - 9.38 8.33 8.33 8.33 55,092 6.55 6.55
ACNB 240.68 3.27 13.37 13.65 13.65 13.65 466,342 10.88 10.88
AMNB 191.37 3.06 14.06 12.92 12.92 12.92 419,258 11.38 10.56
ARBC 159.66 - 4.00 14.64 14.64 14.64 121,979 3.88 3.88
ATLV 190.62 - 15.19 15.00 15.00 15.00 182,660 9.97 7.84
BALX 132.69 - 16.30 18.29 18.29 18.29 73,989 10.40 10.40
BATH 170.80 2.04 14.15 14.69 14.69 14.69 272,348 11.55 11.45
BBNK 131.58 - 50.00 NA NA NA 119,471 11.86 11.42
BCDO 136.32 1.81 8.04 8.33 8.33 8.33 42,790 8.56 8.56
BCSV 174.89 1.86 19.92 18.21 18.21 18.21 106,822 9.29 9.29
BDGE 273.52 1.33 12.63 11.41 11.41 11.41 222,680 8.47 8.47
BHEM 139.31 6.25 7.77 NA NA NA 234,254 8.77 8.77
BKAO 196.34 3.33 8.72 8.77 8.77 8.77 81,832 10.80 10.80
BKHB 147.52 3.14 13.35 14.87 14.87 14.87 198,761 11.36 10.99
BKTI 246.91 4.55 13.82 16.41 16.41 16.41 160,109 10.04 10.04
BLCA 247.56 3.80 14.52 14.88 14.88 14.88 229,941 8.93 8.93
BLOU 35.21 - NM NM NM NM 101,752 5.76 5.76
BMRC 229.23 - 12.43 13.13 13.13 13.13 212,310 8.24 8.24
BNKA 171.28 4.43 9.49 10.05 10.05 10.05 77,095 12.04 11.98
BPLU 181.59 0.69 10.65 11.39 11.39 11.39 138,375 7.20 7.11
BSMC 216.99 1.70 13.71 12.78 12.78 12.78 320,475 10.63 10.13
BVNC 150.90 2.27 11.23 11.62 11.62 11.62 190,372 8.34 8.34
BWCF 190.45 - 10.58 13.60 13.60 13.60 218,234 8.50 8.50
BWCK 89.72 - 15.46 19.26 19.26 19.26 104,810 18.23 18.23
BWND 139.42 0.83 7.08 9.66 9.66 9.66 157,068 6.23 6.23
BYAR 228.03 1.32 12.37 14.43 14.43 14.43 120,430 8.83 8.83
BYLK 189.63 3.44 14.24 13.39 13.39 13.39 405,710 10.01 8.99
CADL 188.04 1.71 10.94 12.73 12.73 12.73 132,400 12.13 12.13
CAFP 326.72 1.14 14.02 14.84 14.84 14.84 490,682 7.70 7.23
CAPXX 58.14 - 5.71 6.06 6.06 6.06 140,486 7.14 7.14
CBAN 95.16 1.71 9.72 10.61 10.61 10.61 330,504 8.24 8.08
CBIV 187.93 1.05 11.66 10.99 10.99 10.99 173,331 11.09 11.09
CBTD 221.11 - 29.17 36.84 36.84 36.84 42,566 13.02 13.02
CBTN 105.32 3.70 7.71 8.62 8.62 8.62 268,119 12.63 12.63
CBTXX NA NA NA NA NA NA 28,178 18.49 NA
CCBN 233.77 - 16.64 18.39 18.39 18.39 463,626 8.96 8.59
CCFN 140.70 2.15 13.93 14.13 14.13 14.13 171,255 12.41 12.41
CCNE 173.95 3.49 14.75 16.85 16.85 16.85 365,448 11.37 10.65
CESR 135.14 4.35 8.93 9.06 9.06 9.06 97,131 8.58 8.58
CFCXX 156.25 3.06 19.91 15.58 15.58 15.58 268,527 11.43 10.77
CHMG 160.18 3.14 11.57 11.30 11.30 11.30 549,117 10.60 9.43
CHTP 141.30 - 31.25 NM NM NM 80,662 8.53 8.52
CIBN 163.69 2.00 12.50 12.04 12.04 12.04 216,952 9.26 9.26
CIWV 120.10 1.47 11.40 11.16 11.16 11.16 129,148 12.09 12.02
CLDB 154.38 1.89 11.90 12.92 12.92 12.92 390,236 9.77 9.65
CMOH 187.59 2.69 15.59 15.46 15.46 15.46 187,046 7.90 7.73
CMTV 176.58 4.72 18.23 15.40 15.40 15.40 216,116 9.31 9.31
CNAF 126.34 2.72 10.50 10.50 10.50 10.50 267,064 12.54 12.54
CNBB 174.96 2.50 16.25 17.57 17.57 17.57 212,323 13.78 13.78
CNBC 172.55 3.72 9.85 11.28 11.28 11.28 376,852 7.53 7.53
CNBD 206.78 1.39 14.52 16.51 16.51 16.51 126,088 7.32 7.32
CPKF 98.68 2.13 7.35 7.73 7.73 7.73 144,849 8.83 8.81
CSBB 276.50 1.26 14.97 14.68 14.68 14.68 270,214 9.42 9.42
CSCB 120.32 1.78 NM NM NM NM 84,068 9.43 9.43
CTLN 198.29 2.20 19.76 18.15 18.15 18.15 225,273 11.51 11.51
CTRY 154.02 - 20.31 34.21 34.21 34.21 110,902 6.38 6.16
CTVB 165.15 - 18.08 NA NA NA 52,213 14.22 14.22
</TABLE>
Source: SNL Securities and F&C calculations.
22
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Price/ Price/ Price/ Price/ Tangible
Current Current Core Core LTM LTM Total Equity/ Equity/
Price/ Tang Dividend EPS EPS Core EPS Core EPS Assets Assets Tang Assets
Book Value Yield (x) (x) (x) (x) ($000) (%) (%)
Ticker (%) (%) Mst RctQ LTM Mst RctQ LTM Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CTZV 76.00 3.52 6.22 8.19 8.19 8.19 89,318 10.50 10.50
CVIC 141.05 3.68 8.70 10.50 10.50 10.50 147,194 11.67 11.51
CVLY 145.00 2.41 13.97 11.36 11.36 11.36 237,329 9.57 9.57
CWBS 118.69 - 14.06 15.00 15.00 15.00 106,564 9.33 9.33
CYBK 145.50 2.15 9.79 10.25 10.25 10.25 180,282 11.76 11.76
CYFN 166.49 3.30 10.09 10.46 10.46 10.46 381,331 8.41 8.37
CZFS NA 2.53 13.31 14.47 14.47 14.47 291,763 8.69 NA
CZNC 218.40 2.18 16.11 16.20 16.20 16.20 606,904 12.60 12.60
DCBF 260.94 0.96 18.75 18.58 18.58 18.58 340,347 10.05 10.05
DEBC 127.89 1.89 9.50 10.12 10.12 10.12 90,728 12.02 12.02
DIMC 143.39 2.58 12.50 13.30 13.30 13.30 149,370 9.41 9.41
DNBF 234.81 1.63 9.74 10.71 10.71 10.71 215,058 8.04 8.04
DNIG 73.89 - 7.42 118.75 118.75 118.75 32,497 11.65 11.65
DROV 227.11 1.85 13.04 13.56 13.56 13.56 490,601 8.19 8.19
EMBM 261.58 2.79 15.53 15.65 15.65 15.65 415,696 8.20 8.12
EPNB 277.38 1.24 25.34 24.67 24.67 24.67 300,553 13.95 13.95
EVGS 111.34 1.04 13.21 14.80 14.80 14.80 135,570 8.89 8.89
EVNB 438.87 0.30 32.00 31.07 31.07 31.07 153,439 10.61 10.60
FBMI 216.50 2.38 14.60 14.96 14.96 14.96 532,047 9.99 7.89
FBSYA 260.16 2.74 16.84 17.70 17.70 17.70 892,824 8.75 7.89
FBTT 163.53 - 4.75 5.23 5.23 5.23 178,644 6.12 5.58
FCBC 269.26 3.44 11.09 11.65 11.65 11.65 943,163 9.96 8.17
FCBK 37.59 - 7.04 1.15 1.15 1.15 125,472 6.63 6.46
FCBN 236.62 - 10.84 10.77 10.77 10.77 2,088,764 6.86 6.04
FCZA 361.43 1.49 28.75 28.05 28.05 28.05 317,909 11.16 10.11
FDDB 147.41 2.25 13.46 13.07 13.07 13.07 280,615 9.89 9.89
FDNM 128.99 3.11 7.83 8.82 8.82 8.82 403,309 7.28 7.28
FETM 136.80 2.98 10.72 11.31 11.31 11.31 261,731 9.76 9.76
FGYH 202.56 4.21 7.29 6.73 6.73 6.73 216,877 7.53 7.53
FINN 317.61 0.89 17.45 18.36 18.36 18.36 7,106,727 6.63 5.70
FIOW 183.25 2.50 11.31 12.25 12.25 12.25 523,668 10.48 9.98
FIVR 93.24 3.95 9.37 8.92 8.92 8.92 1,917,235 9.84 9.66
FJMY 153.38 2.75 12.36 12.43 12.43 12.43 317,742 9.48 9.28
FKYS 162.84 2.75 8.96 9.71 9.71 9.71 265,045 11.56 11.56
FLFL 120.45 3.19 10.21 10.28 10.28 10.28 194,269 6.58 6.58
FLHI 134.05 - 5.57 14.64 14.64 14.64 112,489 11.88 11.88
FLLC 151.75 1.65 16.67 15.38 15.38 15.38 136,770 9.05 7.86
FMBH 190.73 1.32 10.42 10.18 10.18 10.18 540,126 7.95 6.40
FMNB NA 1.91 18.88 21.33 21.33 21.33 357,185 10.98 NA
FNAN 131.63 2.08 11.21 10.71 10.71 10.71 1,431,767 25.47 25.47
FNBB 150.68 1.76 17.54 16.60 16.60 16.60 99,748 11.10 10.93
FNBP 194.64 2.67 12.20 12.89 12.89 12.89 421,696 9.11 9.11
FNLB 221.15 1.72 11.57 13.33 13.33 13.33 831,870 8.90 7.79
FOBT 153.80 1.97 9.90 11.05 11.05 11.05 186,583 8.55 8.46
FPHN 121.02 2.26 9.34 9.80 9.80 9.80 205,006 10.89 10.89
FRAF 214.86 2.21 13.52 14.86 14.86 14.86 352,567 10.39 9.87
FRMS 99.77 2.84 11.56 12.87 12.87 12.87 506,452 9.07 9.07
FTAB 144.82 - NM NM NM NM 104,591 6.82 6.82
FWCC 205.84 2.71 15.63 16.11 16.11 16.11 418,015 8.26 8.26
FXNC 126.06 2.77 10.85 11.62 11.62 11.62 153,130 10.15 10.15
GABS 111.01 1.67 11.61 13.68 13.68 13.68 66,888 9.44 9.44
GBBK 139.29 3.08 NA NA NA NA NA NA NA
GBFP 174.26 - 14.02 14.02 14.02 14.02 235,147 7.37 7.08
GDBC 187.97 - NM 46.43 46.43 46.43 101,579 6.64 5.36
GFLS NA 1.78 17.08 15.68 15.68 15.68 267,097 8.17 NA
GLBT 127.55 - 8.45 4.88 4.88 4.88 230,106 6.63 6.63
GRBC 89.00 4.98 12.50 7.98 7.98 7.98 459,452 5.66 5.66
GREXX 174.83 2.00 14.88 15.72 15.72 15.72 103,643 9.07 9.07
</TABLE>
Source: SNL Securities and F&C calculations.
23
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Price/ Price/ Price/ Price/ Tangible
Current Current Core Core LTM LTM Total Equity/ Equity/
Price/ Tang Dividend EPS EPS Core EPS Core EPS Assets Assets Tang Assets
Book Value Yield (x) (x) (x) (x) ($000) (%) (%)
Ticker (%) (%) Mst RctQ LTM Mst RctQ LTM Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GRGN 140.94 - 9.34 9.67 9.67 9.67 118,447 9.88 9.76
GRYB 277.78 1.15 18.01 20.25 20.25 20.25 103,830 10.75 10.75
HABN 206.32 2.13 15.18 16.35 16.35 16.35 212,853 7.66 7.57
HBIN 93.84 2.00 20.39 26.27 26.27 26.27 19,268 41.06 41.06
HBKS 200.00 - 10.69 10.86 10.86 10.86 80,773 8.09 8.09
HBNC 152.71 3.10 15.03 10.90 10.90 10.90 387,744 8.78 8.78
HBSI 113.05 2.17 11.72 11.31 11.31 11.31 188,778 10.82 10.82
HEOP 180.70 2.63 9.57 10.76 10.76 10.76 87,787 8.44 8.27
HLAG 111.91 2.58 100.00 NA NA NA 66,264 18.33 18.33
HOVB 208.52 2.29 15.41 16.25 16.25 16.25 388,561 8.25 8.25
HRDXX 246.91 - NA NA NA NA 127,302 14.75 14.75
HRFD 153.10 1.28 10.55 10.55 10.55 10.55 112,370 10.62 10.62
HTLF 204.34 1.74 19.70 17.45 17.45 17.45 786,999 9.23 8.82
HWNB 96.89 0.40 178.75 42.56 42.56 42.56 298,009 9.36 9.36
IBDB 142.93 1.36 11.90 13.17 13.17 13.17 108,859 9.98 9.88
IBNC 276.07 0.59 13.38 13.25 13.25 13.25 3,730,060 8.12 7.29
IFBH 100.31 4.10 10.48 NA NA NA 60,220 14.35 14.35
IFNC 164.22 1.69 21.60 13.62 13.62 13.62 1,800,015 7.07 6.22
IFST 183.92 2.82 11.70 11.52 11.52 11.52 291,310 9.08 8.87
IGSV 100.99 1.05 NM NM NM NM 59,799 11.86 11.86
JFBC 137.14 2.49 13.69 15.03 15.03 15.03 216,086 10.25 10.25
JUVF 183.32 1.86 16.72 16.55 16.55 16.55 218,708 12.75 12.75
LAYB 175.30 1.65 12.73 13.76 13.76 13.76 417,536 8.72 8.51
LKFN 249.68 1.54 11.99 14.67 14.67 14.67 687,515 6.59 6.59
LNBB 303.27 2.37 18.28 19.50 19.50 19.50 496,779 8.94 7.97
LNBS 144.63 1.19 9.38 9.42 9.42 9.42 86,986 10.30 10.30
MARB 184.88 - NM NA NA NA 68,904 5.67 5.67
MBKT 155.07 2.29 8.78 9.48 9.48 9.48 929,834 12.23 12.16
MCBF 133.10 - 10.98 12.61 12.61 12.61 143,560 8.00 8.00
MFRM 61.09 4.38 6.25 6.33 6.33 6.33 130,310 11.51 11.45
MGNB 209.11 2.29 12.50 13.43 13.43 13.43 774,139 10.90 10.90
MIPN 267.49 2.92 12.50 12.41 12.41 12.41 216,298 11.78 11.72
MMBI 122.84 2.09 11.41 16.12 16.12 16.12 281,857 9.56 9.56
MNOC NA 2.15 20.14 29.00 29.00 29.00 257,861 8.48 NA
MSHN 119.79 1.87 12.27 15.06 15.06 15.06 56,529 11.51 11.50
MTMB 158.05 2.33 11.63 11.32 11.32 11.32 81,973 7.46 7.46
MTTB 256.93 - 12.43 14.21 14.21 14.21 827,817 8.89 8.89
NBMXX NA NA NA NA NA NA 131,732 8.05 8.05
NBOH 192.53 1.61 19.71 20.01 20.01 20.01 178,323 14.39 14.10
NCBH 115.11 - 45.31 37.50 37.50 37.50 244,689 7.50 7.39
NCFD 92.93 2.12 31.82 24.56 24.56 24.56 34,402 35.03 35.03
NECA 167.33 - 11.93 12.12 12.12 12.12 139,763 10.20 10.20
NKSH 175.60 2.72 14.70 15.78 15.78 15.78 393,914 13.08 12.87
NOAB 74.79 - 9.03 10.16 10.16 10.16 140,197 8.59 8.59
NOTW 172.44 6.84 14.83 12.98 12.98 12.98 148,461 11.17 11.17
NOVB 234.09 2.16 12.95 13.07 13.07 13.07 267,853 9.54 9.46
OHSB 133.33 - 12.69 14.14 14.14 14.14 45,711 7.36 7.36
ORRB 227.95 2.11 10.47 12.30 12.30 12.30 173,713 9.68 9.39
PABK 103.53 - 25.00 NM NM NM 39,074 12.73 12.73
PABN 156.91 2.32 13.10 14.01 14.01 14.01 412,510 10.91 10.91
PACXX 201.61 0.80 15.28 15.03 15.03 15.03 185,624 7.81 7.81
PAHC 208.93 3.46 18.55 19.31 19.31 19.31 357,046 8.85 8.68
PATD 132.82 1.29 16.88 19.01 19.01 19.01 88,618 9.55 9.55
PCHB 167.06 2.86 11.31 13.10 13.10 13.10 274,318 9.30 9.17
PCLF 145.31 2.73 9.02 9.09 9.09 9.09 245,271 14.22 14.22
PFCY 102.83 2.67 10.04 11.95 11.95 11.95 220,685 14.06 13.98
PLBA 183.19 - 10.23 11.44 11.44 11.44 153,122 8.15 8.12
PNBF 211.06 - 9.72 10.54 10.54 10.54 229,520 9.82 9.82
</TABLE>
Source: SNL Securities and F&C calculations.
24
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Price/ Price/ Price/ Price/ Tangible
Current Current Core Core LTM LTM Total Equity/ Equity/
Price/ Tang Dividend EPS EPS Core EPS Core EPS Assets Assets Tang Assets
Book Value Yield (x) (x) (x) (x) ($000) (%) (%)
Ticker (%) (%) Mst RctQ LTM Mst RctQ LTM Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PPBK 227.47 1.51 15.45 16.86 16.86 16.86 204,750 15.50 15.50
PRFS 202.42 2.49 11.90 16.67 16.67 16.67 626,184 9.40 9.29
PSBT 130.00 3.17 11.54 10.62 10.62 10.62 406,434 10.26 10.26
PSEB 256.65 1.15 12.82 14.29 14.29 14.29 244,787 8.24 8.24
PSHR 170.48 2.44 15.78 15.22 15.22 15.22 936,116 10.30 9.72
PWOD 216.76 1.90 15.39 14.89 14.89 14.89 261,878 14.25 14.25
QNBC 201.25 1.90 15.09 16.49 16.49 16.49 294,072 8.14 8.14
RBNF 158.60 2.44 12.50 13.04 13.04 13.04 455,719 9.54 9.36
REFN 164.42 - NM 120.31 120.31 120.31 186,870 6.45 6.33
SBGA 129.96 2.17 17.61 13.03 13.03 13.03 140,869 11.14 11.32
SBHC 171.16 2.42 9.94 10.17 10.17 10.17 170,278 8.14 7.85
SBTL 102.10 2.95 8.29 8.60 8.60 8.60 174,250 11.26 11.26
SBVA 177.75 1.50 17.86 14.02 14.02 14.02 133,731 10.85 10.85
SFBC 221.43 1.29 15.03 14.19 14.19 14.19 296,816 8.65 7.67
SHBI 202.37 2.24 17.36 17.94 17.94 17.94 169,247 13.35 12.22
SLFI 223.18 3.08 16.69 16.48 16.48 16.48 792,265 9.12 9.12
SLNB 131.58 4.00 7.84 8.86 8.86 8.86 80,072 9.36 9.36
SMAL 153.41 3.42 10.53 11.26 11.26 11.26 93,319 13.11 13.11
SMTB 148.00 2.64 4.67 5.61 5.61 5.61 198,436 7.82 7.82
SNBN 127.30 - NM 144.44 144.44 144.44 85,624 7.57 7.57
SOJB 153.73 2.03 8.85 9.68 9.68 9.68 446,926 9.33 9.33
SOMC 250.00 1.76 13.16 15.09 15.09 15.09 237,963 8.78 8.12
SOVY 206.70 - 11.57 12.02 12.02 12.02 95,657 8.70 8.70
SRCK 285.84 1.51 16.47 16.39 16.39 16.39 192,879 10.97 10.07
SRTB 149.54 1.13 14.22 15.00 15.00 15.00 123,220 10.20 10.20
STYB NA 1.53 23.25 23.04 23.04 23.04 807,385 13.18 NA
SXSX 168.09 2.48 22.32 25.68 25.68 25.68 107,487 7.58 6.87
TBLC 202.98 3.33 14.58 16.76 16.76 16.76 85,020 8.72 8.72
TOBC 185.10 1.11 15.87 15.50 15.50 15.50 157,973 12.55 12.55
TRCY 122.55 3.40 8.79 8.86 8.86 8.86 439,699 11.57 11.57
UBFO 328.26 1.70 17.59 18.63 18.63 18.63 191,002 10.78 10.23
UNBO 336.17 1.72 24.04 25.51 25.51 25.51 814,266 9.05 8.40
UNNF 246.75 1.58 25.54 26.11 26.11 26.11 213,048 10.78 10.78
UPBN 115.11 1.97 10.31 11.14 11.14 11.14 227,097 8.68 8.58
USBI NA 1.26 9.11 8.84 8.84 8.84 435,047 11.55 NA
UVSP 192.67 1.98 12.77 14.29 14.29 14.29 932,252 11.07 10.86
VADO 200.31 0.92 18.16 16.97 16.97 16.97 197,388 8.12 8.12
VAIB 376.11 - 47.22 44.74 44.74 44.74 399,307 7.18 6.30
VCBK 206.67 - 9.72 10.45 10.45 10.45 133,540 8.05 8.00
VNBC 118.36 - 11.33 12.08 12.08 12.08 121,944 6.61 6.61
VRBA 330.51 1.44 14.42 15.31 15.31 15.31 179,580 12.18 11.78
VTGB 168.17 1.00 12.30 13.82 13.82 13.82 129,723 9.92 9.92
WCBC 208.33 - 5.18 NA NA NA 120,961 5.48 5.48
WIBW 154.15 2.45 9.26 10.42 10.42 10.42 76,425 9.83 9.83
WMFR 88.15 1.56 13.71 13.49 13.49 13.49 25,691 32.32 32.32
WNNB 292.93 1.31 17.77 18.57 18.57 18.57 334,692 11.95 11.68
YAVY NA 1.26 22.14 22.63 22.63 22.63 301,507 10.62 NA
YOBK 131.84 - 21.71 20.12 20.12 20.12 84,760 9.81 9.81
Maximum 438.87 6.84 178.75 144.44 144.44 144.44 7,106,727 41.06 41.06
Minimum 35.21 - 4.00 1.15 1.15 1.15 19,268 3.88 3.88
Average 175.51 1.83 15.18 16.26 16.26 16.26 328,409 10.22 9.99
Median 167.33 1.88 12.71 13.62 13.62 13.62 204,750 9.54 9.36
</TABLE>
Source: SNL Securities and F&C calculations.
25
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Return on ROACE Return on ROACE
Core Avg Assets Before NPAs/ Core Avg Assets Before
EPS Before Extra Extra Merger Current Assets EPS Before Extra Extra
($) (%) (%) Target? Pricing (%) ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AANB 1.18 1.20 15.85 N 05/22/96 3.04 0.28 1.09 14.20
ABCU 0.09 0.72 10.88 N 11/07/97 1.60 0.02 0.92 13.98
ACNB 1.41 1.59 15.26 N 11/07/97 0.47 0.36 1.65 15.33
AMNB 2.09 1.58 13.16 N 11/07/97 0.25 0.48 1.45 12.30
ARBC 0.35 0.43 11.59 N 11/07/97 5.78 0.32 1.25 33.66
ATLV 2.35 1.12 10.13 N 11/07/97 0.33 0.58 0.97 9.92
BALX 0.82 0.75 7.54 N 11/07/97 4.69 0.23 0.86 8.37
BATH 2.62 1.34 11.74 N 11/07/97 0.16 0.68 1.37 11.86
BBNK NA 0.37 2.86 N 11/07/97 3.12 0.06 0.28 2.32
BCDO 0.54 1.16 13.02 N 11/07/97 3.78 0.14 1.07 12.28
BCSV 0.70 1.12 11.63 N 11/07/97 0.34 0.16 1.33 14.08
BDGE 2.17 1.92 23.92 N 11/07/97 0.50 0.49 2.94 35.69
BHEM NA 0.66 7.53 N 07/31/97 3.99 0.74 1.15 13.24
BKAO 1.51 2.22 21.04 N 11/07/97 0.62 0.38 2.23 20.53
BKHB 0.79 1.22 8.65 N 11/07/97 0.17 0.22 1.17 9.18
BKTI 1.28 1.56 15.30 N 11/07/97 0.02 0.38 1.77 17.63
BLCA 1.21 1.53 17.38 N 11/07/97 0.51 0.31 1.61 18.41
BLOU (9.52) (1.65) (36.52) N 10/31/97 1.89 (4.95) (3.47) (88.61)
BMRC 1.78 1.16 14.35 N 11/07/97 - 0.47 1.13 14.27
BNKA 1.02 1.87 16.03 N 11/07/97 0.89 0.27 1.95 16.12
BPLU 2.02 0.96 13.79 N 11/07/97 0.10 0.54 0.98 13.62
BSMC 1.33 1.24 11.94 N 11/07/97 0.78 0.31 1.19 11.09
BVNC 2.28 1.07 12.92 N 11/07/97 0.12 0.59 1.00 12.03
BWCF 1.93 1.37 15.05 N 11/07/97 0.14 0.62 1.53 17.88
BWCK 1.22 0.91 4.75 N 11/07/97 4.03 0.38 1.12 5.84
BWND 0.88 0.63 9.53 N 11/07/97 0.78 0.30 0.78 12.48
BYAR 1.68 1.54 17.11 N 11/07/97 0.59 0.49 1.63 18.06
BYLK 1.83 1.20 12.25 N 11/07/97 0.94 0.43 1.22 12.14
CADL 1.65 1.21 10.22 N 11/07/97 0.53 0.48 1.45 12.15
CAFP 1.36 1.23 15.18 N 11/07/97 0.35 0.36 1.28 16.23
CAPXX 1.32 0.96 12.81 N 10/31/97 0.91 0.35 0.94 12.88
CBAN 2.31 1.16 14.14 N 10/31/97 2.46 0.63 1.14 13.69
CBIV 1.57 1.86 17.83 N 06/30/97 0.43 0.37 1.61 14.68
CBTD 0.38 0.77 5.45 N 11/07/97 - 0.12 0.89 6.63
CBTN 15.67 1.54 12.67 N 11/07/97 NA 4.38 1.72 14.04
CBTXX NA NA NA N NA NA 0.27 2.10 11.48
CCBN 1.23 1.37 15.06 N 11/07/97 0.16 0.34 1.48 16.51
CCFN 1.38 1.14 9.56 N 11/07/97 0.06 0.35 1.14 9.46
CCNE 2.24 1.17 9.91 N 11/07/97 0.25 0.64 1.25 11.11
CESR 1.38 1.26 14.89 N 11/07/97 NA 0.35 1.26 14.70
CFCXX 1.38 1.89 15.50 N 10/31/97 0.35 0.27 2.03 17.84
CHMG 3.03 1.19 11.39 N 11/07/97 0.27 0.74 1.15 10.96
CHTP (0.08) (0.38) (4.64) N 11/07/97 3.58 0.02 0.48 5.82
CIBN 1.91 1.60 17.66 N 05/22/96 1.52 0.46 1.47 15.88
CIWV 2.33 1.27 10.90 N 11/07/97 0.25 0.57 1.22 10.21
CLDB 3.87 1.13 11.91 N 11/07/97 0.43 1.05 1.23 12.58
CMOH 1.25 0.73 9.09 N 11/07/97 0.84 0.31 0.68 8.75
CMTV 1.42 1.10 11.81 N 11/07/97 NA 0.30 0.85 9.02
CNAF 2.08 1.43 11.57 N 05/22/96 0.14 0.52 1.41 11.07
CNBB 1.85 1.39 10.59 N 11/07/97 0.09 0.50 1.50 11.09
CNBC 1.92 1.20 15.83 N 05/22/96 - 0.55 1.36 17.63
CNBD 2.18 1.20 16.17 N 11/07/97 0.12 0.62 1.22 17.79
CPKF 1.94 1.18 14.03 N 11/07/97 0.61 0.51 1.23 15.21
CSBB 3.10 1.65 17.63 N 11/07/97 0.29 0.76 1.47 15.74
CSCB (0.21) 0.78 7.42 N 10/31/97 1.07 (0.04) 0.69 7.12
CTLN 1.35 1.24 10.87 N 11/07/97 0.20 0.31 1.09 9.64
CTRY 0.19 0.26 3.76 N 09/23/97 0.25 0.08 0.43 6.73
CTVB NA 0.56 2.87 N 11/07/97 - 0.17 1.15 7.50
</TABLE>
Source: SNL Securities and F&C calculations.
26
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Return on ROACE Return on ROACE
Core Avg Assets Before NPAs/ Core Avg Assets Before
EPS Before Extra Extra Merger Current Assets EPS Before Extra Extra
($) (%) (%) Target? Pricing (%) ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CTZV 5.62 1.10 10.83 N 11/07/97 1.05 1.85 1.27 12.36
CVIC 1.69 1.40 11.78 N 11/07/97 1.32 0.51 1.64 13.96
CVLY 2.41 1.15 12.38 N 04/24/97 1.20 0.49 1.02 10.81
CWBS 0.75 0.75 8.36 N 11/07/97 4.97 0.20 0.77 8.31
CYBK 5.12 1.72 15.31 N 10/31/97 0.39 1.34 1.76 15.30
CYFN 1.35 1.22 14.75 N 05/22/96 0.27 0.35 1.24 14.77
CZFS 1.14 1.30 15.66 N 11/07/97 0.56 0.31 1.20 14.13
CZNC 1.79 1.62 14.28 N 11/07/97 0.25 0.45 1.64 13.50
DCBF 1.09 1.50 14.97 N 11/07/97 0.32 0.27 1.41 14.01
DEBC 2.89 1.19 10.55 N 11/07/97 3.82 0.77 1.24 10.53
DIMC 2.18 1.18 12.38 N 11/07/97 NA 0.58 1.29 13.72
DNBF 1.89 1.28 16.29 N 11/07/97 1.49 0.52 1.40 17.08
DNIG 0.02 0.05 0.43 N 11/07/97 5.34 0.08 0.89 7.69
DROV 1.77 1.19 13.89 N 11/07/97 0.49 0.46 1.17 14.38
EMBM 2.62 1.23 14.99 N 11/07/97 0.78 0.66 1.24 14.93
EPNB 1.52 1.56 11.35 N 11/07/97 0.61 0.37 1.50 10.78
EVGS 1.25 0.66 7.84 N 11/07/97 0.52 0.35 0.69 8.15
EVNB 1.03 1.21 11.20 N 10/31/97 0.14 0.25 1.13 10.82
FBMI 2.85 1.24 14.58 N 11/07/97 0.32 0.73 1.24 13.38
FBSYA 1.37 1.13 13.36 N 11/07/97 0.05 0.36 1.22 13.90
FBTT 5.31 1.07 18.40 N 11/07/97 0.15 1.46 1.11 18.99
FCBC 2.78 1.70 16.08 N 11/07/97 1.08 0.73 1.76 17.92
FCBK 0.49 1.27 68.76 N 11/07/97 8.50 0.02 0.77 32.81
FCBN 20.90 1.02 15.55 N 11/07/97 0.16 5.19 0.96 14.05
FCZA 1.23 1.24 10.94 N 11/07/97 0.33 0.30 1.18 10.51
FDDB 3.75 1.17 12.33 N 11/07/97 NA 0.91 1.15 11.67
FDNM 3.80 1.19 16.23 N 11/07/97 0.24 1.07 1.18 16.36
FETM 4.40 1.27 13.33 N 11/07/97 0.64 1.16 1.31 13.43
FGYH 1.04 1.65 23.72 N 10/31/97 0.77 0.24 1.47 20.71
FINN 217.81 1.12 15.75 N 11/07/97 0.10 57.30 1.12 16.38
FIOW 1.81 1.29 11.79 N 11/07/97 0.08 0.49 1.40 13.10
FIVR 48.18 1.03 10.61 N 11/07/97 0.07 11.47 0.96 9.93
FJMY 3.66 1.02 11.31 N 11/07/97 0.63 0.92 1.33 14.11
FKYS 4.43 1.74 15.35 N 11/07/97 NA 1.20 1.83 15.86
FLFL 2.82 0.80 11.61 N 11/07/97 0.86 0.71 0.75 11.40
FLHI 0.35 1.65 23.35 N 11/07/97 5.41 0.23 3.24 34.85
FLLC 0.65 0.76 7.57 N 11/07/97 1.27 0.15 0.60 6.77
FMBH 2.21 0.83 10.37 N 11/07/97 0.34 0.54 0.92 10.88
FMNB 1.31 1.29 12.17 N 11/07/97 NA 0.37 1.41 13.06
FNAN 168.08 2.34 9.54 N 11/07/97 0.33 40.14 2.25 8.90
FNBB 2.41 0.99 9.25 N 10/31/97 1.08 0.57 0.98 9.02
FNBP 1.59 1.35 14.45 N 11/07/97 0.37 0.42 1.37 14.85
FNLB 3.75 1.13 12.84 N 11/07/97 0.08 1.08 1.28 14.43
FOBT 2.58 1.26 14.43 N 11/07/97 0.18 0.72 1.33 15.63
FPHN 6.02 1.31 12.35 N 11/07/97 0.20 1.58 1.36 12.52
FRAF 2.22 1.27 12.05 N 11/07/97 0.45 0.61 1.37 13.14
FRMS 4.78 1.24 14.37 N 10/31/97 0.41 1.33 1.37 15.38
FTAB (2.15) (8.21) (78.98) N 11/07/97 4.87 (0.13) (1.06) (15.51)
FWCC 1.94 1.12 13.52 N 11/07/97 0.46 0.50 1.10 13.31
FXNC 1.98 1.09 10.62 N 11/07/97 0.56 0.53 1.12 10.98
GABS 0.95 0.95 9.18 N 10/31/97 0.71 0.28 1.04 10.61
GBBK NA NA NA Y 09/06/96 NA NA NA NA
GBFP 1.40 0.99 13.44 N 11/07/97 0.67 0.35 0.92 12.68
GDBC 0.07 0.29 4.71 N 11/07/97 2.30 (0.02) (0.28) (4.25)
GFLS 1.22 0.98 12.31 N 05/20/97 1.50 0.28 1.02 12.41
GLBT 1.87 0.80 14.95 N 05/22/96 0.89 0.27 0.86 12.91
GRBC 1.19 0.67 12.39 N 11/07/97 0.72 0.19 0.69 13.16
GREXX 1.59 1.11 12.11 N 10/31/97 NA 0.42 1.13 12.61
</TABLE>
Source: SNL Securities and F&C calculations.
