<PAGE>
As filed with the Securities and Exchange Commission on February 3, 1999
Registration No. 333-68091
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
1ST STATE BANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
VIRGINIA 6035 [APPLIED FOR]
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification number)
</TABLE>
445 S. MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
(336) 227-8861
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JAMES C. MCGILL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1ST STATE BANCORP, INC.
445 S. MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
(336) 227-8861
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
Gary R. Bronstein, Esquire
Joel E. Rappoport, Esquire
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
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 of the Securities Act of 1933,
check the following box:[_]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<TABLE>
<CAPTION>
===========================================================================================================================
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY PRICE (1) FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 2,376,000 (2) $20.00 (2) $46,642,500 (2) $12,966.62 (3)
===========================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes maximum number of shares to be sold to the public plus shares to
be contributed to a charitable foundation. The price per share will be
$15.00 if less than an aggregate of $34.0 million is sold and $20.00 if an
aggregate of $34.0 million or greater is sold. Accordingly, the maximum
aggregate offering price of $46,642,500 is based on a $20.00 per share
price, and the amount to be registered of 2,376,000 is based on a $15.00
per share price.
(3) Registration fee of $11,863.65 paid upon initial filing of Form S-1 on
November 30, 1998. Additional registration fee of $1,102.97 accompanies
this Amendment No. 1 to account for the registration of additional
shares.
<PAGE>
PROSPECTUS
UP TO 2,376,000 SHARES OF COMMON STOCK
1st STATE BANCORP, INC.
445 S. MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
(336) 227-8861
================================================================================
1st State Bank is converting from a mutual savings bank to a stock commercial
bank. As part of the transaction, 1st State Bank will become a subsidiary of
1st State Bancorp, Inc., a corporation we recently formed to serve as our
holding company. As part of this process, we are offering shares of 1st State
Bancorp, Inc. common stock to the public.
================================================================================
TERMS OF THE OFFERING
Ferguson & Company, an independent appraiser, has estimated the market value of
the converted 1st State Bank to be between $28,050,000 and $37,950,000 which
establishes the amount of stock to be sold. Subject to regulatory approval, we
may increase the maximum amount offered by up to 15%. The purchase price will
be $15.00 per share if we sell less than $34.0 million of common stock in the
offering or $20.00 per share if we sell $34.0 million or more of common stock.
Accordingly, at the minimum of the offering range, we are offering 1,870,000
shares at $15.00 per share, and at the maximum, as adjusted, of the offering
range we are offering 2,182,125 shares at $20.00 per share. All investors will
pay the same price per share in the offering. Based on these estimates, we are
making the following offering of shares of common stock:
<TABLE>
<CAPTION>
Per Share Total
---------------- -----------------
<S> <C> <C> <C>
. Purchase price: minimum to maximum, as adjusted $15.00 to $20.00 $28,050,000 to $43,642,500
. Offering expenses, including underwriting discounts
and commissions: minimum to maximum, as adjusted $.54 to $.56 $1,013,000 to $1,227,000
. Net proceeds: minimum to maximum, as adjusted $14.46 to $19.44 $27,037,000 to $42,415,500
</TABLE>
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE 1 OF THIS DOCUMENT.
These securities are not deposits or accounts and are not insured or guaranteed
by the FDIC or any other government agency. THE SECURITIES ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
Neither the Securities and Exchange Commission, the Administrator, the FDIC, nor
any state securities commission has approved or disapproved of these securities
or determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
We have received conditional approval to list the common stock on the Nasdaq
National Market under the symbol "FSBC."
The underwriters, Trident Securities, Inc., must sell the minimum amount of
securities ($28,050,000 of common stock) if any are sold. The underwriters are
required to use only their best efforts to sell the maximum amount of securities
offered ($43,642,500 of common stock).
If you purchase stock through priority subscription rights we have granted you,
we must receive your order no later than 12:00 Noon, Eastern Time, on
__________, 1999. We may also offer shares in a community offering to persons
who do not have priority subscription rights. We may terminate the community
offering at any time without notice. Pending completion or termination of the
offering, we will place funds we receive for stock purchases in a segregated
savings account at 1st State Bank, and we will pay interest at our passbook rate
on those funds for the period the funds are held until we complete or terminate
the offering.
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK INFORMATION CENTER AT (336)
___-____.
TRIDENT SECURITIES, INC.
______________, 1999
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary....................................................................
Risk Factors...............................................................
Selected Consolidated Financial Information and Other Data.................
Recent Developments........................................................
Proposed Management Purchases..............................................
Use of Proceeds............................................................
Dividend Policy............................................................
Market for the Common Stock................................................
Capitalization.............................................................
Historical and Pro Forma Regulatory Capital Compliance.....................
Pro Forma Data.............................................................
Comparison of Valuation and Pro Forma Information with No Foundation.......
The Conversion.............................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................
Business of 1st State Bancorp, Inc.........................................
Business of 1st State Bank.................................................
Regulation.................................................................
Taxation...................................................................
Management of 1st State Bancorp............................................
Management of 1st State Bank...............................................
Restrictions on Acquisition of 1st State Bancorp and 1st State Bank........
Anti-Takeover Provisions in Our Corporate Documents........................
Description of Capital Stock...............................................
Registration Requirements..................................................
Legal Matters..............................................................
Tax Opinions...............................................................
Experts....................................................................
Additional Information.....................................................
Index to Consolidated Financial Statements.................................
</TABLE>
Please see the Glossary beginning on page A-1 for the meaning of
capitalized terms.
<PAGE>
[MAP OF OUR MARKET AREA APPEARS HERE. THE MAP DEPICTS ALL OF NORTH
CAROLINA, WITH ALAMANCE COUNTY SHADED, AND ALSO CONTAINS A LARGER VIEW OF
ALAMANCE COUNTY DEPICTING LARGER CITIES AND TOWNS AND OUR OFFICE LOCATIONS. THE
MAP ALSO SETS FORTH THE ADDRESS OF EACH OF OUR OFFICES.]
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. To understand the stock
offering fully, you should read this entire document carefully, including the
consolidated financial statements and the notes to the consolidated financial
statements of 1st State Bank. References in this document to the "Bank," "we,"
"us," and "our" refer to 1st State Bank. Where appropriate, "us" or "our"
refers collectively to 1st State Bancorp, Inc. and 1st State Bank. References
in this document to "1st State Bancorp" refer to 1st State Bancorp, Inc.
1ST STATE BANCORP, INC.
We founded 1st State Bancorp, Inc. to be the holding company for 1st State
Bank following the conversion. 1st State Bancorp is not an operating company and
has not engaged in any significant business to date. 1st State Bancorp's
executive offices are located at 445 S. Main Street, Burlington, North Carolina
27215, and its main telephone number is (336) 227-8861.
1ST STATE BANK
Founded in 1914, we are a community and customer oriented North Carolina-
chartered savings bank headquartered in Burlington, North Carolina. We have
five full service branch offices located in north central North Carolina on the
Interstate 85 corridor between the Piedmont Triad and Research Triangle. We
conduct most of our business in Alamance County, North Carolina.
Our business consists principally of attracting deposits from the general
public and investing these funds in loans secured by single-family residential
and commercial real estate, secured and unsecured commercial loans and consumer
loans. Our profitability depends primarily on our net interest income, which is
the difference between the income we receive on our loan and investment
securities portfolios and our cost of funds, which consists of the interest we
pay on deposits and borrowed funds. We also earn income from miscellaneous fees
related to our loans and deposits, mortgage banking income and commissions from
sales of annuities and mutual funds. At September 30, 1998, we had total assets
of $288.2 million, deposits of $235.7 million and total net worth of $26.0
million.
Our executive offices are located at 445 S. Main Street, Burlington, North
Carolina 27215, and our main telephone number is (336) 227-8861.
THE CONVERSION
The conversion is a series of transactions by which we will convert from
our current status as a mutual savings bank to a North Carolina commercial bank.
Following the conversion, we will retain our current name "1st State Bank," but
we will be a subsidiary of 1st State Bancorp. As a commercial bank, we intend
to continue to follow our same business strategies, and we will be subject to
the regulation and supervision of the FDIC and the Commission.
As part of the conversion process, we are offering between $28,050,000 and
$37,950,000 of 1st State Bancorp common stock. The purchase price will be
$15.00 per share if we sell less than $34.0 million of common stock in the
offering or $20.00 per share if we sell $34.0 million or more of common stock.
All investors will pay the same price per share in the offering. Subject to
regulatory approval, we may increase the amount of stock to be sold to
$43,642,500 without any further notice to you if market or financial conditions
change prior to the completion of the conversion.
Depositor and borrower members as of certain eligibility dates will receive
priority subscription rights to purchase shares in the offering. See "The
Conversion -- Subscription Rights" for a description of the priority categories.
We will offer any remaining shares in a community offering to persons who do not
receive priority subscription rights.
(i)
<PAGE>
SUBSCRIPTION RIGHTS ARE NOT TRANSFERABLE
You may not assign or sell your subscription rights. Any transfer of
subscription rights is prohibited by law. If you exercise subscription rights,
you will be required to certify that you are purchasing shares solely for your
own account and that you have no agreement or understanding regarding the sale
or transfer of shares. We intend to pursue any and all legal and equitable
remedies if we learn of the transfer of any subscription rights. We will reject
orders that we determine to involve the transfer of subscription rights.
HOW WE DETERMINED THE PRICE PER SHARE AND THE OFFERING RANGE
The offering range is based on an independent appraisal of our pro forma
market value following the conversion by Ferguson & Company, an appraisal firm
experienced in appraisals of savings institutions. The pro forma market value
is our estimated market value assuming the sale of shares in this offering.
Ferguson & Company has estimated that in its opinion as of January 27, 1999 the
value was between $28.1 million and $38.0 million, with a midpoint of $33.0
million. The appraisal was based in part upon our financial condition and
operations and the effect of the additional capital we will raise from the sale
of common stock in this offering. The purchase price will be $15.00 per share
if we sell less than $34.0 million of common stock in the offering or $20.00 per
share if we sell $34.0 million or more of common stock. The price per share was
determined by our board of directors. Subject to regulatory approval, we may
increase the amount of common stock offered by up to 15%. Accordingly, at the
minimum of the offering range, we are offering 1,870,000 shares at $15.00 per
share, and at the maximum, as adjusted, of the offering range we are offering
2,182,125 shares at $20.00 per share. The appraisal will be updated prior to
the completion of the conversion. If the pro forma market value of the common
stock at that time is either below $28.1 million or above $43.6 million, we will
notify you, and you will have the opportunity to modify or cancel your order.
See "The Conversion -- Stock Pricing and Number of Shares to be Issued" for a
description of the factors and assumptions used in determining the stock price
and offering range.
Two of the measures investors utilize to analyze whether a stock might be a
good investment are the ratio of the offering price to the issuer's "book value"
and the ratio of the offering price to the issuer's annual net income. Ferguson
& Company considered these ratios, among other factors, in preparing its
appraisal. Book value is the same as stockholders' equity, and represents the
difference between the issuer's assets and liabilities. The ratio of the
offering price to 1st State Bancorp's pro forma book value ranges from 60.4% to
73.1%, and the offering price represents between 9.4 and 13.4 times 1st State
Bancorp's pro forma earnings for the year ended September 30, 1998. See "Pro
Forma Data" for a description of the assumptions we made in making these
calculations.
THE AMOUNT OF STOCK YOU MAY PURCHASE
The minimum purchase is $500. You may purchase no more than $1,000,000.
In determining whether you have exceeded the maximum purchase limitation, we
will include amounts purchased by individuals on joint accounts with you or
having the same address as you on our records, as well as amounts purchased by
your related interests or related persons and those with whom you are acting in
concert. We may decrease or increase the maximum purchase limitation without
notifying you.
(ii)
<PAGE>
HOW WE WILL PRIORITIZE ORDERS IF WE RECEIVE ORDERS FOR MORE SHARES THAN ARE
AVAILABLE
You might not receive any or all of the shares you order. If we receive
orders for more shares than are available, we will allocate stock to the
following persons or groups in order of priority.
. ELIGIBLE ACCOUNT HOLDERS - Depositors who had a deposit account with
us on December 31, 1994 with a balance of at least $50.00. Any
remaining shares will be offered to:
. OUR EMPLOYEE STOCK OWNERSHIP PLAN. Any remaining shares will be
offered to:
. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS - Depositors who had a deposit
account with us on December 31, 1998 with a balance of at least
$50.00. Any remaining shares will be offered to:
. OTHER MEMBERS - Other depositors and certain borrowers of ours, as of
__________, 1999.
If the above persons do not subscribe for all of the shares offered, we
will offer the remaining shares to the general public, giving preference to
people who live in Alamance County, North Carolina.
TERMINATION OF THE OFFERING
If you are purchasing stock through priority subscription rights we have
granted you, we must receive your order no later than 12:00 Noon, Eastern Time,
on __________, 1999. We may also offer shares in a community offering to
persons who do not have priority subscription rights. We may terminate the
community offering at any time without notice. Pending completion or
termination of the offering, we will place funds we receive for stock purchases
in a segregated savings account at 1st State Bank, and we will pay interest at
our passbook rate on those funds for the period the funds are held until we
complete or terminate the offering.
DIVIDENDS
We intend to pay an annual cash dividend of $.40 per share, payable
quarterly at $.10 per share. We expect to begin paying dividends following the
first full quarter after the conversion. For a discussion of our anticipated
dividend policy, including restrictions on our ability to pay dividends, see
"Dividend Policy."
MARKET FOR THE COMMON STOCK
We have received conditional approval to list the common stock on the
Nasdaq National Market under the symbol "FSBC". For additional information
about the market and trading of the common stock, see "Market for the Common
Stock."
RISKS IN OWNING THE COMMON STOCK
Before you decide to purchase stock in the offering, you should read this
entire document, including the Risk Factors section beginning on page 1 of this
document.
The shares of common stock we are offering:
. Are not deposit accounts;
. Are not insured or guaranteed by the FDIC or any other government
agency; and
. Are not guaranteed by us.
The common stock is subject to investment risk, including the possible loss
of principal invested.
(iii)
<PAGE>
WHY WE ARE CONVERTING
With the holding company structure, we will have the ability to plan and
develop long-term growth opportunities and to access the capital markets more
easily in the future. The offering will increase our capital and the amount of
funds available to us for lending and investment. This will give us greater
flexibility to diversify operations and expand into other geographic markets, if
we choose to do so. If our earnings are sufficient in the future, you might
also receive dividends and benefit from the long-term appreciation of our stock
price. Conversion to a commercial bank charter will enable us to continue to
pursue our expanding lines of business by increasing our investment in
commercial real estate loans, commercial loans and consumer loans.
USE OF PROCEEDS FROM THE SALE OF THE COMMON STOCK
We will use the net proceeds from the offering as follows:
. 8% will be loaned to our employee stock ownership plan to fund its
purchase of common stock
. 46% will be invested in 1st State Bank
. 46% will be retained by 1st State Bancorp for general corporate
purposes and may be used to pay dividends to stockholders or to
repurchase stock
The proceeds to be invested in 1st State Bank will be available for general
corporate purposes, including the continued expansion of our retail banking
franchise through continued growth in the loan portfolio, the opening of new
branches, deposit or bank acquisitions, and the purchase of investment
securities. See "Use of Proceeds" for a more specific discussion of our use of
the net proceeds.
$2.2 MILLION TO $3.0 MILLION CHARITABLE FOUNDATION
In furtherance of our long-standing commitment to our local community, we
will establish a charitable foundation which will be dedicated to charitable and
community service causes within our community. We will contribute up to 8% of
the amount of common stock we sell in the offering to the foundation, subject to
a limit of $3,000,000. We expect to realize an after-tax expense of between
$1.5 million and $2.0 million during the quarter ended March 31 or June 30, 1999
as a result of our contribution to the foundation. We contributed $151,000 to
charity during the year ended September 30, 1998 and $106,000 during the year
ended September 30, 1997. See "Risk Factors -- The Expense and Dilutive Effect
of the Contribution of Shares to the Charitable Foundation" and "The Conversion
- --Establishment of the Foundation" for an explanation on how a contribution to
the foundation might affect your ownership interest in 1st State Bancorp.
BENEFITS TO MANAGEMENT FROM THE OFFERING
Our full-time employees will participate in the offering through the
purchase of stock by our employee stock ownership plan, which is a plan that
buys shares of stock and then allocates the stock to employees over a period of
time. You can find more information about our employee stock ownership plan by
reading the section of this document entitled "Management of 1st State Bank --
Executive Compensation -- Employee Stock Ownership Plan." Following the
conversion, we also intend to implement a restricted stock plan and a stock
option plan, which will benefit our officers and directors. These plans will
not be adopted until at least six months after the conversion. If we adopt a
restricted stock plan, our executive officers and directors will be awarded
shares of common stock at no cost to them. The following table summarizes the
benefits directors and management will receive from the conversion at the
midpoint of the offering range:
(iv)
<PAGE>
<TABLE>
<CAPTION>
% of
Shares Issued
Plus Shares Value of Shares Pages in Prospectus
Individuals Eligible Contributed Based on Midpoint Where You Can Find
Plan to Receive Awards to Foundation of Offering Range Further Information
- ---- -------------------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Employee stock ownership plan All employees 8% $2,851,200
Restricted stock plan Directors and officers 4% 1,425,600
Option plan Directors and officers 10% N/A
</TABLE>
We have entered into employment agreements with our three senior executive
officers. The agreements provide that the officers would receive severance
payments up to a total of $2.2 million if 1st State Bancorp is acquired and they
lose their jobs in the acquisition.
OBTAINING FURTHER INFORMATION
For further information, you may contact:
STOCK INFORMATION CENTER
1ST STATE BANCORP, INC.
445 S. MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
(336) ___-____
(v)
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS DOCUMENT, YOU SHOULD CONSIDER
CAREFULLY THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO INVEST IN THE COMMON
STOCK. CERTAIN STATEMENTS IN THIS DOCUMENT ARE FORWARD-LOOKING AND ARE
IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS OR PHRASES SUCH AS "INTENDED,"
"WILL BE POSITIONED," "EXPECTS," IS OR ARE "EXPECTED," "ANTICIPATES," AND
"ANTICIPATED" AND OTHER WORDS AND PHRASES OF SIMILAR MEANING. THESE FORWARD-
LOOKING STATEMENTS ARE BASED ON OUR CURRENT EXPECTATIONS. TO THE EXTENT ANY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT CONSTITUTES A FORWARD-LOOKING
STATEMENT, THE RISK FACTORS SET FORTH BELOW ARE CAUTIONARY STATEMENTS
IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENT.
RISKS RELATED TO COMMERCIAL AND CONSUMER LENDING
We generally invest a greater proportion of our assets in loans secured by
commercial real estate, commercial loans and consumer loans than typical savings
institutions that invest a greater proportion of their assets in loans secured
by single-family residences. Commercial real estate loans and commercial loans
generally involve a higher degree of credit risk than residential mortgage
lending due primarily to the large amounts loaned to individual borrowers.
Losses incurred on loans to a small number of borrowers could have a material
adverse impact on our income and financial condition. In addition, unlike
residential mortgage loans, commercial and commercial real estate loans depend
on the cash flow from the property or the business to service the debt. Cash
flow may be significantly affected by general economic conditions.
Furthermore, we continue to originate loans where repayment is based largely on
the liquidation of assets securing the loan, such as inventory and accounts
receivable. These loans carry an even higher incremental risk of loss, as their
repayment is often dependent solely on the financial performance of the persons
that owe money to our borrower. Consumer lending is riskier than residential
mortgage lending because consumer loans are either unsecured or secured by
assets that depreciate in value. See "Business -- Lending Activities" for
information as to the percentage of loans invested in commercial real estate,
commercial and consumer loans and the outstanding balances of our largest loans.
Our business plan calls for continued efforts to increase the percentage of our
assets invested in commercial real estate loans, commercial loans and consumer
loans.
POTENTIALLY ADVERSE IMPACT OF INTEREST RATES
Our ability to earn a profit, like that of most financial institutions,
depends on our net interest income, which is the difference between the interest
income we earn on our interest-earning assets, such as mortgage loans and
investments, and the interest expense we pay on our interest-bearing
liabilities, such as deposits. Our profitability depends on our ability to
manage our assets and liabilities during periods of changing market interest
rates.
A sustained decrease in market interest rates could adversely affect our
earnings. When interest rates decline, borrowers tend to refinance higher-rate,
fixed-rate loans at lower rates. Under those circumstances, we would not be
able to reinvest those prepayments in assets earning interest rates as high as
the rates on the prepaid loans or investment securities. In addition, our
commercial real estate and commercial loans, which carry interest rates that
adjust in accordance with changes in the prime rate, will adjust to lower rates.
ANTICIPATED LOW RETURN ON EQUITY
Net income divided by average equity, known as "return on average equity "
is a ratio many investors use to compare the performance of a financial
institution to its peers. We expect our return on equity to decrease as
compared to our performance in previous years until we are able to increase our
balance sheet by adding loans and deposits, thereby increasing net interest
income. Our return on equity will be reduced by increased equity from the
conversion and increased expenses due to added expense associated with our
employee stock ownership plan, the costs of being a public company and, later
on, our restricted stock plan.
1
<PAGE>
To grow and thereby improve return on equity, we may seek to either
establish one or more new branches or acquire another financial institution or
branches of another financial institution. We cannot assure you that we will be
able to generate growth or identify attractive acquisition candidates, acquire
such candidates on favorable terms or successfully integrate any acquired
institutions or branches. Our ability to establish new branch offices depends
on whether we can identify advantageous branch office locations and generate new
deposits and loans from those locations that will create an acceptable level of
net income. New branches also typically entail start-up expenses. Our ability
to acquire other financial institutions or branches depends on whether we can
identify, acquire and integrate such institutions or branches. There appear to
be few acquisition opportunities for us in Alamance County.
THE EXPENSE AND DILUTIVE EFFECT OF THE CONTRIBUTION OF SHARES TO THE CHARITABLE
FOUNDATION
We are establishing a charitable foundation and contributing to the
foundation up to 8% of the shares of common stock sold in the offering. The
contribution to the foundation will reduce our earnings in 1999, the fiscal year
in which the foundation is to be established and the contribution made, by
between $1.5 million and $2.0 million. Assuming the maximum contribution of
$3,000,000 of common stock, if the foundation had been established and the
contribution made during the year ended September 30, 1998, we would have
reported net income of approximately $541,000 rather than reporting net income
of approximately $2.5 million for the year ended September 30, 1998. In
addition, 1st State Bancorp stockholders will have their ownership and voting
interests diluted by between 6.4% and 7.4%. The number of shares of common
stock to be contributed to the foundation will equal between 7.4% and 6.4% of
the shares that will be outstanding following the conversion. See "The
Conversion -- Establishment of the Foundation" for a more detailed discussion of
the effects the establishment of the foundation would have on stockholders'
interests and on our earnings.
CONCENTRATION OF OUR BUSINESS IN ALAMANCE COUNTY
We conduct most of our business in Alamance County in North Carolina.
Despite recent diversification, the economy in Alamance County continues to be
heavily dependent on the textile industry. A downturn in the textile industry
could adversely affect the economy in Alamance County, which could adversely
affect our earnings and reduce the demand for loans and deposits. The NAFTA
legislation passed by Congress also appears to be having a negative impact on
the textile industry of Alamance County, affecting or potentially affecting
borrowers in the textile industry and borrowers employed by local textile
companies.
STRONG COMPETITION WITHIN ALAMANCE COUNTY
Competition in the banking and financial services industry is intense. Our
profitability depends upon our continued ability to successfully compete. We
compete in Alamance County with commercial banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms. Many of these competitors have
substantially greater resources and lending limits than we do and may offer
certain services that we do not or cannot provide.
RISK TO STOCK VALUE FROM OUR ABILITY TO IMPEDE POTENTIAL TAKEOVERS
Provisions in our corporate documents and in Virginia corporate law, as
well as certain federal regulations, may make it difficult, and expensive, to
pursue a tender offer, change in control or takeover attempt that our board of
directors opposes. As a result, you may not have an opportunity to participate
in such a transaction, and the trading price of our stock may not rise to the
level of other institutions that are more vulnerable to hostile takeovers.
Anti-takeover provisions include:
. restrictions on the acquisition of 1st State Bancorp's equity
securities and limitations on voting rights
. the classification of the terms of the members of the board of
directors
2
<PAGE>
. certain provisions relating to meetings of stockholders
. denial of cumulative voting by stockholders in the election of
directors
. the ability to issue preferred stock and additional shares of common
stock without shareholder approval
. super-majority voting provisions for the approval of certain business
combinations
These provisions also will make it more difficult for an outsider to remove our
current board of directors or management. See "Restrictions on Acquisition of
1st State Bancorp and 1st State Bank" and "Anti-takeover Provisions in Our
Corporate Document" for a description of anti-takeover provisions in our
corporate documents and under Virginia law and federal regulations.
Also contributing to our ability to impede potential takeovers will be the
large amount of stock to be owned by our directors, executive officers and
employees. Our directors and executive officers, our employee stock ownership
plan and our restricted stock plan, if implemented, intend to purchase
approximately $13.0 million of common stock. This will total 36.6% of the
outstanding shares at the midpoint of the offering range. In addition, the
foundation will own between 6.4% and 7.4% of the outstanding common stock. The
foundation must vote these shares in the same proportion as all other
outstanding shares are voted. These purchases, along with potential purchases
through future stock options, could make it difficult to obtain majority support
for stockholder proposals we oppose. In addition, by voting these shares we
could block the approval of transactions requiring the approval of 80% of the
stockholders. Examples of transactions we could block are certain business
combinations or amendments to our corporate documents. For a description of our
employee stock benefit plan, restricted stock plan and stock option plan and
the conditions governing the issuance of stock under these plans, see
"Management of 1st State Bank -- Executive Compensation --Employee Stock
Ownership Plan," " -- Proposed Future Stock Benefit Plans -- Stock Option Plan"
and " -- Restricted Stock Plan."