27
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Return on ROACE Return on ROACE
Core Avg Assets Before NPAs/ Core Avg Assets Before
EPS Before Extra Extra Merger Current Assets EPS Before Extra Extra
($) (%) (%) Target? Pricing (%) ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GRGN 3.98 1.39 13.66 N 11/07/97 0.14 1.03 1.35 13.53
GRYB 1.21 1.14 10.65 Y 11/07/97 0.10 0.34 1.24 11.62
HABN 1.04 0.76 9.63 Y 11/07/97 1.77 0.28 0.81 9.85
HBIN 0.59 1.58 3.40 N 11/07/97 - 0.19 1.99 4.54
HBKS 1.22 1.30 16.48 N 11/07/97 0.59 0.31 1.23 15.70
HBNC 4.91 0.94 10.79 N 11/07/97 0.12 0.89 0.68 7.67
HBSI 3.98 1.09 9.85 N 11/07/97 0.05 0.96 1.04 9.58
HEOP 0.96 1.22 14.21 N 11/07/97 1.04 0.27 1.38 16.38
HLAG NA 0.71 3.84 N 11/07/97 1.05 0.04 0.20 1.11
HOVB 1.10 1.01 11.34 N 11/07/97 0.12 0.29 1.00 10.78
HRDXX 0.61 1.67 12.48 N 10/31/97 2.02 0.14 1.67 11.47
HRFD 5.12 1.52 14.92 N 11/07/97 1.30 1.28 1.50 14.18
HTLF 1.49 1.02 10.66 N 11/07/97 0.27 0.33 0.85 9.22
HWNB 0.84 0.21 2.19 N 11/07/97 1.81 0.05 0.05 0.55
IBDB 1.12 1.09 11.28 N 10/31/97 0.21 0.31 1.16 11.61
IBNC 4.00 1.40 16.48 N 11/07/97 0.30 0.99 1.27 15.35
IFBH NA 0.55 4.76 N 11/07/97 0.37 0.31 0.88 5.92
IFNC 5.14 0.06 0.84 N 11/07/97 0.25 0.81 0.46 6.46
IFST 1.91 1.21 13.61 N 11/07/97 0.36 0.47 1.16 12.83
IGSV (0.24) (0.46) (3.41) N 11/07/97 0.21 (0.17) (0.52) (4.21)
JFBC 1.53 0.94 9.08 N 11/07/97 NA 0.42 0.97 9.47
JUVF 2.06 1.38 10.98 N 11/07/97 0.18 0.51 1.42 11.16
LAYB 1.85 1.10 12.67 N 11/07/97 0.17 0.50 1.18 13.43
LKFN 2.42 1.12 18.10 N 08/08/97 NA 0.74 1.30 19.90
LNBB 1.50 1.41 14.35 N 11/07/97 0.18 0.40 1.39 15.09
LNBS 2.07 1.51 15.12 N 11/07/97 0.10 0.52 1.52 15.27
MARB NA (1.84) (38.66) N 11/07/97 5.39 (0.10) (0.92) (17.36)
MBKT 3.48 1.94 16.35 N 11/07/97 0.48 0.94 2.00 16.77
MCBF 1.15 0.96 12.32 N 11/07/97 0.06 0.33 1.06 13.45
MFRM 2.37 1.06 9.34 N 11/07/97 0.13 0.60 1.03 9.02
MGNB 2.01 1.64 15.89 N 11/07/97 NA 0.54 1.74 16.22
MIPN 1.41 1.76 15.14 N 11/07/97 0.78 0.35 1.81 15.29
MMBI 2.04 0.53 5.49 N 11/07/97 0.47 0.72 0.90 9.37
MNOC 0.75 0.69 8.75 N 06/26/97 0.59 0.27 1.02 12.13
MSHN 1.76 0.89 8.16 N 11/07/97 NA 0.54 1.10 9.71
MTMB 1.48 1.05 12.35 N 11/07/97 0.81 0.36 0.89 11.37
MTTB 1.61 1.33 15.87 N 11/07/97 1.16 0.46 1.51 17.14
NBMXX NA NA NA N NA NA 0.19 0.37 4.47
NBOH 1.93 1.26 8.88 N 11/07/97 0.26 0.49 1.27 8.92
NCBH 0.29 0.83 11.45 N 05/22/96 NA 0.06 1.10 14.71
NCFD 0.57 0.93 2.74 11/07/97 2.66 0.11 0.83 2.36
NECA 4.96 1.34 14.82 N 11/07/97 1.09 1.26 1.55 16.08
NKSH 1.64 1.62 12.31 N 11/07/97 0.20 0.44 1.70 12.62
NOAB 0.32 0.55 6.32 N 10/31/97 5.59 0.09 0.68 7.75
NOTW 2.33 1.30 11.76 N 11/07/97 2.89 0.51 1.16 10.38
NOVB 2.18 1.66 17.77 N 11/07/97 0.83 0.55 1.63 17.22
OHSB 2.37 0.66 8.98 N 11/07/97 0.17 0.66 0.72 9.78
ORRB 2.52 1.53 15.62 N 11/07/97 0.04 0.74 1.69 17.56
PABK (0.02) (0.02) (0.18) N 11/07/97 2.49 0.03 0.41 3.20
PABN 1.87 1.39 11.93 N 12/13/96 0.80 0.50 1.35 12.06
PACXX 4.39 1.23 14.62 N 10/31/97 0.03 1.08 1.18 14.30
PAHC 1.23 1.11 12.70 N 11/07/97 1.16 0.32 1.08 12.59
PATD 1.42 0.59 4.34 N 11/07/97 NA 0.40 0.64 6.52
PCHB 1.45 1.04 11.70 N 11/07/97 1.22 0.42 1.16 12.74
PCLF 6.27 2.03 14.60 N 11/07/97 0.35 1.58 2.00 14.22
PFCY 2.05 1.17 8.92 N 11/07/97 0.28 0.61 1.15 8.49
PLBA 1.18 1.14 14.16 N 11/07/97 0.46 0.33 1.13 13.97
PNBF 1.66 2.25 21.58 N 11/07/97 1.05 0.45 2.34 22.28
</TABLE>
Source: SNL Securities and F&C calculations.
28
<PAGE>
FERGUSON & COMPANY Table IV.6 - Pink Sheet Banks Section IV
- ------------------ ----------
<TABLE>
<CAPTION>
Return on ROACE Return on ROACE
Core Avg Assets Before NPAs/ Core Avg Assets Before
EPS Before Extra Extra Merger Current Assets EPS Before Extra Extra
($) (%) (%) Target? Pricing (%) ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PPBK 1.32 1.83 11.85 N 11/07/97 NA 0.36 1.94 12.52
PRFS 1.20 1.46 15.97 N 11/07/97 0.05 0.42 1.94 21.69
PSBT 8.73 1.17 11.47 N 11/07/97 0.38 2.01 1.08 10.33
PSEB 1.40 0.92 11.76 Y 11/07/97 1.27 0.39 1.08 13.26
PSHR 2.53 1.12 10.70 N 11/07/97 0.25 0.61 1.01 9.79
PWOD 3.72 2.69 21.41 N 11/07/97 0.53 0.90 2.91 22.13
QNBC 1.94 1.05 12.98 N 11/07/97 1.21 0.53 1.09 13.30
RBNF 2.30 1.22 12.69 N 11/07/97 0.28 0.60 1.28 13.39
REFN 0.08 (0.83) (10.73) N 11/07/97 1.57 (0.04) (4.60) (61.13)
SBGA 1.19 1.84 16.14 N 10/18/96 0.11 0.22 1.33 11.88
SBHC 0.86 1.39 16.17 N 09/13/96 0.55 0.22 1.47 17.66
SBTL 7.79 1.33 12.17 N 11/07/97 1.46 2.02 1.18 10.67
SBVA 1.07 1.10 9.89 N 11/07/97 0.38 0.21 0.89 7.97
SFBC 0.89 0.96 12.93 N 11/07/97 NA 0.21 0.98 11.53
SHBI 2.09 1.42 9.54 N 11/07/97 0.53 0.54 1.37 9.69
SLFI 1.54 1.32 14.54 N 11/07/97 0.29 0.38 1.33 14.44
SLNB 2.23 1.16 12.10 N 11/07/97 1.50 0.63 1.28 13.40
SMAL 3.33 1.67 12.87 N 11/07/97 1.33 0.89 1.76 13.53
SMTB 6.60 1.56 20.47 N 11/07/97 2.68 1.98 1.76 22.80
SNBN 0.18 0.08 1.00 Y 11/07/97 0.73 (0.09) (0.12) (1.55)
SOJB 4.75 1.25 13.61 N 11/07/97 1.27 1.30 1.25 13.64
SOMC 1.64 1.46 14.59 N 11/07/97 0.13 0.47 1.51 14.85
SOVY 2.08 1.37 16.09 N 11/07/97 0.32 0.54 1.34 15.83
SRCK 2.09 1.47 13.86 N 11/07/97 0.71 0.52 1.44 13.37
SRTB 1.10 1.09 10.80 N 11/07/97 0.09 0.29 1.05 10.52
STYB 2.30 1.70 13.55 N 11/07/97 NA 0.57 1.70 13.29
SXSX 0.73 0.49 6.31 N 10/31/97 0.65 0.21 0.56 7.38
TBLC 0.94 1.15 14.23 N 10/31/97 0.17 0.27 1.29 16.52
TOBC 2.58 1.71 14.22 N 11/07/97 NA 0.63 1.95 15.74
TRCY 2.54 1.48 13.16 N 10/31/97 0.17 0.64 1.47 12.72
UBFO 2.04 2.02 18.53 N 11/07/97 4.38 0.54 2.06 18.86
UNBO 1.47 1.08 12.03 N 11/07/97 0.19 0.39 1.20 13.20
UNNF 0.90 1.10 10.06 N 11/07/97 0.07 0.23 1.07 10.03
UPBN 7.18 0.73 8.62 N 11/07/97 0.74 1.94 0.78 8.98
USBI 1.98 1.74 15.18 N 11/07/97 0.23 0.48 1.58 13.83
UVSP 3.36 1.42 13.20 N 11/07/97 0.36 0.94 1.57 14.35
VADO 1.37 0.89 11.06 N 11/07/97 0.83 0.32 0.81 10.14
VAIB 0.38 0.79 9.82 N 08/22/97 1.84 0.09 0.64 8.87
VCBK 0.93 1.09 13.18 N 11/07/97 0.07 0.25 1.09 13.57
VNBC 0.30 0.44 6.71 N 11/07/97 0.68 0.08 0.49 7.47
VRBA 0.49 2.00 17.07 N 10/31/97 0.03 0.13 2.10 17.66
VTGB 1.14 1.41 14.57 N 11/07/97 0.69 0.32 1.25 12.81
WCBC NA 1.37 25.28 N 11/07/97 4.27 0.04 1.40 25.89
WIBW 2.88 1.56 16.77 N 11/07/97 1.08 0.81 1.73 18.35
WMFR 1.26 1.94 6.29 N 11/07/97 - 0.31 2.01 6.27
WNNB 1.34 1.50 12.81 N 12/31/96 - 0.35 1.56 13.10
YAVY 1.37 1.69 16.52 N 11/07/97 NA 0.35 1.70 16.09
YOBK 0.82 0.74 7.60 N 11/07/97 0.45 0.19 0.60 6.20
Maximum 217.81 2.69 68.76 8.50 57.30 3.24 35.69
Minimum (9.52) (8.21) (78.98) - (4.95) (4.60) (88.61)
Average 4.08 1.11 11.46 0.97 1.00 1.17 11.72
Median 1.65 1.19 12.35 0.47 0.42 1.22 12.83
</TABLE>
Source: SNL Securities and F&C calculations.
29
<PAGE>
EXHIBIT I
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit I - Firm Qualifications
Ferguson & Company (F&C) is a financial, economic, and regulatory
consulting firm providing services to financial institutions. It is located in
Irving, Texas. Its services to financial institutions include:
. Mergers and acquisition services
. Business plans
. Fairness opinions and conversion appraisals
. Litigation support
. Operational and efficiency consulting
. Human resources evaluation and management
F&C developed several financial institution databases of information
derived from periodic financial reports filed with regulatory authorities by
financial institutions. For example, F&C developed TAFS and BankSource. TAFS
includes thrifts filing TFR's with the OTS and BankSource includes banks and
savings banks filing call reports with the FDIC. Both databases of information
include information from the periodic reports plus numerous calculations derived
from F&C's analysis. In addition, both databases are interactive, permitting the
user to conduct merger analysis, do peer group comparisons, and a number of
other items. In 1994, F&C sold its electronic publishing segment to Sheshunoff
Information Services Inc., Austin, Texas.
Brief biographical information is presented below on F&C's principals:
WILLIAM C. FERGUSON, MANAGING PARTNER
- -------------------------------------
Mr. Ferguson has approximately 30 years of experience providing various services
to financial institutions. He was a partner in a CPA firm prior to founding F&C
in 1984. Mr. Ferguson is a frequent speaker for financial institution seminars
and he has testified before Congressional Committees several times on his
analysis of the state of the thrift industry. Mr. Ferguson has a B.A. degree
from Austin Peay University and an M.S. degree from the University of Tennessee.
He is a CPA.
1
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit I - Firm Qualifications
CHARLES M. HEBERT, PRINCIPAL
- ----------------------------
Mr. Hebert has over 30 years of experience providing services to and managing
financial institutions. He spent 7 years as a national bank examiner, 14 years
in bank management, 5 years in thrift management, and has spent the last 8 years
on the F&C consulting staff. Mr. Hebert holds a B.S. degree from Louisiana State
University.
ROBIN L. FUSSELL, PRINCIPAL
- ---------------------------
Mr. Fussell has over 25 years of experience providing professional services to
and managing financial institutions. He worked on the audit staff of a "Big Six"
accounting firm for 12 years, served as CFO of a thrift for 3 years, and has
worked in financial institution consulting for the last 13 years. He is a
co-founder of F&C. He holds a B.S. degree from East Carolina University. He is a
CPA.
2
<PAGE>
EXHIBIT II
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ABBK Abington Bancorp Inc. Abington MA NE BIF NASDAQ 06/10/86 35.500
ABCL Alliance Bancorp Inc. Hinsdale IL MW SAIF NASDAQ 07/07/92 26.313
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92 29.500
AFCB Affiliated Community Bancorp Waltham MA NE SAIF NASDAQ 10/19/95 28.750
AHM Ahmanson & Company (H.F.) Irwindale CA WE SAIF NYSE 10/25/72 61.063
ALBC Albion Banc Corp. Albion NY MA SAIF NASDAQ 07/26/93 29.250
ALBK ALBANK Financial Corp. Albany NY MA SAIF NASDAQ 04/01/92 42.500
AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96 16.375
ANDB Andover Bancorp Inc. Andover MA NE BIF NASDAQ 05/08/86 38.750
ANE Alliance Bncorp of New England Tolland CT NE BIF AMSE 12/19/86 17.125
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 20.250
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95 13.375
ASFC Astoria Financial Corp. Lake Success NY MA SAIF NASDAQ 11/18/93 55.500
BANC BankAtlantic Bancorp Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83 13.625
BDJI First Federal Bancorporation Bemidji MN MW SAIF NASDAQ 04/04/95 25.750
BFD BostonFed Bancorp Inc. Burlington MA NE SAIF AMSE 10/24/95 20.563
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 27.000
BKC American Bank of Connecticut Waterbury CT NE BIF AMSE 12/01/81 46.000
BKCT Bancorp Connecticut Inc. Southington CT NE BIF NASDAQ 07/03/86 37.250
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85 13.000
BNKU Bank United Corp. Houston TX SW SAIF NASDAQ 08/09/96 43.000
BPLS Bank Plus Corp. Los Angeles CA WE SAIF NASDAQ NA 12.000
BVCC Bay View Capital Corp. San Mateo CA WE SAIF NASDAQ 05/09/86 30.625
BYFC Broadway Financial Corp. Los Angeles CA WE SAIF NASDAQ 01/09/96 12.875
CAFI Camco Financial Corp. Cambridge OH MW SAIF NASDAQ NA 23.125
CAPS Capital Savings Bancorp Inc. Jefferson City MO MW SAIF NASDAQ 12/29/93 18.250
CASB Cascade Financial Corp. Everett WA WE SAIF NASDAQ 09/16/92 14.000
CASH First Midwest Financial Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 19.688
CATB Catskill Financial Corp. Catskill NY MA BIF NASDAQ 04/18/96 17.500
CBCI Calumet Bancorp Inc. Dolton IL MW SAIF NASDAQ 02/20/92 50.750
CBES CBES Bancorp Inc. Excelsior Springs MO MW SAIF NASDAQ 09/30/96 20.750
CBK Citizens First Financial Corp. Bloomington IL MW SAIF AMSE 05/01/96 18.000
CBSA Coastal Bancorp Inc. Houston TX SW SAIF NASDAQ NA 29.750
CBSB Charter Financial Inc. Sparta IL MW SAIF NASDAQ 12/29/95 21.375
CEBK Central Co-operative Bank Somerville MA NE BIF NASDAQ 10/24/86 24.750
CFB Commercial Federal Corp. Omaha NE MW SAIF NYSE 12/31/84 47.563
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 25.000
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 22.250
CFSB CFSB Bancorp Inc. Lansing MI MW SAIF NASDAQ 06/22/90 31.125
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 17.000
CFX CFX Corp. Keene NH NE BIF AMSE 02/12/87 25.438
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 15.750
CKFB CKF Bancorp Inc. Danville KY MW SAIF NASDAQ 01/04/95 18.000
CLAS Classic Bancshares Inc. Ashland KY MW SAIF NASDAQ 12/29/95 15.000
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 19.250
CMSB Commonwealth Bancorp Inc. Norristown PA MA SAIF NASDAQ 06/17/96 18.125
CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 66.250
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 57.875
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 17.500
CRZY Crazy Woman Creek Bancorp Buffalo WY WE SAIF NASDAQ 03/29/96 15.063
CTZN CitFed Bancorp Inc. Dayton OH MW SAIF NASDAQ 01/23/92 51.875
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 26.000
DIBK Dime Financial Corp. Wallingford CT NE BIF NASDAQ 07/09/86 31.500
DIME Dime Community Bancorp Inc. Brooklyn NY MA BIF NASDAQ 06/26/96 22.000
DME Dime Bancorp Inc. New York NY MA BIF NYSE 08/19/86 24.125
DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/85 25.000
DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/71 26.875
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 18.500
EFBI Enterprise Federal Bancorp West Chester OH MW SAIF NASDAQ 10/17/94 26.250
</TABLE>
Source: SNL Securities and F&C calculations
1
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EIRE Emerald Isle Bancorp Inc. Quincy MA NE BIF NASDAQ 09/08/86 31.750
EMLD Emerald Financial Corp. Strongsville OH MW SAIF NASDAQ NA 18.500
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 42.000
ESBK Elmira Savings Bank (The) Elmira NY MA BIF NASDAQ 03/01/85 30.750
ETFS East Texas Financial Services Tyler TX SW SAIF NASDAQ 01/10/95 19.375
FBBC First Bell Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/29/95 17.250
FBCI Fidelity Bancorp Inc. Chicago IL MW SAIF NASDAQ 12/15/93 23.750
FBCV 1ST Bancorp Vincennes IN MW SAIF NASDAQ 04/07/87 35.875
FBER 1st Bergen Bancorp Wood-Ridge NJ MA SAIF NASDAQ 04/01/96 18.375
FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/93 20.000
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 25.250
FCBF FCB Financial Corp. Oshkosh WI MW SAIF NASDAQ 09/24/93 27.750
FCME First Coastal Corp. Westbrook ME NE BIF NASDAQ NA 12.906
FDEF First Defiance Financial Defiance OH MW SAIF NASDAQ 10/02/95 15.375
FED FirstFed Financial Corp. Santa Monica CA WE SAIF NYSE 12/16/83 36.625
FESX First Essex Bancorp Inc. Andover MA NE BIF NASDAQ 08/04/87 19.500
FFBA First Colorado Bancorp Inc. Lakewood CO SW SAIF NASDAQ 01/02/96 20.438
FFBH First Federal Bancshares of AR Harrison AR SE SAIF NASDAQ 05/03/96 21.000
FFBI First Financial Bancorp Inc. Belvidere IL MW SAIF NASDAQ 10/04/93 19.250
FFBS FFBS BanCorp Inc. Columbus MS SE SAIF NASDAQ 07/01/93 23.250
FFBZ First Federal Bancorp Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 19.250
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 40.750
FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/91 22.000
FFDF FFD Financial Corp. Dover OH MW SAIF NASDAQ 04/03/96 18.750
FFED Fidelity Federal Bancorp Evansville IN MW SAIF NASDAQ 08/31/87 9.750
FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/87 36.250
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94 33.375
FFFD North Central Bancshares Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 18.500
FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/94 19.250
FFHS First Franklin Corporation Cincinnati OH MW SAIF NASDAQ 01/26/88 24.000
FFIC Flushing Financial Corp. Flushing NY MA BIF NASDAQ 11/21/95 21.750
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87 21.500
FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 35.000
FFOH Fidelity Financial of Ohio Cincinnati OH MW SAIF NASDAQ 03/04/96 14.875
FFPB First Palm Beach Bancorp Inc. West Palm Beach FL SE SAIF NASDAQ 09/29/93 39.625
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 15.000
FFSX First Fed SB of Siouxland(MHC) Sioux City IA MW SAIF NASDAQ 07/13/92 32.750
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 33.500
FFWD Wood Bancorp Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 18.500
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93 29.750
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 8.375
FIBC Financial Bancorp Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 24.125
FISB First Indiana Corporation Indianapolis IN MW SAIF NASDAQ 08/02/83 24.500
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 32.000
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 27.500
FMCO FMS Financial Corp. Burlington NJ MA SAIF NASDAQ 12/14/88 30.000
FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/85 18.125
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 13.500
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 24.250
FSBI Fidelity Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 24.000
FSLA First Savings Bank (MHC) Woodbridge NJ MA SAIF NASDAQ 07/10/92 38.000
FSPG First Home Bancorp Inc. Pennsville NJ MA SAIF NASDAQ 04/20/87 22.750
FSTC First Citizens Corp. Newnan GA SE SAIF NASDAQ 03/01/86 38.500
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 25.500
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89 26.125
FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/95 14.000
FWWB First SB of Washington Bancorp Walla Walla WA WE SAIF NASDAQ 11/01/95 23.625
GAF GA Financial Inc. Pittsburgh PA MA SAIF AMSE 03/26/96 19.063
GBCI Glacier Bancorp Inc. Kalispell MT WE SAIF NASDAQ 03/30/84 22.000
</TABLE>
Source: SNL Securities and F&C calculations
2
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GDW Golden West Financial Oakland CA WE SAIF NYSE 05/29/59 87.375
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90 31.250
GPT GreenPoint Financial Corp. New York NY MA BIF NYSE 01/28/94 68.500
GSB Golden State Bancorp Inc. Glendale CA WE SAIF NYSE 10/01/83 33.750
GSBC Great Southern Bancorp Inc. Springfield MO MW SAIF NASDAQ 12/14/89 21.125
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 18.500
GUPB GFSB Bancorp Inc. Gallup NM SW SAIF NASDAQ 06/30/95 20.000
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94 29.375
HARB Harbor Florida Bancorp (MHC) Fort Pierce FL SE SAIF NASDAQ 01/06/94 62.750
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 30.125
HAVN Haven Bancorp Inc. Woodhaven NY MA SAIF NASDAQ 09/23/93 41.875
HBBI Home Building Bancorp Washington IN MW SAIF NASDAQ 02/08/95 21.625
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 24.000
HBNK Highland Federal Bank FSB Burbank CA WE SAIF NASDAQ NA 32.500
HBS Haywood Bancshares Inc. Waynesville NC SE BIF AMSE 12/18/87 20.563
HFFB Harrodsburg First Fin Bancorp Harrodsburg KY MW SAIF NASDAQ 10/04/95 16.750
HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/92 25.500
HFGI Harrington Financial Group Richmond IN MW SAIF NASDAQ NA 13.250
HFNC HFNC Financial Corp. Charlotte NC SE SAIF NASDAQ 12/29/95 14.063
HFSA Hardin Bancorp Inc. Hardin MO MW SAIF NASDAQ 09/29/95 18.000
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 13.750
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 28.500
HMNF HMN Financial Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 25.250
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 37.125
HPBC Home Port Bancorp Inc. Nantucket MA NE BIF NASDAQ 08/25/88 23.000
HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 21.500
HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/86 17.000
HTHR Hawthorne Financial Corp. El Segundo CA WE SAIF NASDAQ NA 17.750
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 23.000
IBSF IBS Financial Corp. Cherry Hill NJ MA SAIF NASDAQ 10/13/94 15.875
IFSB Independence Federal Svgs Bank Washington DC MA SAIF NASDAQ 06/06/85 14.250
INBI Industrial Bancorp Inc. Bellevue OH MW SAIF NASDAQ 08/01/95 17.500
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 11.750
ISBF ISB Financial Corp. New Iberia LA SW SAIF NASDAQ 04/07/95 24.500
ITLA ITLA Capital Corp. La Jolla CA WE BIF NASDAQ 10/24/95 19.625
IWBK InterWest Bancorp Inc. Oak Harbor WA WE SAIF NASDAQ NA 37.625
JSB JSB Financial Inc. Lynbrook NY MA BIF NYSE 06/27/90 48.438
JSBA Jefferson Savings Bancorp Ballwin MO MW SAIF NASDAQ 04/08/93 42.500
JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 18.875
KFBI Klamath First Bancorp Klamath Falls OR WE SAIF NASDAQ 10/05/95 21.125
KNK Kankakee Bancorp Inc. Kankakee IL MW SAIF AMSE 01/06/93 31.750
KSAV KS Bancorp Inc. Kenly NC SE SAIF NASDAQ 12/30/93 22.000
KSBK KSB Bancorp Inc. Kingfield ME NE BIF NASDAQ 06/24/93 15.000
KYF Kentucky First Bancorp Inc. Cynthiana KY MW SAIF AMSE 08/29/95 13.625
LARK Landmark Bancshares Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 23.500
LARL Laurel Capital Group Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 26.500
LFED Leeds Federal Savings Bk (MHC) Baltimore MD MA SAIF NASDAQ 05/02/94 31.875
LISB Long Island Bancorp Inc. Melville NY MA SAIF NASDAQ 04/18/94 44.125
LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 15.750
LONF London Financial Corporation London OH MW SAIF NASDAQ 04/01/96 20.125
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 25.000
LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/86 13.938
LVSB Lakeview Financial Paterson NJ MA SAIF NASDAQ 12/22/93 25.500
LXMO Lexington B&L Financial Corp. Lexington MO MW SAIF NASDAQ 06/06/96 16.938
MAFB MAF Bancorp Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 32.750
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 26.750
MASB MASSBANK Corp. Reading MA NE BIF NASDAQ 05/28/86 45.000
MBB MSB Bancorp Inc. Goshen NY MA BIF AMSE 09/03/92 28.500
MBB MSB Bancorp, Inc. Goshen NY MA BIF AMSE NA 28.500
</TABLE>
Source: SNL Securities and F&C calculations
3
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MBBC Monterey Bay Bancorp Inc. Watsonville CA WE SAIF NASDAQ 02/15/95 19.000
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 25.750
MBSP Mitchell Bancorp Inc. Spruce Pine NC SE SAIF NASDAQ 07/12/96 17.750
MCBN Mid-Coast Bancorp Inc. Waldoboro ME NE SAIF NASDAQ 11/02/89 28.375
MDBK Medford Savings Bank Medford MA NE BIF NASDAQ 03/18/86 34.625
MECH Mechanics Savings Bank Hartford CT NE BIF NASDAQ 06/26/96 25.750
MERI Meritrust Federal SB Thibodaux LA SW SAIF NASDAQ NA 49.250
METF Metropolitan Financial Corp. Mayfield Heights OH MW SAIF NASDAQ NA 26.000
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 23.250
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 15.000
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 26.250
MFSL Maryland Federal Bancorp Hyattsville MD MA SAIF NASDAQ 06/02/87 46.500
MIVI Mississippi View Holding Co. Little Falls MN MW SAIF NASDAQ 03/24/95 17.625
MSBF MSB Financial Inc. Marshall MI MW SAIF NASDAQ 02/06/95 18.000
MWBI Midwest Bancshares Inc. Burlington IA MW SAIF NASDAQ 11/12/92 52.750
MWBX MetroWest Bank Framingham MA NE BIF NASDAQ 10/10/86 8.000
MWFD Midwest Federal Financial Baraboo WI MW SAIF NASDAQ 07/08/92 25.250
NASB North American Savings Bank Grandview MO MW SAIF NASDAQ 09/27/85 55.250
NBN Northeast Bancorp Auburn ME NE BIF AMSE 08/19/87 27.250
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 20.500
NHTB New Hampshire Thrift Bncshrs New London NH NE SAIF NASDAQ 05/22/86 21.250
NMSB NewMil Bancorp Inc. New Milford CT NE BIF NASDAQ 02/01/86 12.500
NSLB NS&L Bancorp Inc. Neosho MO MW SAIF NASDAQ 06/08/95 18.750
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 18.000
OCN Ocwen Financial Corp. West Palm Beach FL SE SAIF NYSE NA 51.625
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 27.750
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 27.500
PBCI Pamrapo Bancorp Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 25.000
PBHC Oswego City Savings Bk (MHC) Oswego NY MA BIF NASDAQ 11/16/95 27.500
PBKB People's Bancshares Inc. New Bedford MA NE BIF NASDAQ 10/30/86 19.000
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 24.000
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 17.250
PERM Permanent Bancorp Inc. Evansville IN MW SAIF NASDAQ 04/04/94 25.125
PERT Perpetual Bank (MHC) Anderson SC SE SAIF NASDAQ 10/26/93 52.250
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 35.000
PFFB PFF Bancorp Inc. Pomona CA WE SAIF NASDAQ 03/29/96 19.125
PFNC Progress Financial Corp. Blue Bell PA MA SAIF NASDAQ 07/18/83 14.500
PFSB PennFed Financial Services Inc West Orange NJ MA SAIF NASDAQ 07/15/94 30.500
PFSL Pocahontas FS&LA (MHC) Pocahontas AR SE SAIF NASDAQ 04/05/94 35.000
PHBK Peoples Heritage Finl Group Portland ME NE BIF NASDAQ 12/04/86 39.625
PHFC Pittsburgh Home Financial Corp Pittsburgh PA MA SAIF NASDAQ 04/01/96 18.875
PRBC Prestige Bancorp Inc. Pleasant Hills PA MA SAIF NASDAQ 06/27/96 18.000
PSBK Progressive Bank Inc. Fishkill NY MA BIF NASDAQ 08/01/84 33.375
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 31.500
PULS Pulse Bancorp South River NJ MA SAIF NASDAQ 09/18/86 25.250
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 19.625
PVSA Parkvale Financial Corporation Monroeville PA MA SAIF NASDAQ 07/16/87 28.000
PWBC PennFirst Bancorp Inc. Ellwood City PA MA SAIF NASDAQ 06/13/90 18.000
QCBC Quaker City Bancorp Inc. Whittier CA WE SAIF NASDAQ 12/30/93 20.375
QCFB QCF Bancorp Inc. Virginia MN MW SAIF NASDAQ 04/03/95 27.000
QCSB Queens County Bancorp Inc. Flushing NY MA BIF NASDAQ 11/23/93 35.500
RARB Raritan Bancorp Inc. Raritan NJ MA BIF NASDAQ 03/01/87 28.625
REDF RedFed Bancorp Inc. Redlands CA WE SAIF NASDAQ 04/08/94 19.625
RELI Reliance Bancshares Inc. Milwaukee WI MW SAIF NASDAQ 04/19/96 8.500
RELY Reliance Bancorp Inc. Garden City NY MA SAIF NASDAQ 03/31/94 33.125
ROSE TR Financial Corp. Garden City NY MA BIF NASDAQ 06/29/93 31.750
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 22.500
SFED SFS Bancorp Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 22.125
SFFC StateFed Financial Corporation Des Moines IA MW SAIF NASDAQ 01/05/94 27.000
</TABLE>
Source: SNL Securities and F&C calculations
4
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SFIN Statewide Financial Corp. Jersey City NJ MA SAIF NASDAQ 10/02/95 21.625
SFSB SuburbFed Financial Corp. Flossmoor IL MW SAIF NASDAQ 03/04/92 32.500
SFSL Security First Corp. Mayfield Heights OH MW SAIF NASDAQ 01/22/88 17.500
SGVB SGV Bancorp Inc. West Covina CA WE SAIF NASDAQ 06/29/95 17.750
SHEN First Shenango Bancorp Inc. New Castle PA MA SAIF NASDAQ 04/06/93 34.000
SISB SIS Bancorp Inc. Springfield MA NE BIF NASDAQ 02/08/95 33.750
SKAN Skaneateles Bancorp Inc. Skaneateles NY MA BIF NASDAQ 06/02/86 31.000
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 18.250
SOBI Sobieski Bancorp Inc. South Bend IN MW SAIF NASDAQ 03/31/95 19.500
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 24.000
SOSA Somerset Savings Bank Somerville MA NE BIF NASDAQ 07/09/86 5.188
SPBC St. Paul Bancorp Inc. Chicago IL MW SAIF NASDAQ 05/18/87 23.000
SSB Scotland Bancorp Inc Laurinburg NC SE SAIF AMSE 04/01/96 10.750
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 19.250
STFR St. Francis Capital Corp. Milwaukee WI MW SAIF NASDAQ 06/21/93 39.000
STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ NA 22.000
SVRN Sovereign Bancorp Inc. Wyomissing PA MA SAIF NASDAQ 08/12/86 19.000
SWBI Southwest Bancshares Hometown IL MW SAIF NASDAQ 06/24/92 25.500
SWCB Sandwich Bancorp Inc. Sandwich MA NE BIF NASDAQ 07/25/86 40.000
THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/95 19.500
THRD TF Financial Corporation Newtown PA MA SAIF NASDAQ 07/13/94 23.375
TPNZ Tappan Zee Financial Inc. Tarrytown NY MA SAIF NASDAQ 10/05/95 20.500
TRIC Tri-County Bancorp Inc. Torrington WY WE SAIF NASDAQ 09/30/93 28.250
TSH Teche Holding Co. Franklin LA SW SAIF AMSE 04/19/95 21.125
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 14.250
UBMT United Financial Corp. Great Falls MT WE SAIF NASDAQ 09/23/86 25.500
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 11.500
USAB USABancshares, Inc. Philadelphia PA MA BIF NASDAQ NA 8.375
VABF Virginia Beach Fed. Financial Virginia Beach VA SE SAIF NASDAQ 11/01/80 16.375
WAMU Washington Mutual Inc. Seattle WA WE BIF NASDAQ 03/11/83 66.438
WBST Webster Financial Corp. Waterbury CT NE SAIF NASDAQ 12/12/86 63.063
WCBI Westco Bancorp Westchester IL MW SAIF NASDAQ 06/26/92 26.500
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 18.250
WEHO Westwood Homestead Fin. Corp. Cincinnati OH MW SAIF NASDAQ 09/30/96 16.250
WFI Winton Financial Corp. Cincinnati OH MW SAIF AMSE 08/04/88 20.000
WFSL Washington Federal Inc. Seattle WA WE SAIF NASDAQ 11/17/82 31.500
WHGB WHG Bancshares Corp. Lutherville MD MA SAIF NASDAQ 04/01/96 15.750
WOFC Western Ohio Financial Corp. Springfield OH MW SAIF NASDAQ 07/29/94 26.500
WRNB Warren Bancorp Inc. Peabody MA NE BIF NASDAQ 07/09/86 20.250
WSB Washington Savings Bank, FSB Waldorf MD MA SAIF AMSE NA 7.625
WSFS WSFS Financial Corp. Wilmington DE MA BIF NASDAQ 11/26/86 18.125
WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/94 23.500
WVFC WVS Financial Corp. Pittsburgh PA MA SAIF NASDAQ 11/29/93 33.375
WYNE Wayne Bancorp Inc. Wayne NJ MA SAIF NASDAQ 06/27/96 21.750
YFCB Yonkers Financial Corporation Yonkers NY MA SAIF NASDAQ 04/18/96 18.500
YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/84 27.000
Maximum 87.375
Minimum 5.188
Average 25.964
Median 23.500
</TABLE>
Source: SNL Securities and F&C calculations.