POTENTIAL COST OF FUTURE EMPLOYEE STOCK BENEFIT PLANS
We anticipate that our employee stock ownership plan will purchase 8% of
the common stock issued in the conversion, including shares contributed to the
foundation, with funds borrowed from 1st State Bancorp. The cost of acquiring
the employee stock ownership plan shares will be between $2.4 million, and $3.7
million. We will record annual employee stock ownership plan expenses in an
amount equal to the fair value of shares committed to be released to employees.
If shares of common stock appreciate in value over time, compensation expense
relating to the employee stock ownership plan may increase. In addition, it is
possible that we will implement a restricted stock plan, under which officers
and directors could be awarded (at no cost to them) up to an aggregate of 4% of
the shares issued in the conversion, including shares contributed to the
foundation. Assuming the shares of common stock to be awarded under the plan
cost the same as the purchase price in the conversion, the reduction to
stockholders' equity from the plan would be between $1.2 million and $1.9
million.
POSSIBLE DILUTIVE EFFECT OF EMPLOYEE STOCK BENEFIT PLANS
If the conversion is completed and stockholders subsequently approve a
restricted stock plan and a stock option plan, we will issue stock to our
officers and directors through these plans. If the shares for the restricted
stock plan are issued from our authorized but unissued stock, your ownership
percentage could be diluted by up to approximately 4% and the trading price of
our stock may be reduced. See "Pro Forma Data" for data on the dilutive effect
of the restricted stock plan and "Management of 1st State Bank -- Proposed
Future Stock Benefit Plans -- Stock Option Plan" and "--Restricted Stock Plan"
for a description of the plans. These plans will also involve additional
expense. See "--Anticipated Low Return on Equity" for a more detailed
discussion of the increased expenses we will incur after the conversion and how
this increase could decrease our return on equity.
3
<PAGE>
VALUATION NOT INDICATIVE OF FUTURE PRICE OF COMMON STOCK
We cannot assure you that if you purchase common stock in the offering you
will later be able to sell it at or above the purchase price in the offering.
The final aggregate purchase price of the common stock in the conversion will be
based upon an independent appraisal. The appraisal is not intended, and should
not be construed, as a recommendation of any kind as to the advisability of
purchasing shares of common stock. The valuation is based on estimates and
projections of a number of matters, all of which are subject to change from time
to time. See "The Conversion -- How We Determined the Price Per Share and the
Offering Range" for the assumptions Ferguson & Company used in determining the
appraisal.
POSSIBLE ADVERSE TAX CONSEQUENCES OF SUBSCRIPTION RIGHTS
Should the Internal Revenue Service determine that the subscription rights
have ascertainable value, you could be taxed as a result of your exercise of
those rights in an amount equal to their value. Ferguson & Company has given us
their opinion that the subscription rights granted to eligible members in the
conversion have no value. This opinion is not binding on the Internal Revenue
Service, however.
POTENTIAL STOCK PRICE DECLINE DUE TO STOCK MARKET VOLATILITY
Due to possible continued market volatility and to other factors, including
certain Risk Factors discussed in this document, we cannot assure you that,
following the conversion, the trading price of our common stock will be at or
above initial per share offering price. Publicly traded stocks, including
stocks of financial institutions, have recently experienced substantial market
price volatility. These market fluctuations may be unrelated to the operating
performance of particular companies whose shares are traded. In several cases,
common stock issued by recently converted financial institutions has traded at a
price that is below the price at which such shares were sold in the initial
offerings of those companies. The purchase price of our common stock in the
offering is based on the independent appraisal by Ferguson & Company. After our
shares begin trading, the trading price of our common stock will be determined
by the marketplace, and may be influenced by many factors, including prevailing
interest rates, investor perceptions and general industry and economic
conditions.
NO OPINION OR RECOMMENDATION BY SALES AGENT; BEST EFFORTS OFFERING
We have engaged Trident Securities to consult with and advise us with
respect to the conversion and to assist, on a best-efforts basis, in connection
with the solicitation of subscriptions and purchase orders for shares of common
stock in the offering. Trident Securities has not prepared or delivered any
opinion or recommendation with respect to the suitability of the common stock as
an investment or the appropriateness of the amount of common stock to be issued
in the conversion. Our engagement of Trident Securities and the work they
performed, including their due diligence investigation, should not be construed
by purchasers of the common stock as constituting an opinion or recommendation
relating to investment in the common stock offered by this document.
POTENTIAL INABILITY TO MAKE TECHNOLOGICAL ADVANCES; CONSEQUENCES OF YEAR 2000
COMPUTER FAILURE
Our industry is experiencing rapid changes in technology. In addition to
improving customer services, effective use of technology increases efficiency
and enables financial institutions to reduce costs. Our future success will
thus depend in part on our ability to address our customers' needs by using
technology. We cannot assure you that we will be able to effectively develop
new technology-driven products and services or be successful in marketing these
products to our customers. Many of our competitors have far greater resources
than we have to invest in technology.
Our operations are also dependent on computers and computer systems,
whether we maintain them internally or they are maintained by a third party.
Systems that do not properly recognize the correct year could produce faulty
data or cause a system to fail. We cannot assure you that we, our customers and
our third party providers will be
4
<PAGE>
successful in making all necessary changes to avoid computer system failures
related to the year 2000. Such failures may include, among other things, the
inability to process and underwrite loan applications, to credit deposits and
withdrawals from customer accounts, to credit loan payments or track
delinquencies, to properly reconcile and record daily activity or to engage in
similar normal banking activities. Additionally, if our commercial customers are
not Year 2000 compliant and suffer adverse effects on their operations, their
ability to meet their obligations to us could be adversely affected. For a
further discussion of our efforts to prepare for Year 2000 issues, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance."
OPERATIONS ARE SUBJECT TO REGULATORY CHANGES
We are subject to extensive government regulation, supervision and
examination. The regulatory authorities have extensive discretion in connection
with their supervisory and enforcement activities. Any change in regulation,
whether by the Commission, the FDIC, the Federal Reserve Board or the U.S.
Congress, could have a significant impact on us and our operations.
There is legislation pending in the U.S. Congress that calls for the
modernization of the banking system and that would significantly affect the
operations and regulatory structure of the financial services industry. At
this time, we do not know what form the final legislation might take, but if
enacted into law, the legislation could affect our competitive environment as
well as our business and operations. See "Regulation --Depository Institution
Regulation --Proposed Legislative and Regulatory Changes" for a description of
the provisions of this proposed legislation.
RISK OF LOSS OF PRINCIPAL
The shares of common stock offered by this document are not savings
accounts or deposits and are not insured or guaranteed by the FDIC, the SAIF or
any other governmental agency, and involve investment risk, including the
possible loss of principal.
5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following summary consolidated financial information is derived from
our audited consolidated financial statements. The following information is
only a summary, and you should read it in conjunction with our consolidated
financial statements and the notes to our consolidated financial statements,
which you can find beginning on page F-1 of this Prospectus.
SELECTED FINANCIAL CONDITION DATA
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- ----------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total assets......................................... $288,223 $258,509 $235,138 $222,916 $208,332
Loans receivable..................................... 196,782 197,122 173,849 171,093 154,195
Loans held for sale, at lower of cost or fair value.. 7,540 684 2,377 -- --
Cash and cash equivalents............................ 31,077 14,990 9,754 7,550 4,858
Investment securities:
Available for sale............................... 9,858 11,320 16,024 16,307 19,004
Held to maturity................................. 30,195 23,482 21,685 17,649 18,197
Deposit accounts..................................... 235,694 229,341 209,707 200,769 188,309
Advances from Federal Home Loan Bank................. 20,000 1,000 1,000 -- 1,000
Net worth (1)........................................ 25,966 23,277 20,629 19,151 16,530
- --------
</TABLE>
(1) Consists of retained income, substantially restricted, and net unrealized
gains or losses on securities available for sale.
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total interest income................ $20,708 $19,061 $17,395 $16,146 $13,374
Total interest expense............... 11,071 9,799 9,453 8,584 7,175
------- ------- ------- ------- -------
Net interest income.................. 9,637 9,262 7,942 7,562 6,199
Provision for loan losses............ 477 261 281 454 240
------- ------- ------- ------- -------
Net interest income after provision
for loan losses..................... 9,160 9,001 7,661 7,108 5,959
Other income......................... 1,497 1,468 1,179 1,600 295
Operating expenses................... 6,774 6,473 6,403 5,006 4,316
------- ------- ------- ------- -------
Income before income taxes........... 3,883 3,996 2,437 3,702 1,938
Income taxes......................... 1,362 1,447 841 1,378 686
------- ------- ------- ------- -------
Net income........................... $ 2,521 $ 2,549 $ 1,596 $ 2,324 $ 1,252
======= ======= ======= ======= =======
</TABLE>
6
<PAGE>
SELECTED FINANCIAL RATIOS AND OTHER DATA
<TABLE>
<CAPTION>
At or for the
Year Ended September 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
---------------- --------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets (net income divided
by average total assets)........................... 0.92% 1.03% 0.70% 1.07% 0.60%
Return on average net worth (net income
divided by average net worth)...................... 10.20 11.34 7.92 12.94 7.75
Interest rate spread (combined weighted average
interest rate earned less combined weighted
average interest rate cost)........................ 3.45 3.70 3.41 3.45 3.06
Net interest margin (net interest income divided by
average interest-earning assets)................... 3.77 4.00 3.68 3.68 3.20
Ratio of average interest-earning assets
to average interest-bearing liabilities............ 107.42 106.99 106.25 105.61 103.88
Ratio of operating expenses to average total assets.. 2.48 2.62 2.80 2.30 2.07
ASSET QUALITY RATIOS:
Nonperforming assets to total assets
at end of period................................... 0.09 0.10 0.12 1.64 1.58
Nonperforming loans to total loans
at end of period................................... 0.13 0.13 0.16 2.11 0.06
Allowance for loan losses to total
loans at end of period............................. 1.61 1.38 1.42 1.28 1.13
Allowance for loan losses to nonperforming
loans at end of period............................. 1,227.38 1,063.32 866.67 60.72 1,784.85
Provision for loan losses to total loans............. 0.24 0.13 0.16 0.26 0.15
Net charge-offs to average loans
outstanding........................................ -- -- -- -- 0.01
CAPITAL RATIOS:
Net worth to total assets at
end of period...................................... 9.01 9.00 8.77 8.59 7.93
Average net worth to average assets.................. 9.05 9.10 8.80 8.25 7.75
<CAPTION>
At September 30,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Number of:
Loans outstanding................................... 6,253 6,410 6,404 6,675 6,848
Deposit accounts.................................... 26,066 26,924 27,187 27,850 27,399
Offices open (1).................................... 6 6 6 5 5
</TABLE>
- --------
(1) All offices are full service offices.
7
<PAGE>
RECENT DEVELOPMENTS
The following consolidated financial information is only a summary and you
should read it in conjunction with our consolidated financial statements and the
notes to our consolidated financial statements, which you can find beginning on
page F-1 of this Prospectus. The selected financial condition data at September
30, 1998 is derived from our audited consolidated financial statements. All
other data has been derived from unaudited financial statements. In our
opinion, the unaudited information reflects all adjustments, which consist only
of normal recurring adjustments, necessary for a fair presentation. The
operating data for the three months ended December 31, 1998 does not necessarily
predict the results we may achieve in the future.
SELECTED FINANCIAL CONDITION DATA
<TABLE>
<CAPTION>
At At
December 31, September 30,
1998 1998
------------ -------------
(In thousands)
<S> <C> <C>
Total assets................................... $291,249 $288,223
Loans receivable............................... 189,142 196,782
Loans held for sale, at lower of cost or fair
value....................................... 6,185 7,540
Cash and cash equivalents...................... 27,225 31,077
Investment securities:
Available for sale.......................... 12,733 9,858
Held to maturity............................ 42,935 30,195
Deposit accounts............................... 237,394 235,694
Advances from Federal Home Loan Bank........... 20,000 20,000
Net worth (1).................................. 26,707 25,966
</TABLE>
- --------------------
(1) Consists of retained income, substantially restricted, and net unrealized
gains or losses on securities available for sale.
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
For the Three Months
Ended December 31,
-----------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Total interest income................................. $5,124 $4,983
Total interest expense................................ 2,846 2,620
------ ------
Net interest income................................... 2,278 2,363
Provision for loan losses............................. 60 60
------ ------
Net interest income after provisions for loan losses.. 2,218 2,303
Other income.......................................... 665 391
Operating expenses.................................... 1,718 1,497
------ ------
Income before income taxes............................ 1,165 1,197
Income taxes.......................................... 414 439
------ ------
Net income............................................ $ 751 $ 758
====== ======
</TABLE>
8
<PAGE>
SELECTED FINANCIAL RATIOS AND OTHER DATA
<TABLE>
<CAPTION>
At or for the Three
Months Ended December 31,
------------------------
1998(1) 1997(1)
---- ----
<S> <C> <C>
PERFORMANCE RATIOS:
Return on average assets (net income divided
by average total assets).............................. 1.04% 1.16%
Return on average net worth (net income
divided by average net worth)......................... 11.39 12.82
Interest rate spread (combined weighted average
interest rate earned less combined weighted
average interest rate cost)........................... 2.96 3.53
Net interest margin (net interest income divided by
average interest-earning assets)...................... 3.36 3.88
Ratio of average interest-earning assets
to average interest-bearing liabilities............... 109.50 108.26
Ratio of operating expenses to average total assets.... 2.38 2.29
ASSET QUALITY RATIOS:
Nonperforming assets to total assets at end of period.. 0.16 0.16
Nonperforming loans to total loans at end of period.... 0.24 0.21
Allowance for loan losses to total
loans at end of period................................ 1.71 1.38
Allowance for loan losses to nonperforming
loans at end of period................................ 723.72 675.39
Provision for loan losses to total loans............... 0.13 0.12
Net charge-offs to average loans outstanding........... 0.03 --
CAPITAL RATIOS:
Net worth to total assets at end of period............. 9.17 9.27
Average net worth to average assets.................... 9.12 9.06
- ------------
</TABLE>
(1) Annualized.
9
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND SEPTEMBER 30,
1998
Total assets increased by $3.0 million, or 1.05% from $288.2 million at
September 30, 1998 to $291.2 million at December 31, 1998. Asset growth was
funded during the period by an increase of $1.7 million in deposits, as deposits
increased from $235.7 million at September 30, 1998 to $237.4 million at
December 31, 1998.
Investment securities, both available for sale and held to maturity,
increased a combined total of $15.6 million, or 39.0%, from $40.1 million at
September 30, 1998 to $55.7 million at December 31, 1998. During the quarter
ended December 31, 1998, we purchased $19.8 million of short-term government
agency securities to invest excess liquidity. The increased liquidity resulted
from loan sales during the quarter. Cash and cash equivalents decreased $3.9
million, or 12.4%, from $31.1 million at September 30, 1998 to $27.2 million at
December 31, 1998.
Interest rates continued to be low during the quarter, which encouraged
borrowers to refinance their mortgage loans into fixed-rate loans. As a result,
we originated $17.1 million in loans held for sale during the quarter. We sold
$19.1 million of loans held for sale during the quarter. As a result, our loans
held for sale decreased $1.4 million, or 18.0%, from $7.5 million at September
30, 1998 to $6.2 million at December 31, 1998. In addition, our loans
receivable, net decreased by $7.6 million, or 3.9%, from $196.8 million at
September 30, 1998 to $189.1 million at December 31, 1998.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND
1997
Net Income. We had $751,000 of net income for the quarter ended December
31, 1998, compared to $758,000 of net income for the quarter ended December 31,
1997, representing a decrease of $7,000, or 0.9%. The principal reason for the
decrease was an $85,000 decrease in net interest income.
Interest Income. Total interest income was $5.1 million for the quarter
ended December 31, 1998, as compared to $5.0 million for the quarter ended
December 31, 1997, representing an increase of $141,000, or 2.8%. Average
interest-earning assets increased by $27.8 million, or 11.4%, from $243.8
million for the quarter ended December 31, 1997 to $271.6 for the quarter ended
December 31, 1998.
Interest Expense. Total interest expense was $2.8 million for the quarter
ended December 31, 1998, as compared to $2.6 million for the quarter ended
December 31, 1997, representing an increase of $226,000, or 8.6%. Average
interest-bearing liabilities increased $23.2 million, or 10.3%, from $224.8
million for the quarter ended December 31, 1997 to $248.0 million for the
quarter ended December 31, 1998.
Net Interest Income. Despite our increases in net earning assets of $4.6
million, our net interest rate spread decreased from 3.53% to 2.96% and the net
interest margin decreased from 3.88% to 3.36%. These decreases reflected our
increased level of investment securities and our decreased level of loans.
Loans generally carry higher interest rates than investment securities.
Provision for Loan Losses. We provided $60,000 for loan losses during each
of the quarters ended December 31, 1998 and 1997.
Other Income. Other income increased $274,000, or 70.1%, from $391,000 for
the quarter ended December 31, 1997 to $665,000 for the quarter ended December
31, 1998. As interest rates continued to remain low, we sold $19.1 million of
loans during the quarter to reduce our interest rate risk associated with long-
term fixed-rate mortgages. We recognized income of $337,000 from the origination
and sale of these loans. This is an increase of $290,000, or 617.0%, from the
same quarter in the prior year.
Operating Expenses. Total operating expenses increased $221,000, or 14.8%,
from $1.5 million for the quarter ended December 31, 1997 to $1.7 million for
the quarter ended December 31, 1998. Compensation expense increased $100,000,
or 10.0%, from $1.0 million for the quarter ended December 31, 1997 to $1.1
million for the quarter ended December 31, 1998.
10
<PAGE>
PROPOSED MANAGEMENT PURCHASES
The following table sets forth the approximate purchases of common stock by
each director and executive officer and their associates. The table assumes
that we will sell $33.0 million of common stock, the midpoint of the offering
range, and that 176,000 shares are issued to the foundation.
<TABLE>
<CAPTION>
Percent Approximate
Total of Total Aggregate
Name and Position Shares Outstanding (1) Purchase Price
- ----------------- ------ --------------- --------------
<S> <C> <C> <C>
James A. Barnwell, Jr., Director 66,666 2.8% $ 1,000,000
Bernie C. Bean, Director 33,333 1.4 500,000
Richard C. Keziah, Chairman of the Board 63,333 2.7 950,000
James G. McClure, Director 66,666 2.8 1,000,000
James C. McGill, President, Chief Executive 66,666 2.8 1,000,000
Officer and Director
T. Scott Quakenbush, Director 66,666 2.8 1,000,000
Richard H. Shirley, Director 50,000 2.1 750,000
Virgil L. Stadler, Director 66,666 2.8 1,000,000
A. Christine Baker, Executive Vice President-
Chief Financial Officer 43,334 1.8 650,000
Fairfax C. Reynolds, Executive Vice President-
Commercial & Retail Banking 43,334 1.8 650,000
John D. Hansell, Manager-First Capital Services LLC 3,333 .2 50,000
Frank Gavigan, Senior Vice President-Senior 13,333 .6 200,000
Credit Officer
All directors and executive officers, as a
group (12 persons) and their associates 583,330 24.6 8,750,000
Employee stock ownership plan 190,080 8.0 2,851,200
Restricted stock plan (2) 95,040 4.0 1,425,600
Foundation 176,000 (3) 7.4 N/A (3)
--------- ---- -----------
Total (4) 1,044,450 44.0% $13,026,800
========= ==== ===========
</TABLE>
- -------------------------
(1) Percentages are based on the sale of 2,200,000 shares at $15.00 per share
at the midpoint of the offering range and the issuance of 176,000
additional shares to the foundation.
(2) Consists of shares that are expected to be awarded to participants in a
restricted stock plan, if implemented. The dollar amount of the common
stock to be purchased by the restricted stock plan is based on the purchase
price in the offering and does not reflect possible future increases or
decreases in the value of the stock. See "Management of 1st State Bank --
Proposed Future Stock Benefit Plans -- Restricted Stock Plan" for a
description of this plan. The shares awarded could be newly issued shares
or shares purchased in the open market in our sole discretion. In
preparing this table, we assumed that the shares are purchased in the open
market. Any sale of newly issued shares to the restricted stock plan would
be dilutive to existing stockholders. See "Risk Factors -- Possible
Dilutive Effect of Future Employee Stock Benefit Plans" describing how
issuance of stock under these plans may dilute stockholders' ownership
interests.
(3) Shares will be donated to the foundation.
(4) Does not include shares that possibly would be purchased by participants in
a stock option plan, intended to be implemented, under which directors,
executive officers and other employees would be granted options to purchase
an aggregate amount of common stock equal to 10% of the shares issued in
the conversion, including shares contributed to the foundation, at exercise
prices equal to the market price of the common stock on the date of grant.
See "Management of 1st State Bank -- Proposed Future Stock Benefit Plans --
Stock Option Plan" for a more detailed discussion of the plan.
11
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the common
stock of between $27.0 million at the minimum of the offering range and $42.4
million at the maximum, as adjusted of the offering range. Assuming the sale of
$33.0 million of common stock at the midpoint of the offering range and the
purchase of 8% of the shares by the employee stock ownership plan, the following
table sets forth the manner in which we will use the net proceeds:
<TABLE>
<S> <C>
Loan to employee stock ownership plan $ 2,851,000
Investment in 1st State Bank 14,535,000
1st State Bancorp working capital 14,534,000
-----------
Total $31,920,000
===========
</TABLE>
The proceeds retained by 1st State Bancorp, after making the loan to the
employee stock ownership plan, initially will be invested in short-term and
intermediate-term securities, including cash and cash equivalents and U.S.
Government and agency obligations. The proceeds will be available for a variety
of corporate purposes, including funding a restricted stock plan, if
implemented, future acquisitions and diversification of business, additional
capital contributions to 1st State Bank, dividends to stockholders and future
repurchases of common stock. We do not have any specific plans, intentions,
arrangements or understandings regarding acquisitions or capital contributions.
We have provided in our internal business plan that we will repurchase 5% of the
outstanding common stock in each of the second and third years following the
conversion. However, whether we actually repurchase stock depends on many
factors that may change during the next year or two. For example, we might not
repurchase any stock if the prevailing market price was too high or if we had a
better use for our excess liquid assets. In addition, we will have funds
available to loan to 1st State Bank, if necessary, in the event and to the
extent loan growth exceeds deposit growth or for other corporate purposes. We
may use a portion of the net proceeds to acquire shares of common stock pursuant
to a restricted stock plan, if implemented or to purchase shares to be held by a
grantor trust for issuance to option holders upon the exercise of options in the
event a stock option plan is implemented. See "Management of 1st State Bank --
Proposed Future Stock Benefit Plans -- Stock Option Plan" and "-- Restricted
Stock Plan" for a description of those plans. We do not have any specific plans
regarding possible stock repurchases during the first year following the
conversion.
The proceeds we invest in 1st State Bank will become part of 1st State
Bank's general corporate funds to be used for business activities, including
making loans and investments. Initially, we expect that we will invest the
proceeds in short-term and intermediate-term securities, including cash and cash
equivalents and U.S. Government and agency obligations. We ultimately plan to
use the proceeds primarily to originate loans in the ordinary course of
business.
DIVIDEND POLICY
The board of directors will determine whether to pay dividends. The board
will take into account, among other things, our net income, capital and
financial condition, industry trends and general economic conditions, as well as
any restrictions required by law. We intend to pay an annual cash dividend of 2%
of the per share offering price, payable quarterly. If the purchase price is
$20.00 per share, the annual dividend will be $.40 per share, and if the
purchase price is $15.00 per share, the annual dividend will be $.30 per share.
We expect to begin paying dividends following the first full quarter after the
conversion. In addition, from time to time in an effort to manage capital to a
reasonable level, the board may determine if it is prudent to pay periodic
special cash dividends. Periodic special cash dividends, if paid, may be paid in
addition to, or in lieu of, regular cash dividends. We cannot assure you that we
will pay regular cash dividends or periodic special cash dividends. We could
reduce or eliminate the cash dividend at any time.
12
<PAGE>
Dividend payments by 1st State Bancorp are subject to regulatory
restrictions under Federal Reserve Board policy and to limitations under
Virginia corporate law. The Federal Reserve Board has issued a policy statement
on the payment of cash dividends by bank holding companies, which expresses the
Federal Reserve Board'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 earnings retention
that is consistent with the company's capital needs, asset quality and overall
financial condition. The Federal Reserve Board also indicated that it would be
inappropriate for a company experiencing serious financial problems to borrow
funds to pay dividends. Furthermore, the Federal Reserve Board may prohibit a
bank holding company from paying any dividends if the holding company's bank
subsidiary is classified as "undercapitalized." See "Regulation -- Regulation of
1st State Bancorp Following the Conversion -- Dividends" for the conditions on
the payment on dividends imposed on us after the conversion. Under Virginia law,
dividends may be paid as long as the payment of a dividend would not cause 1st
State Bancorp to be unable to pay its debts as they become due and would not
result in total assets being less than the sum of total liabilities plus any
amount required to be paid to holders of preferred stock in the event of
liquidation of 1st State Bancorp.
We have agreed with the FDIC not to make a tax-free cash distribution to
stockholders for a period of one year following the conversion. In addition, we
have agreed with the FDIC not to file a private letter ruling request with the
Internal Revenue Service regarding the tax-free nature of a possible one-time
cash distribution to 1st State Bancorp stockholders for a period of one year
following the conversion.
Because 1st State Bancorp initially will have no significant source of
income other than dividends from 1st State Bank and earnings from investment of
the net offering proceeds it retains, to pay dividends to stockholders 1st State
Bancorp may need to receive dividends from 1st State Bank. 1st State Bank's
ability to pay dividends is subject to various tax and regulatory restrictions.
See "Regulation -- Depository Institution Regulation -- Dividend Restrictions"
for a description of these restrictions.