5
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/
Market LTM Price/ Price/ Tang Price/ Dividend Assets Assets Tang Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ABBK 65.31 18.78 182.71 201.59 13.02 1.13 501,622 7.13 6.50
ABCL 211.04 20.40 163.43 165.39 15.39 1.67 1,371,184 9.41 9.31
ABCW 267.08 15.95 213.46 217.23 13.66 1.09 1,954,749 6.40 6.30
AFCB 186.66 16.52 166.38 167.25 16.54 2.09 1,128,579 9.76 9.71
AHM 5,765.04 20.56 302.74 356.26 12.32 1.44 46,799,157 5.10 4.51
ALBC 7.31 30.15 122.08 122.08 10.66 1.09 68,628 8.73 8.73
ALBK 547.07 16.10 159.24 180.77 14.72 1.69 3,716,954 9.24 8.23
AMFC 15.78 23.39 109.53 109.53 15.27 1.71 103,388 13.94 13.94
ANDB 199.51 15.95 191.83 191.83 15.58 1.76 1,280,601 8.12 8.12
ANE 27.86 15.86 156.39 160.20 11.52 1.17 241,918 7.36 7.20
ASBI 65.44 20.05 148.57 148.68 16.65 3.16 393,028 11.21 11.20
ASBP 22.74 19.96 129.85 129.85 20.22 2.99 112,449 15.57 15.57
ASFC 1,146.96 20.33 188.07 222.36 14.51 1.08 7,904,363 7.71 6.60
BANC 303.50 26.72 193.81 233.70 10.67 0.97 2,844,996 5.50 4.60
BDJI 17.58 23.62 146.22 146.22 15.89 - 110,589 10.87 10.87
BFD 116.18 19.96 133.27 138.01 12.09 1.36 960,704 8.52 8.25
BFSB 30.85 17.31 152.11 152.11 22.77 2.07 135,455 14.16 14.16
BKC 106.41 17.10 198.11 205.54 17.45 3.13 609,923 8.81 8.52
BKCT 94.73 19.61 207.87 207.87 22.35 2.69 423,800 10.75 10.75
BKUNA 115.30 22.81 171.28 211.38 6.38 - 1,807,192 5.61 4.94
BNKU 1,358.61 22.87 227.03 232.31 11.35 1.30 11,967,072 5.00 4.89
BPLS 232.09 21.05 131.00 131.29 5.92 - 3,920,257 4.52 4.51
BVCC 380.40 20.83 206.79 247.57 12.03 1.05 3,162,207 5.82 4.91
BYFC 10.75 31.40 87.88 87.88 8.80 1.55 122,245 10.75 10.75
CAFI 74.33 17.26 158.61 171.93 15.17 2.25 489,833 9.57 8.89
CAPS 34.53 15.73 153.75 153.75 14.25 1.32 242,259 9.27 9.27
CASB 47.40 22.22 159.45 159.45 9.78 - 368,126 6.13 6.13
CASH 53.83 14.27 126.04 142.25 14.36 1.83 374,824 11.40 10.23
CATB 81.50 21.88 113.56 113.56 28.14 1.60 289,619 24.78 24.78
CBCI 107.12 17.09 135.26 135.26 21.94 - 488,346 16.22 16.22
CBES 21.27 17.89 117.90 117.90 19.94 1.93 106,635 16.92 16.92
CBK 46.51 34.62 110.43 110.43 16.73 - 277,962 13.75 13.75
CBSA 148.52 13.16 147.79 175.83 5.07 1.61 2,929,560 3.47 2.93
CBSB 88.71 20.17 155.91 176.22 22.55 1.50 393,268 14.47 13.02
CEBK 48.63 16.84 142.24 158.96 14.12 1.29 344,420 9.93 8.98
CFB 1,026.49 15.91 231.00 258.07 14.24 0.59 7,207,143 6.16 5.55
CFCP 116.16 24.27 358.68 358.68 23.51 1.44 494,003 6.56 6.56
CFFC 28.38 13.17 117.97 117.97 16.18 2.52 175,414 13.71 13.71
CFSB 158.33 17.79 238.87 238.87 18.41 2.19 859,962 7.71 7.71
CFTP 78.69 24.29 126.87 126.87 36.44 1.77 215,953 26.72 26.72
CFX 609.93 19.57 248.18 257.47 21.62 3.46 2,821,182 8.71 8.42
CIBI 14.43 15.00 130.27 130.27 15.30 2.03 94,328 11.75 11.75
CKFB 16.69 20.00 106.07 106.07 27.39 2.78 60,812 23.96 23.96
CLAS 19.57 20.55 100.87 119.33 15.00 1.87 130,525 14.87 12.87
CMRN 49.32 19.25 112.05 112.05 24.30 1.46 208,105 21.69 21.69
CMSB 294.40 23.24 139.21 178.57 12.92 1.55 2,278,099 9.28 7.39
CNIT 109.60 20.57 213.64 233.27 15.62 1.51 701,708 6.95 6.40
COFI 2,868.46 16.40 267.57 291.27 18.88 1.73 15,196,993 7.05 6.52
COOP 52.21 25.36 188.78 188.78 14.52 - 359,535 7.69 7.69
CRZY 14.38 21.52 102.61 102.61 26.50 2.66 54,275 25.82 25.82
CTZN 449.04 18.07 217.23 239.06 13.63 0.69 3,294,554 6.27 5.73
CVAL 56.92 20.16 201.71 201.71 17.66 1.61 322,321 8.66 8.66
DIBK 162.60 10.94 216.64 223.09 17.65 1.40 921,510 8.14 7.93
DIME 277.74 21.78 148.55 172.41 20.05 1.09 1,385,356 13.49 11.85
DME 2,448.49 19.77 232.42 244.18 12.61 0.66 19,413,597 5.42 5.18
DNFC 206.11 16.67 223.61 225.84 11.75 0.80 1,754,069 5.25 5.20
DSL 719.01 19.06 172.17 174.40 12.28 1.19 5,853,968 7.13 7.05
EBSI 104.70 17.96 148.59 148.59 12.34 3.24 848,490 8.30 8.30
EFBI 52.11 25.74 163.25 163.35 18.91 3.81 275,620 11.58 11.57
</TABLE>
Source: SNL Securities and F&C calculations.
6
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/
Market LTM Price/ Price/ Tang Price/ Dividend Assets Assets Tang Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EIRE 71.43 19.13 230.41 230.41 16.11 0.88 443,503 6.99 6.99
EMLD 93.82 16.67 199.35 202.41 15.55 1.30 603,493 7.80 7.70
EQSB 25.29 12.73 162.79 162.79 8.21 - 308,197 5.04 5.04
ESBK 21.72 27.70 148.41 154.76 9.53 2.08 227,828 6.30 6.05
ETFS 19.87 27.68 97.02 97.02 17.63 1.03 112,697 18.16 18.16
FBBC 112.31 15.27 156.53 156.53 16.49 2.32 681,215 10.53 10.53
FBCI 66.38 17.21 127.28 127.55 13.33 1.35 497,862 10.48 10.46
FBCV 24.82 26.00 109.94 112.07 9.51 1.12 260,935 8.65 8.50
FBER 52.64 25.17 135.41 135.41 18.49 1.09 284,739 13.65 13.65
FBHC 33.12 27.40 168.35 180.34 10.37 1.00 319,414 6.16 5.77
FBSI 27.59 16.40 121.75 121.75 16.95 0.79 162,755 13.92 13.92
FCBF 107.65 23.32 147.61 147.61 21.48 2.88 526,203 14.55 14.55
FCME 17.54 2.98 121.07 121.07 11.81 - 148,571 9.75 9.75
FDEF 137.71 25.63 121.93 121.93 23.97 2.08 574,364 19.66 19.66
FED 387.68 17.03 183.03 184.88 9.44 - 4,104,647 5.16 5.11
FESX 146.77 16.67 163.87 187.32 12.13 2.46 1,209,698 7.40 6.54
FFBA 336.91 18.41 170.32 172.62 22.27 2.35 1,512,605 13.08 12.93
FFBH 102.82 18.42 128.36 128.36 19.21 1.14 535,204 14.97 14.97
FFBI 7.99 21.63 109.25 109.25 9.46 - 84,531 8.65 8.65
FFBS 36.21 18.90 137.01 137.01 27.69 2.15 130,762 19.23 19.23
FFBZ 30.26 18.16 218.50 218.75 15.03 1.25 201,262 7.55 7.54
FFCH 259.51 18.78 247.72 247.72 15.15 2.06 1,712,931 6.12 6.12
FFDB 25.32 16.67 151.93 166.67 14.31 2.27 176,528 9.42 8.65
FFDF 27.09 30.74 126.95 126.95 31.00 1.60 88,000 24.41 24.41
FFED 27.21 14.34 189.32 189.32 11.56 4.10 235,336 6.11 6.11
FFES 97.23 17.10 148.57 148.57 9.85 1.66 987,416 6.63 6.63
FFFC 150.91 21.26 187.08 190.93 26.60 1.44 567,266 13.31 13.08
FFFD 60.27 16.09 122.27 122.27 28.02 1.35 215,133 22.92 22.92
FFHH 57.94 18.33 118.53 118.53 14.93 2.60 388,135 11.17 11.17
FFHS 28.61 19.83 137.22 138.01 12.37 1.67 231,189 9.02 8.97
FFIC 173.64 20.33 127.34 132.62 18.08 1.10 960,130 14.21 13.71
FFKY 89.42 14.93 170.63 180.82 23.37 2.61 382,585 13.70 13.03
FFLC 80.53 24.65 152.97 152.97 21.00 1.37 383,382 13.73 13.73
FFOH 83.00 16.71 120.54 135.97 15.70 1.88 528,704 13.03 11.72
FFPB 200.02 25.56 176.98 181.18 11.06 1.51 1,808,419 6.25 6.11
FFSL 14.88 21.13 129.31 129.31 13.49 1.67 110,876 10.43 10.43
FFSX 92.78 28.23 232.60 234.43 20.31 1.47 456,850 8.73 8.67
FFWC 23.95 13.90 135.96 149.82 13.20 2.15 181,468 9.70 8.89
FFWD 39.19 19.89 189.36 189.36 23.54 2.16 166,520 12.44 12.44
FFYF 122.63 16.35 146.55 146.55 20.07 2.69 610,974 13.69 13.69
FGHC 25.56 22.64 198.93 216.97 16.35 0.64 156,383 8.22 7.59
FIBC 41.25 15.17 153.56 154.25 13.89 1.66 296,956 9.04 9.00
FISB 258.75 18.70 173.51 175.63 16.72 1.96 1,547,121 9.64 9.54
FKFS 39.31 15.69 167.63 167.63 12.25 0.63 320,797 7.31 7.31
FLFC 212.59 17.97 223.58 247.97 16.48 1.46 1,288,919 7.37 6.69
FMCO 71.63 13.51 196.85 200.40 12.91 0.93 554,925 6.56 6.45
FMSB 73.72 18.13 240.70 240.70 16.34 0.74 451,120 6.79 6.79
FNGB 119.34 21.77 163.83 163.83 18.17 2.37 656,745 11.09 11.09
FOBC 57.55 18.23 138.97 145.38 16.09 2.56 357,721 11.18 10.73
FSBI 37.20 14.37 151.61 151.61 10.24 1.50 363,302 6.75 6.75
FSLA 304.26 32.48 306.70 337.48 29.13 1.26 1,044,513 9.50 8.71
FSPG 61.62 12.85 177.04 179.98 11.79 1.76 522,396 6.66 6.56
FSTC 70.80 13.75 214.01 275.20 20.83 1.14 338,857 9.73 7.73
FTF 45.65 15.27 169.66 169.66 26.64 2.20 171,358 15.70 15.70
FTFC 239.43 18.93 227.97 241.90 15.35 1.84 1,559,672 6.73 6.37
FTSB 19.85 28.00 134.62 134.62 21.59 1.79 96,940 16.04 16.04
FWWB 247.85 20.54 150.67 163.16 23.13 1.19 1,074,166 14.23 13.29
GAF 151.99 20.28 129.50 130.75 18.94 2.52 802,304 14.63 14.51
GBCI 149.95 17.60 261.59 268.29 26.13 2.18 573,968 9.99 9.77
</TABLE>
Source: SNL Securities and F&C calculations.
7
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/
Market LTM Price/ Price/ Tang Price/ Dividend Assets Assets Tang Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GDW 4,960.32 15.06 192.63 192.63 12.64 0.50 39,228,359 6.56 6.56
GFCO 35.62 17.66 130.81 132.58 12.41 2.56 287,088 9.49 9.37
GPT 2,933.58 19.97 203.57 379.71 22.40 - 13,093,985 9.69 5.44
GSB 1,702.88 20.45 208.85 233.40 10.36 - 16,432,304 6.35 5.79
GSBC 170.70 16.90 283.56 283.56 24.19 2.08 707,841 8.53 8.53
GSFC 79.52 25.69 125.59 125.59 45.54 2.38 174,605 36.25 36.25
GUPB 15.04 20.83 114.88 114.88 17.07 2.00 93,793 14.87 14.87
HALL 42.39 16.50 138.76 138.76 10.13 - 418,467 7.30 7.30
HARB 312.08 23.77 322.46 332.89 27.59 2.23 1,131,024 8.56 8.31
HARL 50.06 14.99 218.93 218.93 14.50 1.46 345,239 6.62 6.62
HAVN 183.67 16.49 167.03 167.57 10.02 1.43 1,833,284 6.00 5.98
HBBI 6.74 19.14 105.85 105.85 16.14 1.39 41,746 14.12 14.12
HBFW 60.59 20.51 136.21 136.21 18.10 0.83 334,862 13.29 13.29
HBNK 74.75 17.96 188.95 188.95 14.49 - 515,990 7.67 7.67
HBS 25.71 16.45 122.69 127.25 17.09 2.72 150,416 13.93 13.50
HFFB 33.91 22.33 106.82 106.82 31.13 2.39 108,949 26.92 26.92
HFFC 76.06 14.83 139.96 139.96 13.23 1.65 574,889 9.43 9.42
HFGI 43.15 24.09 171.19 171.19 8.28 0.91 521,043 4.84 4.84
HFNC 241.78 24.25 148.34 148.34 27.89 1.99 866,859 18.81 18.81
HFSA 15.47 19.78 114.29 114.29 13.18 2.67 117,364 11.53 11.53
HHFC 12.58 25.94 121.57 121.57 14.36 3.20 87,596 11.81 11.81
HIFS 37.15 14.39 177.02 177.02 17.18 1.68 216,240 9.71 9.71
HMNF 106.35 21.04 125.68 125.68 18.70 - 568,847 14.88 14.88
HOMF 126.27 16.28 210.22 216.60 18.19 1.35 694,109 8.66 8.42
HPBC 42.36 13.14 197.42 197.42 21.08 3.48 201,014 10.67 10.67
HRBF 36.41 22.87 128.43 128.43 16.76 2.23 217,202 13.06 13.06
HRZB 126.37 15.60 152.19 152.19 23.80 2.59 531,028 15.64 15.64
HTHR 54.81 14.20 126.70 126.70 6.15 - 891,163 6.16 6.16
HZFS 9.79 18.11 112.03 112.03 11.15 1.57 87,784 9.95 9.95
IBSF 174.85 26.91 136.97 136.97 23.84 2.52 733,344 17.40 17.40
IFSB 18.26 25.91 102.59 116.04 7.06 1.54 258,460 6.88 6.14
INBI 90.52 18.23 148.81 148.81 25.56 3.20 354,116 17.18 17.18
IPSW 28.00 17.28 245.82 245.82 13.80 1.02 202,509 5.61 5.61
ISBF 169.07 21.88 139.13 163.55 17.85 2.04 947,107 12.04 10.43
ITLA 154.00 13.17 159.29 NA 17.08 - 901,555 10.72 NA
IWBK 302.89 17.26 233.26 237.53 14.80 1.70 2,046,705 6.34 6.24
JSB 479.45 19.07 134.89 134.89 31.31 2.89 1,531,068 23.21 23.21
JSBA 212.77 19.86 177.38 228.62 16.46 0.94 1,292,021 8.54 6.75
JXVL 46.12 8.28 139.30 139.30 20.78 2.65 226,182 14.92 14.92
KFBI 211.64 24.01 135.07 NA 21.59 1.52 980,078 14.74 NA
KNK 45.26 15.80 116.51 123.59 13.31 1.51 339,937 11.43 10.85
KSAV 19.48 16.79 133.82 133.90 17.72 2.73 109,937 13.24 13.23
KSBK 18.57 11.81 177.30 187.50 12.73 0.53 145,888 7.18 6.81
KYF 17.75 17.25 120.68 120.68 20.15 3.67 88,089 16.70 16.70
LARK 40.20 18.36 127.79 127.79 17.62 1.70 228,100 13.79 13.79
LARL 38.32 14.02 174.34 174.34 18.25 1.96 209,980 10.47 10.47
LFED 110.12 33.55 235.59 235.59 38.37 2.38 286,999 16.29 16.29
LISB 1,060.01 24.93 194.04 195.85 17.87 1.36 5,930,784 9.21 9.13
LOGN 19.85 16.76 122.47 122.47 23.14 2.54 85,801 18.89 18.89
LONF 10.27 26.14 137.84 137.84 27.11 1.19 38,240 19.66 19.66
LSBI 22.91 17.01 123.52 123.52 11.44 1.36 200,266 8.63 8.63
LSBX 59.72 10.17 177.78 177.78 16.92 - 352,980 9.52 9.52
LVSB 114.98 29.31 186.00 217.02 22.73 0.49 505,882 12.22 10.65
LXMO 19.28 22.29 114.99 114.99 32.55 1.77 59,236 28.32 28.32
MAFB 499.41 14.06 190.19 216.46 14.82 0.86 3,370,587 7.79 6.91
MARN 47.50 17.26 121.10 121.10 27.29 3.29 173,304 22.54 22.54
MASB 160.23 17.72 159.29 161.70 17.18 2.13 932,757 10.78 10.64
MBB 81.06 26.39 134.75 274.57 9.96 2.11 813,902 8.92 5.36
MBB 81.06 26.39 134.75 274.57 9.96 2.11 813,902 8.92 5.36
</TABLE>
Source: SNL Securities and F&C calculations.
8
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/
Market LTM Price/ Price/ Tang Price/ Dividend Assets Assets Tang Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MBBC 61.61 33.93 122.90 133.33 14.92 0.63 412,810 11.33 10.54
MBLF 32.63 18.80 115.21 115.21 14.58 1.55 224,013 12.65 12.65
MBSP 16.52 28.63 115.56 115.56 47.77 2.25 34,591 41.35 41.35
MCBN 6.61 15.42 125.28 125.28 10.75 1.83 61,473 8.58 8.58
MDBK 157.24 15.60 157.67 168.25 14.21 2.08 1,106,345 9.02 8.50
MECH 136.30 9.61 157.69 157.69 16.41 - 830,741 10.41 10.41
MERI 38.13 15.15 197.87 197.87 16.34 1.42 233,311 8.26 8.26
METF 91.67 18.84 262.63 287.93 10.59 - 865,572 4.03 3.69
MFBC 38.38 20.39 114.48 114.48 15.00 1.38 255,921 13.10 13.10
MFFC 34.57 26.79 121.85 121.85 16.47 4.00 209,958 12.57 12.57
MFLR 23.37 21.17 192.03 195.31 18.60 2.59 125,671 9.68 9.54
MFSL 150.37 14.13 150.83 NA 12.80 1.81 1,175,006 8.48 NA
MIVI 13.05 18.55 108.13 108.13 19.03 0.91 68,546 17.61 17.61
MSBF 22.21 20.93 174.25 174.25 28.83 1.56 77,014 16.54 16.54
MWBI 17.90 17.94 172.67 172.67 11.94 1.37 149,850 6.92 6.92
MWBX 111.65 15.09 255.59 255.59 19.06 1.50 585,760 7.47 7.47
MWFD 41.10 20.36 225.25 233.58 19.85 1.35 207,050 8.81 8.52
NASB 123.56 14.46 217.78 225.33 16.72 1.45 736,585 7.68 7.44
NBN 35.24 30.62 194.09 221.54 13.27 1.17 261,800 7.60 6.81
NEIB 36.14 16.67 132.17 132.17 18.99 1.66 190,319 14.37 14.37
NHTB 43.87 25.60 180.39 211.86 13.80 2.35 315,280 7.65 6.59
NMSB 47.94 20.83 148.46 148.46 15.10 2.56 317,407 10.17 10.17
NSLB 13.27 31.25 113.57 113.57 22.22 2.67 59,711 19.56 19.56
NWEQ 15.10 15.00 123.88 123.88 15.57 2.89 96,954 11.69 11.69
OCN 1,561.79 30.91 373.55 383.54 50.88 - 3,069,300 13.62 13.31
OFCP 148.56 23.13 196.11 242.78 17.13 1.31 866,966 8.74 7.18
OHSL 33.95 17.30 128.38 128.38 14.47 3.20 234,600 10.92 10.92
PBCI 71.07 15.43 148.02 149.08 19.11 4.00 371,958 12.91 12.83
PBHC 52.71 28.65 228.79 272.28 27.31 1.02 193,005 11.94 10.23
PBKB 61.70 23.75 204.08 212.05 11.66 2.32 585,678 5.71 5.51
PCBC 19.87 17.78 127.59 127.59 24.50 1.67 81,105 19.20 19.20
PEEK 55.08 23.31 117.27 117.27 30.17 2.09 182,560 25.73 25.73
PERM 52.78 21.29 127.28 129.18 11.66 1.59 433,239 9.16 9.04
PERT 78.62 32.45 259.43 259.43 30.68 2.68 256,211 11.83 11.83
PFDC 79.58 18.82 182.01 182.01 27.68 1.83 287,564 15.20 15.20
PFFB 342.40 28.54 130.19 131.53 13.09 - 2,615,466 10.06 9.96
PFNC 58.15 21.32 247.86 277.78 13.31 0.83 436,746 5.33 4.78
PFSB 147.09 14.06 135.98 160.61 10.78 0.92 1,363,950 7.33 6.27
PFSL 57.13 22.44 237.13 237.13 15.09 2.57 378,700 6.36 6.36
PHBK 1,088.68 15.54 241.32 282.63 17.98 2.12 6,056,083 7.45 6.43
PHFC 37.17 20.30 129.02 130.35 13.60 1.27 273,304 10.54 10.44
PRBC 16.47 19.78 106.64 106.64 11.95 0.67 137,834 11.21 11.21
PSBK 127.76 15.45 165.39 183.58 14.44 2.04 884,617 8.73 7.93
PTRS 15.19 13.76 140.50 140.50 12.38 1.27 122,716 8.81 8.81
PULS 77.78 14.03 179.97 179.97 14.79 2.77 526,016 8.21 8.21
PVFC 50.83 11.54 190.90 190.90 13.44 - 373,081 7.04 7.04
PVSA 142.97 14.00 184.21 185.43 14.22 1.86 1,005,440 7.72 7.67
PWBC 95.59 17.65 144.69 154.77 11.69 2.00 816,954 8.08 7.59
QCBC 95.21 17.56 132.91 132.91 11.24 - 847,024 8.46 8.46
QCFB 37.36 14.06 140.41 140.41 24.57 - 156,727 17.50 17.50
QCSB 536.35 25.36 267.72 267.72 34.80 2.25 1,541,049 11.22 11.22
RARB 67.90 18.83 226.46 229.92 16.67 1.68 407,262 7.37 7.26
REDF 140.88 15.70 175.07 NA 14.56 - 967,309 8.32 NA
RELI 21.01 34.00 92.59 92.59 44.71 - 46,987 48.31 48.31
RELY 288.60 18.40 171.72 233.77 14.18 1.93 2,034,753 8.26 6.20
ROSE 558.55 18.90 227.76 227.76 15.13 2.02 3,691,564 6.24 6.24
SCCB 15.74 28.13 131.58 131.58 33.79 2.67 46,598 25.67 25.67
SFED 27.24 22.35 125.43 125.43 15.64 1.27 174,093 12.47 12.47
SFFC 21.16 18.62 138.89 138.89 24.70 1.48 85,679 17.78 17.78
</TABLE>
Source: SNL Securities and F&C calculations.
9
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/
Market LTM Price/ Price/ Tang Price/ Dividend Assets Assets Tang Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SFIN 101.86 15.78 155.58 155.91 15.13 2.04 673,214 9.73 9.71
SFSB 41.03 19.46 142.98 143.49 9.49 0.99 432,559 6.63 6.61
SFSL 132.85 16.83 210.59 213.94 19.51 1.83 680,827 9.26 9.13
SGVB 41.57 32.87 136.75 138.89 10.17 - 408,975 7.44 7.33
SHEN 70.35 15.32 150.78 150.78 17.52 1.77 401,437 11.62 11.62
SISB 188.35 16.63 178.19 178.19 12.96 1.66 1,453,017 7.36 7.36
SKAN 29.61 18.02 170.80 175.84 11.96 1.29 247,643 7.00 6.81
SMBC 29.89 19.01 112.93 112.93 18.58 2.74 160,393 16.46 16.46
SOBI 15.20 31.97 112.98 112.98 18.04 1.64 84,279 14.78 14.78
SOPN 88.48 19.51 130.22 130.22 29.96 3.67 295,315 23.01 23.01
SOSA 86.39 17.29 251.84 251.84 16.60 - 520,339 6.60 6.60
SPBC 785.07 16.91 191.99 192.47 17.26 1.74 4,548,436 8.99 8.97
SSB 20.57 15.36 79.93 79.93 29.61 2.79 69,479 37.03 37.03
SSM 36.54 19.06 119.34 119.34 34.43 2.34 106,115 28.85 28.85
STFR 204.28 18.31 157.38 177.68 12.29 1.23 1,661,916 7.81 6.98
STSA 166.48 19.82 169.49 185.19 8.90 - 1,870,513 5.25 4.83
SVRN 2,143.92 19.59 259.21 317.20 14.68 0.42 14,601,008 5.08 4.31
SWBI 67.76 18.21 159.28 159.28 18.07 2.98 375,004 11.34 11.34
SWCB 76.76 17.24 189.04 196.66 15.00 3.50 511,765 7.93 7.65
THR 16.06 20.53 125.40 125.89 16.88 2.05 95,130 13.46 13.41
THRD 95.57 21.85 121.68 137.82 15.28 1.71 625,338 11.63 10.41
TPNZ 30.51 28.87 142.76 142.76 24.48 1.37 124,603 17.15 17.15
TRIC 16.49 18.34 122.14 122.14 18.70 2.12 88,173 15.31 15.31
TSH 72.62 18.37 136.03 136.03 17.88 2.37 406,253 13.14 13.14
TWIN 18.13 23.75 131.09 131.09 16.96 2.81 106,931 12.94 12.94
UBMT 31.19 21.07 126.87 126.87 29.54 3.84 105,600 23.29 23.29
UFRM 35.35 23.00 168.62 168.62 12.37 2.09 285,744 7.33 7.33
USAB 6.15 33.50 130.05 132.52 12.73 - 48,303 10.76 10.58
VABF 81.53 26.84 188.22 188.22 13.47 1.22 605,486 7.15 7.15
WAMU 17,086.26 28.39 327.60 353.58 17.87 1.69 95,607,369 5.58 5.21
WBST 854.77 19.17 235.05 273.00 12.55 1.27 6,811,014 5.34 4.63
WCBI 65.56 16.56 136.46 136.46 21.21 2.26 309,070 15.54 15.54
WEFC 35.76 16.74 122.81 122.81 17.46 2.63 204,761 14.22 14.22
WEHO 45.21 29.55 114.44 114.44 31.65 1.72 142,878 27.66 27.66
WFI 39.72 14.93 170.65 174.06 12.24 2.30 324,532 7.17 7.04
WFSL 1,496.53 14.32 208.47 227.11 26.16 2.92 5,719,589 12.55 11.64
WHGB 23.03 27.16 111.23 111.23 22.97 2.03 100,235 20.66 20.66
WOFC 62.43 34.42 113.34 121.56 15.63 3.77 396,492 13.79 12.98
WRNB 76.92 12.82 198.53 198.53 21.12 2.57 364,130 10.65 10.65
WSB 33.15 22.43 147.77 147.77 12.38 1.31 267,870 8.38 8.38
WSFS 225.52 14.38 272.15 274.21 15.08 - 1,495,609 5.54 5.51
WSTR 131.06 19.42 123.49 153.09 13.12 1.96 999,203 10.62 8.75
WVFC 58.34 15.89 177.34 177.34 19.79 3.60 294,693 11.16 11.16
WYNE 43.80 20.14 131.90 131.90 16.39 0.92 267,285 12.43 12.43
YFCB 55.88 17.96 127.32 127.32 17.86 1.30 312,956 14.02 14.02
YFED 190.22 20.77 185.82 185.82 16.46 2.22 1,155,725 8.85 8.85
Maximum 17,086.26 34.62 373.55 383.54 50.88 4.10 95,607,369 48.31 48.31
Minimum 6.15 2.98 79.93 79.93 5.07 - 34,591 3.47 2.93
Average 271.41 19.87 164.93 173.16 17.71 1.65 1,735,205 11.59 11.33
Median 65.50 18.87 152.02 159.37 16.35 1.66 382,984 9.74 9.63
</TABLE>
Source: SNL Securities and F&C calculations.
10
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Core Core Core Core
Core Income/ Income/ NPAs/ Price/ Core Income/ Income/
EPS Avg Assets Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
($) (%) (%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ABBK 1.89 0.76 11.05 N 11/07/97 0.15 17.07 0.52 0.81 11.66
ABCL 1.29 0.84 9.35 N 11/07/97 0.21 14.62 0.45 1.09 12.07
ABCW 1.85 0.93 14.53 N 11/07/97 0.98 15.69 0.47 0.94 14.59
AFCB 1.74 1.08 11.05 N 11/07/97 0.34 17.11 0.42 1.03 10.56
AHM 2.97 0.73 14.58 N 11/07/97 1.86 18.39 0.83 0.80 15.76
ALBC 0.97 0.37 4.03 N 11/07/97 0.72 40.63 0.18 0.27 3.03
ALBK 2.64 1.04 11.33 N 11/07/97 0.73 16.10 0.66 1.03 11.06
AMFC 0.70 0.73 4.46 N 11/07/97 0.32 22.74 0.18 0.65 4.52
ANDB 2.43 1.03 12.93 N 11/07/97 0.91 15.63 0.62 1.04 13.10
ANE 1.08 0.76 10.93 N 11/07/97 1.92 28.54 0.15 0.44 6.05
ASBI 1.01 0.82 7.51 N 11/07/97 0.49 18.75 0.27 0.89 8.00
ASBP 0.67 0.91 5.53 N 11/07/97 0.90 17.60 0.19 0.87 5.59
ASFC 2.73 0.77 9.80 N 11/07/97 0.40 19.54 0.71 0.77 9.82
BANC 0.51 0.54 9.56 N 11/07/97 0.90 37.85 0.09 0.37 6.65
BDJI 1.09 0.63 5.48 N 11/07/97 0.23 19.51 0.33 0.69 6.37
BFD 1.03 0.66 6.87 N 11/07/97 NA 19.77 0.26 0.62 6.88
BFSB 1.56 1.28 8.90 N 11/07/97 - 17.76 0.38 1.22 8.52
BKC 2.69 1.10 13.05 N 11/07/97 1.77 15.75 0.73 1.16 13.72
BKCT 1.90 1.24 12.04 N 11/07/97 1.04 19.40 0.48 1.24 11.78
BKUNA 0.57 0.58 8.04 N 11/07/97 0.66 23.21 0.14 0.48 8.00
BNKU 1.88 0.54 10.48 N 11/07/97 0.62 18.22 0.59 0.64 12.53
BPLS 0.57 0.30 6.26 N 11/07/97 2.21 17.65 0.17 0.34 7.12
BVCC 1.47 0.62 10.07 N 11/07/97 0.63 20.69 0.37 0.63 10.14
BYFC 0.41 0.30 2.60 N 11/07/97 2.06 20.12 0.16 0.48 4.33
CAFI 1.34 0.89 9.59 N 11/07/97 0.34 15.21 0.38 1.02 10.59
CAPS 1.16 0.94 10.77 N 11/07/97 0.18 15.73 0.29 0.94 10.38
CASB 0.63 0.52 8.50 N 11/07/97 0.41 18.42 0.19 0.61 9.92
CASH 1.38 0.93 8.12 N 11/07/97 0.85 15.88 0.31 0.92 7.98
CATB 0.80 1.37 5.11 N 11/07/97 0.40 19.89 0.22 1.34 5.34
CBCI 2.97 1.41 8.96 N 11/07/97 1.27 17.15 0.74 1.36 8.67
CBES 1.16 1.13 6.28 N 11/07/97 NA 18.53 0.28 1.03 5.99
CBK 0.52 0.54 3.70 N 11/07/97 0.46 37.50 0.12 0.47 3.38
CBSA 2.26 0.40 11.94 N 11/07/97 0.59 14.58 0.51 0.36 10.59
CBSB 1.06 1.16 7.78 N 11/07/97 0.56 21.38 0.25 1.08 7.67
CEBK 1.47 0.88 8.75 N 11/07/97 0.85 19.96 0.31 0.73 7.16
CFB 2.99 0.94 15.97 N 11/07/97 0.88 15.65 0.76 0.94 15.48
CFCP 1.03 1.05 16.81 N 11/07/97 0.10 24.04 0.26 1.03 16.25
CFFC 1.69 1.28 9.23 N 11/07/97 0.39 14.26 0.39 1.16 8.41
CFSB 1.75 1.14 14.86 N 11/07/97 0.16 15.88 0.49 1.23 15.92
CFTP 0.70 1.45 4.71 N 11/07/97 0.50 32.69 0.13 1.11 4.08
CFX 1.30 0.95 11.09 N 11/07/97 NA 18.70 0.34 0.82 9.20
CIBI 1.05 0.97 8.37 N 11/07/97 0.53 14.06 0.28 1.01 8.53
CKFB 0.90 1.33 5.37 N 11/07/97 0.63 18.00 0.25 1.47 6.16
CLAS 0.73 0.72 4.64 N 11/07/97 0.66 18.75 0.20 0.72 4.89
CMRN 1.00 1.32 5.51 N 11/07/97 0.24 19.25 0.25 1.26 5.63
CMSB 0.78 0.58 5.76 N 11/07/97 0.47 25.17 0.18 0.51 5.36
CNIT 3.22 0.78 10.96 N 11/07/97 0.45 17.43 0.95 0.91 12.75
COFI 3.53 1.24 18.34 N 11/07/97 0.20 15.73 0.92 1.26 18.35
COOP 0.69 0.63 8.21 N 11/07/97 0.10 27.34 0.16 0.59 7.70
CRZY 0.70 1.30 4.54 N 11/07/97 0.39 18.83 0.20 1.34 5.07
CTZN 2.87 0.87 13.46 N 11/07/97 0.40 16.63 0.78 0.88 13.85
CVAL 1.29 0.93 10.83 N 11/07/97 0.53 18.06 0.36 0.99 11.58
DIBK 2.88 1.90 23.53 N 11/07/97 0.36 9.97 0.79 1.92 24.10
DIME 1.01 1.04 6.55 N 11/07/97 0.60 23.91 0.23 0.84 6.05
DME 1.22 0.66 12.47 N 11/07/97 1.02 16.75 0.36 0.74 14.43
DNFC 1.50 0.83 14.74 N 11/07/97 0.35 16.45 0.38 0.80 14.64
DSL 1.41 0.70 9.57 N 11/07/97 0.95 19.20 0.35 0.65 9.25
EBSI 1.03 0.76 8.78 N 11/07/97 1.07 17.13 0.27 0.76 8.92
EFBI 1.02 0.78 6.10 N 11/07/97 NA 29.83 0.22 0.63 5.37
</TABLE>
Source: SNL Securities and F&C calculations.