MARKET FOR THE COMMON STOCK
1st State Bancorp has never issued capital stock to the public.
Consequently, there is no established market for the common stock. We have
received conditional approval to have the common stock listed on the Nasdaq
National Market under the symbol "FSBC". For initial inclusion for listing on
Nasdaq, 1st State Bancorp must have three active and registered market makers.
Trident Securities has advised us that it will act as a market maker for the
common stock, and we expect that there will be additional market makers. The
development of a liquid public market depends on the existence of willing buyers
and sellers, the presence of which we cannot control, and the number of active
buyers and sellers of the common stock at any particular time may be limited.
Under these circumstances, you could have difficulty disposing of your shares
and should view the common stock as a long-term investment. We cannot assure you
that an active and liquid trading market for the common stock will develop, or,
if developed, it will continue, or that you will be able to sell your shares at
or above the per share purchase price in the conversion.
13
<PAGE>
CAPITALIZATION
The following table sets forth our historical capitalization, including
deposits, at September 30, 1998 and our pro forma consolidated capitalization
giving effect to the sale of the common stock in the offering based upon the
assumptions set forth under "Pro Forma Data" and below. Depending on market and
financial conditions, the total amount of stock to be issued in the conversion
may be significantly increased or decreased above or below the midpoint of the
offering range. We may consummate the conversion without a resolicitation of
purchasers if the aggregate purchase price of the common stock sold in the
conversion is above the minimum of the offering range or less than the maximum,
as adjusted of the offering range. A CHANGE IN THE NUMBER OF SHARES TO BE ISSUED
IN THE CONVERSION MAY MATERIALLY AFFECT OUR PRO FORMA CAPITALIZATION. SEE "PRO
FORMA DATA" AND "THE CONVERSION -- HOW WE DETERMINED THE PER SHARE PURCHASE
PRICE AND THE OFFERING RANGE" FOR THE ASSUMPTIONS WE USED TO CALCULATE THE
INFORMATION BELOW.
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization of
Capitalization 1st State Bancorp at September 30, 1998 Based on the Sale of
of 1st State -----------------------------------------------------------------------
Bank at Maximum, as
September 30, Minimum of Midpoint of Maximum of Adjusted of
1998 $28,050,000 $33,000,000 $37,950,000 $43,642,500
------------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits (1)........................ $ 235,694 $ 235,694 $ 235,694 $ 235,694 $ 235,694
FHLB advances....................... 20,000 20,000 20,000 20,000 20,000
------------- ----------- ----------- ----------- -----------
Total deposits and borrowed
funds.......................... $ 255,694 $ 255,694 $ 255,694 $ 255,694 $ 255,694
============= =========== =========== =========== ===========
Capital stock
Preferred stock, $.01 par value
per share:
authorized - 1,000,000 shares;
assumed outstanding - none...... $ -- $ -- $ -- $ -- $ --
Common stock, $.01 par value per
share:
authorized - 7,000,000 shares;
shares to be outstanding - as
shown, plus shares
issued to foundation............ -- 20 24 20 23
Paid-in capital (2)............... -- 29,261 34,536 39,782 45,392
Less: Common stock acquired by
employee stock ownership
plan (5)........................ -- (2,424) (2,851) (3,276) (3,731)
Common stock acquired
by restricted stock
plan (6)............... -- (1,212) (1,426) (1,638) (1,866)
Retained income (7)............... 25,873 25,873 25,873 25,873 25,873
Less: Expense of contribution to
foundation (3).................... (2,244) (2,640) (3,000) (3,000)
Plus: Tax benefit of
contribution to foundation (4)... 763 898 1,020 1,020
Net unrealized gains on
investment securities available
for sale...................... 93 93 93 93 93
------------- ---------- ---------- ---------- ----------
Total stockholders' equity...... $ 25,966 $ 50,130 $ 54,507 $ 58,874 $ 63,804
============= ========== ========== ========== ==========
</TABLE>
(footnotes on following page)
14
<PAGE>
(footnotes for table on previous page)
- --------------------
(1) We have not included any withdrawals from savings accounts for the purchase
of stock. Any withdrawals will reduce pro forma capitalization by the
amount of the withdrawals.
(2) Based upon the estimated net proceeds from the sale of capital stock less
the par value of shares sold. Estimated offering expenses are $1,013,000,
$1,080,000, $1,148,000 and $1,227,000 at the minimum, midpoint, maximum and
maximum, as adjusted of the offering range. Does not reflect additional
shares of common stock that possibly could be purchased by participants in
a stock option plan, if implemented, under which directors, executive
officers and other employees could be granted options to purchase an
aggregate of up to 10% of the shares of common stock issued in the
conversion, including shares we contribute to the foundation, at exercise
prices equal to the market price of the common stock on the date of grant.
Implementation of the stock option plan within one year after the
conversion will require regulatory and stockholder approval. See
"Management of 1st State Bank -- Proposed Future Stock Benefit Plans --
Stock Option Plan" and "Risk Factors -- Possible Dilutive Effect of
Employee Stock Benefit Plans" for a description of these plans.
(3) Assumes the common stock contributed to the foundation has a value equal to
the per share purchase price in the offering. The amount of common stock we
will contribute to the foundation is $2,244,000, $2,640,000, $3,000,000 and
$3,000,000 at the minimum, midpoint, maximum and maximum, as adjusted,
respectively, of the offering range.
(4) Reflects the tax effect of the contribution based on a 34% marginal federal
tax rate. The realization of the deferred tax benefit is limited annually
to 10% of our annual taxable income, subject to our ability to carry
forward any unused portion of the deduction for five years following the
year in which the contribution is made.
(5) Assumes 8% of the shares of common stock to be sold in the offering,
including shares contributed to the foundation, are purchased by the
employee stock ownership plan and that the funds used to purchase the
shares are borrowed from 1st State Bancorp.
(6) Assumes that we will acquire for the restricted stock plan a number of
shares equal to 4% of the number of shares sold in the offering, including
shares we contribute to the foundation and that the price paid will be the
per share purchase price in the offering. If the restricted stock plan were
funded by authorized but unissued shares, your interests would be diluted
by approximately 4%. Implementation of such a plan within one year of the
conversion would require regulatory and stockholder approval at a meeting
of our stockholders to be held no earlier than six months after the
conversion. See "Management of 1st State Bank -- Proposed Future Stock
Benefit Plans -- Restricted Stock Plan" for a description of the plan.
(7) Our retained income is substantially restricted. All capital distributions
are subject to regulatory restrictions tied to our regulatory capital
level. In addition, after the conversion, we will be prohibited from paying
any dividend that would reduce our regulatory capital below the amount in
the liquidation account we will establish. See "Regulation --Depository
Institution Regulation -- Dividend Restrictions" and "The Conversion -- How
the Conversion Will Affect Our Depositors and Borrowers -- Liquidation
Account" for information regarding the liquidation account. The liquidation
account is a memorandum account and will not appear in our financial
statements.
15
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
We are subject to North Carolina law, which requires that our net worth,
computed in accordance with the requirements of the Administrator, equal or
exceed 5% of total assets. In addition, we are subject to the capital
requirements of the FDIC. The FDIC requires that institutions which receive the
highest rating during their examination process and are not experiencing or
anticipating significant growth must maintain a leverage ratio of Tier 1 capital
to "total assets" (as defined in FDIC regulations) of at least 3%. All other
institutions are required to maintain a ratio of 1% or 2% above the 3% minimum
with an absolute minimum leverage ratio of not less than 4%. The FDIC also
imposes requirements that (i) the ratio of Tier 1 capital to risk-weighted
assets equal at least 4%, and (ii) the ratio of total capital to risk-weighted
assets equal at least 8%. For a description of the regulatory capital standards
we must meet, see "Regulation -- Depository Institution Regulation -- Capital
Requirements."
After the conversion, 1st State Bank will continue to be subject to the
FDIC's capital requirements and 1st State Bancorp will be required to satisfy
Federal Reserve Board capital requirements, which are similar but not identical
to the FDIC's capital requirements. The following table sets forth our
historical capital position relative to the various minimum Administrator and
FDIC regulatory capital requirements to which we are currently subject. The next
table sets forth our historical capital position and thereafter presents pro
forma data relative to the FDIC capital requirements to which 1st State Bank
will be subject. For additional information regarding our financial condition
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, which you can find
beginning on page F-1 of this Prospectus.
<TABLE>
<CAPTION>
Historical at
September 30, 1998
-------------------------
Percent of
Amount Assets(1)
------- ----------------
(Dollars in thousands)
<S> <C> <C>
Tier 1/leverage capital........................ $25,873 9.13%
Tier 1/leverage capital requirement............ 11,334 4.00
------- -----
Excess....................................... $14,539 5.13%
======= =====
Tier 1 risk-based capital...................... $25,873 14.53%
Tier 1 risk-based capital requirement.......... 7,124 4.00
------- -----
Excess....................................... $18,749 10.53%
======= =====
Total risk-based capital....................... $28,112 15.78%
Total risk-based capital requirement........... 14,249 8.00
------- -----
Excess....................................... $13,863 7.78%
======= =====
North Carolina regulatory capital.............. $28,112 9.75%
North Carolina regulatory capital requirement.. 14,411 5.00
------- -----
Excess....................................... $13,701 4.75%
======= =====
</TABLE>
- --------------------
(1) The ratio of leverage capital is based on quarterly average assets for the
year ended September 30, 1998. Tier 1 risk-based capital and total risk-
based capital are based on risk-weighted assets at September 30, 1998. The
North Carolina regulatory capital requirement is based on total assets at
September 30, 1998.
16
<PAGE>
<TABLE>
<CAPTION>
1st State Bank's Pro Forma Capital of 1st State Bank as of September 30, 1998 Based on the
Historical Capital Sale of (1)
at September 30, 1998 -------------------------------------------------------------------------------
Assuming Federal Maximum, as
Reserve Board Minimum of Midpoint of Maximum of Adjusted of
Capital Requirements $ 28,050,000 $ 33,000,000 $ 37,950,000 $ 43,642,500
-------------------- ------------------ ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
of of of of of
Amount Assets (2) Amount Assets (2) Amount Assets (2) Amount Assets (2) Amount Assets (2)
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under generally
accepted
accounting principles..... $25,966 9.0% $38,273 12.7% $40,501 13.4% $42,729 14.0% $45,309 14.7%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Tier 1 (core) to total
assets.................... $25,873 9.0% $38,180 12.7% $40,408 13.4% $42,636 14.0% $45,216 14.7%
Tier 1 (core) capital
requirement (3)........... 11,555 4.0 12,017 4.0 12,107 4.0 12,196 4.0 12,299 4.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess.................... $14,318 5.0% $26,163 8.7% $28,301 9.4% $30,440 10.0% $32,917 10.7%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Tier 1 (core) capital to
risk-weighted
assets.................... $25,873 14.5% $38,180 20.7% $40,408 21.8% $42,636 22.9% $45,216 24.1%
Tier 1 (core) capital
requirement............... 7,124 4.0 7,371 4.0 7,415 4.0 7,460 4.0 7,511 4.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess.................... $18,749 10.5% $30,809 16.7% $32,993 17.8% $35,176 18.9% $37,705 20.1%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Total capital to
risk-weighted assets...... $28,112 15.8% $40,419 21.9% $42,647 23.0% $44,875 24.1% $47,455 25.3%
Total capital requirement.. 14,249 8.0 14,741 8.0 14,830 8.0 14,919 8.0 15,023 8.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess.................... $13,863 7.8% $25,678 13.9% $27,817 15.0% $29,956 16.1% $32,432 17.3%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
NC Savings Bank capital.... $28,112 9.8% $40,419 13.4% $42,647 14.1% $44,875 14.7% $47,455 15.4%
Requirement................ 14,411 5.0 15,026 5.0 15,138 5.0 15,249 5.0 15,378 5.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess................... $13,701 4.8% $25,393 8.4% $27,509 9.1% $29,626 9.7% $32,077 10.4%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
____________________
(1) Assumes we invest net proceeds initially in assets with a 50% risk-
weighting. The numbers of shares sold do not include the shares we will
contribute to the foundation.
(2) Based on our total assets for capital as determined under generally
accepted accounting principles and Tier 1 capital purposes, and risk-
weighted assets for the purpose of the risk-based capital
requirements.
(3) Assumes a core capital requirement of 4% adjusted total assets, though that
level may be increased by the Federal Reserve Board to as high as 5%. See
"Regulation -- Depository Institution Regulation -- Capital Requirements"
for a description of the regulatory capital requirements we must meet.
17
<PAGE>
PRO FORMA DATA
We will not know the actual net proceeds from the offering until the
offering is completed. We estimate that investable net proceeds will be between
$21.2 million at the minimum of the offering range and $33.4 million at the
maximum, as adjusted of the offering range. To arrive at this estimate, we
made the following assumptions:
. 8% of the sum of the shares sold plus shares donated to the
charitable foundation are sold to the employee stock ownership
plan
. directors, officers and employees purchase 437,500 shares
. conversion expenses, other than sales commissions, total
$761,000
We have prepared the following table, which sets forth our historical net
earnings and net worth prior to the conversion and our pro forma consolidated
net income and stockholders' equity following the conversion. In preparing this
table and in calculating pro forma data, we have made the following
assumptions:
. The stock sale was completed on October 1, 1997 so that 1st State
Bancorp had use of the proceeds for the full year.
. Net proceeds were invested at 4.50%, which approximates the one-
year U.S. Treasury bill rate at September 30, 1998. We used the
one-year U.S. Treasury bill rate, rather than an arithmetic
average of the average yield on interest-earning assets and
average rate paid on deposits, to estimate income on net proceeds
because we believe that this is a more accurate estimate of the
rate that would be obtained on an investment of the net proceeds
from the offering.
. The effective blended federal and state tax rate was 36.0%,
resulting in an after-tax yield of 2.88%.
. We did not include any withdrawals from deposit accounts to
purchase shares in the offering.
. We did not include any earnings on the net proceeds in
calculating pro forma stockholders' equity.
. To calculate per share figures, we divided the appropriate
amounts by the indicated numbers of shares.
. We calculated historical and pro forma per share amounts by
dividing historical and pro forma amounts by the indicated number
of shares.
THE FOLLOWING PRO FORMA DATA RELIES ON THE ASSUMPTIONS WE OUTLINED ABOVE, AND
THIS DATA DOES NOT REPRESENT THE FAIR MARKET VALUE OF THE COMMON STOCK, THE
CURRENT VALUE OF ASSETS OR LIABILITIES, OR THE AMOUNT OF MONEY THAT WOULD BE
DISTRIBUTED TO STOCKHOLDERS IF WE LIQUIDATED 1ST STATE BANCORP. THE PRO FORMA
DATA DOES NOT PREDICT HOW MUCH WE WILL EARN IN THE FUTURE. THE FOLLOWING TABLE
DOES NOT INCLUDE THE AFTER-TAX EXPENSE WE WILL INCUR DURING THE YEAR ENDING
SEPTEMBER 30, 1999 AS A RESULT OF OUR CONTRIBUTION TO THE FOUNDATION.
18
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended September 30, 1998
----------------------------------------------------------------
Maximum, as
Minimum of Midpoint of Maximum of Adjusted of
$28,050,000 $33,000,000 $37,950,000 $43.642,500
----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross offering proceeds...................................... $ 28,050 $ 33,000 $ 37,950 $ 43,642
Plus: Shares issued to foundation............................ 2,244 2,640 3,000 3,000
----------- ----------- ----------- -----------
Pro Forma market capitalization............................ $ 30,294 $ 35,640 $ 40,950 $ 46,642
=========== =========== =========== ===========
Gross offering proceeds...................................... $ 28,050 $ 33,000 $ 37,950 $ 43,642
Less estimated offering expenses............................. (1,013) (1,080) (1,148) (1,227)
----------- ----------- ----------- -----------
Estimated net offering proceeds............................ 27,037 31,920 36,802 42,415
Less: Employee stock ownership plan funded by
1st State Bancorp.................................... (2,424) (2,851) (3,276) (3,731)
Restricted stock plan................................ (1,212) (1,426) (1,638) (1,866)
----------- ----------- ----------- -----------
Estimated investable net proceeds.......................... $ 23,401 $ 27,643 $ 31,888 $ 36,818
=========== =========== =========== ===========
Net income:
Historical net income...................................... $ 2,521 $ 2,521 $ 2,521 $ 2,521
Pro forma income on investable net proceeds................ 674 795 919 1,061
Pro forma employee stock ownership plan adjustment (1)..... (155) (182) (210) (239)
Pro forma restricted stock plan adjustment (2)............. (155) (182) (210) (239)
----------- ----------- ----------- -----------
Total................................................... $ 2,885 $ 2,952 $ 3,020 $ 3,104
=========== =========== =========== ===========
Net income per share:
Historical net income...................................... $ 1.39 $ 1.18 $ 1.37 $ 1.21
Pro forma income on investable net proceeds................ 0.38 0.39 0.50 0.50
Pro forma employee stock ownership plan adjustment (1)..... (0.09) (0.09) (0.11) (0.11)
Pro forma restricted stock plan adjustment (2)............. (0.09) (0.09) (0.11) (0.11)
----------- ----------- ----------- -----------
Pro forma basic income per share...................... $ 1.59 $ 1.39 $ 1.65 $ 1.49
=========== =========== =========== ===========
Pro forma diluted income per share.................... $ 1.54 $ 1.34 $ 1.59 $ 1.43
=========== =========== =========== ===========
Weighted average number of shares outstanding
for basic income per share calculations (1)................ 1,809,562 2,128,896 1,834,560 2,089,584
=========== =========== =========== ===========
Weighted average number of shares outstanding
for diluted income per share calculations (1).............. 1,874,189 2,204,928 1,900,080 2,164,212
=========== =========== =========== ===========
Stockholders' equity: (3)
Historical................................................. $ 25,966 $ 25,966 $ 25,966 $ 25,966
Estimated net proceeds (2)(4).............................. 27,037 31,920 36,802 42,415
Plus: Shares issued to foundation.......................... 2,244 2,640 3,000 3,000
Less: Contribution to foundation........................... (2,244) (2,640) (3,000) (3,000)
Plus: Tax benefit of the contribution
to the foundation......................................... 763 898 1,020 1,020
Less: Common stock acquired by employee stock
ownership plan (1).................................. (2,424) (2,851) (3,276) (3,731)
Common stock acquired by restricted stock
plan (2)............................................ (1,212) (1,426) (1,638) (1,866)
----------- ----------- ----------- -----------
Total................................................... $ 50,130 $ 54,507 $ 58,874 $ 63,804
=========== =========== =========== ===========
Stockholders' equity per share: (3)
Historical................................................. $ 12.86 $ 10.93 $ 12.68 $ 11.13
Estimated net proceeds (2)(4).............................. 13.38 13.43 17.97 18.19
Plus: Shares issued to foundation.......................... 1.11 1.11 1.47 1.29
Less: Contribution to foundation........................... (1.11) (1.11) (1.47) (1.29)
Plus: Tax benefit of the contribution to
the foundation............................................ 0.38 0.38 0.50 0.44
Less: Common stock acquired by employee stock
ownership plan (1)................................... (1.20) (1.20) (1.60) (1.60)
Common stock acquired by restricted stock
plan (2)............................................ (0.60) (0.60) (0.80) (0.80)
----------- ----------- ----------- -----------
Total................................................... $ 24.82 $ 22.94 $ 28.75 $ 27.36
=========== =========== =========== ===========
Number of shares outstanding for
stockholders' equity per share
calculations.............................................. 2,019,600 2,376,000 2,047,500 2,332,125
=========== =========== =========== ===========
Offering price as a percentage of pro forma
stockholders' equity per share............................. 60.4% 65.4% 69.6% 73.1%
=========== =========== =========== ===========
Ratio of offering price to pro forma basic
income per share.......................................... 9.4x 10.8x 12.1x 13.4x
=========== =========== =========== ===========
</TABLE>
(Footnotes on succeeding page)
19
<PAGE>
____________________
(1) We assumed that the employee stock ownership plan purchases 8% of the
shares sold in the conversion, including shares contributed to the
foundation, and that 1st State Bancorp lends the employee stock ownership
plan the funds to do so. The amount the employee stock ownership plan will
borrow is not reflected as a liability but is reflected as a reduction of
capital. Although repayment of the debt will be secured solely by the
shares purchased by the employee stock ownership plan, 1st State Bank
expects to make discretionary contributions to the employee stock ownership
plan in an amount at least equal to the principal and interest payments on
the employee stock ownership plan debt. We adjusted pro forma net income
for the contributions, based upon a fully amortizing debt with a ten-year
term. The purchase price of $20.00 was utilized to calculate the employee
stock ownership plan expense. 1st State Bank intends to record
compensation expense related to the employee stock ownership plan in
accordance with accounting rule AICPA SOP No. 93-6. As a result, if the
value of the common stock appreciates over time, compensation expense
attributable to the employee stock ownership plan will increase. SOP 93-6
and SFAS No. 128 require the earnings per share computations for companies
with leveraged employee stock ownership plans to include as outstanding
only shares that have been committed to be released to participants. We
assumed that 10% of the employee stock ownership plan shares were committed
to be released. We reduced the amount of employee stock ownership plan
expense by an estimated income tax benefit computed using a 36% blended
federal and state effective tax rate. See "Management of 1st State Bank --
Executive Compensation -- Employee Stock Ownership Plan" for a more
detailed description of this plan.
(2) We assumed a number of shares of common stock equal to 4% of the common
stock to be sold in the conversion, including shares contributed to the
foundation, will be purchased by a restricted stock plan in the open market
following the conversion. The dollar amount of the common stock to be
purchased by the restricted stock plan is based on the $20.00 purchase
price in the conversion and represents unearned compensation and is
reflected as a reduction of capital. This amount does not reflect possible
future increases or decreases in the value of the common stock prior to the
date we actually purchase the shares for this plan. As 1st State Bank
accrues compensation expense to reflect the vesting of the shares as will
be required by the restricted stock plan, the charge against capital will
be reduced accordingly. SFAS No. 128 requires that unvested shares of the
restricted stock plan be excluded from the basic earnings per share
calculation but included in the diluted earnings per share calculation. We
assumed that 20% of the restricted stock plan shares were vested. Upon
vesting, restricted stock plan shares are included in calculating basic
earnings per share. Implementation of the restricted stock plan within one
year of the conversion would require stockholder approval at a meeting of
our stockholders. If the shares to be purchased by the restricted stock
plan were newly issued shares purchased from 1st State Bancorp by the
restricted stock plan at the conversion purchase price rather than shares
purchased in the open market, at the minimum, midpoint, maximum and
maximum, as adjusted of the offering range, pro forma stockholders' equity
per share would have been $24.44, $22.64, $28.42 and $27.08, respectively,
and pro forma diluted income per share would have been $1.49, $1.30, $1.55
and $1.40, respectively. If the restricted stock plan acquires authorized
but unissued shares from 1st State Bancorp, your ownership interests in 1st
State Bancorp would be diluted by approximately 4%. See "Management of 1st
State Bank -- Proposed Future Stock Benefit Plans -- Restricted Stock Plan"
and "Risk Factors -- Dilutive Effect of Restricted Stock Plan and Stock
Options" for additional details.
(3) Consolidated stockholders' equity represents the excess of the carrying
value of our assets over our liabilities. The amounts shown do not reflect
the federal income tax consequences of the potential restoration to income
of the bad debt reserves for income tax purposes, which would be required
in the event of liquidation or in certain other remote circumstances. The
amounts shown also do not reflect the amounts required to be distributed in
the event of liquidation to eligible depositors from the liquidation
account which will be established in the conversion.
(4) We did not make any allowance for shares that may be issued upon the
exercise of options that may be granted under a future stock option
plan.
20
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
Had we not established the foundation as part of the conversion, Ferguson &
Company has estimated that our pro forma market capitalization would have been
approximately $38.5 million, at the midpoint of the offering range, which is
approximately $2.9 million greater than our pro forma market capitalization with
the foundation. This would result in approximately a $5.5 million increase in
the amount of common stock that we would offer for sale in the offering.
Further, at the midpoint of the offering range, pro forma stockholders' equity
per share and pro forma consolidated basic net income per share would be $22.94
and $1.39, respectively, with the foundation, as compared to $22.86 and $1.33,
respectively, without the foundation. At the midpoint of the offering range,
the pro forma price to book ratio and the pro forma price to earnings ratio are
65.4% and 10.8 times earnings, respectively, with the foundation, as compared to
65.6% and 11.3 times earnings, respectively, without the foundation. The
following table does not reflect the after-tax expense we will incur during the
year ending September 30, 1999 as a result of our contribution to the
foundation.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum, as
adjusted, of the offering range, assuming the conversion was completed at
September 30, 1998.
<TABLE>
<CAPTION>
Minimum of Midpoint of Maximum of Maximum, as Adjusted of
$28,050,000 $33,000,000 $37,950,000 $43,642,500
----------- ----------- ----------- -----------------------
With No With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated gross offering
amount.................... $ 28,050 $ 32,725 $ 33,000 $ 38,500 $ 37,950 $ 44,275 $ 43,643 $ 50,916
Pro forma market
capitalization............ 30,294 32,725 35,640 38,500 40,950 44,275 46,643 50,916
Total assets.............. 312,389 315,942 316,765 320,944 321,132 325,947 326,062 331,699
Total liabilities.......... 262,258 262,258 262,258 262,258 262,258 262,258 262,258 262,258
Pro forma stockholders'
equity.................... 50,130 53,684 54,507 58,686 58,874 63,689 63,804 69,441
Pro forma consolidated net
earnings.................. 2,885 2,984 2,952 3,069 3,020 3,154 3,104 3,252
Pro forma stockholders'
equity per share.......... 24.82 24.61 22.94 22.86 28.75 28.77 27.36 27.28
Pro forma consolidated
basic income
per share................. 1.59 1.53 1.39 1.33 1.65 1.59 1.49 1.43
Pro forma consolidated
diluted
income per share.......... 1.54 1.47 1.34 1.29 1.59 1.54 1.43 1.38
Pro forma pricing ratios:
Offering price as a
percentage of pro
forma stockholders'
equity per share...... 60.4% 61.0% 65.4% 65.6% 69.6% 69.5% 73.1% 73.3%
Offering price to pro
forma basic
income per share...... 9.4 9.8 10.8 11.3 12.1 12.6 13.4 14.0
Offering price to assets
per share............... 9.7% 10.4% 11.3% 12.0% 12.8% 13.6% 14.3% 15.4%
Pro forma financial ratios:
Return on assets........ 0.97% 0.99% 0.98% 1.00% 0.99% 1.01% 1.00% 1.03%
Return on stockholders'
equity................. 5.91% 5.70% 5.55% 5.35% 5.25% 5.06% 4.97% 4.78%
Stockholders' equity to
assets................. 16.0% 17.0% 17.2% 18.3% 18.3% 19.5% 19.6% 20.9%
</TABLE>
21
<PAGE>
THE CONVERSION
OUR BOARD OF DIRECTORS AND THE ADMINISTRATOR HAVE APPROVED OUR PLAN OF
CONVERSION, SUBJECT TO APPROVAL BY OUR MEMBERS ENTITLED TO VOTE ON THE MATTER
AND SUBJECT TO CERTAIN OTHER CONDITIONS. IN APPROVING THE PLAN OF CONVERSION,
THE ADMINISTRATOR DOES NOT RECOMMEND OR ENDORSE THE PLAN OF CONVERSION.
GENERAL
On August 11, 1998, our board of directors unanimously adopted the Plan of
Conversion, subject to regulatory approval and the approval of our members. The
Plan of Conversion is the legal document that describes the terms and conditions
of the conversion. The Administrator has approved the Plan of Conversion
subject to, among other conditions, approval by our members. In addition, the
FDIC has issued its conditional non-objection to the Plan of Conversion and the
conversion. A special meeting of our members to vote on the Plan of Conversion
will be held on ___________, 1999. As of the date of this prospectus, we have
received approval from the Commission, subject to certain conditions, for the
conversion, and 1st State Bancorp's application to the Federal Reserve Board for
approval to control 1st State Bank following the conversion is pending.
The following is a summary of material aspects of the conversion. Because
this is a summary, it does not contain all the information that may be important
to you, and you may wish to read the Plan of Conversion for complete
information. You may read the Plan of Conversion at any of our offices or at
the office of the Administrator. The Plan of Conversion also is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Copies of the Registration Statement may be obtained from the SEC. For
information on how to obtain a copy of the Registration Statement without
charge, see "Additional Information."
BUSINESS PURPOSES
The net proceeds from the offering will substantially increase our capital
position, which will in turn increase the amount of funds available for lending
and investment and provide greater resources to support current operations and
future expansion. We have no current agreements or understandings regarding
expansion.
We formed 1st State Bancorp, to serve as a holding company for 1st State
Bank after the conversion. We believe the holding company structure will
provide greater flexibility than 1st State Bank alone would have for
diversification of business activities and geographic expansion. We believe
that this increased capital and operating flexibility will enable us to compete
more effectively with other types of financial services organizations. In
addition, the conversion will enhance our future access to the capital
markets.
We believe that operating as a commercial bank rather than a savings bank
will allow us to continue to pursue our expanding lines of business. We intend
to emphasize commercial real estate loans, commercial loans and consumer loans.
See "Risk Factors -- Risks Related to Commercial and Consumer Lending" for a
description of the higher credit risk inherent in these types of loans. We
believe we can pursue this strategy more effectively by operating as a North
Carolina commercial bank rather than a North Carolina-chartered savings bank.
We further believe that converting to a commercial bank will enhance our
marketability by allowing us to provide a broader range of services than we
currently are permitted under law to offer as a savings bank. For example, as a
commercial bank, we would be able to increase the percentage of our assets
invested in commercial real estate loans, commercial loans and consumer loans.
We believe that if we are able to increase our marketability in our community,
we will generate additional business, which we anticipate would increase the
value of our company's stock.
After the conversion we would be able to raise additional equity capital
through further sales of securities, subject to market conditions, and to issue
securities in connection with possible acquisitions. Presently, we do not have
any plans to offer additional securities, other than to issue additional shares
under a restricted stock plan or a stock option plan, if implemented. Following
the conversion, we also will be able to use stock-related incentive
22
<PAGE>
programs to attract and retain executive officers and other personnel. See
"Management of 1st State Bank -- Future Proposed Stock Benefit Plans" for
additional information regarding these plans.
HOW THE CONVERSION WILL AFFECT OUR DEPOSITORS AND BORROWERS
General. Each depositor in a mutual savings bank such as 1st State Bank
has both a deposit account and a proportionate ownership interest in the
retained earnings of that bank based on the balance in his or her deposit
account. However, this ownership interest is tied to the depositor's account and
has no tangible market value separate from the deposit account. Any other
depositor who opens a deposit account obtains a proportionate interest in the
retained earnings of the bank without any additional payment beyond the amount
of the deposit. A depositor who reduces or closes his or her account receives a
portion or all of the balance in the account but nothing for his or her
ownership interest, which is lost to the extent that the balance in the account
is reduced. Consequently, depositors normally do not have a way to earn the
value of their ownership interest, which has realizable value only in the
unlikely event that the mutual savings bank is liquidated. In that event, the
depositors at that time, as owners, would share proportionately in any residual
retained earnings after other claims are paid.
After the conversion, permanent nonwithdrawable capital stock will be
created to represent the ownership of the savings bank. The stock is separate
from deposit accounts and is not and cannot be insured by the FDIC. Transferable
certificates will be issued to evidence ownership of the stock, which will
enable the holder to sell or trade the stock with no effect on any account in
the savings bank. Under the Plan of Conversion, 1st State Bancorp will acquire
all of the capital stock of 1st State Bank in exchange for a portion of the net
proceeds from the sale of the common stock in the conversion. The common stock
we are selling to the public represents an ownership interest in 1st State
Bancorp.
Continuity. During the conversion process, our normal business of
accepting deposits and making loans will continue without interruption. 1st
State Bank will continue to be subject to regulation by the Administrator and
the FDIC until we conclude the conversion. After the conversion, 1st State Bank
will be subject to regulation by the Commission and the FDIC, and FDIC insurance
of accounts will continue without interruption. After the conversion, 1st State
Bank will continue to provide services for depositors and borrowers under
current policies and by present management and staff.
The board of directors of 1st State Bank at the time of the conversion will
serve as the board of directors of 1st State Bank after the conversion. The
board of directors of 1st State Bancorp will consist of the individuals
currently serving on the board of directors of 1st State Bank. All of our
officers at the time of the conversion will retain their positions with 1st
State Bank after the conversion.
Voting Rights. After the conversion, depositors and borrowers will have no
voting rights in 1st State Bank or 1st State Bancorp and, therefore, will not be
able to elect directors of 1st State Bank or 1st State Bancorp or to control
their affairs. Currently these rights are accorded to our depositors.
Subsequent to the conversion, the stockholders of 1st State Bancorp will have
exclusive voting rights. Each holder of common stock will be entitled to vote
on any matter to be considered by the stockholders of 1st State Bancorp, subject
to the provisions of 1st State Bancorp's articles of incorporation.
Deposit Accounts and Loans. OUR DEPOSIT ACCOUNTS, THE BALANCES OF
INDIVIDUAL ACCOUNTS AND EXISTING FEDERAL DEPOSIT INSURANCE COVERAGE WILL NOT BE
AFFECTED BY THE CONVERSION. Furthermore, the conversion will not affect the
loan accounts, the balances of these accounts and the obligations of the
borrowers under their individual contractual arrangements with us.
Tax Effects. We have received an opinion from our special counsel, Housley
Kantarian & Bronstein, P.C., Washington, D.C., as to the material federal income
tax consequences of the conversion to 1st State Bank and 1st State Bancorp, and
as to the generally applicable material federal income tax consequences of the
conversion to our
23
<PAGE>
account holders and to persons who purchase common stock in the conversion. The
opinion provides that the conversion will constitute one or more reorganizations
for federal income tax purposes under Section 368(a)(1)(F) of the Internal
Revenue Code. Among other things, the opinion also provides that:
. No gain or loss will be recognized by us in our mutual or stock form
by reason of our conversion from mutual to stock form or from a
savings bank to a commercial bank.
. No gain or loss will be recognized by our account holders upon the
issuance to them of accounts in 1st State Bank in stock form
immediately after our conversion from mutual to stock form, in the
same dollar amounts and on the same terms and conditions as their
accounts with us immediately prior to the conversion.
. The tax basis of each account holder's interest in the liquidation
account will be equal to the value, if any, of that interest.
. The tax basis of the common stock purchased in the conversion will be
equal to the amount paid therefor increased, in the case of common
stock acquired pursuant to the exercise of subscription rights, by the
fair market value, if any, of the subscription rights exercised.
. The holding period for the common stock purchased in the conversion
will commence upon the exercise of such holder's subscription rights
and otherwise on the day following the date of that purchase.
. Gain or loss will be recognized to account holders upon the receipt of
liquidation rights or the receipt or exercise of subscription rights
in the conversion, to the extent such liquidation rights and
subscription rights are deemed to have value, as discussed below.
The opinion of Housley Kantarian & Bronstein, P.C. is based in part upon,
and subject to the continuing validity in all material respects through the date
of the conversion of, our various representations and upon certain assumptions
and qualifications, including that the conversion is consummated in the manner
and according to the terms provided in the Plan of Conversion. Such opinion
also is based upon the Internal Revenue Code, regulations now in effect or
proposed, current administrative rulings and practice and judicial authority,
all of which are subject to change, and such change may be made with retroactive
effect. Unlike private letter rulings received from the Internal Revenue
Service, an opinion is not binding upon the Internal Revenue Service and there
can be no assurance that the Internal Revenue Service will not take a position
contrary to the positions reflected in such opinion, or that such opinion will
be upheld by the courts if challenged by the Internal Revenue Service.
Housley Kantarian & Bronstein, P.C. has advised us that an interest in a
liquidation account has been treated by the Internal Revenue Service, in a
series of private letter rulings which do not constitute formal precedent, as
having nominal, if any, fair market value and therefore it is likely that the
interests in the liquidation account established by us as part of the conversion
will similarly be treated as having nominal, if any, fair market value.
Accordingly, it is likely that our depositors will not recognize any gain or
loss upon receipt of an interest in the liquidation account we will establish in
the conversion.
Housley Kantarian & Bronstein, P.C. has further advised us that the federal
income tax treatment of the receipt of subscription rights pursuant to the
conversion is uncertain, and recent private letter rulings issued by the
Internal Revenue Service have been in conflict. For instance, the Internal
Revenue Service adopted the position in one private ruling that subscription
rights will be deemed to have been received to the extent of the minimum pro
rata distribution of such rights, together with the rights actually exercised in
excess of such pro rata distribution, and with gain recognized to the extent of
the combined fair market value of the pro rata distribution of subscription
rights plus the subscription rights actually exercised. Under this analysis,
persons who do not exercise their subscription rights
24
<PAGE>
would recognize gain upon receipt of rights equal to the fair market value of
such rights, regardless of exercise, and would recognize a corresponding loss
upon the expiration of unexercised rights that may be available to offset the
previously recognized gain. Under another Internal Revenue Service private
ruling, subscription rights were deemed to have been received only to the extent
actually exercised. This private ruling required that gain be recognized only if
the holder of the rights exercised the rights, and that no loss be recognized if
the rights were allowed to expire unexercised. There is no authority that
clearly resolves this conflict among these private rulings, which may not be
relied upon for precedential effect. However, based upon express provisions of
the Internal Revenue Code and in the absence of contrary authoritative guidance,
Housley Kantarian & Bronstein, P.C. has provided in its opinion that gain will
be recognized upon the receipt rather than the exercise of subscription rights.
Further, also based upon a published Internal Revenue Service ruling and
consistent with recognition of gain upon receipt rather than exercise of the
subscription rights, Housley Kantarian & Bronstein, P.C. has provided in its
opinion that the subsequent exercise of the subscription rights will not give
rise to gain or loss. Regardless of the position eventually adopted by the
Internal Revenue Service, the tax consequences of the receipt of the
subscription rights will depend, in part, upon their valuation for federal
income tax purposes.
If the subscription rights are deemed to have a fair market value, the
receipt of such rights will be taxable to you if you exercise your subscription
rights, even though you would have received no cash from which to pay taxes on
such taxable income. We could also recognize a gain on the distribution of such
subscription rights in an amount equal to their aggregate value. In the opinion
of Ferguson & Company, whose opinion is not binding upon the Internal Revenue
Service, the subscription rights do not have any value, based on the fact that
such rights are acquired by the recipients without cost, are non-transferable
and of short duration and afford the recipients the right only to purchase
shares of the common stock at the same price as the price paid by purchasers in
the community offering for unsubscribed shares of common stock. We encourage
you to consult with your own tax advisors as to the tax consequences in the
event that the subscription rights are deemed to have a fair market value.
Because the fair market value, if any, of the subscription rights issued in the
conversion depends primarily upon the existence of certain facts rather than the
resolution of legal issues, Housley Kantarian & Bronstein, P.C., has neither
adopted the opinion of Ferguson & Company as its own nor incorporated that
opinion in its opinion.
We have also obtained an opinion from KPMG LLP to the effect that the tax
effects of the conversion under North Carolina tax laws will be substantially
the same as described above with respect to federal income tax laws.
THE FEDERAL AND STATE INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT
CONSIDER ALL ASPECTS OF FEDERAL AND STATE INCOME TAXATION WHICH MAY BE RELEVANT
TO EACH ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER AND OTHER
MEMBER ENTITLED TO SPECIAL TREATMENT UNDER THE INTERNAL REVENUE CODE, SUCH AS
TRUSTS, INDIVIDUAL RETIREMENT ACCOUNTS, OTHER EMPLOYEE BENEFIT PLANS, INSURANCE
COMPANIES AND ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS
AND OTHER MEMBERS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES. DUE TO
THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, YOU ARE URGED TO CONSULT YOUR OWN TAX
AND FINANCIAL ADVISOR AS TO THE EFFECT OF SUCH FEDERAL AND STATE INCOME TAX
CONSEQUENCES ON YOUR OWN PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING THE
RECEIPT AND EXERCISE OF SUBSCRIPTION RIGHTS, AND ALSO AS TO ANY OTHER TAX
CONSEQUENCES ARISING OUT OF THE CONVERSION.
Liquidation Account. In the unlikely event of our complete liquidation in
our present mutual form, each holder of a deposit account in 1st State Bank
would receive his pro rata share of any of our assets remaining after payment of
claims of all creditors (including the claims of all depositors to the
withdrawal value of their accounts). His pro rata share of the remaining assets
would be the same proportion of the assets as the value of his deposit account
was to the total of the value of all deposit accounts in 1st State Bank at the
time of liquidation.
After the conversion, in the event of liquidation, each deposit account
holder would have a claim of the same general priority as the claims of all
other general creditors of 1st State Bank. Therefore, except as described
below, his claim would be solely in the amount of the balance in his deposit
account plus accrued interest. He would have no interest in the value of 1st
State Bank above that amount.
25
<PAGE>
The Plan of Conversion provides for the establishment, upon the completion
of the conversion, of a special "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders in an amount
equal to our net worth as of September 30, 1998. Each Eligible Account Holder
(a person with a $50.00 or greater deposit account in 1st State Bank on December
31, 1994) and each Supplemental Eligible Account Holder (a person with a $50 or
greater deposit account in 1st State Bank on December 31, 1998) would be
entitled, on our complete liquidation after the conversion, to an interest in
the liquidation account. Each Eligible Account Holder would have an initial
interest in such liquidation account for each $50 or greater deposit account
held on December 31, 1994 and each Supplemental Eligible Account Holder would
have an initial interest in the liquidation account for each $50 or greater
deposit account held on December 31, 1998. The interest as to each qualifying
deposit account would be in the same proportion of the total liquidation account
as the balance of the qualifying deposit account was to the balance in all
deposit accounts of Eligible Account Holders and Supplemental Eligible Account
Holders on such date. However, if the amount in the qualifying deposit account
on any September 30 subsequent to the relevant eligibility date is less than the
amount in the account on the relevant eligibility date, or any subsequent
September 30, then the Eligible Account Holder's or Supplemental Eligible
Account Holder's interest in the liquidation account would be reduced from time
to time by an amount proportionate to any reductions, and the interest would
cease if he ceases to maintain an account at 1st State Bank that has the same
Social Security number as appeared on his account(s) at the relevant eligibility
date. The interest in the liquidation account would never be increased,
notwithstanding any increase in the related deposit account after the
conversion.
Any assets remaining after the above liquidation rights of Eligible Account
Holders and Supplemental Eligible Account Holders were satisfied would be
distributed to stockholders at that time. The conversion will not be considered
a liquidation of 1st State Bank that would trigger the distribution of the
liquidation account.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with an FDIC-insured institution in which we are not the surviving
insured institution would not be considered to be a "liquidation" under which
distribution of the liquidation account could be made. In such a transaction,
the liquidation account would be assumed by the surviving institution.
The creation and maintenance of the liquidation account will not restrict
the use or application of any of our capital accounts, except that we may not
declare or pay a cash dividend on, or repurchase any of, our capital stock if
the dividend or repurchase would cause our retained earnings to be reduced below
the aggregate amount then required for the liquidation account.
SUBSCRIPTION RIGHTS
We issued at no cost nontransferable priority subscription rights to order
shares of common stock to all persons specified in our Plan of Conversion. The
amount of the common stock that these parties may order will be determined, in
part, by the total stock to be issued and the availability of stock for purchase
under the priority categories set forth in the Plan of Conversion.
Preference categories have been established for the allocation of common
stock, in the event we receive orders for more shares than are available. These
categories, in order of preference, are as follows:
First priority is reserved for our Eligible Account Holders, i.e., our
depositors on December 31, 1994 with balances of $50.00 or more, who,
including individuals on a joint account or having the same address on our
records, will each receive nontransferable subscription rights to subscribe
for up to $1,000,000 of common stock in the offering. If we receive orders
from Eligible Account Holders for more shares than are available, we will
allocate shares among subscribing Eligible Account Holders so as to permit
each Eligible Account Holder, to the extent possible, to purchase 100
shares or the amount subscribed for, whichever is less. We will allocate
any remaining first priority shares among the subscribing Eligible
26
<PAGE>
Account Holders on an equitable basis related to the amounts of their
respective qualifying deposits, as compared to the total qualifying
deposits of all subscribing Eligible Account Holders. Subscription rights
received by directors and officers of 1st State Bank and their associates
in this category based on their increased deposits in 1st State Bank in the
one-year period preceding December 31, 1994 are subordinated to the
subscription rights of other Eligible Account Holders.
Second priority is reserved for our tax-qualified employee stock
benefit plans, i.e., the employee stock ownership plan, which will receive
nontransferable subscription rights to purchase in the aggregate up to 10%
of the shares issued in the conversion. We expect the employee stock
ownership plan to purchase 8% of the common stock offered in the
conversion, including shares we donate to the foundation. If all the
shares of common stock offered in the subscription offering are purchased
by Eligible Account Holders, then the employee stock ownership plan will
purchase shares in the open market following the conversion and will not
purchase newly issued shares from 1st State Bancorp.
Third priority is reserved for our Supplemental Eligible Account
Holders, i.e., our depositors with a balance of $50.00 or more on December
31, 1998 who, including individuals on a joint account or having the same
address on our records, will each receive nontransferable subscription
rights to subscribe for up to $1,000,000 of common stock. If we receive
orders for more shares than are available in this category, we will
allocate shares so as to permit each Supplemental Eligible Account Holder,
to the extent possible, to purchase 100 shares or the amount subscribed
for, whichever is less. We will allocate any remaining shares among the
subscribing Supplemental Eligible Account Holders on an equitable basis
related to the amounts of their respective qualifying deposits, as compared
to the total qualifying deposits of all subscribing Supplemental Eligible
Account Holders. We will fill subscriptions in this priority category only
to the extent that there are sufficient shares of common stock remaining
after satisfaction of subscriptions in the first two priority
categories.
Subscription Category No. 4 is reserved for our Other Members, i.e.,
certain depositors and borrowers who are members of 1st State Bank as of
the voting record date for the special meeting of members to vote on the
conversion but who are not Eligible Account Holders or Supplemental
Eligible Account Holders. Other Members, including individuals on a joint
account or having the same address on our records, will receive
nontransferable subscription rights to subscribe for up to $1,000,000 of
common stock in the offering. If we receive orders for more share than are
available in this category, we will allocate any available shares
proportionately among subscribing Other Members on an equitable basis as we
determine.
TO ENSURE A PROPER ALLOCATION OF COMMON STOCK, YOU MUST LIST ON YOUR STOCK
ORDER FORM ALL ACCOUNTS IN WHICH YOU HAVE AN OWNERSHIP INTEREST. IF YOU FAIL TO
LIST ALL YOUR DEPOSIT ACCOUNTS, WE MAY NOT FILL ALL OR PART OF YOUR ORDER.
NEITHER 1ST STATE BANCORP, 1ST STATE BANK NOR ANY OF OUR AGENTS WILL BE
RESPONSIBLE FOR ORDERS ON WHICH ALL DEPOSIT ACCOUNTS HAVE NOT BEEN FULLY AND
ACCURATELY DISCLOSED. See "-- Limitations on Purchase of Shares" for
information on limitations placed on share purchases and guidelines and
definitions that may limit the number of shares you purchase.
We will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for the
common stock under the Plan of Conversion reside. However, you will not be
offered or allowed to purchase any common stock if you reside in a foreign
country or in a state of the United States where any or all of the following
apply:
. A small number of persons otherwise eligible to subscribe for shares
under the Plan of Conversion reside in such state or foreign
country.
27
<PAGE>
. Granting subscription rights or offering or selling shares of common
stock to you would require us or our employees to register, under the
securities laws of your state, as a broker, dealer, salesman or agent
or to register or otherwise qualify our securities for sale in your
state or foreign country.
. Registration or qualification would be impracticable for reasons of
cost or otherwise.
We will not make any payments to you in lieu of granting subscription
rights to you if any of the above conditions apply.
COMMUNITY OFFERING
If shares are available after filling orders from all persons with
subscription rights, we will offer any remaining shares to members of the
general public to whom we deliver a copy of this Prospectus and a stock order
form in a community offering. The community offering will not occur if shares
of common stock are not available for purchase after satisfaction of all orders
received in the subscription offering. The community offering, if one is held,
will begin immediately after March __, 1999, but may begin at any time before
that. We may terminate the community offering without notice on or after March
__, 1999, but not later than ___________, 1999 (or __________, 1999 if the
subscription offering is fully extended), unless further extended with the
consent of the FDIC and the Administrator. WE HAVE THE ABSOLUTE RIGHT TO ACCEPT
OR REJECT ANY PURCHASES IN WHOLE OR IN PART IN THE COMMUNITY OFFERING IN OUR
SOLE DISCRETION. WE PRESENTLY INTEND TO TERMINATE THE COMMUNITY OFFERING, IF
ANY, AS SOON AS WE HAVE RECEIVED ORDERS FOR ALL SHARES AVAILABLE FOR PURCHASE IN
THE CONVERSION.
If we receive orders for more shares than are available in the community
offering, we will allocate the available shares in our discretion, giving
preference to natural persons and trusts of natural persons who are permanent
residents of Alamance County, North Carolina. The term "resident" as used in
relation to the preference afforded natural persons in Alamance County means any
natural person who occupies a dwelling within Alamance County, has an intention
to remain within Alamance County for a period of time as manifested by
establishing a physical, ongoing, nontransitory presence within Alamance County
and continues to reside in Alamance County at the time of the offering. We may
utilize deposit or loan records or any other evidence to determine whether a
person is residing in Alamance County. If the person is a corporation or other
business entity, the principal place of business or headquarters must be within
Alamance County. If the person is a personal benefit plan, the circumstances of
the beneficiary will apply. In the case of all other benefit plans, we will
examine the circumstances of the beneficiary. In all cases, however, we will
have complete discretion in determining whether a purchaser is a resident of
Alamance County.
If the community offering extends beyond 45 days following the expiration
of the subscription offering, sub scribers will have the right to increase,
decrease or rescind subscriptions for stock previously submitted. Purchasers in
the community offering, together with their associates and groups acting in
concert, including individuals on joint accounts or having the same address on
our records, are eligible to purchase up to $1,000,000 of common stock.
Except as noted below, we will place cash and checks received in the
community offering in a segregated savings account. The account will be insured
in the aggregate by the FDIC up to the applicable $100,000 limit. We will pay
interest on orders made by check, in cash or by money order at our passbook rate
from the date we receive the payment until we complete or terminate the
conversion. If conversion is not completed for any reason, all funds submitted
will be promptly refunded with interest as described above.
If we determine that the community offering is not feasible, we will
immediately consult with the regulatory authorities to determine the most viable
alternative available to complete the conversion. Should no viable alternative
exist, we may terminate the conversion with the concurrence of the FDIC and the
Administrator. The Plan of Conversion provides that the conversion must be
completed within 12 months after approval of the Plan of Conversion
28
<PAGE>
at the special meeting, but that time period may be extended up to an additional
12 months by amendment to the Plan of Conversion. If we do not complete the
conversion, we will remain a North Carolina-chartered mutual savings bank, we
will return all subscription funds to subscribers with interest and all
withdrawal authorizations will be canceled. Market conditions and other factors
beyond our control may affect our ability to complete the conversion. We do not
know how long it will take us to sell the stock and complete the conversion
after approval of the Plan of Conversion at the special meeting. If we
experience delays, our estimated pro forma market value, the offering price and
the net proceeds from the sale of the common stock may change significantly. We
also would incur substantial additional printing, legal and accounting expenses
to complete the conversion. If we terminate the conversion, we would charge all
conversion expenses against current income.