11
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Core Core Core Core
Core Income/ Income/ NPAs/ Price/ Core Income/ Income/
EPS Avg Assets Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
($) (%) (%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EIRE 1.66 0.92 13.23 N 11/07/97 0.17 18.46 0.43 0.90 12.87
EMLD 1.11 0.97 12.70 N 11/07/97 0.17 15.95 0.29 1.00 13.04
EQSB 3.30 0.73 14.49 N 11/07/97 0.15 12.80 0.82 0.70 13.83
ESBK 1.11 0.35 5.53 N 11/07/97 0.66 21.96 0.35 0.43 6.85
ETFS 0.70 0.63 3.38 N 11/07/97 0.17 25.49 0.19 0.65 3.51
FBBC 1.13 1.09 9.27 N 11/07/97 0.09 14.38 0.30 1.05 10.37
FBCI 1.38 0.81 7.81 N 11/07/97 0.41 15.63 0.38 0.88 8.40
FBCV 1.38 0.36 4.40 N 11/07/97 1.12 15.20 0.59 0.62 7.32
FBER 0.73 0.77 4.94 N 11/07/97 0.84 25.52 0.18 0.69 4.94
FBHC 0.73 0.51 8.12 N 11/07/97 NA 26.32 0.19 0.50 8.27
FBSI 1.54 1.08 7.68 N 11/07/97 0.13 14.35 0.44 1.13 8.45
FCBF 1.19 1.06 6.32 N 11/07/97 0.15 22.38 0.31 1.08 6.92
FCME 4.33 3.97 44.99 N 11/07/97 1.59 16.98 0.19 0.70 7.37
FDEF 0.60 1.01 4.70 N 11/07/97 0.45 25.63 0.15 0.95 4.65
FED 2.15 0.56 11.68 N 11/07/97 1.20 16.65 0.55 0.58 11.48
FESX 1.17 0.77 10.65 N 11/07/97 NA 16.81 0.29 0.75 10.42
FFBA 1.11 1.20 8.96 N 11/07/97 0.20 15.97 0.32 1.36 10.45
FFBH 1.14 1.06 6.61 N 11/07/97 0.19 22.83 0.23 0.81 5.24
FFBI 0.89 0.41 5.11 N 11/07/97 0.41 22.92 0.21 0.38 4.64
FFBS 1.23 1.47 7.51 N 11/07/97 0.03 23.25 0.25 1.17 6.06
FFBZ 1.06 0.96 12.66 N 11/07/97 0.47 15.04 0.32 1.11 14.72
FFCH 2.17 0.85 13.85 N 11/07/97 1.46 18.52 0.55 0.83 13.54
FFDB 1.32 0.94 9.54 N 11/07/97 0.72 16.18 0.34 0.98 10.05
FFDF 0.61 0.93 3.77 N 11/07/97 0.07 39.06 0.12 0.76 3.08
FFED 0.68 0.73 13.74 N 11/07/97 0.09 14.34 0.17 0.78 13.53
FFES 2.12 0.60 9.47 N 11/07/97 0.25 17.43 0.52 0.59 9.03
FFFC 1.57 1.35 9.97 N 11/07/97 0.16 19.87 0.42 1.40 10.57
FFFD 1.15 1.83 7.57 N 11/07/97 0.22 14.92 0.31 1.82 7.97
FFHH 1.05 0.84 6.96 N 11/07/97 0.15 16.04 0.30 0.88 7.82
FFHS 1.21 0.65 7.31 N 11/07/97 0.33 20.00 0.30 0.64 7.21
FFIC 1.07 0.97 6.05 N 11/07/97 NA 18.13 0.30 0.98 6.60
FFKY 1.44 1.62 11.85 N 11/07/97 0.08 14.93 0.36 1.61 11.74
FFLC 1.42 0.94 6.42 N 11/07/97 0.18 28.23 0.31 0.75 5.52
FFOH 0.89 0.94 7.07 N 11/07/97 0.29 16.90 0.22 0.91 6.97
FFPB 1.55 0.48 7.19 N 11/07/97 NA 25.40 0.39 0.46 7.25
FFSL 0.71 0.69 6.20 N 11/07/97 0.37 20.83 0.18 0.64 6.17
FFSX 1.16 0.71 8.61 N 11/07/97 0.16 28.23 0.29 0.70 8.19
FFWC 2.41 1.03 10.34 N 11/07/97 0.18 12.88 0.65 1.02 10.54
FFWD 0.93 1.29 10.20 N 11/07/97 0.03 18.50 0.25 1.31 10.59
FFYF 1.82 1.26 8.58 N 11/07/97 0.66 15.49 0.48 1.23 9.08
FGHC 0.37 0.78 9.53 N 11/07/97 1.41 17.45 0.12 1.00 11.97
FIBC 1.59 0.98 10.16 N 11/07/97 1.59 15.08 0.40 0.94 10.07
FISB 1.31 0.95 9.90 N 11/07/97 NA 18.01 0.34 0.98 10.02
FKFS 2.04 0.78 10.49 N 11/07/97 1.60 14.55 0.55 0.78 10.93
FLFC 1.53 0.94 12.81 N 11/07/97 0.81 16.77 0.41 1.02 13.61
FMCO 2.22 1.02 15.76 N 11/07/97 1.06 12.50 0.60 1.05 16.36
FMSB 1.00 1.00 15.00 N 11/07/97 NA 16.78 0.27 1.07 15.66
FNGB 0.62 0.89 7.88 N 11/07/97 0.08 21.09 0.16 0.92 8.26
FOBC 1.33 0.94 8.26 N 11/07/97 0.19 18.95 0.32 0.88 7.95
FSBI 1.67 0.83 11.94 N 11/07/97 0.30 15.00 0.40 0.75 10.90
FSLA 1.17 0.93 9.99 N 11/07/97 0.50 33.93 0.28 0.88 9.28
FSPG 1.77 0.97 14.79 N 11/07/97 0.64 14.22 0.40 0.86 12.91
FSTC 2.80 1.90 19.95 N 11/07/97 1.10 6.21 1.55 3.68 38.97
FTF 1.67 1.73 10.43 N 11/07/97 0.12 13.56 0.47 1.86 11.74
FTFC 1.38 0.90 13.94 N 11/07/97 NA 18.14 0.36 0.90 13.69
FTSB 0.50 0.81 4.47 N 11/07/97 1.42 15.22 0.23 1.38 8.60
FWWB 1.15 1.16 7.58 N 11/07/97 0.29 18.46 0.32 1.21 8.28
GAF 0.94 1.07 6.10 N 11/07/97 0.24 17.02 0.28 1.11 7.31
GBCI 1.25 1.54 16.10 N 11/07/97 0.12 16.18 0.34 1.62 16.87
</TABLE>
Source: SNL Securities and F&C calculations.
12
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Core Core Core Core
Core Income/ Income/ NPAs/ Price/ Core Income/ Income/
EPS Avg Assets Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
($) (%) (%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GDW 5.80 0.86 13.68 N 11/07/97 1.18 14.00 1.56 0.90 14.03
GFCO 1.77 0.71 7.49 N 11/07/97 0.31 15.02 0.52 0.83 8.67
GPT 3.43 1.05 10.01 N 11/07/97 2.88 18.22 0.94 1.07 11.24
GSB 1.65 0.74 11.69 N 11/07/97 1.36 18.75 0.45 0.77 12.20
GSBC 1.25 1.54 17.00 N 11/07/97 1.91 14.67 0.36 1.66 19.65
GSFC 0.72 1.66 4.72 N 11/07/97 0.16 27.21 0.17 1.66 4.85
GUPB 0.96 0.95 5.44 N 11/07/97 0.15 14.29 0.35 1.26 8.11
HALL 1.78 0.63 8.94 N 11/07/97 NA 16.32 0.45 0.63 8.72
HARB 2.64 1.20 14.58 N 11/07/97 0.43 22.74 0.69 1.23 14.62
HARL 2.01 1.04 16.17 N 11/07/97 - 15.06 0.50 1.02 15.38
HAVN 2.54 0.69 11.45 N 11/07/97 0.76 19.03 0.55 0.56 9.38
HBBI 1.13 0.76 5.65 N 11/07/97 NA 20.02 0.27 0.72 5.35
HBFW 1.17 0.89 6.29 N 11/07/97 - 19.35 0.31 0.89 6.61
HBNK 1.81 0.86 11.72 N 11/07/97 2.52 16.93 0.48 0.88 11.88
HBS 1.25 1.15 7.72 N 11/07/97 1.97 15.58 0.33 1.12 7.99
HFFB 0.75 1.35 4.99 N 11/07/97 - 20.94 0.20 1.39 5.23
HFFC 1.72 0.94 10.13 N 11/07/97 0.48 12.75 0.50 1.05 11.48
HFGI 0.55 0.36 7.49 N 11/07/97 0.20 47.32 0.07 0.19 3.78
HFNC 0.58 1.05 4.55 N 11/07/97 0.92 29.30 0.12 0.86 4.70
HFSA 0.91 0.75 5.55 N 11/07/97 0.09 21.43 0.21 0.61 4.95
HHFC 0.53 0.57 4.44 N 11/07/97 0.11 18.09 0.19 0.80 6.56
HIFS 1.98 1.25 12.96 N 11/07/97 0.89 13.70 0.52 1.26 13.12
HMNF 1.20 0.85 5.81 N 11/07/97 0.10 22.54 0.28 0.79 5.46
HOMF 2.28 1.21 14.44 N 11/07/97 0.48 14.97 0.62 1.29 15.12
HPBC 1.75 1.67 15.64 N 11/07/97 - 12.78 0.45 1.64 15.41
HRBF 0.94 0.71 5.50 N 11/07/97 0.10 21.50 0.25 0.76 5.84
HRZB 1.09 1.54 9.95 N 11/07/97 - 17.00 0.25 1.38 8.83
HTHR 1.25 1.04 18.85 N 11/07/97 NA 9.44 0.47 1.46 24.21
HZFS 1.27 0.66 6.37 N 11/07/97 NA 13.69 0.42 0.81 8.26
IBSF 0.59 0.85 4.54 N 11/07/97 0.08 26.46 0.15 0.88 5.09
IFSB 0.55 0.27 4.09 N 11/07/97 2.02 118.75 0.03 0.06 0.85
INBI 0.96 1.44 7.92 N 11/07/97 0.14 17.50 0.25 1.40 8.06
IPSW 0.68 0.97 16.37 N 11/07/97 0.84 16.32 0.18 0.91 16.10
ISBF 1.12 0.85 6.26 N 11/07/97 NA 21.88 0.28 0.76 6.27
ITLA 1.49 1.46 13.05 N 11/07/97 NA 12.27 0.40 1.46 13.42
IWBK 2.18 0.98 14.90 N 11/07/97 0.58 19.20 0.49 0.82 12.69
JSB 2.54 1.72 7.68 N 11/07/97 NA 18.92 0.64 1.74 7.61
JSBA 2.14 0.77 9.84 N 11/07/97 0.46 19.32 0.55 0.81 9.67
JXVL 2.28 1.33 8.42 N 11/07/97 0.78 11.51 0.41 1.75 11.48
KFBI 0.88 1.04 5.75 N 11/07/97 0.03 24.01 0.22 0.99 5.90
KNK 2.01 0.87 8.11 N 11/07/97 0.80 16.54 0.48 0.84 7.48
KSAV 1.31 1.20 8.77 N 11/07/97 NA 17.74 0.31 1.10 8.19
KSBK 1.27 1.08 15.21 N 11/07/97 1.75 12.50 0.30 0.98 13.70
KYF 0.79 1.14 6.60 N 11/07/97 0.04 16.22 0.21 1.18 7.07
LARK 1.28 1.04 7.02 N 11/07/97 0.04 18.95 0.31 0.97 6.90
LARL 1.89 1.41 13.60 N 11/07/97 0.43 13.52 0.49 1.43 13.91
LFED 0.95 1.17 7.25 N 11/07/97 0.03 30.65 0.26 1.24 7.66
LISB 1.77 0.73 7.93 N 11/07/97 NA 24.51 0.45 0.71 7.78
LOGN 0.94 1.47 7.54 N 11/07/97 0.49 16.41 0.24 1.46 7.68
LONF 0.77 0.99 4.77 N 11/07/97 0.80 29.60 0.17 0.85 4.30
LSBI 1.47 0.69 7.65 N 11/07/97 1.05 15.24 0.41 0.76 8.66
LSBX 1.37 1.74 20.08 N 11/07/97 0.66 9.96 0.35 1.75 19.18
LVSB 0.87 0.93 9.48 N 11/07/97 1.13 37.50 0.17 0.69 6.29
LXMO 0.76 1.32 4.46 N 11/07/97 0.48 19.25 0.22 1.52 5.43
MAFB 2.33 1.15 14.72 N 11/07/97 0.38 14.36 0.57 1.08 13.79
MARN 1.55 1.67 7.28 N 11/07/97 0.81 16.72 0.40 1.72 7.53
MASB 2.54 1.03 9.90 N 11/07/97 0.16 17.86 0.63 1.00 9.46
MBB 1.08 0.51 5.98 N 11/07/97 0.71 22.98 0.31 0.57 6.49
MBB 1.08 0.51 5.98 N 11/07/97 0.71 22.98 0.31 0.57 6.49
</TABLE>
Source: SNL SEcurities and F&C calculations.
13
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Core Core Core Core
Core Income/ Income/ NPAs/ Price/ Core Income/ Income/
EPS Avg Assets Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
($) (%) (%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MBBC 0.56 0.46 3.90 N 11/07/97 0.33 39.58 0.12 0.36 3.32
MBLF 1.37 0.85 6.63 N 11/07/97 0.57 16.94 0.38 0.89 7.13
MBSP 0.62 1.63 3.79 N 11/07/97 2.25 29.58 0.15 1.48 3.49
MCBN 1.84 0.72 8.25 N 11/07/97 0.55 14.19 0.50 0.76 9.11
MDBK 2.22 1.00 11.19 N 11/07/97 0.27 15.74 0.55 0.96 10.76
MECH 2.68 1.79 17.84 N 11/07/97 0.91 17.88 0.36 0.92 8.89
MERI 3.25 1.15 14.61 N 11/07/97 0.25 15.39 0.80 1.14 13.75
METF 1.38 0.60 15.21 N 11/07/97 0.54 16.25 0.40 0.67 16.69
MFBC 1.14 0.83 5.62 N 11/07/97 NA 20.04 0.29 0.79 5.89
MFFC 0.56 0.65 4.52 N 11/07/97 0.15 25.00 0.15 0.63 4.93
MFLR 1.24 0.92 9.53 N 11/07/97 0.81 19.89 0.33 0.94 9.83
MFSL 3.29 0.92 11.03 N 11/07/97 0.45 17.35 0.67 0.77 9.15
MIVI 0.95 1.05 5.95 N 11/07/97 NA 19.16 0.23 1.04 5.67
MSBF 0.86 1.44 8.08 N 11/07/97 0.02 20.45 0.22 1.39 8.28
MWBI 2.94 0.77 11.05 N 11/07/97 0.81 16.08 0.82 0.81 11.74
MWBX 0.53 1.37 18.02 N 11/07/97 0.69 14.29 0.14 1.36 18.16
MWFD 1.24 1.09 12.59 N 11/07/97 0.12 19.13 0.33 1.11 12.75
NASB 3.82 1.20 16.21 N 11/07/97 3.11 14.09 0.98 1.24 15.90
NBN 0.89 0.58 7.40 N 11/07/97 1.11 61.93 0.11 0.30 3.85
NEIB 1.23 1.20 7.78 N 11/07/97 NA 14.64 0.35 1.28 8.66
NHTB 0.83 0.61 8.22 N 11/07/97 0.70 17.71 0.30 0.87 11.73
NMSB 0.60 0.82 7.93 N 11/07/97 1.05 19.53 0.16 0.85 8.33
NSLB 0.60 0.77 3.72 N 11/07/97 0.02 24.67 0.19 0.94 4.78
NWEQ 1.20 0.99 8.40 N 11/07/97 NA 14.06 0.32 1.02 8.85
OCN 1.67 1.74 19.54 N 11/07/97 NA 30.73 0.42 1.67 15.97
OFCP 1.20 0.79 8.88 N 11/07/97 0.27 23.13 0.30 0.79 9.17
OHSL 1.59 0.88 7.86 N 11/07/97 0.03 17.19 0.40 0.84 7.68
PBCI 1.62 1.33 9.61 N 11/07/97 1.92 14.20 0.44 1.36 10.63
PBHC 0.96 0.95 8.27 N 11/07/97 0.91 29.89 0.23 0.91 7.63
PBKB 0.80 0.53 9.27 N 11/07/97 0.82 25.00 0.19 0.50 8.86
PCBC 1.35 1.07 5.72 N 11/07/97 0.03 20.00 0.30 1.16 6.18
PEEK 0.74 1.29 4.71 N 11/07/97 0.71 25.37 0.17 1.13 4.38
PERM 1.18 0.62 6.52 N 11/07/97 1.09 21.66 0.29 0.58 6.32
PERT 1.61 1.11 9.03 N 11/07/97 0.12 29.69 0.44 1.06 8.78
PFDC 1.86 1.46 9.55 N 11/07/97 0.34 18.23 0.48 1.53 10.08
PFFB 0.67 0.46 4.33 N 11/07/97 1.61 25.16 0.19 0.49 4.89
PFNC 0.68 0.71 13.62 N 11/07/97 1.37 18.13 0.20 0.85 16.14
PFSB 2.17 0.82 10.97 N 11/07/97 NA 13.62 0.56 0.80 10.98
PFSL 1.56 0.69 11.23 N 11/07/97 0.10 23.03 0.38 0.66 10.39
PHBK 2.55 1.30 16.37 N 11/07/97 NA 14.57 0.68 1.31 16.89
PHFC 0.93 0.76 6.02 N 11/07/97 NA 18.88 0.25 0.71 6.58
PRBC 0.91 0.62 5.11 N 11/07/97 0.33 18.75 0.24 0.59 5.32
PSBK 2.16 0.94 11.17 N 11/07/97 0.92 14.90 0.56 0.97 11.28
PTRS 2.29 0.96 10.74 N 11/07/97 0.44 16.07 0.49 0.79 8.96
PULS 1.80 1.10 14.06 N 11/07/97 0.56 14.03 0.45 1.10 13.55
PVFC 1.70 1.33 19.39 N 11/07/97 1.11 11.15 0.44 1.35 19.25
PVSA 2.00 1.08 14.93 N 11/07/97 0.26 13.73 0.51 1.08 14.80
PWBC 1.02 0.66 8.86 N 11/07/97 0.65 16.67 0.27 0.71 9.02
QCBC 1.16 0.69 7.79 N 11/07/97 1.35 15.44 0.33 0.73 8.51
QCFB 1.92 1.60 8.60 N 11/07/97 0.17 13.78 0.49 1.62 9.09
QCSB 1.40 1.55 11.55 N 11/07/97 0.53 23.36 0.38 1.46 12.78
RARB 1.52 1.02 13.07 N 11/07/97 0.39 18.83 0.38 1.00 12.75
REDF 1.25 1.01 12.25 N 11/07/97 1.81 12.91 0.38 1.19 14.23
RELI 0.25 1.29 2.52 N 11/07/97 - 30.36 0.07 1.36 2.72
RELY 1.80 0.84 10.22 N 11/07/97 NA 19.26 0.43 0.77 9.43
ROSE 1.68 0.87 14.14 N 11/07/97 0.50 18.04 0.44 0.87 14.02
SCCB 0.80 1.20 4.49 N 11/07/97 1.06 25.57 0.22 1.31 5.06
SFED 0.99 0.69 5.45 N 11/07/97 NA 22.13 0.25 0.68 5.47
SFFC 1.45 1.37 7.36 N 11/07/97 1.34 15.70 0.43 1.55 8.78
</TABLE>
Source: SNL Securities and F&C calculations.
14
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Select Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Core Core Core Core
Core Income/ Income/ NPAs/ Price/ Core Income/ Income/
EPS Avg Assets Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
($) (%) (%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SFIN 1.37 0.90 9.33 N 11/07/97 0.38 16.38 0.33 0.82 8.78
SFSB 1.67 0.54 8.28 N 11/07/97 NA 19.35 0.42 0.53 8.09
SFSL 1.04 1.37 14.73 N 11/07/97 0.33 16.20 0.27 1.41 15.06
SGVB 0.54 0.31 3.98 N 11/07/97 1.06 31.70 0.14 0.30 4.11
SHEN 2.22 1.17 10.46 N 11/07/97 0.51 15.18 0.56 1.16 10.21
SISB 2.03 0.82 11.33 N 11/07/97 0.33 15.34 0.55 0.86 12.08
SKAN 1.72 0.68 9.99 N 11/07/97 1.78 17.61 0.44 0.68 9.91
SMBC 0.96 0.95 5.92 N 11/07/97 0.89 24.01 0.19 0.75 4.66
SOBI 0.61 0.57 3.56 N 11/07/97 0.13 27.08 0.18 0.60 4.00
SOPN 1.23 1.76 7.28 N 11/07/97 0.29 18.75 0.32 1.73 7.55
SOSA 0.30 0.99 16.47 N 11/07/97 5.91 14.41 0.09 1.28 19.78
SPBC 1.36 1.07 12.11 N 11/07/97 0.23 16.43 0.35 1.08 12.17
SSB 0.70 1.71 4.69 N 11/07/97 - 17.92 0.15 1.47 4.00
SSM 1.01 1.71 4.84 N 11/07/97 - 34.38 0.14 0.98 2.77
STFR 2.13 0.74 8.94 N 11/07/97 0.21 16.25 0.60 0.77 9.82
STSA 1.11 0.54 9.50 N 11/07/97 0.47 19.64 0.28 0.52 9.09
SVRN 0.97 0.61 11.89 N 11/07/97 NA 16.38 0.29 0.46 8.43
SWBI 1.40 1.02 9.55 N 11/07/97 0.20 17.71 0.36 1.07 9.61
SWCB 2.32 0.95 11.87 N 11/07/97 NA 16.39 0.61 0.96 12.12
THR 0.95 0.84 6.61 N 11/07/97 1.14 18.06 0.27 0.91 6.72
THRD 1.07 0.67 6.02 N 11/07/97 0.27 25.41 0.23 0.59 5.17
TPNZ 0.71 0.84 4.76 N 11/07/97 NA 30.15 0.17 0.76 4.46
TRIC 1.54 1.07 7.26 N 11/07/97 - 16.82 0.42 1.11 7.33
TSH 1.15 0.96 6.97 N 11/07/97 0.27 18.86 0.28 0.93 6.88
TWIN 0.60 0.72 5.59 N 11/07/97 0.08 18.75 0.19 0.90 6.97
UBMT 1.21 1.39 5.99 N 11/07/97 0.35 20.56 0.31 1.41 6.14
UFRM 0.50 0.57 7.55 N 11/07/97 0.62 19.17 0.15 0.65 8.84
USAB 0.25 0.55 4.05 N 11/07/97 0.67 17.45 0.12 0.80 6.93
VABF 0.61 0.49 7.24 N 11/07/97 0.50 24.08 0.17 0.55 7.90
WAMU 2.34 0.68 11.92 N 11/07/97 NA 25.55 0.65 0.73 12.76
WBST 3.29 0.73 13.84 N 11/07/97 0.72 16.42 0.96 0.82 15.26
WCBI 1.60 1.41 9.19 N 11/07/97 0.21 15.77 0.42 1.45 9.44
WEFC 1.09 1.04 7.37 N 11/07/97 NA 16.29 0.28 1.06 7.46
WEHO 0.55 1.09 3.50 N 11/07/97 - 27.08 0.15 1.04 3.65
WFI 1.34 0.86 12.06 N 11/07/97 0.28 15.63 0.32 0.80 11.15
WFSL 2.20 1.85 15.62 N 11/07/97 0.69 14.06 0.56 1.91 15.38
WHGB 0.58 0.85 3.72 N 11/07/97 0.15 23.16 0.17 0.93 4.37
WOFC 0.77 0.45 3.17 N 11/07/97 0.34 33.13 0.20 0.44 3.26
WRNB 1.58 1.76 17.57 N 11/07/97 1.15 15.34 0.33 1.50 14.20
WSB 0.34 0.62 7.14 N 11/07/97 1.53 21.18 0.09 0.60 7.24
WSFS 1.26 1.13 20.39 N 11/07/97 1.21 13.33 0.34 1.13 20.54
WSTR 1.21 0.76 6.60 N 11/07/97 0.24 18.36 0.32 0.72 6.79
WVFC 2.10 1.32 10.71 N 11/07/97 0.09 17.03 0.49 1.20 10.79
WYNE 1.08 0.86 6.01 N 11/07/97 0.90 21.75 0.25 0.76 5.57
YFCB 1.03 1.07 6.79 N 11/07/97 0.48 17.13 0.27 1.00 6.92
YFED 1.30 0.80 9.70 N 11/07/97 1.30 25.00 0.27 0.70 8.04
Maximum 5.80 3.97 44.99 5.91 118.75 1.56 3.68 38.97
Minimum 0.25 0.27 2.52 - 6.21 0.03 0.06 0.85
Average 1.41 0.98 9.48 0.63 19.86 0.36 0.97 9.49
Median 1.24 0.94 8.78 0.47 18.03 0.32 0.91 8.70
</TABLE>
Source: SNL Securities and F&C calculations.
15
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.2 - Selected Southeast Region Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BANC BankAtlantic Bancorp Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83 13.625
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 27.000
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85 13.000
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 25.000
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 22.250
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 17.000
CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 66.250
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 17.500
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 18.500
FFBH First Federal Bancshares of AR Harrison AR SE SAIF NASDAQ 05/03/96 21.000
FFBS FFBS BanCorp Inc. Columbus MS SE SAIF NASDAQ 07/01/93 23.250
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 40.750
FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/91 22.000
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94 33.375
FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 35.000
FFPB First Palm Beach Bancorp Inc. West Palm Beach FL SE SAIF NASDAQ 09/29/93 39.625
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 8.375
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 27.500
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 24.250
FSTC First Citizens Corp. Newnan GA SE SAIF NASDAQ 03/01/86 38.500
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 25.500
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 18.500
HARB Harbor Florida Bancorp (MHC) Fort Pierce FL SE SAIF NASDAQ 01/06/94 62.750
HBS Haywood Bancshares Inc. Waynesville NC SE BIF AMSE 12/18/87 20.563
HFNC HFNC Financial Corp. Charlotte NC SE SAIF NASDAQ 12/29/95 14.063
KSAV KS Bancorp Inc. Kenly NC SE SAIF NASDAQ 12/30/93 22.000
MBSP Mitchell Bancorp Inc. Spruce Pine NC SE SAIF NASDAQ 07/12/96 17.750
OCN Ocwen Financial Corp. West Palm Beach FL SE SAIF NYSE NA 51.625
PERT Perpetual Bank (MHC) Anderson SC SE SAIF NASDAQ 10/26/93 52.250
PFSL Pocahontas FS&LA (MHC) Pocahontas AR SE SAIF NASDAQ 04/05/94 35.000
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 22.500
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 24.000
SSB Scotland Bancorp Inc Laurinburg NC SE SAIF AMSE 04/01/96 10.750
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 19.250
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 14.250
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 11.500
VABF Virginia Beach Fed. Financial Virginia Beach VA SE SAIF NASDAQ 11/01/80 16.375
Maximum 66.250
Minimum 8.375
Average 26.280
Median 22.250
</TABLE>
Source: SNL Securities and F&C calculations.
16
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.2 - Selected Southeast Region Publicly Held Thrifts
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/
Market LTM Price/ Price/ Tang Price/ Dividend Assets Assets Tang Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BANC 303.50 26.72 193.81 233.70 10.67 0.97 2,844,996 5.50 4.60
BFSB 30.85 17.31 152.11 152.11 22.77 2.07 135,455 14.16 14.16
BKUNA 115.30 22.81 171.28 211.38 6.38 - 1,807,192 5.61 4.94
CFCP 116.16 24.27 358.68 358.68 23.51 1.44 494,003 6.56 6.56
CFFC 28.38 13.17 117.97 117.97 16.18 2.52 175,414 13.71 13.71
CFTP 78.69 24.29 126.87 126.87 36.44 1.77 215,953 26.72 26.72
CNIT 109.60 20.57 213.64 233.27 15.62 1.51 701,708 6.95 6.40
COOP 52.21 25.36 188.78 188.78 14.52 - 359,535 7.69 7.69
EBSI 104.70 17.96 148.59 148.59 12.34 3.24 848,490 8.30 8.30
FFBH 102.82 18.42 128.36 128.36 19.21 1.14 535,204 14.97 14.97
FFBS 36.21 18.90 137.01 137.01 27.69 2.15 130,762 19.23 19.23
FFCH 259.51 18.78 247.72 247.72 15.15 2.06 1,712,931 6.12 6.12
FFDB 25.32 16.67 151.93 166.67 14.31 2.27 176,528 9.42 8.65
FFFC 150.91 21.26 187.08 190.93 26.60 1.44 567,266 13.31 13.08
FFLC 80.53 24.65 152.97 152.97 21.00 1.37 383,382 13.73 13.73
FFPB 200.02 25.56 176.98 181.18 11.06 1.51 1,808,419 6.25 6.11
FGHC 25.56 22.64 198.93 216.97 16.35 0.64 156,383 8.22 7.59
FLFC 212.59 17.97 223.58 247.97 16.48 1.46 1,288,919 7.37 6.69
FOBC 57.55 18.23 138.97 145.38 16.09 2.56 357,721 11.18 10.73
FSTC 70.80 13.75 214.01 275.20 20.83 1.14 338,857 9.73 7.73
FTF 45.65 15.27 169.66 169.66 26.64 2.20 171,358 15.70 15.70
GSFC 79.52 25.69 125.59 125.59 45.54 2.38 174,605 36.25 36.25
HARB 312.08 23.77 322.46 332.89 27.59 2.23 1,131,024 8.56 8.31
HBS 25.71 16.45 122.69 127.25 17.09 2.72 150,416 13.93 13.50
HFNC 241.78 24.25 148.34 148.34 27.89 1.99 866,859 18.81 18.81
KSAV 19.48 16.79 133.82 133.90 17.72 2.73 109,937 13.24 13.23
MBSP 16.52 28.63 115.56 115.56 47.77 2.25 34,591 41.35 41.35
OCN 1,561.79 30.91 373.55 383.54 50.88 - 3,069,300 13.62 13.31
PERT 78.62 32.45 259.43 259.43 30.68 2.68 256,211 11.83 11.83
PFSL 57.13 22.44 237.13 237.13 15.09 2.57 378,700 6.36 6.36
SCCB 15.74 28.13 131.58 131.58 33.79 2.67 46,598 25.67 25.67
SOPN 88.48 19.51 130.22 130.22 29.96 3.67 295,315 23.01 23.01
SSB 20.57 15.36 79.93 79.93 29.61 2.79 69,479 37.03 37.03
SSM 36.54 19.06 119.34 119.34 34.43 2.34 106,115 28.85 28.85
TWIN 18.13 23.75 131.09 131.09 16.96 2.81 106,931 12.94 12.94
UFRM 35.35 23.00 168.62 168.62 12.37 2.09 285,744 7.33 7.33
VABF 81.53 26.84 188.22 188.22 13.47 1.22 605,486 7.15 7.15
Maximum 1,561.79 32.45 373.55 383.54 50.88 3.67 3,069,300 41.35 41.35
Minimum 15.74 13.17 79.93 79.93 6.38 - 34,591 5.50 4.60
Average 132.32 21.66 178.01 184.97 22.72 1.91 618,859 14.50 14.28
Median 78.62 22.44 152.97 166.67 19.21 2.09 338,857 12.94 12.94
</TABLE>
Source: SNL Securities and F&C calculations.
17
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.2 - Selected Southeast Region Publicly Held Thrifts
<TABLE>
<CAPTION>
Core Core Core Core
Core Income/ Income/ NPAs/ Price/ Core Income/ Income/
EPS Avg Assets Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
($) (%) (%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BANC 0.51 0.54 9.56 N 11/07/97 0.90 37.85 0.09 0.37 6.65
BFSB 1.56 1.28 8.90 N 11/07/97 - 17.76 0.38 1.22 8.52
BKUNA 0.57 0.58 8.04 N 11/07/97 0.66 23.21 0.14 0.48 8.00
CFCP 1.03 1.05 16.81 N 11/07/97 0.10 24.04 0.26 1.03 16.25
CFFC 1.69 1.28 9.23 N 11/07/97 0.39 14.26 0.39 1.16 8.41
CFTP 0.70 1.45 4.71 N 11/07/97 0.50 32.69 0.13 1.11 4.08
CNIT 3.22 0.78 10.96 N 11/07/97 0.45 17.43 0.95 0.91 12.75
COOP 0.69 0.63 8.21 N 11/07/97 0.10 27.34 0.16 0.59 7.70
EBSI 1.03 0.76 8.78 N 11/07/97 1.07 17.13 0.27 0.76 8.92
FFBH 1.14 1.06 6.61 N 11/07/97 0.19 22.83 0.23 0.81 5.24
FFBS 1.23 1.47 7.51 N 11/07/97 0.03 23.25 0.25 1.17 6.06
FFCH 2.17 0.85 13.85 N 11/07/97 1.46 18.52 0.55 0.83 13.54
FFDB 1.32 0.94 9.54 N 11/07/97 0.72 16.18 0.34 0.98 10.05
FFFC 1.57 1.35 9.97 N 11/07/97 0.16 19.87 0.42 1.40 10.57
FFLC 1.42 0.94 6.42 N 11/07/97 0.18 28.23 0.31 0.75 5.52
FFPB 1.55 0.48 7.19 N 11/07/97 NA 25.40 0.39 0.46 7.25
FGHC 0.37 0.78 9.53 N 11/07/97 1.41 17.45 0.12 1.00 11.97
FLFC 1.53 0.94 12.81 N 11/07/97 0.81 16.77 0.41 1.02 13.61
FOBC 1.33 0.94 8.26 N 11/07/97 0.19 18.95 0.32 0.88 7.95
FSTC 2.80 1.90 19.95 N 11/07/97 1.10 6.21 1.55 3.68 38.97
FTF 1.67 1.73 10.43 N 11/07/97 0.12 13.56 0.47 1.86 11.74
GSFC 0.72 1.66 4.72 N 11/07/97 0.16 27.21 0.17 1.66 4.85
HARB 2.64 1.20 14.58 N 11/07/97 0.43 22.74 0.69 1.23 14.62
HBS 1.25 1.15 7.72 N 11/07/97 1.97 15.58 0.33 1.12 7.99
HFNC 0.58 1.05 4.55 N 11/07/97 0.92 29.30 0.12 0.86 4.70
KSAV 1.31 1.20 8.77 N 11/07/97 NA 17.74 0.31 1.10 8.19
MBSP 0.62 1.63 3.79 N 11/07/97 2.25 29.58 0.15 1.48 3.49
OCN 1.67 1.74 19.54 N 11/07/97 NA 30.73 0.42 1.67 15.97
PERT 1.61 1.11 9.03 N 11/07/97 0.12 29.69 0.44 1.06 8.78
PFSL 1.56 0.69 11.23 N 11/07/97 0.10 23.03 0.38 0.66 10.39
SCCB 0.80 1.20 4.49 N 11/07/97 1.06 25.57 0.22 1.31 5.06
SOPN 1.23 1.76 7.28 N 11/07/97 0.29 18.75 0.32 1.73 7.55
SSB 0.70 1.71 4.69 N 11/07/97 - 17.92 0.15 1.47 4.00
SSM 1.01 1.71 4.84 N 11/07/97 - 34.38 0.14 0.98 2.77
TWIN 0.60 0.72 5.59 N 11/07/97 0.08 18.75 0.19 0.90 6.97
UFRM 0.50 0.57 7.55 N 11/07/97 0.62 19.17 0.15 0.65 8.84
VABF 0.61 0.49 7.24 N 11/07/97 0.50 24.08 0.17 0.55 7.90
Maximum 3.22 1.90 19.95 2.25 37.85 1.55 3.68 38.97
Minimum 0.37 0.48 3.79 - 6.21 0.09 0.37 2.77
Average 1.26 1.12 9.00 0.56 22.25 0.34 1.11 9.35
Median 1.23 1.06 8.26 0.41 22.74 0.31 1.02 8.00
</TABLE>
Source: SNL Securities and F&C calculations.