SYNDICATED COMMUNITY OFFERING
As part of the community offering, shares may be offered for sale to the
general public in a syndicated community offering through selected dealers to be
selected and managed by Trident Securities. We would conduct the syndicated
community offering, if any, to achieve the widest distribution of common stock
subject to our right to reject orders in whole or in part in our sole
discretion. Neither Trident Securities nor any registered broker-dealer will
have any obligation to take or purchase any shares of the common stock in the
syndicated community offering. We would sell common stock in the syndicated
community offering at the same price as in the subscription and community
offerings.
During the syndicated community offering, selected dealers may only solicit
indications of interest from their customers to place orders to purchase stock
with 1st State Bancorp as of a certain date ("Order Date"). When and if Trident
Securities and 1st State Bancorp believe that enough indications and orders have
been received in the offerings to consummate the conversion, Trident Securities
will request, as of the Order Date, selected dealers to submit orders to
purchase shares for which they have received indications of interest from their
customers. Selected dealers will send confirmations of the orders to their
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 1st State
Bancorp established for each selected dealer. After we receive payment from
selected dealers, funds will earn interest at our passbook savings rate until we
complete the conversion. If we do not complete the conversion, we will return
funds with interest to the selected dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
We will terminate the syndicated community offering, if any, no more than
45 days following the completion of the subscription offering, unless extended
with the approval of the Administrator. If we extend the community offering
beyond 45 days following the expiration of the subscription offering,
subscribers will have the right to increase, decrease or rescind subscriptions
for stock previously submitted. The syndicated community offering may run
concurrently with or subsequent to the subscription and community
offerings.
ESTABLISHMENT OF THE FOUNDATION
General. We will establish a charitable foundation named 1st State Bank
Foundation, Inc. The foundation will be dedicated to charitable and educational
purposes within our market area. We will contribute shares of common stock to
fund the foundation. The amount of common stock we will contribute will be up
to 8% of the amount we sell in the offering, not to exceed $3,000,000. We
contributed $41,000 to charity during the year ended September 30, 1996,
$151,000 during 1997 and $106,000 during 1998. These amounts are significantly
below the maximum of $3.0 million in common stock that we will contribute to the
foundation. By contributing common stock to the foundation, we will dilute the
interests of stockholders and materially reduce our earnings during the fiscal
year ending September 30, 1999, the year in which we will establish the
foundation.
29
<PAGE>
Purposes of the Foundation. We are establishing the foundation to provide
funding to support charitable causes and community development activities. In
recent years, we have emphasized community lending and development activities
within the communities that we serve. We are forming the foundation as a
complement to our existing community reinvestment act activities and not as a
replacement for those activities. While we intend to continue to emphasize
community lending and development activities following the conversion, those
activities are not our sole corporate purpose. The foundation, conversely, will
be dedicated completely to community activities and the promotion of charitable
causes, and may be able to support those activities in ways that are not
currently available to us. We believe that the foundation will enable us to
assist our local community in areas beyond community lending and development. We
believe the establishment of a charitable foundation is consistent with our
commitment to community service. We further believe that the funding of the
foundation with our common stock is a means of enabling the communities we serve
to share in our growth and success long after the completion of the conversion.
The foundation will accomplish that goal by providing for continued ties between
the foundation and 1st State Bank, thereby forming a partnership with our
community. The establishment of the foundation also will enable us to develop a
unified charitable donation strategy and will centralize the responsibility for
administration and allocation of corporate charitable funds.
Structure of the Foundation. The foundation will be a North Carolina
nonprofit corporation. The foundation's board of directors will be comprised of
individuals who also serve as our directors or officers. The members of the
foundation, who are comprised of its directors, will elect the directors at the
annual meeting of the foundation. Directors will be elected annually.
Directors of the foundation will not receive any additional compensation for
serving as such. The foundation's corporate documents provide that the
foundation is organized exclusively for charitable purposes, including community
development, as set forth in Section 501(c)(3) of the Internal Revenue Code.
The foundation's corporate documents further provide that directors, officers or
members of the foundation may not receive or benefit from the net earnings of
the foundation. In addition, any person who is a director, officer or employee
of 1st State Bank, or has the power to direct our management or policies, or
otherwise owes a fiduciary duty to 1st State Bank (including 1st State Bancorp's
directors), and will also serve as a director, officer or employee of the
foundation, is subject to conflicts of interest regulations.
The authority for the affairs of the foundation will be vested in the board
of directors of the foundation. The directors of the foundation will be
responsible for establishing the policies of the foundation for grants or
donations by the foundation, consistent with the purposes for which the
foundation was established. Although no formal policy governing foundation
grants exists at this time, the foundation's board of directors will adopt such
a policy upon establishment of the foundation. As directors of a nonprofit
corporation, directors of the foundation will at all times be bound by their
fiduciary duty to advance the foundation's charitable goals, to protect the
assets of the foundation and to act in a manner consistent with the charitable
purpose for which the foundation is established. As a condition to receiving
the approval of the FDIC to the conversion, the foundation will be required to
commit to the FDIC that all shares of common stock held by the foundation will
be voted in the same ratio as all other shares of common stock on all proposals
considered by our stockholders; provided, however, that, consistent with such
condition, the FDIC would waive this voting restriction under certain
circumstances. See " -- Tax Considerations" for a description of these
circumstances.
The foundation's place of business will be located at our administrative
offices, and initially we expect the foundation will have no employees but will
utilize our staff. The board of directors of the foundation will appoint such
officers as they deem necessary to manage the operations of the foundation. In
this regard, we expect that we will be required to provide the FDIC with a
commitment that, to the extent applicable, we will comply with the Federal
Reserve Act restrictions governing transactions between us and the
foundation.
The foundation will receive working capital from any dividends that may be
paid on the common stock in the future, and subject to applicable federal and
state laws, loans collateralized by the common stock or from the proceeds from
the sale of any of the common stock in the open market from time to time. As a
private foundation
30
<PAGE>
under Section 501(c)(3) of the Code, the foundation will be required to
distribute annually in grants or donations a minimum of 5% of the average fair
market value of its net investment assets.
Dilution of Stockholders' Interests. We propose to contribute shares of
common stock to the foundation. The amount of common stock will equal to up to
8% of the amount sold in the offering, not exceed $3.0 million. That amount
represents between 7.4% of the number of shares of common stock that will be
outstanding following the conversion at the minimum of the offering range and
6.4% at the maximum, as adjusted of the offering range. As a result, your
ownership and voting interests in 1st State Bancorp will be diluted. See "Risk
Factors -- The Expense and Dilutive Effect of the Contribution of Shares to the
Charitable Foundation" for a discussion of the dilutive effect of the foundation
on stockholders.
Impact on Earnings. Contributing common stock to the foundation will
reduce our earnings in the year in which we make the contribution. We will
recognize into income the full amount of the contribution in the quarter in
which it occurs, which is expected to be the quarter ending March 31 or June 30,
1999. The amount of the contribution will be up to $3.0 million. The
contribution expense will be partially offset by the tax benefit related to the
expense. We anticipate that the contribution to the foundation will be tax
deductible, subject to an annual limitation based on 10% of annual taxable
income. Assuming a contribution of $3.0 million in common stock, we estimate an
after tax expense of $2.0 million (based on a 34% marginal federal tax rate).
If the foundation had been established at September 30, 1998, assuming the
maximum contribution of $3.0 million, we would have reported net income of
$541,000 for the year ended September 30, 1998 rather than reporting net income
of $2.5 million. We do not expect in the future to make other than nominal
charitable contributions within the communities we serve. In addition, we do
not currently anticipate making additional contributions to the foundation
within the first five years following the initial contribution.
Tax Considerations. We anticipate that the foundation will qualify as a
Section 501(c)(3) exempt organization under the Internal Revenue Code and will
be classified as a private foundation. The foundation will submit a request to
the Internal Revenue Service to be recognized as an exempt organization.
Regulatory authorities require that common stock issued to the foundation
be voted in the same ratio as all other shares of our common stock on all
proposals considered by our stockholders. In the event that 1st State Bancorp
or the foundation receives an opinion of its legal counsel that compliance with
the voting restriction would have the effect of causing the foundation to lose
its tax-exempt status, or otherwise have a material and adverse tax consequence
on the foundation, or subject the foundation to an excise tax under Section 4941
of the Code, the FDIC and the Administrator will waive the voting restriction
upon submission of a legal opinion by 1st State Bancorp or the foundation.
We further anticipate that we will be entitled to a deduction in the amount
of the fair market value of the stock at the time of the contribution, subject
to an annual limitation based on 10% of annual taxable income. However, we
would be able to carry forward any unused portion of the deduction for five
years following the contribution. Thus, while we would receive a tax benefit of
approximately $1.0 million in the year ending September 30, 1999, based upon a
contribution of $3.0 million of common stock, we are permitted under the
Internal Revenue Code to carry over the excess contribution in the five
following years. We estimate that for federal income tax purposes we should be
able to deduct a substantial portion of the deduction over the six-year period.
Although we anticipate that we will be entitled to the deduction, we cannot
assure you that the Internal Revenue Service will recognize the foundation as a
Section 501(c)(3) exempt organization or that the deduction will be permitted.
If that happens, the tax benefit related to the foundation would have to be
fully expensed, resulting in further reduction in earnings in the year in which
the Internal Revenue Service makes such a determination.
Comparison of Valuation and Other Factors Assuming the Foundation is Not
Established as Part of the Conversion. Ferguson & Company considered the
establishment of the foundation in determining our estimated pro forma market
value. The number of shares of common stock we are offering and the purchase
price are based on
31
<PAGE>
the independent appraisal conducted by Ferguson & Company of our estimated pro
forma market value. The offering range is currently between $28.1 million and
$38.0 million, with a midpoint of $33.0 million. Ferguson & Company has
indicated that the establishment of the foundation reduced the independent
appraisal by $5.5 million at the midpoint of the offering range, and that if we
had not established the foundation in connection with the conversion then the
independent valuation would have been increased to a range of from $32.7 million
to $44.3 million with a midpoint of $38.5 million. The pro forma price to book
ratio and the pro forma price to annualized earnings ratio, at and for the year
ended September 30, 1998, are 65.4% and 10.8 times earnings, respectively, at
the midpoint of the offering range. If the conversion did not include the
foundation, Ferguson & Company has estimated that the independent valuation
would have been $38.5 million at the midpoint, which would have resulted in a
pro forma price to book ratio and a pro forma price to earnings ratio of 65.6%
and 11.3 times earnings, respectively. See "Comparison of Valuation and Pro
Forma Information with No Foundation" for a tabular comparison of key ratios
with and without the foundation.
The decrease in the amount of common stock being offered as a result of the
contribution of common stock to the foundation will not have a significant
effect on 1st State Bancorp's or 1st State Bank's capital position. 1st State
Bank's regulatory capital significantly exceeds our regulatory capital
requirements and will further exceed such requirements following the conversion.
1st State Bank's leverage and risk-based capital ratios at September 30, 1998
were 9.0% and 15.8%, respectively. Assuming the sale of shares at the midpoint
of the offering range, 1st State Bank's pro forma leverage and risk-based
capital ratios at September 30, 1998 would be 13.4% and 21.8%, respectively. On
a consolidated basis, our pro forma stockholders' equity would be $54.5 million,
or approximately 17.2% of pro forma consolidated assets, assuming the sale of
shares at the midpoint of the offering range. Pro forma stockholders' equity
per share and pro forma basic income per share would be $22.94 and $1.39,
respectively, and pro forma diluted income per share would be $1.34. If we were
not establishing the foundation in the conversion, based on Ferguson & Company's
estimate, our pro forma stockholders' equity would be approximately $58.7
million, or approximately 18.3% of pro forma consolidated assets at the midpoint
of the offering range, and pro forma stockholders' equity per share and pro
forma basic income per share would be $22.86 and $1.33, respectively, and pro
forma diluted income per share would be $1.29.
Regulatory Conditions Imposed on the Foundation. The foundation has agreed
to the following conditions imposed by regulatory authorities:
. The foundation will be subject to examination by the FDIC and the
Administrator.
. The foundation must comply with supervisory directives imposed by the
FDIC and the Administrator.
. The foundation will operate in accordance with written policies
adopted by the board of directors, including a conflict of interest
policy.
. Any shares of common stock held by the foundation must be voted in the
same ratio as all other outstanding shares of common stock on all
proposals considered by our stockholders.
The FDIC and the Administrator would waive the voting restriction under certain
circumstances and subject to additional conditions if compliance with the voting
restriction would:
. cause a violation of the law of the State of North Carolina
. cause the foundation to lose its tax-exempt status or otherwise have a
material and adverse tax consequence on the foundation; or
32
<PAGE>
. cause the foundation to be subject to an excise tax under Section 4941
of the Code. In order to obtain a waiver, the foundation's legal
counsel would be required to render an opinion satisfactory to the
FDIC and the Administrator.
We cannot assure you that a legal opinion addressing these issues could be
rendered, or if rendered, that the FDIC and the Administrator would grant
unconditional waivers of the voting restriction. The voting restriction will
lapse on any shares the foundation sells.
SUBSCRIPTIONS FOR STOCK IN SUBSCRIPTION AND COMMUNITY OFFERINGS
Expiration Date. The subscription offering will expire at 12:00 Noon,
Eastern Time, on __________, 1999. We are permitted under conversion regulations
to extend this deadline for up to an additional 45 days, to no later than
_________, 1999. However, we are not required to extend this deadline, and if
we do not receive your order by__________, 1999, you will lose your priority
rights to buy stock. We may also offer shares in a community offering to
persons who do not have priority subscription rights. We may terminate the
community offering at any time without notice.
We will not execute orders until at least the minimum number of shares of
common stock we are offering have been subscribed for or sold. If we have not
received orders for the minimum number of shares we are offering within 45 days
of the end of the subscription offering, unless that period is extended with
consent of the Administrator, we will return all funds to subscribers with
interest, and we will rescind all charges to savings accounts.
Use of Stock Order Forms and Certification Forms. You must complete a
stock order form and a certification form to exercise your subscription rights.
If you receive a stock order form and you desire to subscribe for shares of
stock, you must do so prior to _______________, 1999 by delivering by mail or in
person to any of our offices a properly executed and completed stock order form
and certification form, together with full payment for the shares you have
ordered. Make your checks or money orders payable to "1st State Bancorp, Inc."
We will not accept photocopies or faxes of stock order forms or payment by wire
transfer. All subscription rights under the Plan of Conversion will expire on
March __, 1999, whether or not we have been able to locate each person entitled
to subscription rights.
ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED.
We are required under federal regulations to obtain signed certification
forms from persons purchasing stock in the conversion, and that is why we
require that you sign it if you order stock. We presently have no intention to
ever assert the certification against you. However, we could use the
certification in a dispute with a banking or securities regulatory agency or
with you to prove that we informed you of the matters described in the
certification. BY SIGNING THE CERTIFICATION FORM, YOU WILL NOT WAIVE ANY OF
YOUR RIGHTS UNDER THE SECURITIES ACT OF 1933.
Each subscription right may be exercised only by the person to whom it is
issued and only for his or her own account. THE SUBSCRIPTION RIGHTS GRANTED
UNDER THE PLAN OF CONVERSION ARE NOT TRANSFERABLE. IF YOU ATTEMPT TO TRANSFER
YOUR SUBSCRIPTION RIGHTS, YOU MAY LOSE THE RIGHT TO SUBSCRIBE FOR STOCK IN THE
CONVERSION AND YOU MAY BE SUBJECT TO OTHER SANCTIONS AND PENALTIES IMPOSED BY
REGULATORY AUTHORITIES. If you subscribe for shares, you will be required to
represent to us that you are purchasing the shares for your own account and that
you have no agreement or understanding with any other person for the sale or
transfer of your shares.
We will not honor your order and you may lose your subscription rights if
your stock order form:
. is not delivered and is returned to us by the United States Postal
Service or we are unable to locate the addressee,
33
<PAGE>
. is not returned or is received after 12:00 Noon on March ____,
1999,
. is defectively completed or executed, or
. is not accompanied by the full required payment for the shares
subscribed for, including instances where a savings account or
certificate balance from which withdrawal is authorized is
insufficient to fund the amount of such required payment.
We may, but will not be required to, waive any irregularity on any stock
order form or require you to submit a corrected stock order form or to remit
full payment for subscribed shares by a date we specify. Our interpretation of
the terms and conditions of the Plan of Conversion and of the stock order form
will be final.
Payment for Shares. For your order to be accepted, you must enclose
payment for all shares of common stock you order. You may pay
. in cash, if delivered in person,
. by check or money order, or
. by authorization of withdrawal from deposit accounts maintained with
us.
Appropriate means by which withdrawals may be authorized are provided in the
stock order form. Once a withdrawal has been authorized, you may not use any of
the designated withdrawal amount for any purpose other than to purchase stock
while the Plan of Conversion remains in effect. In the case of payments
authorized to be made through withdrawal from deposit accounts, all sums
authorized for withdrawal will continue to earn interest at the contract rate
until the date of the sale. Payments made in cash or by check or money order
will be placed in a single segregated savings account established specifically
for this purpose, with the account as a whole insured by the FDIC up to the
applicable $100,000 limit, and interest will be paid at our passbook rate from
the date payment is received until we complete or terminate the conversion.
Interest penalties for early withdrawal applicable to certificate accounts will
not apply to withdrawals authorized for the purchase of shares. If a partial
withdrawal results in a certificate account with a balance less than the
applicable minimum balance requirement, the certificate evidencing the remaining
balance will earn interest at our passbook rate subsequent to the withdrawal.
Once we receive your executed stock order form, you may not modify, amend or
rescind it without our consent, unless we do not complete the conversion within
45 days after the termination of the subscription offering. If an extension of
the period of time to complete the conversion is approved by the Administrator,
we will contact subscribers and each must affirmatively reconfirm his order
prior to the expiration of the resolicitation offering, or his subscription
funds will be promptly refunded. At that time, subscribers may also modify or
cancel their subscriptions. Interest will be paid on such funds at our passbook
rate during the 45-day period and any approved extension period.
If you own a self-directed individual retirement account, you may use the
assets of the individual retirement account to purchase shares of common stock
in the offering, provided that the self-directed individual retirement account
is not maintained with us. If you maintain an individual retirement account
with us, you must transfer your account to an unaffiliated institution or broker
to purchase shares of common stock in the offering. If you are interested in
using funds in a 1st State Bank individual retirement account to purchase common
stock, you must make arrangements with the Stock Information Center at (336)
___-____ no later than ___________, 1999 so that we may forward the necessary
forms for execution.
The employee stock ownership plan will not be required to pay for its
shares at the time it subscribes, but may pay for its shares at completion of
the offering.
34
<PAGE>
Certificates for Shares Purchased. We will deliver certificates
representing shares of the common stock to purchasers as soon as practicable
after closing of the conversion. It will be your responsibility to deliver a
certificate if you sell your shares before you receive a stock certificate.
PLAN OF DISTRIBUTION AND MARKETING AGENT
Our officers are available to provide offering materials, to answer
questions and to receive completed stock order forms and certification forms.
None of our directors, officers or employees will receive any commissions or
other compensation for their efforts in connection with sales of shares of the
common stock. ALTHOUGH INFORMATION REGARDING THE STOCK OFFERING IS AVAILABLE AT
OUR OFFICES, AN INVESTMENT IN THE COMMON STOCK IS NOT A DEPOSIT, AND THE COMMON
STOCK IS NOT FEDERALLY INSURED.
Our directors, officers and employees who will be involved in selling stock
are exempt from the requirement to register with the SEC as broker-dealers
within the meaning of Rule 3a4-1 under the Exchange Act. Such persons will
qualify under the safe harbor provisions of that rule on the basis of paragraphs
(a)(4)(ii) and/or (iii), i.e., we expect that such persons either will perform
substantial duties for 1st State Bancorp in its business, will not otherwise be
broker-dealers and are not expected to participate in another offering in the
next twelve months or will limit their activities to preparing written
communications, responding to customer inquiries and/or performing
ministerial/clerical functions.
We have engaged Trident Securities as financial advisor to provide sales
assistance in connection with the offering. The services of Trident Securities
will include, but are not limited to,
. training and educating our employees who will be performing certain
ministerial functions in the offering regarding the mechanics and
regulatory requirements of the stock sales process and the
solicitation of proxies from members,
. providing employees to staff the Stock Information Center, assisting
our customers and interested stock purchasers and keeping records of
orders for shares of common stock, and
. supervising our sales efforts, including the preparation of marketing
materials.
For its services in the conversion, Trident Securities will receive a
commission equal to 1.50% of the aggregate dollar amount of common stock sold in
the offering, excluding any shares sold to our directors, executive officers and
employee stock ownership plan. Additionally, commissions will be excluded on
shares sold to associates of our directors and executive officers. If common
stock is sold by other NASD member firms under selected dealer's agreements, the
aggregate commissions to be received by Trident Securities and selected dealers
will be agreed upon jointly by us and Trident Securities to reflect market
requirements at the time of the stock allocation in the syndicated community
offering and will not exceed 6%. Trident Securities also will be reimbursed for
its reasonable out-of-pocket expenses in an amount not to exceed $10,000 and its
legal fees in an amount not to exceed $27,500. We have agreed to indemnify
Trident Securities for reasonable costs and expenses in connection with certain
claims or liabilities, including certain liabilities under the Securities
Act.
HOW WE DETERMINED THE PRICE PER SHARE AND THE OFFERING RANGE
We retained Ferguson & Company, which is experienced in the evaluation and
appraisal of savings institutions involved in the conversion process, to prepare
an appraisal of our estimated pro forma market value. Prior to the conversion,
we did not have any business relationship with Ferguson & Company. Ferguson &
Company will receive a fixed fee of $30,000 for its appraisal and other
services. We have agreed to indemnify Ferguson & Company under certain
circumstances against any losses, damages, expenses or liability arising out of
our engagement of Ferguson & Company for the appraisal.
35
<PAGE>
Ferguson & Company has determined as of January 27, 1999 that the estimated
pro forma market value of the stock to be issued in the conversion was
$33,000,000. In determining the reasonableness and adequacy of the appraisal
submitted by Ferguson & Company, the Boards of Directors of 1st State Bank and
1st State Bancorp reviewed with Ferguson & Company the methodology and the
appropriateness of assumptions used by Ferguson & Company in preparing the
appraisal. In consultation with Trident Securities, we have determined the
purchase price at which to offer the shares in the conversion. The purchase
price will be $15.00 per share if we sell less than $34.0 million of common
stock in the offering or $20.00 per share if we sell $34.0 million or more of
common stock. All investors will pay the same price per share in the offering.
We determined the price per share based on a number of factors, including the
market price per share of the stock of other financial institutions. With the
consent of the Administrator and the FDIC, however, the appraiser may establish
a range of value for the stock of approximately 15% on either side of the
estimated value to allow for fluctuations in the aggregate value of the stock
due to changes in the market and other factors that may occur. Accordingly,
Ferguson & Company has established a range of value of from $28,050,000 to
$37,950,000 for the conversion. Ferguson & Company will either confirm the
continuing validity of its appraisal or provide an updated appraisal immediately
prior to the completion of the conversion.
Based on these considerations, we will offer the following amounts of
common stock at the price per share indicated:
<TABLE>
<S> <C>
Minimum of $28,050,00: 1,870,000 shares at $15.00 per share
Midpoint of $33,000,000: 2,200,000 shares at $15.00 per share
Maximum of $37,950,000 1,897,500 shares at $20.00 per share
Maximum, as adjusted of $43,642,500: 2,182,125 sharse at $20.00 per share
</TABLE>
All purchasers will pay the same price per share of either $15.00 or $20.00 in
the offering.
In preparing its appraisal, Ferguson & Company relied on the information in
this Prospectus, including our consolidated financial statements. Ferguson &
Company also considered the following factors, among others:
. our present and projected operating results and financial condition
and the economic and demographic conditions in our market area
. historical financial and other information
. a comparative evaluation of our operating and financial statistics
with those of other similarly situated savings institutions located in
North Carolina and other regions of the United States
. the aggregate size of the offering of common stock
. the effect of the conversion on 1st State Bank's and 1st State
Bancorp's net worth and earnings potential
. our proposed dividend policy and
. the trading market for securities of comparable institutions and
general securities market conditions.
If Ferguson & Company determines at the close of the offering that the
aggregate pro forma market value of the common stock is higher or lower than
$33.0 million, but is nonetheless within the offering range or within 15% above
the maximum of the range, we will make an appropriate adjustment by raising or
lowering the total amount of stock sold within a range from $28,050,000 to
$43,642,500. Unless we decide otherwise or unless required by the FDIC or the
Administrator, we will not resolicit subscribers and other purchasers because of
any change in the number of shares to be issued unless the aggregate purchase
price of the common stock sold in the
36
<PAGE>
conversion is below the minimum of the offering range or is more than the
maximum, as adjusted of the offering range. If the aggregate purchase price
falls outside the range of from $28,050,000 to $43,642,500, you will be
resolicited and given the opportunity to continue your orders, in which case you
will need to affirmatively reconfirm your subscriptions prior to the expiration
of the resolicitation, or we will promptly refund your subscription funds with
interest at our passbook rate. You also will be given the opportunity to
increase, decrease or rescind your orders. Any change in the offering range must
be approved by the Administrator. WE MAY SET A NEW PRICE RANGE WITHOUT A
RESOLICITATION OF VOTES FROM OUR MEMBERS TO APPROVE THE PLAN OF CONVERSION.