18
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.3 - Selected Tennessee Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 14.250
Maximum 14.250
Minimum 14.250
Average 14.250
Median 14.250
</TABLE>
Source: SNL Securities and F&C calculations.
19
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.3 - Selected Tennessee Publicly Held Thrifts
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/
Market LTM Price/ Price/ Tang Price/ Dividend Assets Assets Tang Assets
Value Core EPS Book Value Book Value Assets Yield ($000) (%) (%)
Ticker ($M) (x) (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TWIN 18.13 23.75 131.09 131.09 16.96 2.81 106,931 12.94 12.94
Maximum 18.13 23.75 131.09 131.09 16.96 2.81 106,931 12.94 12.94
Minimum 18.13 23.75 131.09 131.09 16.96 2.81 106,931 12.94 12.94
Average 18.13 23.75 131.09 131.09 16.96 2.81 106,931 12.94 12.94
Median 18.13 23.75 131.09 131.09 16.96 2.81 106,931 12.94 12.94
</TABLE>
Source: SNL Securities and F&C calculations.
20
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.3 - Selected Tennessee Publicly Held Thrifts
<TABLE>
<CAPTION>
Core Core Core Core
Core Income/ Income/ NPAs/ Price/ Core Income/ Income/
EPS Avg Assets Avg Equity Merger Current Assets Core EPS Avg Assets Avg Equity
($) (%) (%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TWIN 0.60 0.72 5.59 N 11/07/97 0.08 18.75 0.19 0.90 6.97
Maximum 0.60 0.72 5.59 0.08 18.75 0.19 0.90 6.97
Minimum 0.60 0.72 5.59 0.08 18.75 0.19 0.90 6.97
Average 0.60 0.72 5.59 0.08 18.75 0.19 0.90 6.97
Median 0.60 0.72 5.59 0.08 18.75 0.19 0.90 6.97
</TABLE>
Source: SNL Securities and F&C calculations.
21
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.4 - Comparatives General
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City State Offices Type Mst RctQ IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC Big Foot Financial Corp. Long Grove IL 3 Traditional 212,245 12/20/96 18.38 46.17
FBER 1st Bergen Bancorp Wood-Ridge NJ 4 Traditional 284,739 04/01/96 18.38 52.64
HRBF Harbor Federal Bancorp Inc. Baltimore MD 9 Traditional 217,202 08/12/94 21.50 36.41
JXVL Jacksonville Bancorp Inc. Jacksonville TX 6 Traditional 226,182 04/01/96 18.88 46.12
LARL Laurel Capital Group Inc. Allison Park PA 6 Traditional 209,980 02/20/87 26.50 38.32
LFBI Little Falls Bancorp Inc. Little Falls NJ 6 Traditional 299,989 01/05/96 18.63 48.57
MFFC Milton Federal Financial Corp. West Milton OH 3 Traditional 209,958 10/07/94 15.00 34.57
OHSL OHSL Financial Corp. Cincinnati OH 5 Traditional 234,600 02/10/93 27.50 33.95
PFDC Peoples Bancorp Auburn IN 6 Traditional 287,564 07/07/87 35.00 79.58
WVFC WVS Financial Corp. Pittsburgh PA 5 Traditional 294,693 11/29/93 33.38 58.34
WYNE Wayne Bancorp Inc. Wayne NJ 5 Traditional 267,285 06/27/96 21.75 43.80
YFCB Yonkers Financial Corporation Yonkers NY 4 Traditional 312,956 04/18/96 18.50 55.88
Maximum 9 312,956 35.00 79.58
Minimum 3 209,958 15.00 33.95
Average 5 254,783 22.78 47.86
Median 5 250,943 20.19 46.15
</TABLE>
Source: SNL Securities and F&C calculations.
22
<PAGE>
FERGUSON & COMPANY Exhibit II.5 - Comparatives Balance Sheet
- ------------------
<TABLE>
<CAPTION>
Total Cash and Cash & Inv Net Cash Mortgage-
Total Cash and Investments Net of & Investments Backed MBS's
Assets Investments % of Assets MBS's % of Assets Securities % of Assets
($000) ($000) (%) (%) (%) ($000) (%)
Short Name Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC Big Foot Financial Corp. 212,245 119,152 56.14 8,505 4.01 110,647 52.13
FBER 1st Bergen Bancorp 284,739 156,578 54.99 93,426 32.81 63,152 22.18
HRBF Harbor Federal Bancorp Inc. 217,202 62,223 28.65 49,548 22.81 12,675 5.84
JXVL Jacksonville Bancorp Inc. 226,182 50,588 22.37 34,488 15.25 16,100 7.12
LARL Laurel Capital Group Inc. 209,980 60,964 29.03 51,752 24.65 9,212 4.39
LFBI Little Falls Bancorp Inc. 299,989 162,571 54.19 60,140 20.05 102,431 34.14
MFFC Milton Federal Financial Corp. 209,958 76,393 36.38 58,553 27.89 17,840 8.50
OHSL OHSL Financial Corp. 234,600 58,983 25.14 47,882 20.41 11,101 4.73
PFDC Peoples Bancorp 287,564 54,795 19.05 54,267 18.87 528 0.18
WVFC WVS Financial Corp. 294,693 131,535 44.63 117,028 39.71 14,507 4.92
WYNE Wayne Bancorp Inc. 267,285 85,474 31.98 47,368 17.72 38,106 14.26
YFCB Yonkers Financial Corporation 312,956 169,213 54.07 98,006 31.32 71,207 22.75
Maximum 312,956 169,213 56.14 117,028 39.71 110,647 52.13
Minimum 209,958 50,588 19.05 8,505 4.01 528 0.18
Average 254,783 99,039 38.05 60,080 22.96 38,959 15.10
Median 250,943 80,934 34.18 53,010 21.61 16,970 7.81
</TABLE>
Source: SNL Securities and F&C calculations.
23
<PAGE>
FERGUSON & COMPANY Exhibit II.5 - Comparatives Balance Sheet
- ------------------
<TABLE>
<CAPTION>
Net Investment & Loan Total
Net Loans Foreclosed Servicing Total Other Total Deposits Total
Loans % of Assets Real Estate Rights Intangibles Assets Deposits % of Assets Borrowings
($000) (%) ($000) ($000) ($000) ($000) ($000) (%) ($000)
Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC 86,805 40.90 262.0 - - 6,026 125,158 58.97 46,600
FBER 120,971 42.48 209.0 - - 6,981 215,516 75.69 27,334
HRBF NA NA 68.0 - - 5,424 171,727 79.06 14,723
JXVL 169,262 74.83 462.0 348 - 5,522 185,605 82.06 2,000
LARL 144,076 68.61 96.0 - - 3,222 172,801 82.29 11,043
LFBI 128,132 42.71 987.0 - 3,037 5,262 225,385 75.13 33,500
MFFC 127,396 60.68 - 109 - 6,060 142,832 68.03 39,570
OHSL 167,071 71.22 - 28 - 6,509 181,319 77.29 25,749
PFDC 228,940 79.61 257.0 - - 3,572 239,766 83.38 2,845
WVFC 158,134 53.66 - - - 5,024 170,879 57.99 84,641
WYNE 176,291 65.96 - - - 5,520 190,693 71.34 41,725
YFCB 118,683 37.92 379.0 - - 4,244 207,933 60,096
Maximum 228,940 79.61 987.0 348 3,037 6,981 239,766 83.38 84,641
Minimum 86,805 37.92 - - - 3,222 125,158 57.99 2,000
Average 147,796 58.05 226.7 40 253 5,281 185,801 73.75 32,486
Median 144,076 60.68 152.5 - - 5,472 183,462 75.69 30,417
</TABLE>
Source: SNL Securities and F&C calculations.
24
<PAGE>
FERGUSON & COMPANY Exhibit II.5 - Comparatives Balance Sheet
- ------------------
<TABLE>
<CAPTION>
Total Regulatory Regulatory Regulatory
Borrowings Other Total Common Total Tangible Core Total Tangible
% of Assets Liabilities Liabilities Equity Equity Capital Capital Capital Capital/
(%) ($000) ($000) ($000) ($000) ($000) ($000) ($000) Tangible
Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Assets (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC 21.96 4,440 176,198 36,047 36,047 24,900 24,900 25,200 7.18
FBER 9.60 3,007 245,857 38,881 38,881 30,115 30,115 31,472 11.10
HRBF 6.78 2,396 188,846 28,356 28,356 NA NA NA 10.98
JXVL 0.88 4,832 192,437 33,745 33,745 31,175 31,175 NA 13.14
LARL 5.26 4,154 187,998 21,982 21,982 NA 21,422 22,760 NA
LFBI 11.17 1,274 260,159 39,830 39,830 26,747 26,747 27,263 9.10
MFFC 18.85 1,171 183,573 26,385 26,385 21,385 21,385 21,799 11.56
OHSL 10.98 1,913 208,981 25,619 25,619 21,129 21,129 21,647 9.55
PFDC 0.99 1,230 243,841 43,723 43,723 35,036 35,036 35,904 12.09
WVFC 28.72 6,284 261,804 32,889 32,889 NA 33,069 34,759 NA
WYNE 15.61 1,654 234,072 33,213 33,213 27,121 27,121 28,556 10.84
YFCB 19.20 1,049 269,078 43,878 43,878 37,108 37,108 38,201 14.02
Maximum 28.72 6,284 269,078 43,878 43,878 37,108 37,108 38,201 14.02
Minimum 0.88 1,049 176,198 21,982 21,982 21,129 21,129 21,647 7.18
Average 12.50 2,784 221,070 33,712 33,712 28,302 28,110 28,756 10.96
Median 11.07 2,155 221,527 33,479 33,479 27,121 27,121 27,910 11.04
</TABLE>
Source: SNL Securities and F&C calculations.
25
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.5 - Comparatives Balance Sheets
<TABLE>
<CAPTION>
Loan Loss Publicly Tangible Earn Assets/ Full-Time
Core Risk-Based NPAs/ Reserves/ Reserves/ Reported Publicly Rep Int Bearing Equivalent
Capital/ Capital/ Assets Assets NPLs Book Value Book Value Liabilities Employees
Adj Tangible Risk-Weightd (%) (%) (%) ($) ($) (%) (Actual)
Assets (%) Assets (%) Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC 7.18 20.69 - 0.14 NM 14.35 14.35 119.87 NA
FBER 11.10 28.79 0.84 1.08 139.83 13.57 13.57 113.85 55.0
HRBF 10.98 26.68 0.10 0.19 189.19 16.74 16.74 114.90 NA
JXVL 13.14 26.65 0.78 0.53 91.63 13.55 13.55 117.81 71.0
LARL NA NA 0.43 0.88 225.74 15.20 15.20 116.72 50.0
LFBI 9.10 29.26 0.98 0.35 42.62 14.51 13.40 112.88 38.0
MFFC 11.56 24.25 0.15 0.27 176.18 12.31 12.31 112.04 58.0
OHSL 9.55 19.51 0.03 0.23 777.94 21.42 21.42 112.22 61.0
PFDC 12.09 25.63 0.34 0.31 121.58 19.23 19.23 118.08 78.0
WVFC NA NA 0.09 0.68 733.21 18.82 18.82 117.28 56.0
WYNE 10.84 27.72 0.90 0.74 82.20 16.49 16.49 119.18 56.0
YFCB 14.02 37.19 0.48 0.35 96.05 14.53 14.53 117.20 61.0
Maximum 14.02 37.19 0.98 1.08 777.94 21.42 21.42 119.87 78.00
Minimum 7.18 19.51 - 0.14 42.62 12.31 12.31 112.04 38.00
Average 10.96 26.64 0.43 0.48 243.29 15.89 15.80 116.00 58.40
Median 11.04 26.67 0.39 0.35 139.83 14.87 14.87 116.96 57.00
</TABLE>
Source: SNL Securities and F&C calculations.
26
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.5 - Comparatives Balance Sheets
<TABLE>
<CAPTION>
Loans
Serviced
For Others
($000)
Mst RctQ
<S> <C>
BFFC -
FBER -
HRBF NA
JXVL 56,088
LARL 1,216
LFBI -
MFFC 9,843
OHSL 23,669
PFDC -
WVFC 985
WYNE -
YFCB 15,524
Maximum 56,088
Minimum -
Average 9,757
Median 985
</TABLE>
Source: SNL Securities and F&C calculations.
27
<PAGE>
FERGUSON & COMPANY Exhibit II.6 - Comparatives Operations
- ------------------
<TABLE>
<CAPTION>
Net Income Return on Core
Average Before Return on Avg Assets Income/ Return on
Assets Net Income Extra Items Avg Assets Before Extra Avg Assets Avg Equity
($000) ($000) ($000) (%) (%) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC Big Foot Financial Corp. NA NA NA NA NA NA NA
FBER 1st Bergen Bancorp 262,844 2,026 2,026 0.77 0.77 0.77 4.94
HRBF Harbor Federal Bancorp Inc. 217,398 1,541 1,541 0.71 0.71 0.71 5.50
JXVL Jacksonville Bancorp Inc. 219,110 2,229 2,229 1.02 1.02 1.33 6.42
LARL Laurel Capital Group Inc. 207,214 3,029 3,029 1.46 1.46 1.41 14.07
LFBI Little Falls Bancorp Inc. 294,789 789 789 0.27 0.27 0.47 1.94
MFFC Milton Federal Financial Corp. 187,796 1,378 1,378 0.73 0.73 0.65 5.08
OHSL OHSL Financial Corp. 225,984 2,037 2,037 0.90 0.90 0.88 8.06
PFDC Peoples Bancorp 282,126 3,153 3,153 1.12 1.12 1.46 7.29
WVFC WVS Financial Corp. 277,971 2,959 2,959 1.06 1.06 1.32 8.63
WYNE Wayne Bancorp Inc. 248,778 2,147 2,147 0.86 0.86 0.86 6.01
YFCB Yonkers Financial Corporation 279,897 2,952 2,952 1.05 1.05 1.07 6.72
Maximum 294,789 3,153 3,153 1.46 1.46 1.46 14.07
Minimum 187,796 789 789 0.27 0.27 0.47 1.94
Average 245,810 2,204 2,204 0.90 0.90 0.99 6.79
Median 248,778 2,147 2,147 0.90 0.90 0.88 6.42
</TABLE>
Source: SNL Securities and F&C calculations.
28
<PAGE>
FERGUSON & COMPANY Exhibit II.6 - Comparatives Operations
- ------------------
<TABLE>
<CAPTION>
Return on Core Loan Total Total Net Loan Common Dividend
Avg Equity Income/ Loss Noninterest Noninterest Chargeoffs/ LTM EPS Dividends Payout
Before Extra Avg Equity Provision Income Expense Avg Loans After Extra Per Share Ratio
(%) (%) ($000) ($000) ($000) (%) ($) ($) (%)
LTM LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC NA NA NA NA NA NA NA NA NA
FBER 4.94 4.94 525.00 260 5,656 0.91 0.73 0.14 19.18
HRBF 5.50 5.50 40.00 240 4,047 - 0.94 0.42 44.68
JXVL 6.42 8.42 210.00 1,203 4,693 0.01 0.77 0.50 64.94
LARL 14.07 13.60 29.00 621 3,562 0.06 1.96 0.46 23.47
LFBI 1.94 3.43 273.00 246 5,456 0.12 0.31 0.08 25.81
MFFC 5.08 4.52 75.00 252 3,947 - 0.63 3.09 490.48
OHSL 8.06 7.86 39.00 326 4,471 0.02 1.64 0.85 51.83
PFDC 7.29 9.55 27.00 595 4,282 0.02 1.38 0.60 43.48
WVFC 8.63 10.71 60.00 325 4,520 0.01 1.69 3.00 177.51
WYNE 6.01 6.01 390.00 567 5,606 - 1.08 0.15 13.89
YFCB 6.72 6.79 300.00 835 6,319 0.13 1.02 0.21 20.59
Maximum 14.07 13.60 525.00 1,203.00 6,319.00 0.91 1.96 3.09 490.48
Minimum 1.94 3.43 27.00 240.00 3,562.00 - 0.31 0.08 13.89
Average 6.79 7.39 178.91 497.27 4,778.09 0.12 1.10 0.86 88.71
Median 6.42 6.79 75.00 326.00 4,520.00 0.02 1.02 0.46 43.48
</TABLE>
Source: SNL Securities and F&C calculations.
29
<PAGE>
FERGUSON & COMPANY Exhibit II.6 - Comparatives Operations
- ------------------
<TABLE>
<CAPTION>
Interest Interest Net Interest Gain on Real Noninterest G&A Noninterest Net Oper
Income/ Expense/ Income/ Sale/ Estate Income/ Expense/ Expense/ Expenses/
Avg Assets Avg Assets Avg Assets Avg Assets Expense Avg Assets Avg Assets Avg Assets Avg Assets
(%) (%) (%) (%) ($000) (%) (%) (%) (%)
LTM LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC NA NA NA NA NA NA 2.17 NA NA
FBER 7.19 3.73 3.47 - 17.00 0.10 2.15 2.15 2.05
HRBF 7.36 4.44 2.92 - - 0.11 1.86 1.86 1.75
JXVL 7.71 3.96 3.74 - (336.00) 0.55 2.30 2.14 1.75
LARL 7.47 3.80 3.68 0.07 (23.00) 0.30 1.73 1.72 1.43
LFBI 6.56 3.94 2.62 0.09 137.00 0.08 1.68 1.85 1.60
MFFC 7.33 4.34 2.99 0.12 (13.00) 0.13 2.11 2.10 1.97
OHSL 7.68 4.49 3.18 0.03 4.00 0.14 1.98 1.98 1.83
PFDC 7.67 4.00 3.67 - (27.00) 0.21 1.53 1.52 1.32
WVFC 7.60 3.92 3.68 0.01 (8.00) 0.12 1.63 1.63 1.51
WYNE 7.40 3.83 3.57 - (63.00) 0.23 2.28 2.25 2.05
YFCB 7.41 3.56 3.85 (0.02) (11.00) 0.30 2.26 2.26 1.96
Maximum 7.71 4.49 3.85 0.12 137.00 0.55 2.30 2.26 2.05
Minimum 6.56 3.56 2.62 (0.02) (336.00) 0.08 1.53 1.52 1.32
Average 7.40 4.00 3.40 0.03 (29.36) 0.21 1.97 1.95 1.75
Median 7.41 3.94 3.57 - (11.00) 0.14 2.05 1.98 1.75
</TABLE>
Source: SNL Securities and F&C calculations.
30
<PAGE>
FERGUSON & COMPANY Exhibit II.6 - Comparatives Operations
- ------------------
<TABLE>
<CAPTION>
Total Amortization Yield on Cost of Interest
Nonrecurring of Tax Efficiency Int Earning Int Bearing Effective Yield
Expense Intangibles Provision Ratio Assets Liabilities Tax Rate Spread
($000) ($000) ($000) (%) (%) (%) (%) (%)
LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC NA NA NA NA NA NA NA NA
FBER - - 1,161 60.19 7.43 4.33 36.43 3.10
HRBF - - 969 61.35 7.50 5.18 38.61 2.32
JXVL 1,070 - 1,204 53.47 7.95 4.82 35.07 3.13
LARL - - 1,773 43.51 7.64 4.50 36.92 3.14
LFBI 1,200 360 517 62.23 6.86 4.63 39.56 2.23
MFFC - - 709 67.39 7.56 5.12 33.97 2.44
OHSL - - 1,052 59.40 7.84 5.23 34.06 2.61
PFDC 1,501 - 1,985 39.36 7.74 4.77 38.63 2.97
WVFC 1,138 - 1,930 42.85 7.69 4.78 39.48 2.91
WYNE - - 1,308 59.98 7.56 4.62 37.86 2.94
YFCB - - 1,990 54.53 7.54 4.31 40.27 3.23
Maximum 1,501.00 360.00 1,990 67.39 7.95 5.23 40.27 3.23
Minimum - - 517 39.36 6.86 4.31 33.97 2.23
Average 446.27 32.73 1,327 54.93 7.57 4.75 37.35 2.82
Median - - 1,204 59.40 7.56 4.77 37.86 2.94
</TABLE>
Source: SNL Securities and F&C calculations.
31
<PAGE>
FERGUSON & COMPANY Exhibit II.7 - Comparatives Risk Factors
- ------------------
<TABLE>
<CAPTION>
NPAs + Loans Net Loan
NPAs/ 90+ Pst Due/ NPAs/ Reserves/ Reserves/ Chargeoffs/ Loans/
Assets Assets Equity Loans NPAs Avg Loans Assets
(%) (%) (%) (%) (%) (%) (%)
Short Name Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC Big Foot Financial Corp. - 0.09 - 0.34 NM - 41.04
FBER 1st Bergen Bancorp 0.84 0.84 6.18 2.47 127.66 0.37 43.56
HRBF Harbor Federal Bancorp Inc. 0.10 0.10 0.78 0.28 189.19 - 69.02
JXVL Jacksonville Bancorp Inc. 0.78 0.78 5.23 0.70 67.63 0.03 75.36
LARL Laurel Capital Group Inc. 0.43 0.43 4.15 1.25 201.97 0.30 70.26
LFBI Little Falls Bancorp Inc. 0.98 1.04 7.38 0.82 36.04 0.03 43.07
MFFC Milton Federal Financial Corp. 0.15 0.29 1.21 0.44 176.18 - 60.94
OHSL OHSL Financial Corp. 0.03 0.18 0.27 0.31 777.94 - 72.30
PFDC Peoples Bancorp 0.34 0.36 2.24 0.38 89.69 0.03 79.92
WVFC WVS Financial Corp. 0.09 0.09 0.83 1.25 733.21 - 54.34
WYNE Wayne Bancorp Inc. 0.90 0.90 7.26 1.11 82.20 - 66.70
YFCB Yonkers Financial Corporation 0.48 0.48 3.46 0.78 72.05 0.19 44.80
Maximum 0.98 1.04 7.38 2.47 777.94 0.37 79.92
Minimum - 0.09 - 0.28 36.04 - 41.04
Average 0.43 0.47 3.25 0.84 232.16 0.08 60.11
Median 0.39 0.40 2.85 0.74 127.66 0.02 63.82
</TABLE>
Source: SNL Securities and F&C calculations.
32
<PAGE>
FERGUSON & COMPANY Exhibit II.7 - Comparatives Risk Factors
- ------------------
<TABLE>
<CAPTION>
Intangible One Year Earn Assets/
Assets/ Cum Gap/ Net Int Bearing
Equity Assets Loans Liabilities
(%) (%) ($000) (%)
Mst RctQ Mst RctY Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
BFFC - NA 86,805 119.87
FBER - NA 120,971 113.85
HRBF - NA NA 114.90
JXVL - NA 169,262 117.81
LARL - (5.56) 144,076 116.72
LFBI 7.62 NA 128,132 112.88
MFFC - NA 127,396 112.04
OHSL - (11.19) 167,071 112.22
PFDC - (26.52) 228,940 118.08
WVFC - (13.27) 158,134 117.28
WYNE - (0.20) 176,291 119.18
YFCB - NA 118,683 117.20
7.62 (0.20) 228,940 119.87
- (26.52) 86,805 112.04
0.64 (11.35) 147,796 116.00
- (11.19) 144,076 116.96
</TABLE>
Source: SNL Securities and F&C calculations.
33
<PAGE>
FERGUSON & COMPANY Exhibit II.8 - Comparatives Pricing
- ------------------
<TABLE>
<CAPTION>
Current Current Price/ Current Current
Stock Market LTM Price/ Price/Tang
Price Value Core EPS Book Value Book Value
Ticker Name City State ($) ($M) (x) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC BigFootFinancl-IL Long Grove IL 18.38 46.17 28.65 128.05 128.05
FBER 1stBergenBancrp-NJ Wood-Ridge NJ 18.38 52.64 25.17 135.41 135.41
HRBF HarborFedBancp-MD Baltimore MD 21.50 36.41 22.87 128.43 128.43
JXVL Jacksonville-TX Jacksonville TX 18.88 46.12 8.28 139.30 139.30
LARL LaurelCapitalGp-PA Allison Park PA 26.50 38.32 14.02 174.34 174.34
LFBI LittleFallsBncp-NJ Little Falls NJ 18.63 48.57 35.14 128.36 138.99
MFFC MiltonFedFinCrp-OH West Milton OH 15.00 34.57 26.79 121.85 121.85
OHSL OHSLFinancial-OH Cincinnati OH 27.50 33.95 17.30 128.38 128.38
PFDC PeoplesBancorp-IN Auburn IN 35.00 79.58 18.82 182.01 182.01
WVFC WVSFinancialCp-PA Pittsburgh PA 33.38 58.34 15.89 177.34 177.34
WYNE WayneBancorp-NJ Wayne NJ 21.75 43.80 20.14 131.90 131.90
YFCB YonkersFinCorp-NY Yonkers NY 18.50 55.88 17.96 127.32 127.32
Maximum 35.00 79.58 35.14 182.01 182.01
Minimum 15.00 33.95 8.28 121.85 121.85
Average 22.78 47.86 20.92 141.89 142.78
Median 20.19 46.15 19.48 130.17 133.66
</TABLE>
Source: SNL Securities and F&C calculations.
35
<PAGE>
FERGUSON & COMPANY Exhibit II.8 - Comparatives Pricing
- ------------------
<TABLE>
<CAPTION>
Tangible Core Core ROACE
Current Total Equity/ Equity/ Core Income/ Income/ Before
Price/ Dividend Assets Assets Tang Assets EPS Avg Assets Avg Equity Extra
Assets Yield ($000) (%) (%) ($) (%) (%) (%)
Ticker (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFFC 21.75 - 212,245 16.98 16.98 0.64 0.70 4.13 NA
FBER 18.49 1.09 284,739 13.65 13.65 0.73 0.77 4.94 4.94
HRBF 16.76 2.23 217,202 13.06 13.06 0.94 0.71 5.50 5.50
JXVL 20.78 2.65 226,182 14.92 14.92 2.28 1.33 8.42 6.42
LARL 18.25 1.96 209,980 10.47 10.47 1.89 1.41 13.60 14.07
LFBI 17.04 1.07 299,989 13.28 12.39 0.53 0.47 3.43 1.94
MFFC 16.47 4.00 209,958 12.57 12.57 0.56 0.65 4.52 5.08
OHSL 14.47 3.20 234,600 10.92 10.92 1.59 0.88 7.86 8.06
PFDC 27.68 1.83 287,564 15.20 15.20 1.86 1.46 9.55 7.29
WVFC 19.79 3.60 294,693 11.16 11.16 2.10 1.32 10.71 8.63
WYNE 16.39 0.92 267,285 12.43 12.43 1.08 0.86 6.01 6.01
YFCB 17.86 1.30 312,956 14.02 14.02 1.03 1.07 6.79 6.72
Maximum 27.68 4.00 312,956 16.98 16.98 2.28 1.46 13.60 14.07
Minimum 14.47 - 209,958 10.47 10.47 0.53 0.47 3.43 1.94
Average 18.81 1.99 254,783 13.22 13.15 1.27 0.97 7.12 6.79
Median 18.06 1.90 250,943 13.17 12.82 1.06 0.87 6.40 6.42
</TABLE>
Source: SNL Securities and F&C calculations.
36
<PAGE>
FERGUSON & COMPANY Exhibit II.8 - Comparatives Pricing
- ------------------
<TABLE>
<CAPTION>
Core Core
NPAs/ Price/ Core Income/ Income/
Merger Current Assets Core EPS Avg Assets Avg Equity
Target? Pricing (%) EPS ($) (%) (%)
Ticker (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C>
BFFC N 11/07/97 - 28.71 0.16 0.70 4.13
FBER N 11/07/97 0.84 25.52 0.18 0.69 4.94
HRBF N 11/07/97 0.10 21.50 0.25 0.76 5.84
JXVL N 11/07/97 0.78 11.51 0.41 1.75 11.48
LARL N 11/07/97 0.43 13.52 0.49 1.43 13.91
LFBI N 11/07/97 0.98 31.04 0.15 0.52 3.93
MFFC N 11/07/97 0.15 25.00 0.15 0.63 4.93
OHSL N 11/07/97 0.03 17.19 0.40 0.84 7.68
PFDC N 11/07/97 0.34 18.23 0.48 1.53 10.08
WVFC N 11/07/97 0.09 17.03 0.49 1.20 10.79
WYNE N 11/07/97 0.90 21.75 0.25 0.76 5.57
YFCB N 11/07/97 0.48 17.13 0.27 1.00 6.92
Maximum 0.98 31.04 0.49 1.75 13.91
Minimum - 11.51 0.15 0.52 3.93
Average 0.43 20.68 0.31 0.98 7.52
Median 0.39 19.87 0.26 0.80 6.38
</TABLE>
Source: SNL Securities and F&C calculations.