THE APPRAISAL IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING THE COMMON
STOCK. IN PREPARING THE VALUATION, FERGUSON & COMPANY RELIED UPON AND ASSUMED
THE ACCURACY AND COMPLETENESS OF FINANCIAL AND STATISTICAL INFORMATION PROVIDED
BY US. FERGUSON & COMPANY DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS
AND OTHER INFORMATION PROVIDED BY US, NOR DID FERGUSON & COMPANY VALUE
INDEPENDENTLY OUR ASSETS AND LIABILITIES. THE APPRAISAL CONSIDERS US ONLY AS A
GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF OUR LIQUIDATION
VALUE. MOREOVER, BECAUSE THE APPRAISAL IS BASED ON ESTIMATES AND PROJECTIONS OF
A NUMBER OF MATTERS WHICH ARE SUBJECT TO CHANGE, THE MARKET PRICE OF THE COMMON
STOCK COULD DECLINE BELOW THE PER SHARE OFFERING PRICE. YOU CAN OBTAIN A COPY
OF THE APPRAISAL REPORT AT THE OFFICES SET FORTH UNDER "ADDITIONAL INFORMATION"
OR AT OUR OFFICES. WE WILL FILE ANY SUBSEQUENT UPDATED APPRAISAL WITH THE SEC
AND MAKE IT AVAILABLE FOR INSPECTION.
LIMITATIONS ON PURCHASE OF SHARES
The Plan of Conversion sets limitations on share purchases in the
conversion. Each subscriber must subscribe for a minimum of $500. The employee
stock ownership plan will purchase 8% of the shares of the common stock to be
issued in the conversion. Except for the employee stock ownership plan, no
person, including associates of and persons acting in concert with such person,
including individuals on a joint account or having the same address on our
records, may purchase more than $1,000,000, of common stock in the conversion.
Shares purchased by the employee stock ownership plan and attributable to a
participant will not be aggregated with shares purchased by the participant or
any other purchaser of common stock in the conversion. Our directors are not
deemed to be associates or a group acting in concert solely because they are
directors.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of our members, we
may change the purchase limitations at our sole discretion at any time. North
Carolina regulations authorize a plan of conversion to provide a maximum
purchase limitation of a percentage not to exceed 5% except for tax-qualified
employee stock benefit plans which may purchase in the aggregate not more than
10%. If we increase the purchase limitations, we will give subscribers for the
maximum amount the opportunity to increase their subscriptions up to the then
applicable limit, subject to the rights and preferences of any person who has
priority subscription rights. If we decrease the purchase limitation, we will
decrease the orders of any person who subscribed for the maximum number of
shares of common stock 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.
The term "associate" of a person is defined to mean: (i) any corporation or
organization (other than 1st State Bank, 1st State Bancorp, or a majority-owned
subsidiary of 1st State Bank or 1st State Bancorp) of which such person is an
officer or partner or is directly or indirectly the beneficial owner of 10% or
more of any equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as a trustee or in a similar fiduciary capacity, except that such term shall not
include any tax-qualified employee stock benefit plan of ours in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity; and (iii) any relative or spouse of such person, or
any relative of such spouse, who either has the same home as such person or who
is a director of 1st State Bank or 1st State Bancorp or any of their
subsidiaries. Directors are not treated as associates solely because they serve
as directors.
37
<PAGE>
The term "acting in concert" means (i) knowing participation in a joint
activity or interdependent conscious parallel action towards a common goal
whether or not pursuant to an express agreement; or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. We may presume that certain
persons are acting in concert based upon, among other things, joint account
relationships, common addresses and the fact that such persons have filed joint
ownership reports with the SEC with respect to other companies.
If you order more shares than you are permitted to buy, we will have the
right to purchase excess shares from you at the per share conversion purchase
price. If you have sold the shares, you must pay us the difference between the
aggregate purchase price you paid for the excess shares and the price at which
you sold the excess shares. We may assign these rights. In addition, you may
be subject to sanctions and penalties imposed by regulatory authorities.
Under guidelines of the NASD, members of the NASD and their associates are
subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
RESTRICTIONS ON REPURCHASE OF STOCK
After the conversion, our ability to repurchase our capital stock will be
governed by the Federal Reserve Board's regulations. Under the Federal Reserve
Board's regulations, any bank holding company that is not well-capitalized and
not in generally satisfactory condition must notify the Federal Reserve Board
before purchasing or redeeming its equity securities if the gross consideration
for the purchase or redemption, when aggregated with the net consideration paid
by the company for all purchases and redemptions during the preceding 12 months,
is equal to 10% or more of the company's consolidated net worth. The Federal
Reserve Board may disapprove a proposed purchase or redemption if it finds that
the proposal would constitute an unsafe or unsound practice or would violate any
directive of, condition imposed by or written agreement with, the Federal
Reserve Board. Under the Federal Reserve Board's regulations, no prior notice
of repurchases is required to be given by a bank holding company that has
received one of the two highest examination ratings at its most recent
supervisory inspection, is not the subject of any unresolved supervisory issues
and is, and after giving effect to the proposed repurchase will continue to be,
well-capitalized. We do not have any specific plans regarding possible stock
repurchases during the first year following the conversion. We have provided in
our internal business plan that we will repurchase 5% of the outstanding common
stock in each of the second and third years following the conversion. However,
whether we actually repurchase stock depends on many factors that may change
during the next year or two. For example, we might not repurchase any stock if
the prevailing market price was too high or if we had a better use for our
excess liquid assets.
LIMITATIONS ON RESALES BY MANAGEMENT
Directors and executive officers of 1st State Bank may not sell shares
purchased in the conversion for a period of one year following completion of the
conversion, except in the event of the death of the original purchaser or in any
exchange of shares in connection with a merger or acquisition of 1st State
Bancorp approved by applicable regulatory authorities. Shares of common stock
issued to directors and executive officers will bear a legend giving appropriate
notice of this restriction. In addition, we will give appropriate instructions
to the transfer agent for the common stock with respect to the applicable
restriction for transfer of any restricted stock. This same limitation will
apply to any shares issued to directors and executive officers as a stock
dividend, stock split or otherwise with respect to restricted stock. Shares
acquired otherwise than in the conversion, such as under the stock option plan,
would not be subject to the restriction. If directors and executive officers
are deemed to be affiliates of 1st State Bancorp, all shares of common stock
acquired by them will be subject to certain resale restrictions and may be
resold pursuant to Rule 144 under the Securities Act. See "Regulation --
Regulation of 1st State Bancorp -- Federal Securities Law" which describes the
provisions of Rule 144 in greater detail.
38
<PAGE>
LIMITATIONS ON FUTURE MANAGEMENT STOCK PURCHASES
During the first three years after the conversion, directors, executive
officers and their associates may purchase additional shares of common stock
only through a broker or dealer registered with the SEC, except with the prior
written approval of the Administrator and the FDIC. This restriction does not
apply to negotiated transactions involving more than 1% of the outstanding
common stock or to purchases of common stock by a stock benefit plan, such as
the employee stock ownership plan.
INTERPRETATION AND AMENDMENT OF THE PLAN OF CONVERSION
To the extent permitted by law, our interpretations of the Plan of
Conversion will be final. The Plan of Conversion provides that our board of
directors will have sole discretion to interpret and apply the provisions of the
Plan of Conversion to particular facts and circumstances and to make all
determinations necessary or desirable to implement such provisions, including
but not limited to matters with respect to giving preference in the community
offering to natural persons and trusts of natural persons who are permanent
residents of Alamance County, North Carolina. Any and all interpretations,
applications and determinations we make in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon us and our members and subscribers in the
offering, subject to the authority of the FDIC and the Administrator.
The Plan of Conversion provides that we may amend the Plan of Conversion by
a two-thirds vote of the board of directors at any time prior to submission of
the Plan of Conversion and proxy materials to our members. After submission of
the Plan of Conversion and proxy materials to the members, we may amend the Plan
of Conversion by a two-thirds vote of the board of directors at any time prior
to the special meeting and at any time following the special meeting with the
concurrence of the FDIC and the Administrator. In our discretion, we may modify
or terminate the Plan of Conversion upon the order of the regulatory authorities
without a resolicitation of proxies or another special meeting. However, we
would have to resolicit proxies and conduct another meeting of members if we
modify the Plan of Conversion to materially change the terms of the
conversion.
The Plan of Conversion further provides that if mandatory new regulations
pertaining to conversions are adopted by the FDIC, the Administrator, the
Commission, the Federal Reserve Board or any successor agency prior to
completion of the conversion, the Plan of Conversion will be amended to conform
to those regulations without a resolicitation of proxies or another special
meeting. If new conversion regulations contain optional provisions, we may
amend the Plan of Conversion to utilize the optional provisions in our
discretion without a resolicitation of proxies or another special meeting. By
adoption of the Plan of Conversion, our members will be deemed to have
authorized amendment of the Plan of Conversion under the circumstances described
above.
CONDITIONS AND TERMINATION
We may not complete the conversion unless the Plan of Conversion has been
approved by the affirmative vote of not less than a majority of the total
outstanding votes of our members and we sell at least the minimum of the
offering range within 12 months following approval of the Plan of Conversion by
the members. We may extend this time period by an additional 12 months by an
amendment to the Plan of Conversion. If these conditions are not satisfied, we
will terminate the Plan of Conversion and we will continue our business in the
mutual form of organization. The board of directors may terminate the Plan of
Conversion at any time prior to the special meeting and, with the approval of
the FDIC and the Administrator, at any time after the special meeting.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
39
<PAGE>
1st State Bancorp, Inc. has only recently been formed and, accordingly, has
no results of operations at this time. As a result, this discussion relates to
the financial condition and results of operations of 1st State Bank.
Our business consists principally of attracting deposits from the general
public and investing these funds in loans secured by single-family residential
and commercial real estate, secured and unsecured commercial loans and consumer
loans. Our profitability depends primarily on our net interest income which is
the difference between the income we receive on our loan and investment
securities portfolios and our cost of funds, which consists of interest paid on
deposits and borrowed funds. Net interest income also is affected by the
relative amounts of interest-earning assets and interest-bearing liabilities.
When interest-earning assets approximate or exceed interest bearing liabilities,
any positive interest rate spread will generate net interest income. Our
profitability also is affected by the level of other income and operating
expenses. Other income consists of miscellaneous fees related to our loans and
deposits, mortgage banking income and commissions from sales of annuities and
mutual funds. Operating expenses consist of compensation and benefits,
occupancy related expenses, federal deposit insurance premiums, data processing,
advertising and other expenses.
Our operations are influenced significantly by local economic conditions
and by policies of financial institution regulatory authorities. Our cost of
funds is influenced by interest rates on competing investments and by rates
offered on similar investments by competing financial institutions in our market
area, as well as general market interest rates. Lending activities are affected
by the demand for financing of real estate and other types of loans, which in
turn is affected by the interest rates at which such financing may be offered.
Our business emphasis has been to operate as a well-capitalized, profitable
and independent community-oriented financial institution dedicated to providing
quality customer service. We are committed to meeting the financial needs of
the communities in which we operate. We believe that we can be more effective
in servicing our customers than many of our nonlocal competitors because of our
ability to quickly and effectively provide senior management responses to
customer needs and inquiries. Our ability to provide these services is enhanced
by the stability of our senior management team.
Beginning in the late 1980's, we have sought to gradually increase the
percentage of our assets invested in commercial real estate loans, commercial
loans and consumer loans, which have higher interest rates and shorter terms and
adjust more frequently to changes in interest rates than single-family
residential mortgage loans. At September 30, 1998, commercial real estate,
commercial and consumer loans totaled $38.8 million, $25.2 million and $6.3
million, respectively, which represented 18.8%, 12.2% and 3.1%, respectively, of
gross loans. At September 30, 1998, $100.9 million, or 48.8% of gross loans,
consisted of residential real estate mortgage loans. Following the conversion,
we intend to continue to follow our current strategy of seeking growth
opportunities through increasing our portfolio of commercial real estate,
commercial and consumer loans while continuing to pursue single-family
residential mortgage loan origination activities.
YEAR 2000 COMPLIANCE
Our operations, like those of most financial institutions, are
substantially dependent upon computer systems for our lending and deposit
activities. We are addressing the potential problems associated with the
possibility that the computers which control our data processing activities,
facilities and networks may not be programmed to read four-digit dates and, upon
the arrival of the year 2000, may recognize the two-digit code "00" as the year
1900 rather than 2000. This could cause systems to fail to function or generate
erroneous information.
We formed a Year 2000 Committee early in 1998 with senior representatives
from every functional area of our Bank. At the direction of the Board, this
Committee is leading our efforts to ensure that we are ready for the Year 2000.
Our board of directors has approved 1st State Bank's five phase Year 2000 Plan
that was developed in accordance with the guidelines set forth by the Federal
Financial Institutions Examination Council.
40
<PAGE>
The first phase, awareness, was intended to provide on-going information to
our employees, directors and customers of the impact of the Year 2000 issue. We
have conducted Year 2000 training for all directors and employees.
The second phase, assessment, required us to review all systems that we
believe to be potential risks in order to minimize any Year 2000 operating
difficulties. This review included all major computer and non-computer based
systems, such as vaults, security systems and telephone systems. In April 1998,
we converted to a new computer system for processing all loan, deposit and
general ledger transactions. In conjunction with this conversion, we purchased
and installed new hardware and software throughout 1st State Bank. The hardware
and software purchased are Year 2000 compliant or will be with minor
modifications or upgrades. The combined cost of this hardware and software was
$1.2 million, which was capitalized during the year ended September 30, 1998 in
accordance with our capitalization policy. This phase is virtually complete, and
we are following up on any remaining issues to complete our thorough
assessment.
We identified one vendor as mission critical. This vendor is Year 2000
compliant. We identified one system to be mission critical.
We have contacted all of our significant commercial borrowers and have
determined that they are progressing appropriately with their efforts on Year
2000 issues. We do not believe this poses a significant risk to us at this
time. In addition, we take into consideration a commercial loan applicant's Year
2000 preparedness and will reject any application where the applicant's Year
2000 preparedness could hinder sufficiently its ability to repay the loan.
The third phase, renovation and/or replacement, includes obtaining vendor
certification and/or the necessary upgrades and enhancements to ensure that our
existing systems are Year 2000 compliant. We are continuing to follow up with
third party vendors as necessary. At this time we have plans in place for all
mission critical systems to be compliant by December 31, 1998.
The fourth phase, testing, is currently underway. The hardware has been
successfully tested, and we have begun testing the software. We have received
representations from our mission critical third party vendors that they are Year
2000 compliant. All testing is expected to be completed by January 31, 1999 and
any problems would be remedied by March 31, 1999.
The last phase, implementation, will commence in the second quarter of
1999, ending with the first quarter of 2000. We are currently in the process of
developing contingency plans for processes that are not Year 2000 compliant. We
expect this contingency plan to be ready by March 31, 1999.
We estimate that the total future cost of Year 2000 compliance, excluding
internal staffing costs, will not exceed $15,000. This estimate includes the
cost of an independent consultant that has been retained to assist us in
evaluating our Year 2000 Plan and assist us in testing. We believe that our
policies, plans and actions are in compliance with regulatory guidelines and
milestone dates.
Our customers may also experience Year 2000 problems, which could adversely
affect their ability to comply with their obligations to us. We have assessed
all significant commercial loan customers to determine their Year 2000
readiness. Although Year 2000 readiness varies among our customers, we do not
expect that Year 2000 problems will have such a serious impact on our customers
as to cause them to suffer material adverse financial consequences.
We believe that the potential effects on our internal operations from Year
2000 issues can and will be addressed prior to the Year 2000. However, as
unforeseen circumstances arise, the Year 2000 issue could disrupt our normal
business operations. The most reasonably likely worst case Year 2000 scenarios
foreseeable at this time would include our not being able to systematically
process, in some combination, various types of customer transactions. This
could affect our ability to accept deposits or process withdrawals, originate
new loans or accept loan payments in the automated manner we currently utilize.
Depending upon how long this scenario lasted, this could have a material adverse
effect on our operations. Our contingency plan will address alternative methods
to enable us to continue to offer
41
<PAGE>
basic services to our customers. The costs of our Year 2000 project and our
benchmark dates are based on our best estimates, which are based on a number of
assumptions including future events. We cannot guarantee that these estimates
will be achieved at the cost disclosed or within the time frames indicated.
LIQUIDITY AND CAPITAL RESOURCES
Following the conversion, 1st State Bancorp initially will have no business
other than that of 1st State Bank and investing the net conversion proceeds it
retains. We believe that the net proceeds to be retained by 1st State Bancorp,
earnings on those proceeds and principal and interest payments on the employee
stock ownership plan loan, together with dividends that may be paid from 1st
State Bank to 1st State Bancorp following the conversion, will provide
sufficient funds for its initial operations and liquidity needs; however, it is
possible that 1st State Bancorp may need additional funds in the future. We
cannot assure you, however, that 1st State Bancorp's sources of funds will be
sufficient to satisfy its liquidity needs in the future. 1st State Bank will be
subject to certain regulatory limitations on the payment of dividends to 1st
State Bancorp. For a discussion of these regulatory dividend limitations, see
"Dividend Policy" and "Regulation -- Depository Institution Regulation --
Dividend Restrictions." 1st State Bancorp intends to lend a portion of the net
proceeds retained from the conversion to the employee stock ownership plan to
fund the employee stock ownership plan's purchase of common stock in the
conversion. See "Use of Proceeds" for a more complete breakdown of our uses of
the net proceeds.
At September 30, 1998, we had net worth of $26.0 million, as compared to
$23.3 million at September 30, 1997. We reported net income for the year ended
September 30, 1998 of $2.5 million, as compared to $2.5 million and $1.6 million
for the years ended September 30, 1997 and 1996, respectively. At September 30,
1998 and 1997, we had a capital to total assets ratio of 14.5% and 14.1%,
respectively. At September 30, 1998, we had Tier 1 leverage capital, Tier 1
risk-based capital, and total risk-based capital of $25.9 million, $25.9 million
and $28.1 million, respectively.
At September 30, 1998, we exceeded all regulatory minimum capital
requirements. For a discussion of the Administrator's and the FDIC's
regulatory capital requirements, see "Regulation -- Depository Institution
Regulation --Capital Requirements." For additional information regarding our
actual, pro forma and minimum required capital ratios at September 30, 1998, see
"Historical and Pro Forma Regulatory Capital Compliance." As a result of the
conversion, we will have substantially increased capital.
Our primary sources of funds are deposits, principal and interest payments
on loans, proceeds from the sale of loans, and to a lesser extent, advances from
the FHLB of Atlanta. While maturities and scheduled amortization of loans are
predictable sources of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and local competition.
Our primary investing activities have been the origination of loans and the
purchase of investment securities. During the years ended September 30, 1998,
1997 and 1996, we had $105.4 million, $79.2 million and $62.9 million,
respectively, of loan originations. During the years ended September 30, 1998,
1997 and 1996, we purchased investment securities in the amounts of $34.6
million, $7.0 million and $16.4 million, respectively. Our primary financing
activities are the attraction of savings deposits and, during the year ended
September 30, 1998, obtaining FHLB advances.
The Administrator's regulations require savings banks to maintain liquid
assets equal to at least 10% of total assets. The computation of liquidity
under the Administrator's regulations allows the inclusion of investments with
readily marketable value, including investments with maturities in excess of
five years. Our average liquidity ratios were 20.6%, 18.3%, and 19.4% for the
years ended September 30, 1998, 1997, and 1996, respectively. We have
maintained high liquidity ratios in recent years in anticipation of our
conversion to a commercial bank. Commercial banks are subject to higher
liquidity requirements than savings banks. Our most liquid assets are cash and
cash equivalents. The levels of these assets are dependent on our operating,
financing, lending and investing activities during any given period. At
September 30, 1998 and 1997, cash and cash equivalents totaled $31.1 million and
$15.0 million, respectively. We have other sources of liquidity should we need
additional funds. During the years ended September
42
<PAGE>
30, 1998, 1997 and 1996, we sold loans totaling $27.6 million, $9.2 million and
$9.2 million, respectively. Additional sources of funds include FHLB of Atlanta
advances. During the year ended September 30, 1998, we obtained $20.0 million of
FHLB of Atlanta advances with maturities matched to the repricing of a
comparable amount of loans to reduce our exposure to potentially rising interest
rates. For more information regarding this strategy, see " --Asset/Liability
Management." At September 30, 1998, we had $20.0 million of FHLB of Atlanta
advances outstanding, compared to $1.0 million at September 30, 1997. Other
sources of liquidity include loans and investment securities designated as
available for sale, which totaled $7.5 million and $9.9 million, respectively,
at September 30, 1998.
We anticipate that we will have sufficient funds available to meet our
current commitments. At September 30, 1998, we had $7.5 million in commitments
to originate new loans, $40.4 million in unfunded commitments to extend credit
under existing equity line and commercial lines of credit and $505,000 in
standby letters of credit. At September 30, 1998, certificates of deposit which
are scheduled to mature within one year totaled $116.5 million. We believe that
a significant portion of such deposits will remain with us. However, some of
these deposits may be used to buy stock in the offering.
ASSET/LIABILITY MANAGEMENT
Net interest income, the primary component of our net income, is derived
from the difference or "spread" between the yield on interest-earning assets and
the cost of interest-bearing liabilities. We strive to achieve consistent net
interest income and to reduce our exposure to changes in interest rates by
matching the terms to repricing of our interest-sensitive assets and
liabilities. The matching of our assets and liabilities may be analyzed by
examining the extent to which our assets and liabilities are interest rate
sensitive and by monitoring the expected effects of interest rate changes on our
net interest income. Factors beyond our control, such as market interest rates
and competition, may also have an impact on our interest income and interest
expense.
In the absence of any other factors, the overall yield or return associated
with our earning assets generally will increase from existing levels when
interest rates rise over an extended period of time, and conversely interest
income will decrease when interest rates decrease. In general, interest expense
will increase when interest rates rise over an extended period of time, and
conversely interest expense will decrease when interest rates decrease.
Therefore, by controlling the increases and decreases in its interest income and
interest expense which are brought about by changes in market interest rates, we
can significantly influence our net interest income.
Our President reports to our board of directors on a regular basis on
interest rate risk and trends, as well as liquidity and capital ratios and
requirements. The board of directors reviews the maturities of our assets and
liabilities and establishes policies and strategies designed to regulate our
flow of funds and to coordinate the sources, uses and pricing of such funds.
The first priority in structuring and pricing our assets and liabilities is to
maintain an acceptable interest rate spread while reducing the net effects of
changes in interest rates. Our management is responsible for administering the
policies and determinations of the board of directors with respect to our asset
and liability goals and strategies.
Our principal strategy in managing our interest rate risk has been to
increase interest rate sensitive assets such as commercial loans and consumer
loans. At September 30, 1998, we had $25.2 million of commercial loans and $6.3
million of consumer loans, which amounted to 12.2% and 3.1%, respectively, of
our gross loan portfolio, as compared to $22.9 million of commercial loans and
$5.4 million of consumer loans, respectively, at September 30, 1997, which
amounted to 11.3% and 2.7%, respectively, of our gross loan portfolio at that
date. In addition, in managing our portfolio of investment securities in recent
periods we emphasized the purchase of short-term securities so as to reduce our
exposure to increases in interest rates. In addition, at September 30, 1998, we
had $7.5 million of loans held for sale, and, pursuant to SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", we had
investment securities with an aggregate amortized cost of $9.7 million and an
aggregate fair value of $9.9 million as
43
<PAGE>
available for sale. We are holding these loans and investment securities as
available for sale so that they may be sold if needed for liquidity or asset and
liability management purposes.
We also have shortened the average repricing period of our assets by
retaining in our portfolio single-family residential mortgage loans only in
cases where the loan carries an adjustable rate or the loan has an interest rate
that is sufficient to compensate us for the risk of maintaining long-term,
fixed-rate loans in our portfolio. During the past two years, we have sold a
significant portion of our fixed-rate, single-family residential mortgage loans
with terms of 15 years or more we have originated, and at September 30, 1998,
most of our single-family residential mortgage loans classified as held to
maturity were originated at least two years previously when market interest
rates were higher. At September 30, 1998, we held approximately $32.1 million
of adjustable-rate residential mortgage loans, which represented approximately
15.5% of our gross loan portfolio. Depending on conditions existing at any
given time, as part of our interest rate risk management strategy, we may sell
newly originated fixed-rate residential mortgage loans with original maturities
of 15 years or more in the secondary market.
In addition, in early 1998, as market interest rates were falling and our
yields on newly originated fixed-rate loans were decreasing, we became
increasingly concerned that if interest rates were to increase significantly
from the low rates then prevailing our cost of funds could be expected to
increase while we would continue to earn the same low yield on our fixed-rate
loans. To reduce our interest rate risk, in February 1998, we obtained $20.0
million in fixed-rate FHLB of Atlanta advances. These advances were structured
with maturities estimated to coincide with the expected repricing of
approximately $20.0 million of our loans. Through this strategy, we were able
to establish a positive interest rate spread on the $20.0 million of assets and
FHLB of Atlanta advances. The FHLB of Atlanta advances may not be prepaid, and
since the time the advances were obtained interest rates have declined, with the
result that we have been and currently are earning a lesser interest rate spread
than we would otherwise be earning had we not obtained the advances. However,
the strategy of obtaining FHLB advances with maturities matched to a comparably
sized portfolio of interest-earning assets has helped us to significantly reduce
our interest rate risk in times of rising interest rates with respect to that
portion of our assets and liabilities.
INTEREST RATE SENSITIVITY ANALYSIS
One way to analyze the matching of assets and liabilities is to examine the
extent to which assets and liabilities reprice in response to changes in
interest rates. The interest rate gap is defined as the difference between the
amount of interest-earning assets maturing or repricing within a specific time
period and the amount of interest-bearing liabilities that will mature or
reprice within the same time period. At September 30, 1998 our cumulative one-
year interest rate gap as a percentage of total assets was a negative 2.4%. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. Conversely, a gap is
considered negative when the interest rate sensitive liabilities exceed the
interest rate sensitive assets.
44
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1998 which we
anticipate, based upon certain assumptions, to reprice or mature in each of the
future time periods shown.