37
<PAGE>
EXHIBIT III
Financial Highlights Cavalry Banking
<PAGE>
FERGUSON & COMPANY Cavalry Banking
- ------------------
CAVALRY BANKING
MURFREESBORO, TENNESSEE
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
<S> <C> <C> <C> <C>
Num of Quarters Open for Period 4 4 4 2
BALANCE SHEET:
Total Assets 208,828 223,845 242,750 258,017
% Change in Assets 1.34 7.19 8.45 6.29
Total Loans 167,961 164,723 207,132 221,787
Deposits 180,339 196,736 212,591 225,760
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 21,236 24,436 27,250 29,036
Tangible Capital 21,134 24,434 27,248 29,034
Core Capital 21,134 24,434 27,248 29,034
Risk-Based Capital 22,817 26,440 29,369 31,305
Equity Capital/Total Assets 10.17 10.92 11.23 11.25
Core Capital/Risk Based Assets 12.27 13.23 11.97 11.71
Core Capital/Adj Tang Assets 10.13 10.92 11.22 11.25
Tangible Cap/Tangible Assets 10.13 10.92 11.22 11.25
Risk-Based Cap/Risk-Wt Assets 13.25 14.32 12.91 12.62
PROFITABILITY:
Net Income (Loss) 2,440 3,200 2,813 1,785
Ret on Avg Assets Bef Ext Item 1.18 1.48 1.20 1.42
Return on Average Equity 12.20 14.01 10.86 12.68
Net Interest Income/Avg Assets 4.56 4.55 4.97 4.95
Noninterest Income/Avg Assets 0.98 1.40 1.38 1.25
Noninterest Expense/Avg Assets 3.55 3.62 4.33 3.74
Yield/Cost Spread 4.75 4.71 5.07 5.01
LIQUIDITY:
Int Earn Assets/Int Bear Liab 104.02 106.33 106.81 106.01
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.24 0.06 0.01 0.00
Nonaccrual Loans/Gross Loans 0.11 0.05 0.01 0.00
Nonaccrual Lns/Ln Loss Reserve 11.99 4.84 1.18 0.26
Repos Assets/Tot Assets - - - -
Net Chrg-Off/Av Adj Lns 0.02 (0.09) (0.00) 0.01
Nonmtg 1-4 Constr&Conv Lns/TA 15.81 19.27 25.27 21.13
</TABLE>
1
<PAGE>
EXHIBIT IV
Financial Highlights of Comparatives
<PAGE>
FERGUSON & COMPANY BFFC
- ------------------
FAIRFIELD SAVINGS BANK, FSB
LONG GROVE, ILLINOIS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
<S> <C> <C> <C> <C>
Num of Quarters Open for Period 4 4 4 2
BALANCE SHEET:
Total Assets 190,086 203,661 208,940 204,593
% Change in Assets (4.47) 7.14 2.59 (2.08)
Total Loans 67,112 74,343 81,855 93,639
Deposits 138,769 142,926 134,999 124,702
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 14,088 14,944 23,670 24,736
Tangible Capital 13,826 14,211 24,222 24,833
Core Capital 13,826 14,211 24,222 24,833
Risk-Based Capital 13,992 14,377 24,522 25,133
Equity Capital/Total Assets 7.41 7.34 11.33 12.09
Core Capital/Risk Based Assets 21.70 20.83 34.07 33.63
Core Capital/Adj Tang Assets 7.28 7.00 11.56 12.13
Tangible Cap/Tangible Assets 7.28 7.00 11.56 12.13
Risk-Based Cap/Risk-Wt Assets 21.96 21.08 34.49 34.03
PROFITABILITY:
Net Income(Loss) 1,828 385 (243) 450
Ret on Avg Assets Bef Ext Item 0.71 0.20 (0.12) 0.44
Return on Average Equity 10.54 2.65 (1.60) 3.77
Net Interest Income/Avg Assets 2.90 2.42 2.36 2.69
Noninterest Income/Avg Assets 0.52 0.18 0.26 0.26
Noninterest Expense/Avg Assets 2.38 2.34 2.73 2.28
Yield/Cost Spread 3.03 2.46 2.35 2.49
LIQUIDITY:
Int Earn Assets/Int Bear Liab 103 103 109 110
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.57 0.23 0.46 0.21
Nonaccrual Loans/Gross Loans 0.23 - 0.19 0.21
Nonaccrual Lns/Ln Loss Reserve 96.99 - 53.00 66.33
Repos Assets/Tot Assets - - - -
Net Chrg-Off/Av Adj Lns - - - -
Nonmtg 1-4 Constr&Conv Lns/TA 0.92 0.63 0.56 0.55
</TABLE>
1
<PAGE>
FERGUSON & COMPANY FBER
- ------------------
SOUTH BERGEN SAVINGS BANK
WOOD-RIDGE, NEW JERSEY
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
<S> <C> <C> <C> <C>
Num of Quarters Open for Period 4 4 4 2
BALANCE SHEET:
Total Assets 216,606 225,046 247,395 285,396
% Change in Assets (1.00) 3.90 9.93 15.36
Total Loans 123,515 109,584 124,304 120,666
Deposits 194,622 208,868 217,321 225,434
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 15,251 14,667 28,057 29,417
Tangible Capital 15,251 14,667 28,151 29,408
Core Capital 15,251 14,667 28,151 29,408
Risk-Based Capital 16,185 15,936 29,477 30,730
Equity Capital/Total Assets 7.04 6.52 11.34 10.31
Core Capital/Risk Based Assets 14.64 14.45 26.85 28.13
Core Capital/Adj Tang Assets 7.04 6.52 11.37 10.30
Tangible Cap/Tangible Assets 7.04 6.52 11.37 10.30
Risk-Based Cap/Risk-Wt Assets 15.54 15.70 28.11 29.39
PROFITABILITY:
Net Income (Loss) 1,979 843 803 1,177
Ret on Avg Assets Bef Ext Item 0.91 0.38 0.32 0.91
Return on Average Equity 14.00 5.64 3.09 8.23
Net Interest Income/Avg Assets 3.90 3.03 3.24 3.54
Noninterest Income/Avg Assets 0.06 (0.09) 0.05 0.21
Noninterest Expense/Avg Assets 2.29 2.18 2.56 2.20
Yield/Cost Spread 3.82 2.88 2.88 3.30
LIQUIDITY:
Int Earn Assets/Int Bear Liab 106.73 104.76 110.40 108.39
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 7.13 9.63 3.41 2.23
Nonaccrual Loans/Gross Loans 6.19 5.56 1.66 1.47
Nonaccrual Lns/Ln Loss Reserve 282.95 138.48 68.09 71.48
Repos Assets/Tot Assets - - - 0.07
Net Chrg-Off/Av Adj Lns 0.27 0.11 0.65 0.09
Nonmtg 1-4 Constr&Conv Lns/TA 10.27 8.52 5.73 4.46
</TABLE>
2
<PAGE>
FERGUSON & COMPANY HRBF
- ------------------
HARBOR FEDERAL SAVINGS BANK
BALTIMORE, MARYLAND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
<S> <C> <C> <C> <C>
Num of Quarters Open for Period 4 4 4 2
BALANCE SHEET:
Total Assets 147,155 155,641 219,911 217,517
% Change in Assets 15.41 5.77 41.29 (1.09)
Total Loans 100,825 103,182 144,767 150,405
Deposits 118,945 126,139 175,966 177,347
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 25,537 23,230 23,985 24,970
Tangible Capital 25,480 23,166 24,029 24,905
Core Capital 25,480 23,166 24,029 24,905
Risk-Based Capital 25,945 23,631 24,409 25,315
Equity Capital/Total Assets 17.35 14.93 10.91 11.48
Core Capital/Risk Based Assets 39.70 34.15 26.16 25.10
Core Capital/Adj Tang Assets 17.33 14.89 10.92 11.61
Tangible Cap/Tangible Assets 17.33 14.89 10.92 11.61
Risk-Based Cap/Risk-Wt Assets 40.42 34.84 26.58 25.51
PROFITABILITY:
Net Income (Loss) 1,539 1,278 678 840
Ret on Avg Assets Bef Ext Item 1.12 0.84 0.34 0.77
Return on Average Equity 7.87 5.24 2.90 6.91
Net Interest Income/Avg Assets 3.68 3.67 2.63 2.84
Noninterest Income/Avg Assets 0.28 0.19 0.37 0.22
Noninterest Expense/Avg Assets 2.14 2.49 2.43 1.78
Yield/Cost Spread 3.43 3.28 2.32 2.54
LIQUIDITY:
Int Earn Assets/Int Bear Liab 116.85 113.65 109.39 110.93
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.30 0.63 0.57 0.23
Nonaccrual Loans/Gross Loans - - - 0.07
Nonaccrual Lns/Ln Loss Reserve - - - 26.28
Repos Assets/Tot Assets - - - -
Net Chrg-Off/Av Adj Lns 0.04 - 0.09 -
Nonmtg 1-4 Constr&Conv Lns/TA 5.56 5.39 6.90 7.37
</TABLE>
3
<PAGE>
FERGUSON & COMPANY JXVL
- ------------------
JACKSONVILLE SAVINGS AND LOAN ASSOCIATION
JACKSONVILLE, TEXAS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
<S> <C> <C> <C> <C>
Num of Quarters Open for Period 4 4 4 2
BALANCE SHEET:
Total Assets 185,928 196,690 215,849 226,392
% Change in Assets 0.06 5.79 9.74 4.88
Total Loans 125,108 140,242 158,781 170,430
Deposits 157,478 173,743 178,339 187,086
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 19,374 20,741 29,240 31,112
Tangible Capital 19,595 20,747 29,281 31,175
Core Capital 19,595 20,747 29,281 31,175
Risk-Based Capital 20,595 21,747 30,381 32,368
Equity Capital/Total Assets 10.42 10.55 13.55 13.74
Core Capital/Risk Based Assets 22.25 21.12 26.42 26.83
Core Capital/Adj Tang Assets 10.54 10.57 13.56 13.77
Tangible Cap/Tangible Assets 10.54 10.57 13.56 13.77
Risk-Based Cap/Risk-Wt Assets 23.38 22.14 27.41 27.86
PROFITABILITY:
Net Income (Loss) 2,061 1,478 1,761 1,646
Ret on Avg Assets Bef Ext Item 1.11 0.77 0.83 1.50
Return on Average Equity 13.30 7.37 6.43 10.94
Net Interest Income/Avg Assets 3.62 3.08 3.49 3.97
Noninterest Income/Avg Assets 0.49 0.48 0.56 0.57
Noninterest Expense/Avg Assets 2.41 2.48 2.78 2.14
Yield/Cost Spread 3.82 3.05 3.21 3.66
LIQUIDITY:
Int Earn Assets/Int Bear Liab 105.29 106.46 111.46 113.38
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 2.84 1.98 1.43 1.03
Nonaccrual Loans/Gross Loans 0.30 0.23 0.45 -
Nonaccrual Lns/Ln Loss Reserve 35.43 33.10 66.85 -
Repos Assets/Tot Assets - - - 0.21
Net Chrg-Off/Av Adj Lns (0.12) 0.07 0.00 0.01
Nonmtg 1-4 Constr&Conv Lns/TA 6.36 6.97 6.29 6.46
</TABLE>
4
<PAGE>
FERGUSON & COMPANY LARL
- ------------------
LAUREL SAVINGS BANK
ALLISON PARK, PENNSYLVANIA
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
Number of Open Quarters - 4 4 2
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets - 192,698 202,583 212,135
% Change in Assets - - 5.13 4.72
Securities-Book Value - 32,839 47,708 55,830
Securities-Fair Value - 32,927 47,752 55,849
Total Loans & Leases - 146,566 148,732 148,440
Total Deposits - 164,943 172,315 178,367
Loan/Deposit Ratio - 88.86 86.31 83.22
Provision for Loan Losses - 68.00 27.00 15.00
CAPITAL:
Equity Capital - 19,921 21,492 21,028
Total Qualifying Capital(Est) - 20,320 22,701 22,175
Equity Capital/Average Assets - 10.34 10.87 10.09
Tot Qual Cap/Rk Bsd Asts(Est) - 19.68 21.41 20.61
Tier 1 Cap/Rsk Bsed Asts(Est) - 18.43 20.16 19.35
T1 Cap/Avg Assets(Lev Est) - 9.98 10.57 9.91
Dividends Declared/Net Income - - 20.98 23.10
PROFITABILITY:
Net Income(Loss) - 2,525 2,174 1,472
Return on Average Assets - 1.31 1.10 1.41
Return on Average Equity Cap - 12.68 10.49 13.76
Net Interest Margin - 3.84 3.91 3.72
Net Int Income/Avg Assets - 3.90 3.88 3.70
Noninterest Income/Avg Assets - 0.20 0.24 0.24
Noninterest Exp/Avg Assets - 2.00 2.41 1.72
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE - 0.73 0.55 0.62
NPA's/Equity + LLR - 4.94 3.49 3.98
LLR/Nonperf & Restrcd Lns - 237.34 287.87 212.35
Foreclosed RE/Total Assets - 0.15 0.07 -
90+ Day Del Loans/Total Loans - - - -
Loan Loss Reserves/Total Lns - 1.29 1.29 1.31
Net Charge-Offs/Average Loans - 0.03 (0.00) (0.00)
Dom Risk R/E Lns/Tot Dom Lns - 8.51 7.55 6.98
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep - 3.32 3.99 4.10
Int Earn Assets/Int Bear Liab - 115.84 116.63 116.87
Pledged Sec/Total Sec - - 2.10 1.79
Fair Value Sec/Amort Cost Sec - 101.46 100.49 100.59
</TABLE>
5
<PAGE>
FERGUSON & COMPANY LFBI
- ------------------
FIRST SAVINGS BANK
LITTLE FALLS, NEW JERSEY
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 2
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 133,202 154,489 166,450 172,872
% Change in Assets 2.13 15.98 7.74 3.86
Total Loans 74,147 85,681 95,081 104,565
Deposits 123,569 131,484 156,398 161,735
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 9,260 9,785 9,372 9,540
Tangible Capital 8,292 8,576 8,802 8,959
Core Capital 8,292 8,576 8,802 8,959
Risk-Based Capital 9,002 9,233 9,618 9,744
Equity Capital/Total Assets 6.95 6.33 5.63 5.52
Core Capital/Risk Based Assets 13.51 12.91 12.30 11.78
Core Capital/Adj Tang Assets 6.27 5.60 5.31 5.20
Tangible Cap/Tangible Assets 6.27 5.60 5.31 5.20
Risk-Based Cap/Risk-Wt Assets 14.67 13.90 13.44 12.82
PROFITABILITY:
Net Income(Loss) 505 478 (162) 361
Ret on Avg Assets Bef Ext Item 0.38 0.33 (0.10) 0.43
Return on Average Equity 5.47 5.02 (1.69) 7.62
Net Interest Income/Avg Assets 2.95 2.66 2.66 2.56
Noninterest Income/Avg Assets (0.08) 0.11 0.10 0.06
Noninterest Expense/Avg Assets 2.29 2.28 2.75 1.89
Yield/Cost Spread 3.26 2.88 2.84 2.70
LIQUIDITY:
Int Earn Assets/Int Bear Liab 99.86 99.70 100.16 100.20
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 14.02 10.49 8.07 6.43
Nonaccrual Loans/Gross Loans 1.84 1.27 1.68 1.41
Nonaccrual Lns/Ln Loss Reserve 177.92 165.75 196.57 188.03
Repos Assets/Tot Assets - - - 1.48
Net Chrg-Off/Av Adj Lns 0.03 0.08 0.01 0.07
Nonmtg 1-4 Constr&Conv Lns/TA 9.68 7.01 6.16 5.90
</TABLE>
6
<PAGE>
FERGUSON & COMPANY MFFC
- ------------------
MILTON FEDERAL SAVINGS BANK
WEST MILTON, OHIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 2
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 138,281 155,596 172,068 197,718
% Change in Assets 10.37 12.52 10.59 14.91
Total Loans 91,869 103,002 110,736 120,950
Deposits 110,138 123,270 132,762 138,833
Broker Originated Deposits 1,592 1,394 57 -
CAPITAL:
Equity Capital 24,993 24,593 20,991 21,806
Tangible Capital 25,156 24,404 21,083 21,931
Core Capital 25,156 24,404 21,083 21,931
Risk-Based Capital 25,435 24,603 21,442 22,343
Equity Capital/Total Assets 18.07 15.81 12.20 11.03
Core Capital/Risk Based Assets 40.09 34.22 25.31 24.41
Core Capital/Adj Tang Assets 18.17 15.71 12.24 11.08
Tangible Cap/Tangible Assets 18.17 15.71 12.24 11.08
Risk-Based Cap/Risk-Wt Assets 40.53 34.50 25.74 24.87
PROFITABILITY:
Net Income(Loss) 1,213 1,222 697 560
Ret on Avg Assets Bef Ext Item 0.92 0.83 0.41 0.62
Return on Average Equity 6.30 4.93 3.00 5.24
Net Interest Income/Avg Assets 3.57 3.37 3.02 2.84
Noninterest Income/Avg Assets 0.24 0.21 0.32 0.24
Noninterest Expense/Avg Assets 2.19 2.28 2.61 2.08
Yield/Cost Spread 3.21 2.79 2.54 2.47
LIQUIDITY:
Int Earn Assets/Int Bear Liab 118.63 115.64 110.73 109.15
Brokered Deposits/Tot Deposits 1.45 1.13 0.04 -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.83 0.51 0.52 0.53
Nonaccrual Loans/Gross Loans 0.07 0.14 0.26 0.25
Nonaccrual Lns/Ln Loss Reserve 25.09 42.82 60.24 74.27
Repos Assets/Tot Assets - - - -
Net Chrg-Off/Av Adj Lns - - - -
Nonmtg 1-4 Constr&Conv Lns/TA 4.89 5.10 4.27 4.06
</TABLE>
7
<PAGE>
FERGUSON & COMPANY OHSL
- ------------------
OAK HILLS SAVINGS AND LOAN CO., FEDERAL ASSN.
CINCINNATI,OHIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 2
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 171,315 198,380 210,828 225,547
% Change in Assets 4.30 15.80 6.27 6.98
Total Loans 138,503 144,002 158,877 167,564
Deposits 135,668 159,370 169,549 174,483
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 18,438 19,334 19,426 20,570
Tangible Capital 18,551 19,303 19,481 20,597
Core Capital 18,551 19,303 19,481 20,597
Risk-Based Capital 19,059 19,813 19,968 21,106
Equity Capital/Total Assets 10.76 9.75 9.21 9.12
Core Capital/Risk Based Assets 20.96 19.61 17.95 18.78
Core Capital/Adj Tang Assets 10.82 9.73 9.24 9.13
Tangible Cap/Tangible Assets 10.82 9.73 9.24 9.13
Risk-Based Cap/Risk-Wt Assets 21.53 20.13 18.40 19.24
PROFITABILITY:
Net Income(Loss) 1,560 1,733 1,135 981
Ret on Avg Assets Bef Ext Item 0.93 0.94 0.55 0.89
Return on Average Equity 8.24 9.18 5.73 9.82
Net Interest Income/Avg Assets 3.48 3.13 3.18 3.06
Noninterest Income/Avg Assets 0.47 0.73 0.28 0.26
Noninterest Expense/Avg Assets 2.56 2.44 2.62 1.93
Yield/Cost Spread 3.21 2.81 2.88 2.82
LIQUIDITY:
Int Earn Assets/Int Bear Liab 109.79 109.01 108.04 106.94
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.21 0.46 0.61 0.27
Nonaccrual Loans/Gross Loans 0.01 0.03 0.01 0.01
Nonaccrual Lns/Ln Loss Reserve 3.74 9.13 3.20 3.14
Repos Assets/Tot Assets - - - 0.08
Net Chrg-Off/Av Adj Lns (0.02) (0.05) 0.01 (0.02)
Nonmtg 1-4 Constr&Conv Lns/TA 16.83 14.92 17.59 17.61
</TABLE>
8
<PAGE>
FERGUSON & COMPANY PFDC
- ------------------
PEOPLES FEDERAL SAVINGS BANK OF DEKALB COUNTY
AUBURN, INDIANA
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 2
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 266,242 275,034 274,077 280,647
% Change in Assets 4.55 3.30 (0.35) 2.40
Total Loans 213,359 219,734 223,697 230,136
Deposits 229,654 234,516 233,936 239,872
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 33,241 34,692 34,056 36,037
Tangible Capital 33,241 34,680 34,061 36,056
Core Capital 33,241 34,680 34,061 36,056
Risk-Based Capital 34,074 35,520 34,929 36,931
Equity Capital/Total Assets 12.49 12.61 12.43 12.84
Core Capital/Risk Based Assets 25.71 26.32 25.63 26.16
Core Capital/Adj Tang Assets 12.49 12.62 12.43 12.85
Tangible Cap/Tangible Assets 12.49 12.62 12.43 12.85
Risk-Based Cap/Risk-Wt Assets 26.35 26.96 26.28 26.79
PROFITABILITY:
Net Income(Loss) 3,744 3,743 2,881 1,995
Ret on Avg Assets Bef Ext Item 1.44 1.38 1.05 1.44
Return on Average Equity 10.94 11.02 8.25 11.40
Net Interest Income/Avg Assets 3.74 3.59 3.71 3.62
Noninterest Income/Avg Assets 0.28 0.31 0.30 0.27
Noninterest Expense/Avg Assets 1.66 1.58 2.22 1.49
Yield/Cost Spread 3.38 3.24 3.33 3.23
LIQUIDITY:
Int Earn Assets/Int Bear Liab 111.09 111.42 111.41 111.43
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.44 0.45 0.51 0.45
Nonaccrual Loans/Gross Loans 0.31 0.30 0.27 0.27
Nonaccrual Lns/Ln Loss Reserve 66.53 77.82 69.85 70.17
Repos Assets/Tot Assets - - - 0.09
Net Chrg-Off/Av Adj Lns 0.01 0.02 0.01 0.03
Nonmtg 1-4 Constr&Conv Lns/TA 2.37 2.04 2.74 2.71
</TABLE>
9
<PAGE>
FERGUSON & COMPANY WVFC
- ------------------
WEST VIEW SAVINGS BANK
PITTSBURGH, PENNSYLVANIA
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
Number of Open Quarters 4 4 4 2
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 208,983 220,618 267,978 287,954
% Change in Assets (4.00) 5.57 21.47 7.45
Securities-Book Value 65,469 69,961 107,288 120,511
Securities-Fair Value 64,558 70,715 107,171 120,562
Total Loans & Leases 134,856 142,394 152,142 160,143
Total Deposits 178,561 176,076 171,564 176,409
Loan/Deposit Ratio 75.52 80.87 88.68 90.78
Provision for Loan Losses 211.00 181.00 135.00 -
CAPITAL:
Equity Capital 21,800 24,347 26,086 24,397
Total Qualifying Capital(Est) 23,500 25,617 27,835 26,259
Equity Capital/Average Assets 10.22 11.33 10.62 8.93
Tot Qual Cap/Rk Bsd Asts(Est) 17.29 22.26 22.28 19.87
Tier 1 Cap/Rsk Bsed Asts(Est) 16.04 21.00 21.03 18.62
T1 Cap/Avg Assets(Lev Est) 10.65 10.72 9.81 8.78
Dividends Declared/Net Income - - 10.66 205.05
PROFITABILITY:
Net Income(Loss) 2,011 2,373 2,345 1,585
Return on Average Assets 0.94 1.10 0.95 1.16
Return on Average Equity Cap 9.67 10.28 9.37 12.22
Net Interest Margin 3.37 3.91 3.79 3.60
Net Int Income/Avg Assets 3.32 3.86 3.75 3.57
Noninterest Income/Avg Assets 0.13 0.14 0.12 0.11
Noninterest Exp/Avg Assets 1.92 2.08 2.25 1.74
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 1.30 1.21 0.60 0.17
NPA's/Equity + LLR 7.44 6.58 3.25 1.04
LLR/Nonperf & Restrcd Lns 100.70 110.92 220.18 733.21
Foreclosed RE/Total Assets 0.01 0.01 - -
90+ Day Del Loans/Total Loans - - - -
Loan Loss Reserves/Total Lns 1.29 1.33 1.32 1.25
Net Charge-Offs/Average Loans 0.01 0.01 0.02 (0.00)
Dom Risk R/E Lns/Tot Dom Lns 22.49 20.51 19.13 18.76
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 5.58 7.51 5.56 6.27
Int Earn Assets/Int Bear Liab 114.26 115.00 113.25 112.41
Pledged Sec/Total Sec 3.05 19.30 6.06 7.68
Fair Value Sec/Amort Cost Sec 98.61 101.46 99.63 99.78
</TABLE>
10
<PAGE>
FERGUSON & COMPANY WYNE
- ------------------
WAYNE SAVINGS BANK, FSB
WAYNE,NEW JERSEY
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 2
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 177,175 208,416 244,328 261,334
% Change in Assets (3.49) 17.63 17.23 6.96
Total Loans 113,817 112,742 146,378 171,415
Deposits 158,989 173,804 179,213 184,982
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 16,259 17,299 26,257 26,293
Tangible Capital 16,523 17,394 26,647 26,500
Core Capital 16,523 17,394 26,647 26,500
Risk-Based Capital 17,417 18,277 26,951 27,894
Equity Capital/Total Assets 9.18 8.30 10.75 10.06
Core Capital/Risk Based Assets 20.73 22.13 26.75 22.14
Core Capital/Adj Tang Assets 9.31 8.34 10.89 10.13
Tangible Cap/Tangible Assets 9.31 8.34 10.89 10.13
Risk-Based Cap/Risk-Wt Assets 21.85 23.26 27.05 23.31
PROFITABILITY:
Net Income(Loss) 1,689 870 524 1,061
Ret on Avg Assets Bef Ext Item 0.94 0.45 0.24 0.85
Return on Average Equity 10.80 5.19 2.31 8.05
Net Interest Income/Avg Assets 3.66 3.15 3.23 3.25
Noninterest Income/Avg Assets 0.27 0.00 0.31 0.41
Noninterest Expense/Avg Assets 2.22 2.29 3.07 2.12
Yield/Cost Spread 3.65 2.90 2.98 2.98
LIQUIDITY:
Int Earn Assets/Int Bear Liab 106.64 114.04 109.26 108.12
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 4.07 3.12 1.57 1.46
Nonaccrual Loans/Gross Loans 2.98 2.26 1.41 1.38
Nonaccrual Lns/Ln Loss Reserve 224.07 161.86 116.04 127.64
Repos Assets/Tot Assets - - - 0.04
Net Chrg-Off/Av Adj Lns - 0.08 - -
Nonmtg 1-4 Constr&Conv Lns/TA 2.04 1.84 2.97 4.62
</TABLE>
11
<PAGE>
FERGUSON & COMPANY YFCB
- ------------------
YONKERS SAVINGS & LOAN ASSOCIATION
YONKERS, NEW YORK
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1995 1996 YTD 6/97
(All $ Amounts in Thousands)
Num of Quarters Open for Period 4 4 4 2
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 199,951 211,096 254,442 282,364
% Change in Assets 7.94 5.57 20.53 10.97
Total Loans 79,028 84,224 88,368 104,581
Deposits 178,130 192,324 193,641 203,504
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 14,404 16,219 35,277 36,624
Tangible Capital 14,734 16,189 34,991 36,425
Core Capital 14,734 16,189 34,991 36,425
Risk-Based Capital 15,041 16,938 35,997 37,500
Equity Capital/Total Assets 7.20 7.68 13.86 12.97
Core Capital/Risk Based Assets 18.45 18.29 34.78 34.17
Core Capital/Adj Tang Assets 7.36 7.67 13.77 12.91
Tangible Cap/Tangible Assets 7.36 7.67 13.77 12.91
Risk-Based Cap/Risk-Wt Assets 18.83 19.14 35.78 35.18
PROFITABILITY:
Net Income(Loss) 1,857 1,783 1,494 1,398
Ret on Avg Assets Bef Ext Item 0.93 0.87 0.64 1.03
Return on Average Equity 13.08 11.64 5.38 7.87
Net Interest Income/Avg Assets 3.61 3.39 3.70 3.78
Noninterest Income/Avg Assets 0.35 0.37 0.33 0.30
Noninterest Expense/Avg Assets 2.22 2.21 2.92 2.33
Yield/Cost Spread 3.57 3.30 3.39 3.42
LIQUIDITY:
Int Earn Assets/Int Bear Liab 104.88 106.54 114.11 112.55
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 3.75 4.51 4.15 1.96
Nonaccrual Loans/Gross Loans 3.56 4.50 2.91 1.17
Nonaccrual Lns/Ln Loss Reserve 364.91 298.84 258.95 114.14
Repos Assets/Tot Assets - - - 0.22
Net Chrg-Off/Av Adj Lns 0.45 (0.01) 0.54 0.06
Nonmtg 1-4 Constr&Conv Lns/TA 4.98 7.35 6.85 6.96
</TABLE>
12
<PAGE>
EXHIBIT V
<PAGE>
FERGUSON & COMPANY Exhibit V. - Pro Forma Assumptions
- ------------------
1. Net proceeds from the conversion were invested at the beginning of the
period at 5.45%, which was the approximate rate on the one-year treasury
bill on September 30, 1997. This rate was selected because it is considered
more representative of the rate the Association is likely to earn.
2. Wyman Park's ESOP will acquire 8% of the conversion stock with loan
proceeds obtained from the Holding Company; therefore, there will be no
interest expense. We assumed that the ESOP expense is one 12th annually of
the initial ESOP expense.
3. Wyman Park's RP will acquire 4% of the stock through open market
purchases at $10 per share and the expense is recognized ratably over five
years as the shares vest.
4. All pro forma income and expense items are adjusted for income taxes at
a combined state and federal rate of 38%.
5. In calculating the pro forma adjustments to net worth, the ESOP and RP
are deducted in accordance with generally accepted accounting principles.
6. Earnings per share calculations have ignored AICPA OP 93-6. Calculating
earnings per share under SOP 93-6 and assuming 8.333% of the ESOP shares
are committed to be released and allocated to individual accounts at the
beginning of the period would yield earnings per share of $.99, $0.87,
$0.79 and $0.71 and a price to earnings ratio of 10.11, 11.45, 12.69 and
14.02, at the minimum, midpoint, maximum and super maximum, respectively.
1
<PAGE>
Exhibit V
Pro Forma Effect of Conversion Proceeds
At the Minimum of the Conversion Valuation Range
30-Sep-97
<TABLE>
<CAPTION>
CAVALRY BANKING, MURFREESBORO, TENNESSEE
- -----------------------------------------------------------------------
<S> <C>
1. Conversion Proceeds
Pro Forma Market Value (Minimum) $ 48,450,000
Less: Estimated Expenses (1,002,000)
------------------
Net Conversion Proceeds $ 47,448,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 47,448,000
Less: ESOP Contributions (3,876,000)
MRP Contributions (1,938,000)
------------------
Net Conversion Proceeds after ESOP & MRP $ 41,634,000
Estimated Incremental Rate of Return(1) 3.38%
------------------
Estimated Additional Income $ 1,406,813
Less: ESOP Expense (200,260)
MRP Expense (240,312)
------------------
$ 966,241
==================
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
-------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
30-Sep-97 $ 3,474,000 $ 966,241 $ 4,440,241
b. Pro Forma Net Worth
30-Sep-97 $ 29,501,000 $ 41,634,000 $ 71,135,000
c. Pro Forma Net Assets
30-Sep-97 $ 275,925,000 $ 41,634,000 $ 317,559,000
</TABLE>
(1) Investment rate of 5.45%, subject to an effective tax rate of 38%.
2
<PAGE>
Exhibit V
Pro Forma Effect of Conversion Proceeds
At the Midpoint of the Conversion Valuation Range
30-Sep-97
<TABLE>
<CAPTION>
CAVALRY BANKING, MURFREESBORO, TENNESSEE
- -----------------------------------------------------------------------
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation (Midpoint) $ 57,000,000
Less: Estimated Expenses (1,120,000)
------------------
Net Conversion Proceeds $ 55,880,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 55,880,000
Less: ESOP Contributions (4,560,000)
MRP Contributions (2,280,000)
------------------
Net Conversion Proceeds after ESOP & MRP $ 49,040,000
Estimated Incremental Rate of Return(1) 3.38%
------------------
Estimated Additional Income $ 1,657,062
Less: ESOP Expense (235,600)
MRP Expense (282,720)
------------------
$ 1,138,742
==================
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
---------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
30-Sep-97 $ 3,474,000 $ 1,138,742 $ 4,612,742
b. Pro Forma Net Worth
30-Sep-97 $ 29,501,000 $ 49,040,000 $ 78,541,000
c. Pro Forma Net Assets
30-Sep-97 $ 275,925,000 $ 49,040,000 $ 324,965,000
</TABLE>
(1) Investment rate of 5.45%, subject to an effective tax rate of 38%.
3
<PAGE>
Exhibit V
Pro Forma Effect of Conversion Proceeds
At the Maximum of the Conversion Valuation Range
30-Sep-97
<TABLE>
<CAPTION>
CAVALRY BANKING, MURFREESBORO, TENNESSEE
- -----------------------------------------------------------------------
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation (Maximum) $ 65,550,000
Less: Estimated Expenses (1,238,000)
----------------------
Net Conversion Proceeds $ 64,312,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 64,312,000
Less: ESOP Contributions (5,244,000)
MRP Contributions (2,622,000)
----------------------
Net Conversion Proceeds after ESOP & MRP $ 56,446,000
Estimated Incremental Rate of Return(1) 3.38%
----------------------
Estimated Additional Income $ 1,907,310
Less: ESOP Expense (270,940)
MRP Expense (325,128)
----------------------
$ 1,311,242
======================
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
----------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
30-Sep-97 $ 3,474,000 $ 1,311,242 $ 4,785,242
b. Pro Forma Net Worth
30-Sep-97 $ 29,501,000 $ 56,446,000 $ 85,947,000
c. Pro Forma Net Assets
30-Sep-97 $ 275,925,000 $ 56,446,000 $ 332,371,000
</TABLE>
(1) Investment rate of 5.45%, subject to an effective tax rate of 38%.
4
<PAGE>
Exhibit V
Pro Forma Effect of Conversion Proceeds
At the SuperMax of the Conversion Valuation Range
30-Sep-97
<TABLE>
<CAPTION>
CAVALRY BANKING, MURFREESBORO, TENNESSEE
- -------------------------------------------------------------------------
1. Conversion Proceeds
Pro Forma Market Valuation (Final) $ 75,382,500
Less: Estimated Expenses $ (1,373,000)
----------------------
Net Conversion Proceeds $ 74,009,500
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 74,009,500
Less: ESOP Contributions $ (6,030,600)
MRP Contributions $ (3,015,300)
----------------------
Net Conversion Proceeds after ESOP & MRP $ 64,963,600
Estimated Incremental Rate of Return(1) 3.38%
----------------------
Estimated Additional Income $ 2,195,120
Less: ESOP Expense $ (311,581)
MRP Expense $ (373,897)
----------------------
$ 1,509,642
======================
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
-------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
30-Sep-97 $ 3,474,000 $ 1,509,642 $ 4,983,642
b. Pro Forma Net Worth
30-Sep-97 $ 29,501,000 $ 64,963,600 $ 94,464,600
c. Pro Forma Net Assets
30-Sep-97 $ 275,925,000 $ 64,963,600 $ 340,888,600
</TABLE>
(1) Investment rate of 5.45%, subject to an effective tax rate of 38%.
5
<PAGE>
Exhibit V
Pro Forma Analysis Sheet
<TABLE>
<CAPTION>
Name of Association: CAVALRY BANKING, MURFREESBORO, TENNESSEE
Date of Letter to Assn.: 20-Nov-97
Date of Market Prices: 7-Nov-97 Southeast Publicly All Publicly
Comparatives Held Thrifts Held Thrifts
----------- ------------ ------------
Symbols Value Mean Median Mean Median Mean Median
------------------------- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price-Earnings Ratio P/E
- --------------------
Last Twelve Months N/A
At Minimum of Range 10.91
At Midpoint of Range 12.36 20.92 19.48 21.66 22.44 19.87 18.87
At Maximum of Range 13.70
At SuperMax of Range 15.13
Price-Book Ratio P/B
- ----------------
Last Twelve Months N/A
At Minimum of Range 68.11%
At Midpoint of Range 72.57% 141.89 130.17 178.01 152.97 164.93 152.02
At Maximum of Range 76.27%
At SuperMax of Range 79.80%
Price-Asset Ratio P/A
- -----------------
Last Twelve Months N/A
At Minimum of Range 15.26%
At Midpoint of Range 17.54% 18.81 18.06 22.72 19.21 17.71 16.35
At Maximum of Range 19.72%
At SuperMax of Range 22.11%
Twelve Mo. Earnings Base Y $ 3,474,000
Period Ended 30-Sep-97
Book Value B $ 29,501,000
As of 30-Sep-97
Total Assets A $ 275,925,000
As of 30-Sep-97
Return on Money (1) R 3.38%
Conversion Expense X $ 1,120,000
Underwriting Commission C 0.00%
Percentage Underwritten S 0.00%
Estimate Dividend
Dollar Amount DA $ -
Yield DY
ESOP Contributions P $ 4,560,000
MRP Contributions I $ 2,280,000
ESOP Annual Expense E $ 235,600
MRP Annual Contributions M $ 282,720
Cost of ESOP Borrowings F 0.00%
</TABLE>
(1) Investment rate of 5.45%, subject to an effective tax rate of 38%.
6
<PAGE>
Exhibit V
Pro Forma Analysis Sheet
Calculation of Estimated Value (V) at Midpoint Value
1. V= P/A(A-X-P-I) $ 57,000,000
-------------------------
1-P/A(1-(CxS))
2. V= P/B(B-X-P-I) $ 57,000,000
-------------------------
1-P/B(1-(CxX))
3. V= P/E(Y-R(X+P+I)-(E+M+ST)) $ 57,000,000
------------------------------
1-P/E(R(1-(CxX))
<TABLE>
<CAPTION>
Value
Estimated Value Per Share Total Shares Date
---------------------- ------------- --------------- ----------
<S> <C> <C> <C>
$57,000,000 $10.00 5,700,000 30-Sep-97
</TABLE>
Range of Value
$57.0 million x 1.15 = $65.55 million or 6,555,000 shares at $10.00 per share.
$57.0 million x .085 = $48.45 million or 4,845,000 shares at $10.00 per share.
7
<PAGE>
EXHIBIT 99.5
CAVALRY BANKING
114 WEST COLLEGE STREET
MURFREESBORO, TENNESSEE 37130
(615) 893-1234
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON ____________ __, 1998
Notice is hereby given that a special meeting ("Special Meeting") of
members of Cavalry Banking ("Bank") will be held at the Bank's main office at
114 West College Street, Murfreesboro, Tennessee, on __________, ____________
__, 1998, at _:__ .m., Central Time. Business to be taken up at the Special
Meeting shall be:
(1) To approve an Amended Plan of Conversion adopted by the Board of
Directors on August 7, 1997 to convert the Bank from a federally chartered
mutual savings bank to a federally chartered capital stock savings bank, to be
held as a wholly-owned subsidiary of a new holding company, Cavalry Bancorp,
Inc., including the adoption of a Federal Stock Charter and Bylaws for the Bank,
and the subsequent conversion of the Bank from a federally chartered capital
stock savings bank to a Tennessee-chartered commercial bank, pursuant to the
laws of the United States and the rules and regulations of the Office of Thrift
Supervision and the laws of the State of Tennessee and the rules and regulations
of the Tennessee Department of Financial Institutions; and
(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, 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 ___________ __, 199_, and who continue
as members until the Special Meeting, and should the Special Meeting be, from
time to time, adjourned to a later time, until the final adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
IRA B. LEWIS, JR.
SECRETARY
Murfreesboro, Tennessee
__________ __, 1998
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY
BY WRITTEN INSTRUMENT DELIVERED TO IRA B. LEWIS, JR., SECRETARY, CAVALRY
BANKING, AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING.
<PAGE>
CAVALRY BANKING
114 WEST COLLEGE STREET
MURFREESBORO, TENNESSEE 37130
(615) 893-1234
PROXY STATEMENT
__________ __, 1998
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
CAVALRY BANKING FOR USE AT A SPECIAL MEETING OF MEMBERS TO BE HELD ON
__________, ____________ __, 1998, AND ANY ADJOURNMENT OF THAT MEETING, FOR THE
PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF
DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members ("Special Meeting") of Cavalry Banking
("Bank") will be held at the Bank's main office at 114 West College Street,
Murfreesboro, Tennessee, on __________, ____________ __, 1998, at _:__ .m.,
Central Time, for the purpose of considering and voting upon an Amended Plan of
Conversion from Federal Mutual Savings Bank to State Chartered Commercial Bank
and Formation of a Holding Company ("Plan of Conversion"), which, if approved by
a majority of the total votes of the members eligible to be cast, will permit
the Bank to convert from a federally chartered mutual savings bank to a
federally chartered capital stock savings bank to be held as a subsidiary of
Security Bancorp, Inc. ("Holding Company"), a newly organized Tennessee
corporation formed by the Bank ("Stock Conversion"). The conversion of the Bank
to a federally chartered capital stock savings bank and its acquisition by the
Holding Company are collectively referred to herein as the "Stock Conversion."