<TABLE>
<CAPTION>
More than More than
3 months 4 to 12 1 year to 3 years Over
or less months 3 years to 5 years 5 years Total
- --------------------------------------------------------------------------------------------------------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1)................. $73,237 $ 31,977 $ 32,288 $37,193 $29,627 $204,322
Investment securities (2)............ -- 3,992 9,484 7,000 20,923 41,399
Interest-bearing overnight deposits.. 25,559 -- -- -- -- 25,559
------- -------- -------- ------- ------- --------
Total interest-earning assets....... 98,796 35,969 41,772 44,193 50,550 271,280
Interest-bearing liabilities:
Transaction accounts................. 7,013 12,724 9,950 2,966 5,665 38,318
Passbook and statement............... 1,279 3,497 7,253 4,729 11,333 28,091
Certificates of deposit.............. 38,881 78,156 35,406 8,218 -- 160,661
FHLB advances........................ -- -- -- -- 20,000 20,000
------- -------- -------- ------- ------- --------
Total interest-bearing liabilities.. 47,173 94,377 52,609 15,913 36,998 247,070
Interest sensitivity gap.............. $51,623 $(58,408) $(10,837) $28,280 $13,552 $ 24,210
======= ======== ======== ======= ======= ========
Cumulative interest sensitivity gap... $51,623 $ (6,785) $(17,622) $10,658 $24,210
======= ======== ======== ======= =======
Ratio of cumulative gap to total
interest-earning assets.............. 19.0% (2.5)% (6.5)% 3.9% 8.9%
======= ======== ======== ======= =======
Ratio of cumulative gap to total
assets............................... 17.9% (2.4)% (6.1)% 3.7% 8.4%
======= ======== ======== ======= =======
Ratio of interest-earning assets to
interest-bearing liabilities......... 209.4% 38.1% 79.4% 277.7% 136.6%
======= ======== ======== ======= =======
</TABLE>
______________
(1) Includes nonaccrual loans and loans held for sale.
(2) Includes FHLB of Atlanta stock.
MARKET RISK
Market risk reflects the risk of economic loss resulting from adverse
changes in market prices and interest rates. The risk of loss can be reflected
in diminished current market values and/or reduced potential net interest income
in future periods.
Our market risk arises primarily from interest rate risk inherent in our
lending and deposit-taking activities. We do not maintain a trading account for
any class of financial instrument nor do we engage in hedging activities or
purchase high-risk derivative instruments. Furthermore, we are not subject to
foreign currency exchange rate risk or commodity price risk.
We measure our interest rate risk by computing estimated changes in net
interest income and the net portfolio value of cash flows from assets,
liabilities and off-balance sheet items in the event of a range of assumed
changes in market interest rates. These computations estimate the effect on our
net interest income and net portfolio value of sudden and sustained 1% to 4%
increases and decreases in market interest rates. Our board of directors has
adopted an interest rate risk policy which establishes maximum decreases in our
estimated net interest income of 10%, 15%, 20% and 25% in the event of 1%, 2%,
3% and 4% increases and decreases in the market interest rates, respectively.
Limits have also been established for changes in net portfolio value of
decreases of 10%, 15%, 25% and 50% in the event of 1%, 2%, 3% and 4% increases
in market interest rates, respectively, and decreases of 5%, 10%, 15% and 20% in
the event of 1%, 2%, 3% and 4% decreases in market interest rates, respectively.
The following table presents the projected change in net interest income and net
portfolio value for the various rate shock levels at September 30, 1998.
45
<PAGE>
<TABLE>
<CAPTION>
Net Portfolio Value Net Interest Income
Change ------------------------------ --------------------------------
in Rates $ Amount $ Change % Change $ Amount $ Change % Change
- ---------- -------- -------- -------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
+ 400 bp $28,281 $(5,254) (15.67)% $9,478 $ 1,012 11.95%
+ 300 bp 29,839 (3,696) (11.02) 9,240 774 9.13
+ 200 bp 31,397 (2,138) (6.37) 9,002 536 6.32
+ 100 bp 32,466 (1,069) (3.19) 8,734 268 3.16
Static 33,535 0 0.00 8,466 0 0.00
- - 100 bp 33,638 103 0.31 8,082 (384) (4.54)
- - 200 bp 33,742 207 0.62 7,697 (769) (9.09)
- - 300 bp 33,156 (379) (1.13) 7,265 (1,201) (14.19)
- - 400 bp 32,571 (964) (2.87) 6,832 (1,634) (19.30)
</TABLE>
The above table indicates that at September 30, 1998, in the event of
sudden and sustained increases in prevailing market interest rates, we would
expect our estimated net interest income to increase and our net portfolio value
to decrease, and that in the event of sudden and sustained decreases in
prevailing market interest rates, we would expect our estimated net interest
income and net portfolio value to decrease, except that we would expect our net
portfolio value to increase in the event of a sudden and sustained decrease in
interest rates of 100 or 200 basis points. Our board of directors reviews our
net interest income and net portfolio value position quarterly, and, if
estimated changes in net interest income and net portfolio value are not within
the targets established by the board, the board may direct management to adjust
the asset and liability mix to bring interest rate risk within board approved
targets. At September 30, 1998, our estimated changes in net interest income
and net portfolio value were within the targets established by the board of
directors.
Computations of prospective effects of hypothetical interest rate changes,
such as the above computations, are based on numerous assumptions, including
relative levels of market interest rates, loan prepayments and deposit decay,
and should not be relied upon as indicative of actual results. Further, the
computations do not contemplate any actions we may undertake in response to
changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in
the above tables. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in differing degrees
to changes in market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates on a short-term basis and over
the life of the asset. In addition, the proportion of adjustable-rate loans in
our portfolio could decrease in future periods if market interest rates remain
at or decrease below current levels due to refinance activity. Further, in the
event of a change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in the table. Also,
borrowers may have difficulty in repaying their adjustable-rate debt if interest
rates increase.
46
<PAGE>
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income derived from
interest-earning assets and the interest expense on interest-bearing
liabilities. Net interest income is affected by the difference between the
rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and the relative volume of
interest-earning assets and interest-bearing liabilities.
The following table sets forth certain information relating to our
consolidated balance sheets at September 30, 1998 and our consolidated
statements of income for the years ended September 30, 1998, 1997, and 1996 and
reflects the average yield on assets and average cost of liabilities at the date
and for the periods indicated. We derived yields and costs by dividing income
or expense by the average balance of assets and liabilities, respectively, for
the periods shown. Average balances are derived from daily balances.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------
At September 30, 1998 1998 1997
--------------------- --------------------------- ---------------------------------
Average Average
Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost
--------- -------- --------- -------- ------ --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets:
Loans receivable (1)..... $204,322 8.28% $199,203 $17,185 8.63% $186,413 $16,167 8.67%
Investment securities (2) 41,399 6.26 35,938 2,320 6.46 39,101 2,557 6.54
Interest-bearing
overnight deposits...... 25,559 5.75 20,409 1,203 5.89 6,116 337 5.51
-------- -------- ------- -------- -------
Total interest-earning
assets................ 271,280 7.74 255,550 20,708 8.10 231,630 19,061 8.23
------- -------
Non-interest-earning assets 16,943 17,499 15,362
-------- -------- --------
Total assets........... $288,223 $273,049 $246,992
======== ======== ========
Liabilities and net worth:
Deposits................. $227,070 4.57 $224,334 10,331 4.61 $215,494 9,743 4.52
FHLB advances............ 20,000 5.39 13,559 740 5.46 1,000 56 5.60
-------- -------- ------- -------- -------
Total interest-bearing
liabilities........... 247,070 4.63 237,893 11,071 4.65 216,494 9,799 4.53
---- ------- ---- ------- -----
Non-interest-bearing
liabilities............... 15,187 10,436 8,026
-------- -------- --------
Total liabilities...... 262,257 248,329 224,520
Net worth.................. 25,966 24,720 22,472
-------- -------- --------
Total liabilities and
net worth............. $288,223 $273,049 $246,992
======== ======== ========
Net interest income........ $ 9,637 $ 9,262
======= =======
Interest rate spread....... 3.11% 3.45% 3.70%
==== ==== ====
Net interest margin (3).... 3.77% 4.00%
==== ====
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities............... 109.80% 107.42% 106.99%
====== ====== ======
<CAPTION>
-----------------------------------
1996
-----------------------------------
Average
Average Yield/
Balance Interest Cost
Assets: --------- --------- -----
<S> <C> <C> <C>
Loans receivable (1)..... $171,148 $14,620 8.54%
Investment securities (2) 37,854 2,402 6.35
Interest-bearing
overnight deposits...... 6,605 373 5.65
-------- -------
Total interest-earning
assets................ 215,607 17,395 8.07
-------
Non-interest-earning assets 13,313
--------
Total assets........... $228,920
========
Liabilities and net worth:
Deposits................. 202,776 9,450 4.66
FHLB advances............ 156 3 1.92
-------- -------
Total interest-bearing
liabilities........... 202,932 9,453 4.66
------- ----
Non-interest-bearing
liabilities............... 5,842
--------
Total liabilities...... 208,774
Net worth.................. 20,146
--------
Total liabilities and
net worth............. $228,920
========
Net interest income........ $ 7,942
=======
Interest rate spread....... 3.41%
====
Net interest margin (3).... 3.68%
====
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities............... 106.25%
======
</TABLE>
- --------------------
(1) Includes nonaccrual loans and loans held for sale.
(2) Includes FHLB of Atlanta stock.
(3) Represents net interest income divided by the average balance of interest-
earning assets.
47
<PAGE>
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of interest-earning asset and interest-bearing liability, we have
provided information on changes attributable to:
. changes in volume (changes in volume multiplied by old rate)
. changes in rates (change in rate multiplied by old volume)
. changes in rate-volume (changes in rate multiplied by the changes in
volume) and
. total change (the sum of the previous columns).
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
---------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------- ---------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------- ---- ------ ----- ------ ---- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable (1)............ $1,109 $ (85) $ (6) $1,018 $1,304 $ 223 $ 20 $1,547
Investment securities (2)....... (207) (33) 3 (237) 79 74 2 155
Other interest-earning assets... 788 23 55 866 (28) (9) 1 (36)
------ ----- ----- ------ ------ ----- ---- ------
Total interest-earning assets.. 1,690 (95) 52 1,647 1,355 288 23 1,666
------ ----- ----- ------ ------ ----- ---- ------
Interest expense:
Deposits........................ 400 181 7 588 593 (282) (18) 293
FHLB advances................... 703 (1) (18) 684 16 6 31 53
------ ----- ----- ------ ------ ----- ---- ------
Total interest-bearing
liabilities.................. 1,103 180 (11) 1,272 609 (276) 13 346
------ ----- ----- ------ ------ ----- ---- ------
Change in net interest income..... $ 587 $(275) $ 63 $ 375 $ 746 $ 564 $ 10 $1,320
====== ===== ===== ====== ====== ===== ==== ======
</TABLE>
_____________
(1) Includes nonaccrual loans and loans held for sale.
(2) Includes FHLB of Atlanta stock.
COMPARISON OF FINANCIAL CONDITION OF SEPTEMBER 30, 1998 AND 1997
Total assets increased by $29.7 million, or 11.5%, from $258.5 million at
September 30, 1997 to $288.2 million at September 30, 1998. A significant
portion of the increase in assets was attributable to an increase in cash and
cash equivalents, which increased by $16.1 million, or 107.3%, from $15.0
million at September 30, 1997 to $31.1 million at September 30, 1998. Cash and
cash equivalents consist of cash and interest-bearing deposits in other banks
and are our most liquid assets. We increased our liquidity at September 30,
1998 due to: (i) increased loan sales and prepayments of loans in connection
with refinancings as a result of declining interest rates during the year ended
September 30, 1998; (ii) our retention of cash from a $20.0 million FHLB of
Atlanta advance; and (iii) an increase in deposits while loans receivable
remained stable.
As a result of historically low prevailing interest rates during the year
ended September 30, 1998, we have increased our mortgage banking activities by
classifying as held for sale substantially all newly originated long-term,
fixed-rate single-family residential mortgage loans. As a result, our loans
held for sale increased from $684,000 at
48
<PAGE>
September 30, 1997 to $7.5 million at September 30, 1998. In addition, our loans
receivable, net decreased by $340,000, or .2%, from $197.1 million at September
30, 1997 to $196.8 million at September 30, 1998. While single-family
residential mortgage loans decreased by $7.5 million, or 6.9%, from $108.4
million at September 30, 1997 to $100.9 million at September 30, 1998, we were
able to increase our portfolio of construction loans by $6.0 million, or 47.6%,
from $12.6 million at September 30, 1997 to $18.6 million at September 30, 1998.
The increase in our portfolio of construction loans reflects our success in
obtaining several acquisition and development loans and loans to builders to
build unsold residences, as well as to an increase in the average size of loans
to individuals to build their primary residences.
Our investment securities held to maturity increased by $6.7 million, or
28.6%, from $23.5 million at September 30, 1997 to $30.2 million at September
30, 1998, as we used excess liquidity to purchase investment securities.
During the year ended September 30, 1998, we funded our asset growth partly
with increased deposit accounts but primarily with FHLB of Atlanta advances.
In February 1998, we obtained $20.0 million in FHLB of Atlanta advances. These
advances were structured with maturities estimated to coincide with the expected
repricing of approximately $20.0 million of our loans. See A-- Asset/Liability
Management@ for more information about our use of FHLB of Atlanta advances in
reducing our interest rate risk. As a result, FHLB of Atlanta advances totaled
$20.0 million at September 30, 1998, as compared to $1.0 million at September
30, 1997. Deposit accounts increased by $6.4 million, or 2.8%, from $229.3
million at September 30, 1997 to $235.7 million at September 30, 1998. Of the
increase, $5.1 million was attributable to an increase in the transaction
accounts, which we have been promoting during the year. In addition, we have
had some success in cross-selling checking accounts and money market accounts to
our commercial borrowers.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
Net Income. We had $2.5 million of net income for each of the years ended
September 30, 1998 and 1997. During the year ended September 30, 1998,
increases in net interest income and other income were offset by increases in
the provision for loan losses and operating expenses. We are establishing a
charitable foundation and contributing to the foundation up to 8% of the stock
we sell in the conversion, up to a maximum of 150,000 shares. The contribution
to the foundation will reduce our earnings in 1999, the fiscal year in which the
foundation is to be established and the contribution made, by up to $2.0
million. If the foundation had been established and the contribution made
during the year ended September 30, 1998, we would have reported net income of
approximately $541,000 rather than reporting net income of approximately $2.5
million, for the year ended September 30, 1998.
Net Interest Income. Net interest income was $9.6 million for the year
ended September 30, 1998, as compared to $9.3 million for the year ended
September 30, 1997, representing an increase of $375,000, or 4.1%. During the
year ended September 30, 1998, we were able to increase our net interest income
by leveraging our capital and increasing our levels of interest-earning assets
and interest-bearing liabilities. The average balance of interest-earning
assets increased by $23.9 million, or 10.3%, from $231.6 million for the year
ended September 30, 1997 to $255.6 million for the year ended September 30, 1998
primarily due to increases in the average balances of loans receivable and
interest-bearing overnight deposits. In addition, the average balance of
interest-bearing liabilities increased by $21.4 million, or 9.9%, from $216.5
million for the year ended September 30, 1997 to $237.9 million for the year
ended September 30, 1998 primarily due to increases in the average balances of
deposits and FHLB advances. The effect of the increases in the average balances
of assets and liabilities was offset in part by a decrease in our interest rate
spread from 3.70% for the year ended September 30, 1997 to 3.45% for year ended
September 30, 1998. In February 1998, we obtained $20.0 million in fixed-rate
FHLB of Atlanta advances. These advances were structured with maturities
estimated to coincide with the expected repricing of approximately $20.0 million
of our loans. Through this strategy, we were able to establish a positive
interest rate spread on the $20.0 million of assets and FHLB of Atlanta
advances. The proceeds of advances increased our cash and cash equivalents
pending deployment of the proceeds into loans. Since the time the advances were
obtained interest rates have declined, with the result that our cost of funds
has been
49
<PAGE>
negatively affected because the advances have a higher rate of interest than
other sources of funds while cash and cash equivalents have a lower yield than
our other interest-earning assets. As a result, we have been, and currently are,
earning a lesser interest rate spread than we would otherwise be earning had we
not obtained the advances. However, the strategy of obtaining FHLB advances with
maturities matched to a comparably sized portfolio of interest-earning assets
has helped us to significantly reduce our interest rate risk in times of rising
interest rates with respect to that portion of our assets and liabilities. See
A--Asset/Liability Management@ for our strategies in managing our interest rate
spread. However, during the year ended September 30, 1998, we continued our
efforts to increase the yield on interest-earning assets by increasing
originations of loans that are based on the prime rate, such as commercial loans
and home equity lines of credit, and to lower our cost of funds by successfully
attracting lower cost deposits such as checking accounts and money market
accounts.
Interest Income. Total interest income was $20.7 million for the year
ended September 30, 1998, as compared to $19.1 million for the year ended
September 30, 1997, representing an increase of $1.6 million, or 8.6%. Such
increase was due primarily to a $23.9 million, or 10.3%, increase in the average
balance of the interest-earning assets during such year and, offset in part by a
13 basis point decrease in the average yield on interest-earning assets.
Interest on loans receivable increased by $1.0 million, or 6.3%, from $16.2
million for the year ended September 30, 1997 to $17.2 million of the year ended
September 30, 1998. The increase was due primarily to an increase of $12.8
million, or 6.9%, in the average balance of loans receivable from $186.4 million
for the year ended September 30, 1997 to $199.2 million for the year ended
September 30, 1998, reflecting increased single-family residential mortgage loan
and commercial loan originations. The increase in the average balance of loans
receivable more than offset a 4 basis point decrease in the average yield on
loans receivable due to falling market interest rates during the year ended
September 30, 1998. Offsetting the decreased yield attributable to declining
market interest rates were our increased originations of commercial loans and
construction loans, which carry interest rates based on the prime rate, enabling
us earn a higher yield on interest-earning assets, as commercial loans generally
earn higher interest rates than single-family residential mortgage loans,
although those loans entail greater credit risk. For more information, see
"Business of 1st State Bank -- Lending Activities -- Commercial Lending."
Interest on investment securities decreased by $237,000, or 9.3%, from $2.6
million for the year ended September 30, 1997 to $2.3 million for the year ended
September 30, 1998. The decrease was attributable to a $3.2 million, or 8.1%,
decrease in the average balance of investment securities from $39.1 million for
the year ended September 30, 1997 to $35.9 million for the year ended September
30, 1998, combined with an 8 basis point decrease in the average yield on
investment securities. As market interest rates fell during the year ended
September 30, 1998, a higher than normal level of our investment securities were
called by the issuers.
Interest on interest-bearing overnight deposits increased by $867,000 from
$336,000 for the year ended September 30, 1997 to $1.2 million for the year
ended September 30, 1998. The increase was due primarily to a $14.3 million
increase in the average balance of other interest-earning assets from $6.1
million for the year ended September 30, 1997 to $20.4 million for the year
ended September 30, 1998, as a result of the $20.0 million of FHLB of Atlanta
advances obtained in February 1998, as well as to a 38 basis point increase in
the yield on other interest-earning assets.
Interest Expense. During the years ended September 30, 1997 and 1998,
interest expense consisted primarily of interest on deposit accounts. Interest
on deposit accounts increased by $588,000, or 6.0%, from $9.7 million for the
year ended September 30, 1997 to $10.3 million for the year ended September 30,
1998. The increase was due to an $8.8 million, or 4.1%, increase in the average
balance of deposits from $215.5 million for the year ended September 30, 1997 to
$224.3 million for the year ended September 30, 1998. In addition, there was a
9 basis point increase in the average cost of deposits. The increase in the
average cost of deposits reflected our decision to increase our deposit rates to
match competition in our market. In addition, during the year ended September
30, 1998, we had interest expense of $740,000 on our increased balance of FHLB
of Atlanta advances, as compared to $56,000 of interest expense during the year
ended September 30, 1997.
50
<PAGE>
Provisions for Loan Losses. We charge provisions for loan losses to
earnings to maintain the total allowance for loan losses at a level we consider
adequate to provide for probable loan losses, based on prior loss experience,
volume and type of lending we conduct, industry standards and past due loans in
our loan portfolio. Our policies require the review of assets on a regular
basis, and we appropriately classify loans as well as other assets if warranted.
See "Business of 1st State Bank -- Lending Activities -- Nonperforming Loans and
Other Problem Assets" and " -- Allowance for Loan Losses" for information as to
how we classify loans and establish loan loss reserves. We believe we use the
best information available to make a determination with respect to the allowance
for loan losses, recognizing that future adjustments may be necessary depending
upon a change in economic conditions. We provided $477,000 and $261,000 for
loan losses during the years ended September 1998 and 1997, respectively. The
allowance for loan losses was $3.2 million at September 30, 1998, as compared to
$2.8 million at September 30, 1997. The ratio for the allowance for loan losses
to total loans, net of loans in process and deferred loan fees was 1.61% and
1.38% at September 30, 1998 and 1997, respectively. The increased provision
during the year ended September 30, 1998 reflects the increased risk in our loan
portfolio attributable to the higher percentage of loans invested in commercial
loans, commercial real estate loans and construction loans. At September 30,
1998, commercial loans, commercial real estate loans and construction loans
totaled $25.2 million, $38.8 million and $18.6 million, respectively, which
amounted to 12.2%, 18.8% and 9.0%, respectively, of the gross loan portfolio.
Comparatively, at September 30, 1997, commercial loans, commercial real estate
loans and construction loans totaled $22.9 million, $34.3 million and $12.6
million, respectively, which amounted to 11.3%, 17.0% and 6.2%, respectively, of
the gross loan portfolio. Single-family residential real estate loans totaled
$100.9 million and $108.4 million at September 30, 1998 and 1997, respectively,
which represented 48.8% and 53.8%, respectively, of the gross loan portfolio at
such dates. Furthermore, we continued to originate asset-based loans, which are
loans where repayment is based largely on the liquidation of assets such as
inventory and accounts receivable. These loans carry an even higher incremental
risk of loss, as their repayment is often dependent on the financial performance
of the persons that owe money to our borrower. At September 30, 1998 and 1997,
we had $9.4 million and $8.1 million, respectively, we considered to be asset-
based loans.
In addition, changes in the economy during fiscal year 1998 have altered
the credit risk profile of some of our customers and as a result, we increased
our provision to reflect this additional credit risk. We believe that our
local economy may be nearing the end of a business cycle, which affects all of
our borrowers through a softening economy. We have been further affected by
this trend in that in recent years we have increased lending to smaller
businesses, churches and non-profit organizations, and we have increased the
origination of asset-based loans. We consider these borrowers to be more
vulnerable to changes in the economy than larger, more diversified companies
whose revenues are supported by customers in a variety of locations. The NAFTA
legislation passed by Congress also appears to be having a negative impact on
the textile industry of Alamance County, affecting or potentially affecting
borrowers in the textile industry and borrowers employed by local textile
companies. Finally, we believe increased consumer debt levels and rising
consumer bankruptcy rates nationally and in North Carolina have had a negative
effect on our consumer and mortgage loan portfolios during 1998. Collectively,
these factors prompted us to increase the allowance for loan losses during
1998.
Other Income. Total other income was $1.5 million for the years ended
September 30, 1998 and 1997. During the year ended September 30, 1998, mortgage
banking income, net increased by $256,000. As interest rates decreased during
the year, we decided to sell a greater volume of new residential mortgage loan
originations to reduce our exposure to interest rate risk. For most of these
transactions, we incurred a loss on the sale of the loan. During the years
ended September 30, 1998 and 1997, we recognized net losses on the sale of
mortgage loans of $119,000 and $16,000, respectively. These losses were offset
by other sources of income from mortgage banking transactions. For example, in
many cases, we elected to sell the rights to service the loan, resulting in the
collection of an additional premium to release the servicing rights. These
premiums, which amounted to $351,000 and $121,000 for the years ended September
30, 1998 and 1997, respectively, more than offset the aforementioned marketing
losses on the sale of the loans during these periods. In addition, during the
year ended September 30, 1998, commissions from sales of annuities and mutual
funds increased by $38,000 as customers shifted retirement funds into non-
insured investments. Also, customer service fees on loan and deposit accounts
increased by $65,000, or 13.1%, from $500,000 for the year ended September 30,
1997 to $566,000 for the year ended September 30, 1998 as a result of increased
levels of deposit
51
<PAGE>
and loan accounts. Offsetting these increases was a $269,000 securities loss
during the year ended September 30, 1998 from an other than temporary decline in
the value of marketable equity securities. During the mid 1980s, we made an
investment in a mutual fund which invests in mortgage-backed securities and U.S.
Government and agency securities. This investment is classified as available for
sale, and in prior years we have reflected a net unrealized loss on investment
securities on our consolidated balance sheets attributable to the then current
unrealized loss associated with this mutual fund investment. During the year
ended September 30, 1998, we determined that the value of the investment in
marketable equity securities would not recover in the foreseeable future and we
recognized an expense attributable to the other than temporary decline in fair
value. The fair value of marketable equity securities depends largely on changes
in interest rates as the underlying securities are debt securities. Future
changes in interest rates could cause additional declines in value that are
other than temporary.
Operating Expenses. Total operating expenses increased by $302,000, or
4.7%, from $6.5 million for the year ended September 30, 1997 to $6.8 million
for the year ended September 30, 1998. Compensation and related benefits
increased by $267,000, or 6.2%, from $4.3 million for the year ended September
30, 1997 to $4.6 million for the year ended September 30, 1998, due to an
increase in expense attributable to normal salary increases and increases in the
number of employees. During the year ended September 30, 1998 and 1997, we
incurred $987,000 and $1.1 million, respectively, in compensation and related
expenses attributable to the implementation and vesting of a Deferred
Compensation Plan for directors and executive officers. The expense associated
with that plan is expected to approximate $200,000 annually beginning with the
year ended September 30, 1999. Occupancy and equipment expenses increased by
$105,000, or 11.1%, from $940,000 for the year ended September 30, 1997 to $1.0
million for the year ended September 30, 1998 due to an $85,000 write-down of
obsolete equipment. Deposit insurance premiums increased by $38,000, or 36.9%,
from $104,000 for the year ended September 30, 1997 to $142,000 for the year
ended September 30, 1998 due to increased levels of deposits. Our operating
expenses will increase in the future due to added expense associated with our
employee stock ownership plan, the costs of being a public company and,
later on, a restricted stock plan.