Following completion of the Stock Conversion, the Bank may convert from a
federally chartered capital stock savings bank to a Tennessee chartered
commercial bank as a subsidiary of the Holding Company ("Bank Conversion"),
subject to the discretion of the Bank's Board of Directors. The Stock Conversion
and the Bank Conversion are referred to herein collectively as the "Conversion."
Members entitled to vote on the Plan of Conversion are members of the Bank
as of ___________ __, 199_ ("Voting Record Date") 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. The Conversion
requires the approval of not less than a majority of the total votes eligible to
be cast at the Special Meeting.
The Plan of Conversion provides, among other things, that, after receiving
final authorization from the Office of Thrift Supervision ("OTS"), the Bank will
offer for sale shares of common stock of the Holding Company ("Common Stock"),
through the issuance of nontransferable subscription rights ("Subscription
Rights"), first to depositors of the Bank with $50.00 or more on deposit as of
June 30, 1996 ("Eligible Account Holders"), then to the Bank's employee stock
ownership plan ("ESOP"), then to depositors of the Bank with $50.00 or more on
deposit as of December 31, 1997 ("Supplemental Eligible Account Holders"), then
to depositors of the Bank as the Voting Record Date and borrowers of the Bank
with loans outstanding as of January 24, 1991, which continue to be outstanding
as of the Voting Record Date ("Other Members"), in a subscription offering
("Subscription Offering"), and then, if necessary, to certain members of the
general public in a direct community offering ("Direct Community Offering").
The Subscription and Direct Community Offerings are referred to herein as the
"Subscription and Direct Community Offerings." It is anticipated that shares of
Common Stock not subscribed for in the Subscription and Direct Community
Offerings will be offered to the general public with the assistance of Trident
Securities, Inc. ("Trident Securities") and, if necessary, a syndicate of
registered broker-dealers to be managed by Trident Securities pursuant to
selected dealers' agreements in a syndicated offering ("Syndicated Community
Offering"). The Subscription, Direct Community and Syndicated Community
Offerings are referred to herein as the "Offerings."
1
<PAGE>
Adoption of a Federal Stock Charter ("Federal Stock Charter") and Bylaws
("Bylaws") of the Bank is an integral part of the Plan of Conversion. Copies of
the Plan of Conversion and the proposed Federal Stock Charter and Bylaws for the
Bank are attached to this Proxy Statement as exhibits. They provide, among
other things, for the termination of voting rights of members and of their
rights to receive any surplus remaining after liquidation of the Bank. These
rights, except for the rights of Eligible Account Holders and Supplemental
Eligible Account Holders in the liquidation account, will vest exclusively in
the holders of the stock in the Holding Company and the Bank. For further
information, see "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Bank."
CAVALRY BANKING
The Bank is a federally chartered mutual savings bank located in
Murfreesboro, Tennessee, which is approximately 30 miles southeast of Nashville,
Tennessee. Chartered in 1929 as a Tennessee-chartered mutual building and loan
association under the name "Murfreesboro Building and Loan Association," the
Bank converted to a federal charter and adopted the name "Murfreesboro Federal
Savings and Loan Association," in 1936. In 1984, the Bank adopted the name
"Cavalry Banking Federal Savings and Loan Association." In 1991, the Bank
adopted the name "Cavalry Banking, A Federal Savings Bank," and in 1996 the Bank
amended its mutual charter to adopt its current name. As a result of the
Conversion, the Bank will convert to a federal capital stock savings bank and
will become a wholly-owned subsidiary of the Holding Company. The Bank is
regulated by the OTS, its primary regulator, and by the Federal Deposit
Insurance Corporation ("FDIC"), the insurer of its deposits. The Bank's
deposits have been federally-insured since 1936 and are currently insured by the
FDIC under the Savings Association Insurance Fund. The Bank has been a member
of the Federal Home Loan Bank System since 1936. At September 30, 1997, the
Bank had total assets of $275.9 million, total deposits of $242.0 million and
total equity of $29.5 million on a consolidated basis.
The Bank is a community-oriented financial institution whose primary
business is attracting deposits from the general public and using those funds to
originate a variety of loans to individuals residing within its primary market
area, and to businesses owned and operated by such individuals. The Bank
considers Rutherford, Bedford and Williamson Counties in Central Tennessee as
its primary market area.
The Bank believes that its operations more closely resemble those of a
traditional commercial bank than a traditional thrift institution. Unlike a
traditional thrift institution that primarily originates long-term residential
mortgage loans funded primarily with long term certificates of deposits, a
traditional commercial bank primarily originates commercial business, consumer
and other short term non-real estate loans funded primarily by non-interest
bearing demand deposit accounts and other short term liabilities. The Bank's
one- to- four family mortgage loan portfolio, as a percent of the total loan
portfolio, has decreased from 50.6% at December 31, 1992 to 32.7% at September
30, 1997. In addition, the Bank's certificates of deposit, as a percentage of
deposit accounts, have decreased from 60.7% at December 31, 1994 to 54.6% at
September 30, 1997. In addition to the change in its asset and liability mix,
the Bank is one of the few thrift institutions in its primary market area that
offers trust services. See "BUSINESS OF THE BANK -- Lending Activities," "--
Deposit Activities and Other Sources of Funds --Deposit Accounts" and "-- Trust
Department" contained in the Prospectus.
The Bank's lending activities are diverse. The Bank originates both
adjustable rate mortgage ("ARM") loans and fixed-rate mortgage loans.
Generally, ARM loans are retained in the Bank's portfolio and long-term fixed-
rate mortgage loans are originated for sale in the secondary market. In
addition, the Bank actively originates construction and acquisition and
development loans. At September 30, 1997, construction loans totalled $68.8
million, or 26.7% of total loans receivable, and acquisition and development
loans totalled $10.6 million, or 4.1% of total loans receivable. The Bank also
originates commercial real estate, commercial business, and consumer and other
non-real estate loans. At September 30, 1997, commercial real estate loans
totalled $37.1 million, or 14.4% of total loans receivable, commercial business
loans totalled $22.1 million, or 8.6% of total loans receivable, and consumer
and other non-real estate loans totalled $33.3 million, or 12.9% of total loans
receivable. The Bank invests its excess liquidity in short-term U.S. Government
and agency securities.
2
<PAGE>
The Bank conducts its operations from its main office and four branch
offices located in Murfreesboro, Tennessee, a branch office in Shelbyville,
Tennessee (Bedford County) and three offices in Smyrna, Tennessee (Rutherford
County). The Bank also operates a mortgage loan origination office in Franklin,
Tennessee (Williamson County). See "BUSINESS OF THE BANK -- Properties" in the
Prospectus. The main office is located at 114 West College Street,
Murfreesboro, Tennessee 37130 and its telephone number is (615) 893-1234.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The Bank's Board of Directors has fixed the close of business on
___________ __, 199_ as the record date for the determination of members
entitled to notice of and to vote at the Special Meeting. All holders of the
Bank's savings or other authorized accounts are members of the Bank under its
current charter. All members of record as of the close of business on the
Voting Record Date who continue to be members on the date of the Special Meeting
or any adjournment thereof will be entitled to vote at the Special Meeting or
such adjournment.
Each eligible 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 the depositor's savings accounts in the Bank as of the Voting
Record Date. Borrowers with loans outstanding as of January 24, 1991 which
continue to be outstanding as of the Voting Record Date will be entitled to cast
one vote for the period of time such borrowings remain in existence. No member
is entitled to cast more than 1,000 votes. Any number of members present and
voting, represented in person or by proxy, at the Special Meeting will
constitute a quorum.
Approval of the Plan of Conversion will require the affirmative vote of 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 may be cast by depositor members and _____ votes may be cast by
borrower members.
PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible
member to vote on the Plan of Conversion. All properly executed proxies
received by management will be voted in accordance with the instructions
indicated thereon by the members giving such proxies. If no instructions are
given, such proxies will be voted in favor of the Plan of Conversion. If any
other matters are properly presented at the Special Meeting and may properly be
voted on, all proxies will be voted on such matters in accordance with the best
judgment of the proxy holders named therein. If the enclosed proxy is returned,
it may be revoked at any time before it is voted by written notice to the
Secretary of the Bank, by submitting a later dated proxy, or by attending and
voting in person at the Special Meeting. The proxies being solicited are only
for use at the Special Meeting and at any and all adjournments thereof and will
not be used for any other meeting. Management is not aware of any other
business to be presented at the Special Meeting.
The Bank, as trustee for individual retirement accounts at the Bank, will
vote in favor of the Plan of Conversion, unless the beneficial owner executes
and returns the enclosed proxy for the Special Meeting or attends the Special
Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by representatives of Trident Securities and by
officers, directors or regular employees of the Bank, in person, by telephone or
through other forms of communication. Such persons will be reimbursed by the
Bank for their reasonable out-of-pocket expenses incurred in connection with
such solicitation. If necessary, the Special Meeting may be adjourned to an
alternative date.
3
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PLAN
OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY
VOTER TO PURCHASE ANY STOCK.
THE CONVERSION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY
THE MEMBERS OF THE BANK ENTITLED TO VOTE THEREON AND TO THE SATISFACTION OF
CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL. OTS APPROVAL DOES
NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION.
GENERAL
On August 7, 1997, the Board of Directors of the Bank unanimously adopted,
and on December 11, 1997 unamimously amended the Plan of Conversion, pursuant
to which the Bank will be converted from a federally chartered mutual savings
bank to a federally chartered stock savings bank and, in the discretion of the
Board of Directors, subsequently convert to a Tennessee-chartered commercial
bank held by the Holding Company, a newly formed Tennessee corporation. THE
FOLLOWING DISCUSSION OF THE PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PLAN OF CONVERSION, WHICH IS ATTACHED AS EXHIBIT A TO THE
BANK'S PROXY STATEMENT AND IS AVAILABLE TO MEMBERS OF THE BANK UPON REQUEST. The
Plan of Conversion is also filed as an exhibit to the Registration Statement.
See "ADDITIONAL INFORMATION." The OTS has approved the Plan of Conversion
subject to its approval by the members of the Bank entitled to vote on the
matter at the Special Meeting, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval.
If the Board of Directors of the Bank decides for any reason, such as
possible delays resulting from overlapping regulatory processing or policies or
conditions that could adversely affect the Bank's or the Holding Company's
ability to consummate the Stock Conversion and transact its business as
contemplated herein and in accordance with the Bank's operating policies, at any
time prior to the issuance of the Common Stock, not to use the holding company
form of organization in implementing the Stock Conversion, the Plan of
Conversion will be amended to not use the holding company form of organization
in the Stock Conversion. In the event that such a decision is made, the Bank
will promptly refund all subscriptions or orders received together with accrued
interest, will withdraw the Holding Company's registration statement from the
SEC and will take all steps necessary to complete the Stock Conversion and
proceed with a new offering without the Holding Company, including filing any
necessary documents with the OTS. In such event, and provided there is no
regulatory action, directive or other consideration upon which basis the Bank
determines not to complete the Conversion, the Bank will issue and sell the
common stock of the Bank. There can be no assurance that the OTS would approve
the Stock Conversion if the Bank decided to proceed without the Holding Company.
The following description of the Plan of Conversion assumes that a holding
company form of organization will be utilized in the Stock Conversion. In the
event that a holding company form of organization is not utilized, all other
pertinent terms of the Plan of Conversion as described below will apply to the
conversion of the Bank from mutual to stock form of organization and the sale of
the Bank's common stock.
The Stock Conversion will be accomplished through adoption of a Federal
Stock Charter and Bylaws to authorize the issuance of capital stock by the Bank,
the issuance of all the Bank's capital stock to be outstanding upon consummation
of the Stock Conversion to the Holding Company, the offer and sale of the Common
Stock of the Holding Company and, if undertaken, the Bank Conversion. Upon
issuance of the Bank's shares of capital stock to the Holding Company, the Bank
will be a wholly owned subsidiary of the Holding Company. If undertaken, the
Bank Conversion, whereby the Bank would convert to a Tennessee-chartered
commercial bank, would be undertaken after the Stock Conversion. Pursuant to the
Plan of Conversion, 4,845,000 to 6,555,000 shares of Common Stock are being
offered for sale by the Holding Company at the Purchase Price of $10.00 per
share. As part of the Stock Conversion, the Bank will issue all of its newly
issued common stock (1,000 shares) to the Holding Company in exchange for 50% of
the net proceeds from the sale of Common Stock by the Holding Company.
4
<PAGE>
The Plan of Conversion provides generally that: (i) the Bank will convert
from a federally chartered mutual savings bank to a federally chartered stock
savings bank; (ii) the Common Stock will be offered by the Holding Company in
the Subscription Offering to persons having Subscription Rights; (iii) if
necessary, shares of Common Stock not subscribed for in the Subscription
Offering will be offered in a Direct Community Offering to certain members of
the general public, with preference given to natural persons and trusts of
natural persons residing in the Local Community (Rutherford and Bedford
Counties of Tennessee) and then to certain members of the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
pursuant to selected dealers agreements; (iv) the Holding Company will purchase
all of the capital stock of the Bank to be issued in connection with the
Conversion; and (v) subject to the discretion of the Board of Directors, the
Bank would convert to a Tennessee-chartered commercial bank. The Stock
Conversion will be effected only upon completion of the sale of at least
$48,450,000 of Common Stock to be issued pursuant to the Plan of Conversion.
As part of the Stock Conversion, the Holding Company is making a
Subscription Offering of its Common Stock to holders of Subscription Rights in
the following order of priority: (i) Eligible Account Holders (depositors with
$50.00 or more on deposit as of June 30, 1996); (ii) the Bank's ESOP; (iii)
Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit
as of December 31, 1997); and (iv) Other Members (depositors of the Bank as of
____________ __, 1997 and borrowers of the Bank with loans outstanding as of
January 24, 1991, which continue to be outstanding as of ___________ __, 1997).
Shares of Common Stock not subscribed for in the Subscription Offering may
be offered for sale in the Direct Community Offering to members of the general
public, with priority being given to natural persons and trusts of natural
persons residing in the Local Community. The Direct Community Offering, if one
is held, is expected to begin immediately after the Expiration Date, but may
begin at any time during the Subscription Offering. Shares of Common Stock not
sold in the Subscription and Direct Community Offerings may be offered in the
Syndicated Community Offering. Regulations require that the Direct Community and
Syndicated Community Offerings be completed within 45 days after completion of
the fully extended Subscription Offering unless extended by the Bank or the
Holding Company with the approval of the regulatory authorities. If the
Syndicated Community Offering is determined not to be feasible, the Board of
Directors of the Bank will consult with the regulatory authorities to determine
an appropriate alternative method for selling the unsubscribed shares of Common
Stock. The Plan of Conversion provides that the Stock Conversion must be
completed within 24 months after the date of the approval of the Plan of
Conversion by the members of the Bank.
No sales of Common Stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offerings unless the
Plan of Conversion is approved by the members of the Bank.
The completion of the Offerings, however, is subject to market conditions
and other factors beyond the Bank's control. No assurance can be given as to the
length of time after approval of the Plan of Conversion at the Special Meeting
that will be required to complete the Direct Community or Syndicated Community
Offerings or other sale of the Common Stock. If delays are experienced,
significant changes may occur in the estimated pro forma market value of the
Holding Company and the Bank as converted, together with corresponding changes
in the net proceeds realized by the Holding Company from the sale of the Common
Stock. In the event the Stock Conversion is terminated, the Bank would be
required to charge all Stock Conversion expenses against current income.
Orders for shares of Common Stock will not be filled until at least
4,845,000 shares of Common Stock have been subscribed for or sold and the OTS
approves the final valuation and the Stock Conversion closes. If the Stock
Conversion is not completed within 45 days after the last day of the fully
extended Subscription Offering and the OTS consents to an extension of time to
complete the Stock Conversion, subscribers will be given the right to increase,
decrease or rescind their subscriptions. Unless an affirmative indication is
received from subscribers that they wish to continue to subscribe for shares,
the funds will be returned promptly, together with accrued interest at the
Bank's passbook rate from the date payment is received until the funds are
returned to the subscriber. If such period is not extended, or, in any event, if
the Stock Conversion is not completed, all withdrawal authorizations will
5
<PAGE>
be terminated and all funds held will be promptly returned together with accrued
interest at the Bank's passbook rate from the date payment is received until the
Stock Conversion is terminated.
PURPOSES OF CONVERSION
The Board of Directors and management believe that the Conversion is in the
best interests of the Bank, its members and the communities it serves. The
Bank's Board of Directors has formed the Holding Company to serve as a holding
company, with the Bank as its subsidiary, upon the consummation of the
Conversion. By converting to the stock form of organization, the Holding Company
and the Bank will be structured in the form used by holding companies of
commercial banks and by a growing number of savings institutions. Management of
the Bank believes that the Conversion offers a number of advantages which will
be important to the future growth and performance of the Bank. The capital
raised in the Conversion is intended to support the Bank's current lending and
investment activities and may also support possible future expansion and
diversification of operations, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any such expansion or
diversification. The Conversion is also expected to afford the Bank's members
and others the opportunity to become stockholders of the Holding Company and
participate more directly in, and contribute to, any future growth of the
Holding Company and the Bank. The Conversion will also enable the Holding
Company and the Bank to raise additional capital in the public equity or debt
markets should the need arise, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any such financing
activities. The Bank, as a mutual savings bank, does not have the authority to
issue capital stock or debt instruments, other than by accepting deposits.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE BANK
VOTING RIGHTS. Savings members and borrowers will have no voting
rights in the converted Bank or the Holding Company and therefore will not be
able to elect directors of the Bank or the Holding Company or to control their
affairs. Currently, these rights are accorded to savings members of the Bank.
Subsequent to the Stock Conversion, voting rights will be vested exclusively in
the Holding Company with respect to the Bank and the holders of the Common Stock
as to matters pertaining to the Holding Company. Each holder of Common Stock
shall be entitled to vote on any matter to be considered by the stockholders of
the Holding Company. A stockholder will be entitled to one vote for each share
of Common Stock owned.
After the Bank Conversion, if undertaken, holders of savings accounts in
and obligors on loans of the Bank will not have voting rights in the Bank.
Exclusive voting rights with respect to the Holding Company shall be vested in
the holders of the Common Stock, account holders and borrowers of the 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 Bank's capital stock.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, account balances
and existing FDIC insurance coverage of savings accounts will not be affected by
the Conversion. Furthermore, the Conversion will not affect the loan accounts,
loan balances or obligations of borrowers under their individual contractual
arrangements with the Bank.
TAX EFFECTS. The Bank has received an opinion from Breyer & Aguggia,
Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Bank in its
mutual or stock form by reason of the Stock Conversion; (ii) no gain or loss
will be recognized to its account holders upon the issuance to them of accounts
in the Bank immediately after the Stock Conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at the Bank in its mutual
form plus interest in the liquidation account; (iii) the tax basis of account
holders' accounts in the Bank immediately after the Stock Conversion will be the
same as the tax basis of their accounts immediately prior to Stock Conversion;
(iv) the tax basis of each account holder's interest in the liquidation account
will be zero; (v) the tax basis of the Common Stock purchased in the Stock
Conversion will be
6
<PAGE>
the amount paid and the holding period for such stock will commence at the date
of purchase; (vi) no gain or loss will be recognized to account holders upon the
receipt or exercise of Subscription Rights in the Conversion, except to the
extent Subscription Rights are deemed to have value as discussed below; and
(vii) if the Bank Conversion is undertaken, the Bank (as a Tennessee-chartered
commercial bank), will be required to restate its tax reserve for bad debt to a
level generally based on its bad debt experience and the excess of the restated
amount is required to be included in its taxable income ratably over a six year
period. Unlike a private letter ruling issued by the IRS, an opinion of counsel
is not binding on the IRS and the IRS could disagree with the conclusions
reached therein. In the event of such disagreement, no assurance can be given
that the conclusions reached in an opinion of counsel would be sustained by a
court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the Subscription Rights are deemed to have a
fair market value. Ferguson, a financial consulting firm retained by the Bank,
whose findings are not binding on the IRS, has issued a letter indicating that
the Subscription Rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration and afford the recipients the right only to purchase shares of
the Common Stock at a price equal to its estimated fair market value, which will
be the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of Common Stock. If the Subscription Rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their Subscription Rights. The Bank could also recognize a
gain on the distribution of such Subscription Rights. 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 the
Subscription Rights are deemed to have a fair market value.
The Bank has also received an opinion from Bass, Berry & Sims PLC,
Nashville, Tennessee, that, assuming the Conversion does not result in any
federal income tax liability to the Bank, its account holders, or the Holding
Company, implementation of the Plan of Conversion will not result in any
Tennessee income tax liability to such entities or persons.
The opinions of Breyer & Aguggia and Bass, Berry & Sims PLC and the letter
from Ferguson are filed as exhibits to the Registration Statement. See
"ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, each depositor in the Bank would receive a
pro rata share of any assets of the Bank remaining after payment of claims of
all creditors (including the claims of all depositors up 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 account to the total
value of all deposit accounts in the Bank at the time of liquidation.
After the Stock Conversion, holders of withdrawable deposit(s) in the Bank,
including certificates of deposit ("Savings Account(s)"), shall not be entitled
to share in any residual assets in the event of liquidation of the Bank.
However, pursuant to OTS regulations, the Bank shall, at the time of the Stock
Conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
herein.
The liquidation account shall be maintained by the 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 Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder shall, with
respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
7
<PAGE>
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Bank subsequent to June 30, 1996 or December 31, 1997 is less
than the lesser of (i) the deposit balance in such Savings Account at the close
of business on any other annual closing date subsequent to June 30, 1996 or
December 31, 1997 or (ii) the amount of the "qualifying deposit" in such Savings
Account on June 30, 1996 or December 31, 1997, 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, such 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.
In the event of a complete liquidation of the 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 balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another federally insured institution in which the Bank is not the
surviving institution shall be considered to be a complete liquidation. In any
such transaction the liquidation account shall be assumed by the surviving
institution.
If undertaken, the Bank Conversion shall not be deemed to be a complete
liquidation of the Bank for purposes of the distribution of the liquidation
account. The liquidation account, and all rights and obligations of the Bank in
connection therewith, would be assumed by the Bank as a Tennessee-chartered
commercial bank.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion pursuant to this part
may obtain review of such action by filing in the court of appeals of the United
States 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, a written petition praying that the final action of the OTS be
modified, terminated or set aside. Such petition must be filed within 30 days
after the publication of notice of such final action in the Federal Register, or
----------------
30 days after the mailing by the applicant of the notice to members as provided
for in 12 C.F.R. (S)563b.6(c), whichever is later. The further procedure for
review is as follows: A copy of the petition is forthwith transmitted to the OTS
by the clerk of the court and thereupon the OTS files in the court the record in
the proceeding, as provided in Section 2112 of Title 28 of the United States
Code. Upon the filing of the petition, the court has jurisdiction, which upon
the filing of the record is exclusive, to affirm, modify, terminate, or set
aside in whole or in part, the final action of the OTS. Review of such
proceedings is as provided in Chapter 7 of Title 5 of the United States Code.
The judgment and decree of the court is final, except that they are subject to
review by the United States Supreme Court upon certiorari as provided in Section
1254 of Title 28 of the United States Code.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-40057) under the Securities Act of 1933, as amended, with
respect to the Common Stock offered in the Conversion. The accompanying
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. Such information may be inspected at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C.
8
<PAGE>
20549 and at its regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies may be obtained at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Registration Statement also is available through the SEC's World Wide Web
site on the Internet (http://www.sec.gov).
The Bank has filed with the OTS an Application for Approval of Conversion.
The accompanying Prospectus omits certain information contained in such
Application. The Application, including exhibits and certain other information
that are a part thereof, may be inspected, without charge, at the offices of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the office of the
Regional Director of the OTS at the Central Regional Office of the OTS, Madison
Plaza, 200 West Madison Street, Suite 1300, Chicago, Illinois 60606.
Copies of the Holding Company's Charter and Bylaws may be obtained by
written request to the Bank.
All persons eligible to vote at the Special Meeting should review both this
Proxy Statement and the accompanying Prospectus carefully. However, no person is
obligated to purchase any Common Stock. For additional information, you may call
the Stock Information Center at (615) ___-____.
BY ORDER OF THE BOARD OF DIRECTORS
IRA B. LEWIS, JR.
SECRETARY
Murfreesboro, Tennessee
__________ __, 1998
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND THE PROSPECTUS 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 STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS IN THOSE
JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
9
<PAGE>
EXHIBIT A
CAVALRY BANKING
MURFREESBORO, TENNESSEE
AMENDED PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS BANK
TO STATE CHARTERED COMMERCIAL BANK
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
------------
I. General
-------
On August 7, 1997, the Board of Directors of Cavalry Banking, Murfreesboro,
Tennessee ("Savings Bank"), after careful study and consideration, adopted, and
on December 11, 1997, subsequently amended, by unanimous vote this Plan of
Conversion ("Plan"), which provides for (i) the conversion of the Savings Bank
from a federally chartered mutual savings bank to a federally chartered stock
savings bank ("Converted Savings Bank"), (ii) the concurrent formation of a
holding company for the Converted Savings Bank ("Holding Company"), and (iii) in
the discretion of the Board of Directors, the subsequent conversion of the
Converted Savings Bank from a federally chartered stock savings bank to a
Tennessee chartered commercial bank ("Converted Bank"). The conversion of the
Savings Bank to the Converted Savings Bank, the acquisition of control of the
Converted Savings Bank by the Holding Company and the issuance of stock by the
Holding Company as provided herein, are collectively referred to herein as the
"Stock Conversion." The conversion of the Converted Savings Bank to the
Converted Bank is referred to herein as the "Bank Conversion." The Stock
Conversion and the Bank Conversion are referred to herein collectively as the
"Conversion."
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to this Plan, shares of Conversion Stock will be offered as part
of the Stock Conversion in a Subscription Offering pursuant to nontransferable
Subscription Rights at a predetermined and uniform price first to the Savings
Bank's Eligible Account Holders, second to the Tax-Qualified Employee Stock
Benefit Plans, third to Supplemental Eligible Account Holders, and fourth to
Other Members of the Savings Bank. Shares not subscribed for in the
Subscription Offering will be offered as part of the Stock Conversion to the
general public in a Direct Community Offering. Shares still remaining may then
be offered to the general public in a Syndicated Community Offering, an
underwritten public offering, or otherwise. The aggregate Purchase Price of the
Conversion Stock will be based upon an independent appraisal of the Savings Bank
and will reflect the estimated pro forma market value of the Converted Bank, as
a subsidiary of the Holding Company.
Consummation of the Bank Conversion is subject to the discretion of the
Board of Directors of the Savings Bank as set forth in Paragraph VIII.B. herein.
If the Bank Conversion is undertaken, the Holding Company, as the sole
stockholder of the Converted Savings Bank, shall approve the Bank Conversion,
and the Converted Savings Bank shall take such actions as may be necessary to
consummate the Bank Conversion.
The Stock Conversion is subject to regulations of the Director of the OTS
(Part 563b of the Rules and Regulations Applicable to All Savings Associations)
as promulgated pursuant to Section 5(i) of the Home Owners' Loan Act.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by the affirmative vote of Members of the Savings
Bank holding not less than a majority of the total votes eligible to be cast at
a special meeting of the Members to be called to consider the Conversion.
Consummation of the Bank Conversion, if undertaken, would also require approval
of the Tennessee Commissioner of the Department of Financial Institutions and
the Federal Reserve Board.
<PAGE>
It is the desire of the Board of Directors to attract new capital to the
Savings 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, to facilitate
future expansion and, because applicable laws and regulations do not provide for
the organization of mutual commercial banks, to enable the Savings Bank to
complete the Bank Conversion. In addition, the Board of Directors intends to
implement stock option plans and other stock benefit plans as part of the
Conversion in order to attract and retain qualified directors and officers. If
undertaken, the purpose of the Bank Conversion would be to provide the Savings
Bank with additional operating flexibility and enhance its ability to provide a
full range of banking products and services to its community. It is not
anticipated that the Savings Bank is engaged in any activities or currently has
any assets which are not authorized for Tennessee chartered commercial banks.
The Savings Bank is currently significantly in excess of the OTS reserve and
liquidity requirements and, if the Bank Conversion is undertaken, would be
significantly in excess of the Commissioner's and FDIC's requirements upon
conversion to a Tennessee chartered commercial bank. It is the further desire
of the Board of Directors to reorganize the Converted Savings Bank (or the
Converted Bank upon the Bank Conversion) as the wholly owned subsidiary of the
Holding Company to enhance flexibility of operations, diversification of
business opportunities and financial capability for business and regulatory
purposes and to enable the Converted Bank to compete more effectively with other
financial service organizations.
No change will be made in the Board of Directors or management of the
Savings Bank as a result of the Conversion.
II. Definitions
-----------
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (1) Knowing participation in a joint activity or
-----------------
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (2) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined herein) who acts 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.
B. Associate: When used to indicate a relationship with any Person,
---------
means (1) any corporation or organization (other than the Savings Bank or a
majority-owned subsidiary of the Savings Bank, or the Holding Company) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (2)
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 it does not include a Tax-Qualified Employee Stock Benefit
Plan and (3) any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person or who is a director or officer of
the Savings Bank, any of its subsidiaries, or the Holding Company.
C. Bank Conversion: The conversion of the Converted Savings Bank from a
---------------
federally chartered capital stock savings bank to a Tennessee chartered
commercial bank.
D. Capital Stock: Any and all authorized stock in the Savings Bank, as
-------------
converted.
E. Commissioner: The Commissioner of the Department of Financial
------------
Institutions of the State of Tennessee.
A-2
<PAGE>
F. Common Stock: Any and all authorized common stock in the Holding
------------
Company subsequent to the Conversion.
G. Conversion: Except as provided in Paragraph III.F herein, the term
----------
"Conversion" means the Stock Conversion and the Bank Conversion.
H. Conversion Stock: Holding Company stock to be issued and sold by the
----------------
Holding Company pursuant to the Plan.
I. Converted Savings Bank: Cavalry Banking, in its form as a federally
----------------------
chartered capital stock savings bank resulting from the conversion of the
Savings Bank to the stock form of organization in connection with the Stock
Conversion.
J. Converted Bank: The Tennessee chartered commercial bank resulting
--------------
from the Bank Conversion.
K. Direct Community Offering: The offering for sale of Conversion Stock
-------------------------
to the public.
L. Eligibility Record Date: June 30, 1996.
-----------------------
M. Eligible Account Holder: Holder of a Qualifying Deposit in the
-----------------------
Savings Bank on the Eligibility Record Date.
N. FDIC: Federal Deposit Insurance Corporation.
----
O. Federal Reserve Board: The Board of Governors of the Federal Reserve
---------------------
System.
P. Form AC Application: The application submitted to the OTS for
-------------------
approval of the Stock Conversion.
Q. H-(e)1 Application: The application submitted to the OTS on OTS Form
------------------
H-(e)1 or Form H-(e)1-S, if applicable, for approval of the Holding Company's
acquisition of all of the Capital Stock.
R. Holding Company: A corporation to be formed by the Savings Bank under
---------------
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
common stock of the Converted Savings Bank to be issued pursuant to the Plan.
S. Holding Company Stock: Any and all authorized stock of the Holding
---------------------
Company.
T. Local Community: Rutherford and Bedford Counties, Tennessee.
---------------
U. Market Maker: A dealer (i.e., any Person who engages directly or
------------
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (1) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (2) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
V. Members: All Persons or entities who qualify as members of the
-------
Savings Bank pursuant to its Charter and Bylaws prior to the Conversion.
W. Officer: An executive officer of the Savings Bank, which includes the
-------
Chairman of the Board, President, Executive Vice President, Senior Vice
Presidents, Vice Presidents in charge of principal business functions, the
Secretary and the Treasurer as well as any other person performing similar
functions.
A-3
<PAGE>
X. Order Forms: Forms to be used for the purchase of Conversion Stock
-----------
sent to Eligible Account Holders and other parties eligible to purchase
Conversion Stock in the Subscription Offering pursuant to the Plan.
Y. Other Member: Holder of a Savings Account (other than Eligible
------------
Account Holders and Supplemental Eligible Account Holders) from the Savings Bank
as of the Record Date.
Z. OTS: Office of Thrift Supervision of the United States Department of
---
the Treasury.
AA. OTS Bank Conversion Application: The application submitted to the OTS
-------------------------------
for approval of the Bank Conversion.
BB. Person: An individual, corporation, partnership, association, joint
------
stock company, trust, unincorporated organization or a government or any
political subdivision thereof.
CC. Plan: This Plan of Conversion, as may be subsequently amended, which
----
provides for the conversion of the Savings Bank from a federally chartered
mutual savings bank to a federally chartered capital stock savings bank (i.e.,
the Converted Savings Bank), the concurrent formation of a holding company for
the Converted Savings Bank, and, at the discretion of the Board of Directors,
the subsequent conversion of the Converted Savings Bank from a federally
chartered capital stock savings bank to a Tennessee chartered commercial bank
(i.e., the Converted Bank).
DD. Qualifying Deposit: The deposit balance in any Savings Account, and
------------------
any certificate of deposit, demand deposit accounts and noninterest-bearing
deposit accounts, as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable; provided, however, that no Savings
Account with a deposit balance of less than $50 shall constitute a Qualifying
Deposit.
EE. Record Date: Date which determines which Members are entitled to
-----------
vote at the Special Meeting.
FF. Registration Statement: The registration statement on Form S-1 or
----------------------
other applicable forms filed by the Holding Company with the SEC for the purpose
of registering the Conversion Stock under the Securities Act of 1933, as
amended.
GG. Savings Account(s): Withdrawable deposit(s) in the Savings Bank,
------------------
Converted Savings Bank or Converted Bank, as applicable.
HH. Savings Bank: Cavalry Banking, in its present form as a federally
------------
chartered mutual savings bank.
II. SEC: Securities and Exchange Commission.
---
JJ. Special Meeting: The special meeting of Members called for the
---------------
purpose of considering the Plan for approval.
KK. Stock Conversion: The conversion of the Savings Bank from a federally
----------------
chartered mutual savings bank to a federally chartered capital stock savings
bank through amendment of the Savings Bank's federal Charter and Bylaws, the
issuance and sale to the Holding Company of all the Capital Stock issued by the
Converted Savings Bank in connection therewith, and the issuance by the Holding
Company of the Conversion Stock, all in accordance with the Plan.
LL. Subscription Offering: The offering of Conversion Stock to Eligible
---------------------
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
A-4
<PAGE>
MM. Subscription Rights: Nontransferable, nonnegotiable, personal rights
-------------------
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
NN. Supplemental Eligibility Record Date: The last day of the calendar
------------------------------------
quarter preceding the approval of the Plan by the OTS.
OO. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
------------------------------------
in the Savings Bank (other than an Officer or director or their Associates) on
the Supplemental Eligibility Record Date.
PP. Tax Qualified Employee Stock Benefit Plan: Any defined benefit plan or
-----------------------------------------
defined contribution plan of the Savings Bank or Holding Company, such as an
employee stock ownership plan, 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. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
QQ. Tennessee Conversion Application: The application submitted to the
--------------------------------
Commissioner for the approval of the Bank Conversion.
RR. Y-3 Application: The application submitted to the Federal Reserve
---------------
Board on Federal Reserve Board Form FR Y-3 for approval for the Holding Company
to maintain control of the Converted Bank.
III. Steps Prior to Submission of the Plan to the Members for Approval
-----------------------------------------------------------------
Prior to submission of the Plan to the Members for approval, the Savings
Bank must receive approval from the OTS of the Form AC Application. Prior to
such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less than
two-thirds of its entire membership.
B. The Savings Bank shall notify the Members of the adoption of the Plan
by publishing a legal notice in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office.
C. A press release relating to the proposed Conversion may be submitted
to the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Savings Bank.
E. The Savings 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 Savings Bank
shall file the Tennessee Conversion Application and the OTS Bank Conversion
Application and the Holding Company shall file a draft Y-3 Application.
G. As soon as practicable following the adoption of this Plan, the
Savings Bank shall file the Form AC Application, and the Holding Company shall
file the Registration Statement, the H-(e)1 Application and the final Y-3
Application. Upon filing the Form AC Application, the Savings Bank shall
publish legal notice of the filing of the Form AC Application in a newspaper
having a general circulation in each community in which the Savings 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)1 Application, the Y-3 Application and the Tennessee
A-5
<PAGE>
Conversion Application by the regulations and policies of the OTS, the Federal
Reserve Board and the Commissioner, respectively.
H. The Board of Directors of the Savings Bank, at any time, may elect not
to proceed with the Bank Conversion, in which event the Tennessee Conversion
Application, the OTS Bank Conversion Application and the Y-3 Application shall
be withdrawn. The decision whether or not to proceed with the Bank Conversion
will depend on the economic and regulatory climate at the time, among other
factors. In the event the Bank Conversion is not pursued, any references in
this Plan to the Conversion shall be deemed to constitute references to the
Stock Conversion and references to the Converted Bank shall be deemed to
constitute references to the Converted Savings Bank.
I. The Savings 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 Savings Bank or its Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members. Receipt of a favorable
opinion or ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
------------------
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Savings Bank's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Savings Bank shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Savings Bank shall 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 prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
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 Savings Bank of the Federal Stock Charter and Bylaws and (ii) the subsequent
Bank Conversion and the adoption by the Converted Savings Bank of the Converted
Bank articles of incorporation and bylaws.
V. Summary Proxy Statement
-----------------------
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-face type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage
prepaid card or other written communication requesting supplemental information.
Without prior approval of the OTS, the Special Meeting shall not be held less
than 20 days after the last day on which the supple mental information statement
is mailed to requesting Members. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting.
A-6
<PAGE>
VI. Offering Documents
------------------
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation of Members. The
Holding Company may close the Subscription Offering 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 Savings
Bank's proxy solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members to return to the Savings
Bank by a reasonable certain date a postage prepaid card or other written
communication requesting receipt of a Prospectus with respect to the
Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Savings Bank may transmit, not
more than 30 days prior to the commencement of the Subscription Offering, to
each Eligible Account Holder, Supplemental Eligible Account Holder and other
eligible subscribers who had been furnished with proxy solicitation materials a
notice which shall state that the Savings Bank is not required to furnish a
Prospectus to them unless they return by a reasonable date certain a postage
prepaid card or other written communication requesting the receipt of the
Prospectus.
Prior to commencement of the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering, the Holding Company shall file
the Registration Statement. The Holding Company shall not distribute the final
Prospectus until the Registration Statement containing same has been declared
effective by the SEC and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Direct Community Offering
---------------------------------------------------
Instead of a separate Subscription Offering, all Subscription Rights may
be exercised by delivery of properly completed and executed Order Forms to the
Savings Bank or selling group utilized in connection with the Direct Community
Offering and the Syndicated Community Offering. If a separate Subscription
Offering is not held, orders for Conversion Stock in the Direct Community
Offering shall first be filled pursuant to the priorities and limitations stated
in Paragraph IX.C., below.
VIII. Consummation of the Conversion
------------------------------
A. Consummation of the Stock Conversion
------------------------------------
After receipt of all orders for Conversion Stock, the amendment of the
Savings 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 stock
savings bank will be declared effective by the OTS, and the Savings Bank will
thereby be and become the Converted Savings Bank. 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 Savings Bank will become a wholly owned subsidiary of the Holding
Company. The Converted Savings Bank will issue to the Holding Company 1,000
shares of its common stock, representing all of the shares of Capital Stock to
be issued by the Converted Savings Bank in the Conversion, and the Holding
Company will make payment to the Converted Savings 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 may be authorized or required by the OTS.
B. Consummation of the Bank Conversion
-----------------------------------
The Bank Conversion shall be deemed to occur and shall be effective upon
completion of all actions necessary or appropriate under applicable statutes and
regulations and the policies of the Commissioner and the OTS to complete the
conversion of the Converted Savings Bank to a Tennessee chartered commercial
bank, including without limitation the approval of the Bank Conversion by the
Holding Company as the sole stockholder of the
A-7
<PAGE>
Converted Savings Bank, and the Converted Savings Bank will thereby be and
become the Converted Bank. The Bank Conversion shall be consummated subject to
the judgment and discretion of the Board of Directors as to the regulatory and
political environment. If the Board determines that the regulatory and
political environment is adverse to the Bank Conversion, the Bank Conversion may
be delayed or terminated and the Converted Savings Bank will remain in the form
of a federal stock savings bank.
IX. Stock Offering
--------------
A. Number of Shares
----------------
The number of shares of Conversion Stock to be offered pursuant to the Plan
shall be determined initially by the Board of Directors of the Savings Bank and
the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
---------------------------------------------------
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Savings Bank and the Board of
Directors of the Holding Company 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 at such time. The
estimated pro forma market value of the Converted Bank shall be determined for
such purpose by an independent appraiser on the basis of such appropriate
factors not inconsistent with the regulations of the OTS. Immediately prior to
the Subscription Offering, a subscription price range shall be established which
shall vary from 15% above to 15% below the average of the minimum and maximum of
the estimated price range. The maximum subscription price (i.e., the per share
amount to be remitted when subscribing for shares of Conversion Stock) shall
then be determined within the subscription price range by the Board of Directors
of the Savings Bank. The subscription price range and the number of shares to
be offered may be revised after the completion of the Subscription Offering with
OTS approval without a resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
-------------------------
Subscription Rights shall be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members pursuant to priorities established by this Plan and
the regulations of the OTS. In order to effect the Conversion, all shares of
Conversion Stock proposed to be issued in connection with the Conversion must be
sold and, to the extent that shares are available, no subscriber shall be
allowed to purchase less than 25 shares; provided, however, that if the purchase
price is greater than $20 per share, the minimum number of shares which must be
subscribed for shall be adjusted so that the aggregate actual purchase price
required to be paid for such minimum number of shares does not exceed $500. The
priorities established for the purchase of shares are as follows:
1. Category 1: Eligible Account Holders
-------------------------------------
a. Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase that
number of shares of Conversion Stock which is equal to the greater of the
maximum purchase limitation established for the Direct Community Offering,
one-tenth of one percent of the total offering or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total
number of shares of Conversion Stock to be issued by a fraction of which
the numerator is the amount of the Qualifying Deposit of the Eligible
Account Holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders. If the allocation made in this
paragraph results in an oversubscription, shares of Conversion Stock shall
be allocated among subscribing
A-8
<PAGE>
Eligible Account Holders so as to permit each such account holder, to the
extent possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation equal to 100 shares of Conversion
Stock or the total amount of his subscription, whichever is less. Any
shares of Conversion Stock 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 Eligible Account Holders.
b. Subscription Rights received by Officers and directors of the
Savings Bank and their Associates, as Eligible Account Holders, based on
their increased deposits in the Savings Bank in the one-year period
preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of Subscription Rights pursuant to
this Category.
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
------------------------------------------------------
a. Tax-Qualified Employee Stock Benefit Plans shall receive, without
payment, non-transferable Subscription Rights to purchase in the aggregate
up to 8% of the Conversion Stock, including shares of Conversion Stock to
be issued in the Conversion as result of an increase in the estimated price
range after commencement of the Subscription Offering and prior to the
completion of the Conversion. The Subscription Rights granted to Tax-
Qualified Stock Benefit Plans shall be subject to the availability of
shares of Conversion Stock after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders; provided, however,
that in the event the number of shares offered in the Conversion is
increased to an amount greater than the maximum of the estimated price
range as set forth in the Prospectus ("Maximum Shares"), the Tax-Qualified
Employee Stock Benefit Plans shall have a priority right to purchase any
such shares exceeding the Maximum Shares up to an aggregate of 8% of the
Conversion Stock. Tax-Qualified Employee Stock Benefit Plans may use funds
contributed or borrowed by the Holding Company or the Savings Bank and/or
borrowed from an independent financial institution to exercise such
Subscription Rights, and the Holding Company and the Savings Bank may make
scheduled discretionary contributions thereto, provided that such
contributions do not cause the Holding Company or the Savings Bank to fail
to meet any applicable capital requirements.
3. Category 3: Supplemental Eligible Account Holders
--------------------------------------------------
a. In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Form AC Application
filed prior to OTS approval, then, and only in that event, each
Supplemental Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Supplemental Eligible Account Holder to
purchase that number of shares of Conversion Stock which is equal to the
greater of the maximum purchase limitation established for the Direct
Community Offering, one-tenth of one percent of the total offering or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued by
a fraction of which the numerator is the amount of the Qualifying Deposit
of the Supplemental Eligible Account Holder and the denominator is the
total amount of the Qualifying Deposits of all Supplemental Eligible
Account Holders.
b. Subscription Rights received pursuant to this category shall be
subordinated to Subscription Rights granted to Eligible Account Holders and
Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category Number 1
shall reduce to the extent thereof the Subscription Rights to be
distributed pursuant to this Category.
A-9
<PAGE>
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:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including the number of
shares of Conversion Stock, if any, allocated in accordance with
Category Number 1) equal to 100 shares of Conversion Stock or the
total amount of his subscription, whichever is less.
(2) Any shares of Conversion Stock not allocated in accordance
with subparagraph (l) above 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 Supplemental Eligible Account
Holders.
4. Category 4: Other Members
--------------------------
a. Other Members shall receive, without payment, Subscription Rights
to purchase shares of Conversion Stock, after satisfying the subscriptions
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans and
Supplemental Eligible Account Holders pursuant to Category Nos. l, 2 and 3
above, subject to the following conditions:
b. Each such Other Member shall be entitled to subscribe for the
greater of the maximum purchase limitation established for the Direct
Community Offering, or one-tenth of one percent of the total offering.
c. In the event of an oversubscription for shares of Conversion
Stock pursuant to Category No. 4, the shares of Conversion Stock available
shall be allocated among the subscribing Other Members pro rata on the
basis of the amounts of their respective subscriptions.
D. Direct Community Offering and Syndicated Community Offering
-----------------------------------------------------------
1. Any shares of Conversion Stock not purchased through the exercise of
Subscription Rights set forth in Category Nos. 1 through 4 above may be sold by
the Holding Company to Persons under such terms and conditions as may be
established by the Savings Bank's Board of Directors with the concurrence of the
OTS. The Direct Community Offering may commence concurrently with or as soon as
possible after the completion of the Subscription Offering and must be completed
within 45 days after completion of the Subscription Offering, unless extended
with the approval of the OTS. No Person, either alone or together with
Associates of or Persons Acting in Concert with such Person, may purchase shares
of Conversion Stock in the Direct Community Offering having an aggregate
purchase price of more than $655,500. The right to purchase shares of
Conversion Stock under this Category is subject to the right of the Savings Bank
or the Holding Company to accept or reject such subscriptions in whole or in
part. In the event of an oversubscription for shares in this Category, the
shares available shall be allocated among prospective purchasers pro rata on the
basis of the amounts of their respective orders. The offering price for which
such shares are sold to the general public in the Direct Community Offering
shall be the Purchase Price.
2. Orders received in the Direct Community Offering first 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.
A-10
<PAGE>
3. The Conversion Stock offered in the Direct Community Offering shall be
offered and sold in a manner that will achieve the widest distribution thereof.
Preference shall be given in the Direct Community Offering to natural Persons
and trusts of natural Persons residing in the Local Community.
4. Subject to such terms, conditions and procedures as may be determined
by the Savings Bank and the Holding Company, all shares of Conversion Stock not
subscribed for in the Subscription Offering or ordered in the Direct Community
Offering may be sold by a syndicate of broker-dealers to the general public in a
Syndicated Community Offering. No Person, either alone or together with
Associates of or Persons Acting in Concert with such Person, may purchase shares
of Conversion Stock in the Syndicated Community Offering having an aggregate
purchase price of more than $655,500. Each order for Conversion Stock in
the Syndicated Community Offering shall be subject to the absolute right of the
Savings Bank and the Holding Company to accept or reject any such order in whole
or in part either at the time of receipt of an order or as soon as practicable
after completion of the Syndicated Community Offering. The Savings Bank and the
Holding Company 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 Direct Community Offering, provided that the
Syndicated Community Offering must be completed within 45 days after the
completion of the Subscription Offering, unless extended by the Savings Bank and
the Holding Company with the approval of the OTS.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct Community
Offering cannot be effected, or in the event that any insignificant residue of
shares of Conversion Stock is not sold in the Subscription Offering, Direct
Community Offering or Syndicated Community Offering, the Savings Bank and the
Holding Company shall use their best efforts to obtain other purchasers for such
shares in such manner and upon such conditions as may be satisfactory to the
OTS.
6. In the event a Direct Community Offering or Syndicated Community
Offering do not appear feasible, the Savings Bank will immediately consult with
the OTS to determine the most viable alternative available to effect the
completion of the Conversion. Should no viable alternative exist, the Savings
Bank may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
--------------------------
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
1. Purchases of shares of Conversion Stock in the Conversion, including
purchases in the Direct Community and the Syndicated Community Offering by any
Person, together with Associates of or Persons Acting in Concert with such
Person, shall not exceed an aggregate purchase price of $655,500, except
that Tax-Qualified Employee Stock Benefit Plans may purchase up to 8% of the
total Conversion Stock issued and shares held or to be held by the Tax-Qualified
Employee Stock Benefit Plans and attributable to a Person shall not be
aggregated with other shares purchased directly by or otherwise attributable to
such Person.
2. Officers and directors of the Savings Bank and Associates thereof may
not purchase in the aggregate more than 30% of the shares issued in the
Conversion.
3. The Savings Bank's and Holding Company's Boards of Directors will not
be deemed to be Associates or a group of Persons Acting in Concert with other
directors or trustees solely as a result of membership on the Board of
Directors.
4. The Savings Bank's Board of Directors, with the approval of the OTS
and without further approval of Members, may, as a result of market conditions
and other factors, increase or decrease the purchase limitation in paragraphs 1
and 4 above or the number of shares of Conversion Stock to be sold in the
Conversion. If the Savings Bank or the Holding Company, as the case may be,
increases the maximum purchase limitations or the number of
A-11
<PAGE>
shares of Conversion Stock to be sold in the Conversion, the Savings Bank or the
Holding Company, as the case may be, is only required to resolicit Persons who
subscribed for the maximum purchase amount and may, in the sole discretion of
the Savings Bank or the Holding Company, as the case may be, resolicit certain
other large subscribers. If the Savings Bank or the Holding Company, as the
case may be, decreases the maximum purchase limitations or the number of shares
of Conversion Stock to be sold in the Conversion, the orders of any Person who
subscribed for the maximum purchase amount 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 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 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 from such Person 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.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and directors
---------------
of the Savings Bank and officers and directors of the Holding Company shall not
be sold or otherwise disposed of for value for a period of one year from the
date of Conversion, except for any disposition (i) following the death of the
original purchaser or (ii) resulting from an exchange of securities in a merger
or acquisition approved by the regulatory authorities having jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers and
directors shall bear a legend giving appropriate notice of the one-year holding
period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as
to transfer for a period of one year from the date of this
certificate pursuant to Part 563b of the Rules and
Regulations of the Office of Thrift Supervision. These
shares may not be transferred prior thereto without a legal
opinion of counsel that said transfer is permissible under
the provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions to the
transfer agent of the Holding Company Stock with respect to the foregoing
restrictions. 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 Persons
as may be then applicable to such restricted stock.
2. Subsequent Purchases by Officers and Directors. Without prior
----------------------------------------------
approval of the OTS, if applicable, Officers and directors of the Savings 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 Conversion
from purchasing outstanding shares of Holding Company Stock, except from a
broker or dealer registered with the SEC. Notwithstanding this restriction,
purchases involving more than 1% of the total outstanding shares of Holding
Company Stock and purchases made and shares held by a Tax-Qualified or non-Tax-
Qualified Employee Stock Benefit Plan which may be attributable to such
directors and Officers may be made in negotiated transactions without OTS
permission or the use of a broker or dealer.
3. 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 applicable
rules and regulations and policies of the OTS. The Converted Savings Bank may
not declare
A-12
<PAGE>
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 Savings 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. These restrictions
and limitations upon repurchases shall not apply following consummation of the
Bank Conversion as set forth in Paragraph VIII.B. herein unless the OTS approval
of the Bank Conversion otherwise requires.
4. Voting Rights. After the Stock Conversion, holders of Savings
-------------
Accounts in and obligors on loans of the Converted Savings Bank will not have
voting rights in the Converted Savings Bank. After the Bank Conversion, holders
of Savings Accounts in and obligors on loans of the Converted 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 Conversion Stock; holders
of Savings Accounts in and obligors on loans of the Converted Savings Bank and
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 Savings Bank's and Converted Bank's Capital Stock.
G. 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 OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Savings Bank. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. 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 eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion 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.
H. Method of Payment
-----------------
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account(s) in the Savings Bank
such subscriber may authorize the Savings Bank to charge the subscriber's
Savings Account(s). The Savings 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 Offering from the date payment is
received until the Conversion is completed or terminated. The Savings Bank is
not permitted knowingly to loan funds or otherwise extend any credit to any
Person for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Savings Bank to charge the subscriber's
Savings Account(s), the funds shall remain in the subscriber's Savings
Account(s) and shall continue to earn interest, but may not be used by such
subscriber until the Conversion is completed or terminated, whichever is
earlier. The withdrawal shall be given effect only concurrently with the sale
of all shares of Conversion Stock proposed to be sold in the Conversion and only
to the extent necessary to satisfy the subscription at a price equal to the
Purchase Price. The Savings Bank shall allow subscribers to purchase shares of
Conversion Stock by withdrawing funds from certificate accounts held with the
Savings Bank without the assessment of early withdrawal penalties, subject to
the approval, if necessary, of the applicable regulatory authorities. In the
case of early withdrawal of only a portion of such account, the certificate
A-13
<PAGE>
evidencing such account shall be canceled if the remaining balance of the
account is less than the applicable minimum balance requirement. In that event,
the remaining balance shall 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, along with evidence of a loan commitment from a
financial institution for the purchase of shares, during the Subscription
Offering and by making payment for the shares on the date of the closing of the
Conversion.
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
----------------------------------------------------------------
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Savings Bank by the United States Postal Service (or the Holding
Company or the Savings Bank is unable to locate the addressee); (ii) is not
returned to the Holding Company or the Savings Bank, or is returned to the
Holding Company or the Savings Bank after expiration of the date specified
thereon; (iii) is defectively completed or executed; or (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), the Subscription
Rights of the Person to whom such rights have been granted shall not be honored
and shall 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 Savings Bank may, but shall 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 the shares of Conversion Stock
subscribed for by such date as the Holding Company or the Savings Bank may
specify. Subscription orders, once tendered, shall not be revocable. The
Holding Company's and Savings Bank's interpretation of the terms and conditions
of the Plan and of the Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
The Holding Company and the Savings Bank will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for stock pursuant to the Plan reside. However,
the Holding Company and the Savings Bank are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; or (ii) the Holding Company or the Savings Bank determines that
compliance with the securities laws of such state would be impracticable for
reasons of cost or otherwise, including but not limited to a request or
requirement that the Holding Company and the Savings Bank or their officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request or requirement to register
or otherwise qualify the Subscription Rights or Common Stock for sale or submit
any filing with respect thereto in such state. Where the number of persons
eligible to subscribe for shares in one state is small relative to other states,
the Holding Company and the Savings Bank will base their decision as to whether
or not to offer the Common Stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.
X. Federal Stock Charter and Bylaws and Bank Articles of Incorporation and
-----------------------------------------------------------------------
Bylaws
- ------
As part of the Stock Conversion, a Federal Stock Charter and Bylaws will be
adopted to authorize the Converted Savings Bank to operate as a federal stock
savings bank. By approving the Plan, the Members of the Savings Bank will
thereby approve the Federal Stock Charter and Bylaws. Prior to completion of
the Conversion, the Federal Stock Charter and Bylaws may be amended in
accordance with the provisions and limitations for amending the Plan under
Paragraph XVII below. The effective date of the adoption of the 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.
A-14
<PAGE>
As part of the Bank Conversion, articles of incorporation and bylaws for
the Converted Bank will be adopted to allow the Converted Bank to operate as a
state chartered commercial bank. By approving the Plan, the Members of the
Savings Bank will thereby approve such articles of incorporation and bylaws.
Prior to completion of the Bank Conversion, the articles of incorporation and
bylaws may be amended in accordance with the provisions and limitations for
amending the Plan under Paragraph XVII below. The effective date of the
articles of incorporation and bylaws of the Converted Bank shall be the date of
the consummation of the Bank Conversion.
XI. Post Conversion Filing and Market Making
----------------------------------------
In connection with the Conversion, the Holding Company shall register the
Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934,
as amended, and shall undertake not to deregister such Conversion 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 shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
-------------------------------------------------------------
All Savings Accounts shall retain the same status after Conversion as
these accounts had prior to Conversion. Each Savings Account holder shall
retain, without payment, a withdrawable Savings Account(s) after the Conversion,
equal in amount to the withdrawable value of such holder's Savings Account(s)
prior to 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 they had prior to the Conversion. See Paragraph IX.F.4. with respect to the
termination of voting rights of Members.
XIII. Liquidation Account
-------------------
After the Conversion, holders of Savings Accounts shall not be entitled to
share in any residual assets in the event of liquidation of the Converted
Savings Bank. However, the Savings Bank shall, at the time of the Conversion,
establish a liquidation account in an amount equal to its total net worth as of
the date of the latest statement of financial condition contained in the final
Prospectus. The function of the liquidation account shall be to establish a
priority on liquidation and, except as provided in Paragraph IX.F.3 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 Savings Bank.
The liquidation account shall be maintained by the Converted Savings Bank
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Converted Savings Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to each Savings Account held, have a related
inchoate interest in a portion of the liquidation account balance
("subaccount").
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 such holder's Qualifying Deposit in the
Savings Account and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. Such initial subaccount balance shall not be increased, and it shall
be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing
A-15
<PAGE>
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, such 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.
In the event of a complete liquidation of the Converted Savings Bank 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 balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another federally-insured institution in which the Savings Bank is not the
surviving institution shall be considered to be a complete liquidation. In any
such transaction, the liquidation account shall be assumed by the surviving
institution.
The Bank Conversion shall not be deemed to be a complete liquidation of the
Converted Savings Bank for purposes of the distribution of the Liquidation
Account. Upon consummation of the Bank Conversion, the Liquidation Account, and
all rights and obligations of the Converted Savings Bank in connection
therewith, shall be assumed by the Converted Bank.
XIV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. OTS regulations provide that for a period of three years following
completion of the Conversion, no Person (i.e, 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 equity security of the Holding Company without the
prior approval of the OTS. However, approval is not required for purchases
directly from the Holding Company or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding 1%
per annum of the shares outstanding. 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 equity security of the Holding Company within such three-year period,
without the prior approval of the OTS, stock of the Holding Company 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. The
provisions of this regulation shall not apply to the acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company.
Upon consummation of the Bank Conversion, no Person (i.e., an individual, a
group Acting in Concert, a corporation, a partnership, an association, a joint
stock company, a trust or any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution or its holding company) shall
directly, or indirectly, offer to purchase or actually acquire the beneficial
ownership of more than 10% of any class of Holding Company Stock without the
prior approval of the Federal Reserve Board.
B. The Holding Company may provide in its articles/certificate of
incorporation, or similar document, a provision that, for a specified period of
up to five years following the date of the completion of the Conversion, no
Person shall directly or indirectly offer to acquire or actually acquire the
beneficial ownership of more than 10% of any class of equity security of the
Holding Company. Such provisions would not apply to acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more
A-16
<PAGE>
than 25% of any class of equity security of the Holding Company. The Holding
Company may provide in its articles/ certificate of incorporation, or similar
document, for such other provisions affecting the acquisition of its stock as
shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Savings Bank
----------------------------------------------------
The Conversion is not intended to result in any change in the directors
or Officers. Each Person serving as a director of the Savings Bank at the time
of Conversion shall continue to serve as a member of the Converted Savings
Bank's Board of Directors, subject to the Converted Savings Bank's charter and
bylaws. The Persons serving as Officers immediately prior to the Conversion will
continue to serve at the discretion of the Board of Directors in their
respective capacities as Officers of the Converted Savings Bank. In connection
with the Conversion, the Savings Bank and the Holding Company may enter into
employment agreements on such terms and with such officers as shall be
determined by the Boards of Directors of the Savings Bank and the Holding
Company.
XVI. Executive Compensation
----------------------
The Savings Bank and the Holding Company may adopt, subject to any
required approvals, executive compensation or other benefit programs, including
but not limited to compensation plans involving stock options, stock
appreciation rights, restricted stock grants, employee recognition programs and
the like.
XVII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote
of the Savings Bank's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time 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 only with the concurrence of the OTS. The Plan
may be terminated by a two-thirds vote of the 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 meeting of the Members.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS, the Federal Reserve Board or the Commissioner prior to the
completion of the Conversion, the Plan shall be amended to conform to the new
mandatory regulations without a resolicitation of proxies or another meeting of
Members. In the event that new conversion regulations adopted by the OTS 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 meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors to
amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
--------------------------
The Holding Company and the Savings Bank shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
------------------------------------
The Holding Company and/or the Savings Bank may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Savings Bank to fail to meet its regulatory
capital requirements.
* * *
A-17
<PAGE>
EXHIBIT B
FEDERAL STOCK CHARTER
CAVALRY BANKING
SECTION 1. CORPORATE TITLE. The full corporate title of the savings bank
is Cavalry Banking.
SECTION 2. OFFICE. The home office shall be located in the City of
Murfreesboro, in the State of Tennessee.
SECTION 3. DURATION. The duration of the savings bank is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the savings bank is to
pursue any or all of the lawful objectives of a Federal savings bank 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 all 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
capital stock that the savings bank has the authority to issue is 10,000 of
which 1,000 shares shall be common stock, of par value of $1.00 per share and of
which 9,000 shares shall be serial preferred stock having no par value. 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 savings 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 savings bank), labor, or
services actually performed for the savings 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
savings 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 retained earnings of the savings bank that is
transferred to common stock or paid-in capital accounts upon the issuance of
shares as a stock dividend shall be deemed to be the consideration for their
issuance.
Except for shares issuable in connection with the conversion of the savings
bank from the mutual to stock form of capitalization, no shares of capital stock
(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 savings bank other than as part of a general public
offering or as qualifying shares to a director, unless their 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 cumulation 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;
B-1
<PAGE>
(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 savings 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 savings 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 or the Federal
Deposit Insurance 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 savings bank
in a merger or consolidation for the savings bank, shall not be
considered to be such an adverse change.
A description of the different classes and series, if any, of the savings
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
cumulation 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
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 savings
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
savings bank available for distribution remaining after: (i) payment or
provision for payment of the savings bank's debts and liabilities; (ii)
distributions or provision for distributions in settlement of its liquidation
account; and (iii) distributions or provision 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 savings 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 savings 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-2
<PAGE>
(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, full 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 savings
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;
(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 savings
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 savings
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 savings
bank shall not be entitled to preemptive rights with respect to any shares of
the savings bank which may be issued.
SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the
Office's Regulations (12 CFR Part 563b), the savings bank shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of June 30, 1996 and December 31, 1997 ("eligible savers"). In the event of a
complete liquidation of the savings bank, it shall comply with such regulations
with respect to the amount and the priorities on liquidation of each eligible
saver's 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 savings bank's stockholders.
B-3
<PAGE>
SECTION 8. DIRECTORS. The savings bank shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
savings bank's bylaws, shall not be fewer than five nor more than fifteen except
when a greater or lesser number is approved by the Director of the Office, or
his or her delegate.
SECTION 9. AMENDMENT OF CHARTER. Except as provided in section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is proposed by the board of directors of the savings bank,
approved by the shareholders by a majority of the votes eligible to be cast at a
legal meeting, unless a higher vote is otherwise required, and approved or
preapproved by the Office.
Attest: _________________________ By: _______________________________
Secretary Chief Executive Officer
Cavalry Banking Cavalry Banking
Attest: _________________________ By: _______________________________
Secretary Director
Office of Thrift Supervision Office of Thrift Supervision
Effective Date: _____________, 1998
B-4
<PAGE>
EXHIBIT C
FEDERAL STOCK BYLAWS
CAVALRY BANKING
ARTICLE I - HOME OFFICE
The home office of the savings bank shall be located at 114 West College
Street, in the City of Murfreesboro, the County of Rutherford, in the State of
Tennessee.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the savings bank or at such
other convenient place as the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the savings
bank for the election of directors and for the transaction of any other business
of the savings bank shall be held annually within 150 days after the end of the
savings bank's fiscal year on the third Thursday 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 10:00 a.m., Central Time, or at such other date and time
within such 150-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 savings 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 savings 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
unless otherwise prescribed by regulations of the Office or these bylaws or the
board of directors adopts another written procedure for the conduct of meetings.
The board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day, and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 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 savings 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
C-1
<PAGE>
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 savings bank shall make a complete list of the shareholders of
record entitled to vote at such meeting, or any adjournment thereof, 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
savings bank and shall be subject to inspection by any shareholder of record or
the shareholder's agent 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 of record or any shareholder's agent 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 Section 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 savings
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 share holders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the savings bank's charter. Directors, however,
are elected by a plurality of the votes cast at an election of directors.
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 may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. 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 savings bank to the contrary, at any meeting of the
shareholders of the savings 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 shares and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES BY 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
C-2
<PAGE>
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 held in trust in an IRA or Keogh Account, however,
may be voted by the savings bank if no other instructions are received. 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 savings 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 savings
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.
SECTION 12. CUMULATIVE VOTING. Unless otherwise provided in the savings
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 savings 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 savings 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 savings 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.
C-3
<PAGE>
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 savings
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 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 savings 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.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of
nine 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 following the annual meeting
of shareholders. The board of directors may provide, by resolution, the time and
place for the holding of additional regular meetings without other notice than
such resolution. Directors may participate in a meeting by means of a conference
telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
SECTION 4. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the savings
bank unless the savings 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. The persons authorized to call special meetings
of the board of directors may fix any place, within the savings 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 for all purposes.
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, when delivered to the telegraph company if sent by telegram,
or when the savings bank receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a director at a meeting shall
C-4
<PAGE>
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any meeting of the board of directors need
be specified in the notice or waiver of notice of such meeting.
SECTION 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 savings 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.
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 only 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 attendance at committee meetings as the board of directors may
determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the savings bank who
is present at a meeting of the board of directors at which action on any savings
bank 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 savings
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
C-5
<PAGE>
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.
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 savings bank, or recommending to the shareholders 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
savings bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the savings 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.
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 savings 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
C-6
<PAGE>
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 it may
determine to be necessary or appropriate for the conduct of the business of the
savings bank and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the savings bank shall be a
president, one or more vice presidents, a secretary, and a treasurer or
comptroller, each of whom shall be elected by the board of directors. The board
of directors may also designate the chairman of the board as an officer. The
offices of the secretary and treasurer or comptroller may be held by the same
person and a vice president may also be either the secretary or the treasurer or
comptroller. 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 savings 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 savings
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 savings bank 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 savings 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 savings bank to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the savings bank. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the savings
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 savings bank shall be signed by one or more officers,
C-7
<PAGE>
employees, or agents of the savings bank in such manner as shall from time to
time be determined by the board of directors.
SECTION 4. DEPOSITS. All funds of the savings bank not otherwise
employed shall be deposited from time to time to the credit of the savings bank
in 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 savings 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 officer of the savings
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 savings 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 savings bank. All certificates surrendered to the savings
bank for transfer shall be canceled and no new certificate shall be issued until
the former certificate for a like number of shares has been surrendered and
canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the savings bank as
the board of directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of
the savings 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
or her attorney authorized by a duly executed power of attorney and filed with
the savings 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 savings bank shall be deemed
by the savings bank to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the savings bank shall end on the 31st day of December
of each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the savings bank's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the savings bank may pay, dividends on its outstanding shares of capital
stock.
ARTICLE X - CORPORATE SEAL
The board of directors shall provide a savings bank seal which shall be two
concentric circles between which shall be the name of the savings bank. The year
of incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the savings bank at any legal meeting, and (ii)
receipt of any applicable regulatory approval. When the savings bank fails to
meet its quorum requirements, solely due to vacancies on the Board, then the
affirmative vote of a majority of the sitting Board will be required to amend
the bylaws.
* * *
C-8
<PAGE>
REVOCABLE PROXY
SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
OF
CAVALRY BANKING
FOR THE SPECIAL MEETING OF MEMBERS
TO BE HELD ON ____________ __, 1998
The undersigned member of Cavalry Banking ("Bank") hereby appoints the
Board of Directors, with full powers of substitution, as attorneys-in-fact and
agents for and in the name of the undersigned, to vote such shares as the
undersigned may be entitled to cast at the Special Meeting of Members
("Meeting") of the Bank to be held at the Bank's main office at 114 West College
Street, Murfreesboro, Tennessee, on the date and time indicated on the Notice of
Special Meeting of Members, and at any adjournment thereof. They are authorized
to cast all votes to which the undersigned is entitled, as follows:
FOR AGAINST
(1) To approve a Plan of Conversion adopted by the
Board of Directors on August 7, 1997 and
subsequently amended on December 11, 1997 to
convert the Bank from a federally chartered mutual
savings bank to a federally chartered capital
stock savings bank to be held as a wholly-owned
subsidiary of a new holding company, Cavalry
Bancorp, Inc., including the adoption of a Federal
Stock Charter and Bylaws for the Bank, and the
subsequent conversion of the Bank from a federally
chartered capital stock savings bank to a
Tennessee-chartered commercial bank, pursuant to
the laws of the United States and the rules and
regulations of the Office of Thrift Supervision
and the laws of the State of Tennessee and the
rules and regulations of the Tennessee Department
of Financial Institutions.
[_] [_]
NOTE: The Board of Directors is not aware of any other matter that may come
before the Meeting.
IMPORTANT: PLEASE SIGN DATE AND RETURN THIS PROXY IN THE PRE-ADDRESSED ENVELOPE
PROVIDED. VOTING FOR THE PLAN OF CONVERSION IN NO WAY OBLIGATES YOU TO BUY ANY
STOCK.
<PAGE>
THIS PROXY WILL BE VOTED FOR THE PROPOSITION
STATED IF NO CHOICE IS MADE HEREIN
Should the undersigned be present and elect to vote at said Meeting or at
any adjournment thereof and, after notification to the Secretary of the Bank at
said Meeting of the member's decision to terminate this Proxy, then the power of
said attorney-in-fact or agents shall be deemed terminated and of no further
force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Members of the Bank called on the date and time indicated on the Notice of
Special Meeting, and a Proxy Statement relating to said Meeting from the Bank,
prior to the execution of this Proxy.
_________________________
Date
_________________________
Signature
_________________________
Signature
Note: Only one signature is required in the case of a joint account but all
account holders should sign, if possible. When signing as an attorney,
administrator, agent, corporate officer, executor, trustee, guardian or
other fiduciary capacity, indicate your full title.