Income Taxes. Our income tax expense was $1.4 million for each of the
years ended September 30, 1998 and 1997. Our effective tax rate was 35.1% for
the year ended September 30, 1998 and 36.2% for the year ended September 30,
1997.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
Net Income. We had $2.5 million of net income for the year ended September
30, 1997, compared to $1.6 million of net income for the year ended September
30, 1996, representing an increase of $952,000, or 59.7%. The principal reason
for the increase was a $1.3 million increase in net interest income.
Net Interest Income. Net interest income was $9.3 million for the year
ended September 30, 1997, as compared to $7.9 million for the year ended
September 30, 1996, representing an increase of $1.3 million, or 16.6%. The
increase was due to an increase in our interest rate spread from 3.41% for the
year ended September 30, 1996 to 3.70% for year ended September 30, 1997.
During the year ended September 30, 1997, we were able to increase the yield on
interest-earning assets by increasing loans that are based on the prime rate,
such as commercial loans and home equity lines of credit. Concurrently, we were
able to lower our cost of funds by increasing lower cost deposits such as
checking accounts and money market accounts. During the year ended September
30, 1997, we were able to increase our net interest income by leveraging our
capital and increasing our levels of interest-earning assets and interest-
bearing liabilities. The average balance of interest-earning assets increased
by $16.0 million, or 7.4%, from $215.6 million for the year ended September 30,
1996 to $231.6 million for the year ended September 30, 1997 primarily due to
increases in the average balance of loans receivable. In addition, the average
balance of interest-bearing liabilities increased by $13.6 million, or 6.7%,
from $202.9 million for the year ended September 30, 1996 to $216.5 million for
the year ended September 30, 1997 primarily due to increases in the average
balance of deposits.
52
<PAGE>
Interest Income. Total interest income was $19.1 million for the year
ended September 30, 1997, as compared to $17.4 million for the year ended
September 30, 1996, representing an increase of $1.7 million, or 9.6%. Such
increase was due primarily to a $16.0 million, or 7.4%, increase in the average
balance of the interest-earning assets during such year and, to a lesser extent,
to a 16 basis point increase in the average yield on interest-earning assets.
Interest on loans receivable increased by $1.5 million, or 10.6%, from
$14.6 million for the year ended September 30, 1996 to $16.2 million of the year
ended September 30, 1997. The increase was due primarily to an increase of
$15.3 million, or 8.9%, in the average balance of loans receivable from $171.1
million for the year ended September 30, 1996 to $186.4 million for the year
ended September 30, 1997, reflecting increased single-family residential
mortgage loan and commercial loan originations. The increase in interest on
loans receivable also reflected a 13 basis point increase in the average yield
on loans receivable. By increasing originations of commercial loans and home
equity lines of credit that carry interest rates based on the prime rate, we
were able to increase our average yield on interest-earning assets, as
commercial loans generally earn higher interest rates than single-family
residential mortgage loans, although those loans entail greater credit
risk.
Interest on investment securities increased by $156,000, or 6.5%, from $2.4
million for the year ended September 30, 1996 to $2.6 million for the year ended
September 30, 1997. The increase was attributable to a $1.2 million, or 3.3%,
increase in the average balance of investment securities from $37.9 million for
the year ended September 30, 1996 to $39.1 million for the year ended September
30, 1997, as well as to a 19 basis point increase in the average yield on
investment securities. As market interest rates were rising during the year
ended September 30, 1997, we invested excess liquidity in short-term U.S.
government and agency securities to increase our yield on interest-earning
assets.
Interest Expense. During the years ended September 30, 1996 and 1997,
interest expense consisted almost entirely of interest on deposit accounts.
Interest on deposit accounts increased by $293,000, or 3.1%, from $9.5 million
for the year ended September 30, 1996 to $9.7 million for the year ended
September 30, 1997. The increase was due to a $12.7 million, or 6.3%, increase
in the average balance of deposits from $202.8 million for the year ended
September 30, 1996 to $215.5 million for the year ended September 30, 1997. The
increase in the average balance of deposits more than offset a 14 basis point
decrease in the average cost of deposits. The decrease in the average cost of
deposits reflected the increase in the percentage of our deposits comprised of
lower cost deposits such as checking accounts and money market accounts.
Provisions for Loan Losses. We provided $261,000 and $281,000 for loan
losses during the years ended September 1997 and 1996, respectively. The
allowance for loan losses was $2.8 million at September 30, 1997, as compared to
$2.5 million at September 30, 1996. The ratio for the allowance for loan losses
to total loans, net of loans in process and deferred loan fees was 1.38% at
September 30, 1997 and 1.42% at September 30, 1996.
Other Income. Total other income increased by $289,000 , or 24.5%, from
$1.2 million for the year ended September 30, 1996 to $1.5 million for the year
ended September 30, 1997. Of such increase, $113,000 was attributable to
increased commissions from sales of annuities and mutual funds, as customers
shifted retirement funds into noninsured investments, and $77,000 was
attributable to an increase in mortgage banking income, net. Also contributing
to the increase in other income was a $88,000, or 21.4%, increase in customer
service fees on loan and deposit accounts, which increased from $412,000 for the
year ended September 30, 1996 to $500,000 for the year ended September 30, 1997
as a result of increased levels of loan and deposit accounts.
Operating Expenses. Total operating expenses increased by $69,000, or
1.1%, from $6.4 million for the year ended September 30, 1996 to $6.5 million
for the year ended September 30, 1997. Compensation and related benefits
increased by $1.4 million, or 47.3%, from $2.9 million for the year ended
September 30, 1996 to $4.3 million for the year ended September 30, 1997, due to
an increase in expense attributable to the implementation and vesting of a
Deferred Compensation Plan for directors and executive officers. The increase
in compensation and related benefits offset a decrease in operating expenses as
a result of a $1.3 million expense incurred during the year ended September
53
<PAGE>
30, 1996 as a result of a special assessment by the FDIC to recapitalize the
SAIF. During the year ended September 30, 1996, we paid a one-time special
assessment in the amount of $1.3 million assessed by the FDIC on all SAIF-
insured institutions to capitalize the SAIF insurance fund of the FDIC up to
required reserved ratio. Prior to such special assessment, we paid continuing
SAIF insurance premiums at the rate of 23 cents per $100 of SAIF deposits.
However, the rate dropped to 6.4 cents per $100 effective January 1, 1997
through September 30, 1999 and, based on our current condition, will further
decrease to 2.4 cents per $100 thereafter. This revised deposit insurance rate
structure enabled us to recognize the substantial reduction in deposit insurance
premiums during the year ended September 30, 1997. Deposit insurance premiums
decreased from $465,000 for the year ended September 30, 1996 to $104,000 for
the year ended September 30, 1997.
Income Taxes. Our income tax expense was $841,000 and $1.4 million for the
years ended September 30, 1996 and 1997, respectively. Our effective tax rate
was 34.5% for the year ended September 30, 1996 and 36.2% for the year ended
September 30, 1997.
IMPACT OF INFLATION AND CHANGING PRICES
Our financial statements and the accompanying notes, which appear beginning
on page F-1 of this document, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
our operations. As a result, interest rates have a greater impact on our
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
ACCOUNTING MATTERS
Accounting for Stock-Based Compensation. Statement of Financial Standards
No. 123, AAccounting for Stock-Based Compensation" ("SFAS 123") was issued in
October 1995 and defines the methods and alternatives for recognizing
compensation cost associated with stock-based compensation. Because we are a
mutually owned institution with no outstanding common stock, SFAS 123 has not
applied to us. Effective with our conversion to a stock institution, we will
become subject to the requirements of SFAS 123 in accounting for stock-based
compensation. SFAS 123 defines a fair value method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. It also allows an entity to measure compensation cost for those plans
using the intrinsic value based method of accounting proscribed in Accounting
Principles Board Opinion Number 25 ("APB 25"), "Accounting for Stock Issued to
Employees". SFAS 123 requires that an employers' financial statements include
certain disclosures about stock-based compensation arrangements regardless of
the method used to account for them. Entities electing to use the accounting in
APB 25 must make pro forma disclosures of net income and, if presented, earnings
per share, as if the fair value based method of accounting defined in SFAS 123
had been applied. We will measure compensation cost using APB 25, and therefore
we will make any pro forma disclosures required by SFAS 123 of net income and
earnings per share as if the fair value based method of accounting defined in
SFAS 123 had been applied.
Earnings Per Share. Also upon conversion to a stock institution, we will
adopt Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). This standard provides guidance for computing and presenting
earnings per share. SFAS 128 provides for the disclosure of (i) basic earnings
per share, or net income divided by weighted average shares outstanding, and
(ii) diluted earnings per share, or net income divided by weighted average
shares outstanding, as adjusted to include potential common stock arising from
the exercise of dilutive stock options. For a presentation of pro forma basic
and diluted earnings per share and the assumptions used to prepare those
amounts, see "Pro Forma Data."
54
<PAGE>
Reporting Comprehensive Income. In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. This Statement requires
that an enterprise (a) classify items of other comprehensive income by their
nature in the financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of a statement of financial position.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. We adopted SFAS 130 on October 1, 1998.
Other comprehensive income consists of unrealized gains and losses on certain
investment securities and would have been $167,000 at September 30, 1998. Total
comprehensive income would have been $2.7 million at September 30, 1998.
Disclosures Regarding Segments. In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 establishes standards for
the way that public businesses report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This Statement is
effective for financial statements for periods beginning after December 15, 1997
and in the initial year of application, comparative information for earlier
years is to be restated. We adopted SFAS 131 on October 1, 1998 without any
significant impact on our consolidated financial statements as we operate as one
segment.
Employers Disclosures About Pensions and Other Postretirement Benefits. In
February 1998, the FASB issued SFAS No. 132, "Employers Disclosures About
Pension and Other Postretirement Benefits," which standardizes disclosure
requirements for pensions and postretirement benefits. This Statement is
effective for fiscal years beginning after December 15, 1997. We do not believe
that the adoption of SFAS No. 132 will have a material effect on our
consolidated financial statements because we do not have a pension plan or other
postretirement benefits.
Accounting for Derivative Instruments and Hedging Activities. In June
1998, the FASB issued SFAS No. 133. This Statement standardizes the accounting
for derivative instruments including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize these items as assets or
liabilities in the statement of financial position and measure them at fair
value. This Statement generally provides for matching the timing of gain or
loss recognition on the hedging instrument with the recognition of the changes
in the fair value of the hedged asset or liability that are attributable to the
hedged risk or the earnings effect of the hedged forecasted transaction. The
Statement, which is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999, will not affect our financial position or our
results of operations because we do not have or intend to have derivative
financial instruments.
55
<PAGE>
BUSINESS OF 1ST STATE BANCORP, INC.
We organized 1st State Bancorp in November 1998 to be the holding company
for 1st State Bank. 1st State Bancorp currently is not an operating company.
Following the conversion, 1st State Bancorp will engage primarily in the
business of directing, planning and coordinating the business activities of 1st
State Bank. In the future, 1st State Bancorp may conduct operations or acquire
or organize other operating subsidiaries, including other financial
institutions, though we have no current plans in this regard. Initially, 1st
State Bancorp will not maintain offices separate from those of 1st State Bank
nor employ any persons other than its officers who will not be separately
compensated for their service.
BUSINESS OF 1ST STATE BANK
GENERAL
Our principal business is attracting deposits from the general public and
investing these funds in loans secured by single-family residential and
commercial real estate, secured and unsecured commercial loans and consumer
loans. We derive our income principally from interest earned on loans and
investments and, to a lesser extent, miscellaneous fees relating to our loans
and deposits, mortgage banking income and commissions from annuity and mutual
fund sales. Our principal expenses are interest expense on deposits and
borrowings and other expense such as compensation and related benefits,
occupancy and equipment expenses and other miscellaneous expenses. Funds for
these activities are provided principally by deposits, borrowings, repayments of
outstanding loans and investments and operating revenues.
MARKET AREA
We conduct most of our business in Alamance County in north central North
Carolina, located on the Interstate 85 corridor between the Piedmont Triad and
Research Triangle. Historically, the Alamance County economy has been heavily
dependent on the textile industry. During the past 20 years, the economy has
diversified to some extent, with increasing employment in the areas of
insurance, banking, manufacturing and services. Major employers in the area
include LabCorp, Burlington Industries, Alamance County Schools, Glenraven Mills
and Alamance Health Services. Nevertheless, the economy in Alamance County
continues to be heavily dependent on the textile industry.
56
<PAGE>
LENDING ACTIVITIES
Loan Portfolio Composition. At September 30, 1998, our gross loan
portfolio totaled $206.6 million and represented 71.7% of total assets. The
following table sets forth information relating to the composition of our loan
portfolio by type of loan at the dates indicated. At September 30, 1998, we had
no concentrations of loans exceeding 10% of gross loans other than as disclosed
below. Excluded from this table are mortgage loans held for sale, which are
presented separately on our consolidated balance sheets and in "Selected
Consolidated Financial Information and Other Data."
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------
1998 1997 1996
------------------- --------------------- ---------------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family residential............... $ 100,891 48.84% $ 108,400 53.76% $ 100,247 55.70%
Commercial.............................. 38,763 18.76 34,333 17.02 35,302 19.62
Home equity............................. 16,877 8.17 18,141 8.99 15,872 8.82
Construction............................ 18,572 8.99 12,582 6.24 7,838 4.36
--------- ------ --------- ------ --------- ------
Total real estate................... 175,103 84.76 173,456 86.01 159,259 88.50
Commercial................................ 25,190 12.19 22,870 11.34 16,989 9.44
Consumer.................................. 6,310 3.05 5,354 2.65 3,706 2.06
--------- ------ --------- ------ --------- ------
206,603 100.00% 201,680 100.00% 179,954 100.00%
--------- ====== --------- ====== --------- ======
Less:
Loans in process........................ (6,446) (1,660) (3,515)
Deferred fees and discounts............. (147) (144) (94)
Allowance for loan losses............... (3,228) (2,754) (2,496)
--------- --------- ---------
Total................................. $ 196,782 $ 197,122 $ 173,849
========= ========= =========
<CAPTION>
---------------------------------------------
1995 1994
--------------------- ---------------------
Amount % Amount %
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Single-family residential............... $ 98,660 55.78% $ 91,094 57.51%
Commercial.............................. 35,774 20.23 29,922 18.89
Home equity............................. 16,409 9.28 15,326 9.67
Construction............................ 7,084 4.01 5,675 3.58
--------- ------- --------- ------
Total real estate................... 157,927 89.30 142,017 89.65
Commercial................................ 15,072 8.52 12,876 8.13
Consumer.................................. 3,847 2.18 3,514 2.22
--------- ------- --------- --------
176,846 100.00% 158,407 100.00%
--------- ======= --------- ======
Less:
Loans in process........................ (3,457) (2,446)
Deferred fees and discounts............. (73) 1
Allowance for loan losses............... (2,223) (1,767)
--------- ---------
Total................................. $ 171,093 $ 154,195
========= =========
</TABLE>
57
<PAGE>
LOAN MATURITY SCHEDULE
The following table sets forth certain information at September 30,
1998 regarding the dollar amount of loans maturing in our portfolio based on
their contractual terms to maturity, including scheduled repayments of
principal. Demand loans, loans having no stated schedule of repayments, such as
lines of credit, and overdrafts are reported as due in one year or less. The
table does not include any estimate of prepayments which significantly shorten
the average life of mortgage loans and may cause our repayment experience to
differ from that shown below.
<TABLE>
<CAPTION>
Due During the Year Ending Due After Due After Due After
September 30, 3 Through 5 Through 10 Through
----------------------------- 5 Years After 10 Years After 15 Years After
1999 2000 2001 September 30, 1998 September 30, 1998 September 30, 1998
------ ------ ------ ------------------ ------------------ ------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family................ $ 3,140 $ 3,321 $ 1,530 $ 5,887 $ 12,368 $ 15,753
Commercial................... 3,020 1,581 1,851 15,314 7,028 7,431
Home equity.................. 309 29 54 396 5,083 11,006
Construction................. 8,605 1,390 1,758 373 -- --
Commercial..................... 12,181 2,495 4,236 4,727 790 761
Consumer....................... 2,024 690 1,347 2,056 193 --
-------- -------- -------- --------- --------- ----------
Total..................... $ 29,279 $ 9,506 $ 10,776 $ 28,753 $ 25,462 $ 34,951
======== ======== ======== ========= ========= ==========
<CAPTION>
Due After 15
Years After
September 30, 1998 Total
------------------ ---------
(In thousands)
<S> <C> <C>
Real estate loans:
Single-family................ $ 58,892 $100,891
Commercial................... 2,538 38,763
Home equity.................. -- 16,877
Construction................. -- 12,126
Commercial..................... -- 25,190
Consumer....................... -- 6,310
---------- ----------
Total..................... $ 61,430 $200,157
========== ==========
</TABLE>
The following table sets forth at September 30, 1998, the dollar amount of
all loans due one year or more after September 30, 1998 which have predetermined
interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Predetermined Floating or
Rate Adjustable Rates Total
------------- ---------------- ---------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
Single-family residential....................... $ 66,846 $ 30,905 $ 97,751
Commercial...................................... 22,485 13,258 35,743
Home equity..................................... 2,811 13,757 16,568
Construction.................................... 569 2,952 3,521
Commercial........................................ 4,199 8,810 13,009
Consumer.......................................... 4,205 81 4,286
---------- --------- ---------
Total......................................... $ 101,115 $ 69,763 $ 170,878
========== ========= =========
</TABLE>
58
<PAGE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of loans can be substantially less
than their contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give us the right to declare a loan immediately due
and payable in the event that, among other things, 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 when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
decrease when current mortgage loan market rates are substantially lower than
rates on existing mortgage loans.
Originations, Purchases and Sales of Loans. We generally have authority
to originate and purchase loans secured by real estate located throughout the
United States. Consistent with our emphasis on being a community- oriented
financial institution, we concentrate our lending activities in Alamance
County.
The following table sets forth certain information with respect to our
loan origination, purchase and sale activity for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loans originated:
Real estate loans:
Single-family residential ........ $ 44,118 $ 27,731 $ 20,517
Commercial ....................... 9,437 5,446 9,536
Home equity ...................... 7,351 6,340 5,083
Construction ..................... 19,158 17,082 12,912
-------- -------- --------
Total real estate loans ......... 80,064 56,599 48,048
Commercial ......................... 18,982 15,835 11,210
Consumer ........................... 6,361 6,801 3,670
-------- -------- --------
Total loans originated ........ $105,407 $ 79,235 $ 62,928
======== ======== ========
Loans purchased:
Real estate loans .................. $ 135 $ 96 $ 15
Other loans ........................ 18 -- --
-------- -------- --------
Total loans purchased ........... $ 153 $ 96 $ 15
======== ======== ========
Loans sold: (1) ...................... $ 27,635 $ 9,166 $ 9,181
======== ======== ========
</TABLE>
__________________
(1) All loans sold were whole loans.
We obtain our loan originations from a number of sources, including
referrals from depositors and borrowers, repeat customers, advertising and
calling officers, as well as walk-in customers. We also advertise in local media
and participate in various community organizations and events. Real estate loans
are originated by our loan personnel. All of our loan personnel are salaried and
are eligible to receive commissions for loans originated. We accept loan
applications at our offices and do not originate loans on an indirect basis such
as through arrangements with automobile dealers. In all cases, we have final
approval of the application. Historically, we have purchased limited quantities
of loans. During the years ended September 30, 1998, 1997 and 1996, virtually
all loans purchased were small participation interests in multi-family
residential real estate loans to finance low income housing.
In recent years, and particularly during the year ended September 30,
1998, we have sold an increasing amount of fixed-rate, single-family mortgage
loans that we originated. During the years ended September 30, 1998, 1997 and
1996, we sold $27.6 million, $9.2 million and $9.2 million, respectively, of
such loans. Typically, in the current low interest rate environment, we have
been selling fixed-rate, single-family mortgage loans with terms of 15 years or
more
59
<PAGE>
except in cases where the interest rate is sufficient to compensate us for the
risk of retaining a long-term, fixed-rate loan in our portfolio. Most loans have
been sold to private purchasers with servicing released. In addition, we sell a
smaller amount of loans in the secondary market to the FHLMC. We retain
servicing on loans sold to the FHLMC.
Loan Underwriting Policies. We have established written,
non-discriminatory underwriting standards and loan origination procedures. We
obtain detailed loan applications to determine the borrower's ability to repay,
and verify the more significant items on these applications through the use of
credit reports, financial statements and confirmations. Individual officers have
been granted authority by the board of directors to approve mortgage, consumer
and commercial loans up to varying specified dollar amounts, depending upon the
type of loan. A loan committee consisting of our President, Executive Vice
President, Chief Financial Officer, senior credit officer and head of mortgage
lending has authority to approve any loan in an amount exceeding individual
lending authorities where our total loans to that borrower would not exceed
$350,000. Our executive committee, which consists of the Chairman of the Board,
the President, two additional board members that serve on a permanent basis and
one board member selected on a rotating basis that serves for a three-month
period, has authority to approve any loan where our total loans to that borrower
would not exceed $1.0 million. Loans above that amount may not be made unless
approved by the full board of directors. These authorities are based on
aggregate borrowings of an individual or entity. On a monthly basis, the full
board of directors reviews the actions taken by the loan committee and the
executive committee.
Applications for single-family real estate loans are underwritten and
closed in accordance with the standards of FHLMC. Generally, upon receipt of a
loan application from a prospective borrower, we order a credit report and
verifications to verify specific information relating to the loan applicant's
employment, income and credit standing. If a proposed loan is to be secured by a
mortgage on real estate, we usually obtain an appraisal of the real estate from
an appraiser approved by us and licensed by the State of North Carolina. Except
when we become aware of a particular risk of environmental contamination, we
generally do not obtain a formal environmental report on real estate at the time
a loan is made.
Our policy is to record a lien on the real estate securing a loan and
to obtain title insurance which insures that the property is free of prior
encumbrances and other possible title defects. Borrowers must also obtain hazard
insurance policies prior to closing and, when the property is in a flood plain
as designated by the Department of Housing and Urban Development, pay flood
insurance policy premiums.
On single-family residential mortgage loans, we make a loan commitment
of between 30 and 60 days for each loan approved. If the borrower desires a
longer commitment, we may extend the commitment for good cause. We guarantee the
interest rate for the commitment period.
We are permitted to lend up to 95% of the lesser of the appraised value
or the purchase price of the real property securing a mortgage loan. However, if
the amount of a residential loan originated or refinanced exceeds 80% of the
appraised value, our policy generally is to obtain private mortgage insurance at
the borrower's expense on that portion of the principal amount of the loan that
exceeds 80% of the appraised value of the property. We will make a single-family
residential mortgage loan with up to a 95% loan-to-value ratio if the required
private mortgage insurance is obtained. We generally limit the loan-to-value
ratio on commercial real estate mortgage loans to 80%, although the
loan-to-value ratio on commercial real estate loans in limited circumstances has
been as high as 85%. We limit the loan-to-value ratio on multi-family
residential real estate loans to 80%.
Under applicable law, with certain limited exceptions, loans and
extensions of credit by a savings institution to a person outstanding at one
time and not fully secured by collateral having a market value at least equal to
the amount of the loan or extension of credit shall not exceed 15% of net worth
plus the general loan loss reserve. Loans and extensions of credit fully secured
by readily marketable collateral may comprise an additional 10% of net worth.
Applicable law additionally authorizes savings institutions to make loans to one
borrower, for any purpose:
. in an amount not to exceed $500,000;
60
<PAGE>
. in an amount not to exceed the lesser of $30,000,000 or 30% of
net worth to develop residential housing, provided (a) the
purchase price of each single-family dwelling in the
development does not exceed $500,000 and (b) the aggregate
amount of loans made under this authority does not exceed 150%
of net worth; or
. loans to finance the sale of real property in satisfaction of
debts previously contracted in good faith, not to exceed 50%
of net worth.
Under these limits, our loans to one borrower were limited to $4.4
million at September 30, 1998. At that date, we had no lending relationships in
excess of the loans-to-one-borrower limit. At September 30, 1998, our ten
largest lending relationships ranged in size from $2.4 million to $4.3
million.
Single-Family Residential Real Estate Lending. We historically have
been and continue to be an originator of single-family, residential real estate
loans in our market area. At September 30, 1998, single-family, residential
mortgage loans, excluding home equity loans, totaled $100.9 million, or 48.8% of
our gross loan portfolio.
We originate fixed-rate mortgage loans at competitive interest rates.
At September 30, 1998, $68.8 million, or 33.3%, of our gross loan portfolio was
comprised of fixed-rate, single-family mortgage loans. Generally, in the
currently low interest rate environment, we have been retaining fixed-rate
mortgages with maturities of ten years or less while fixed-rate loans with
longer maturities are being sold in the secondary market.
We also offer adjustable-rate residential mortgage loans. The
adjustable-rate loans we currently offer have interest rates which adjust every
one, three or five years from the closing date of the loan or on an annual basis
commencing after an initial fixed-rate period of three or five years in
accordance with a designated index, plus a stipulated margin. The primary index
we utilize is the weekly average yield on U.S. Treasury securities adjusted to a
constant comparable maturity equal to the loan adjustment period, as made
available by the Federal Reserve Board (the "Treasury Rate"). The maximum
adjustment on the bulk of our loans is 2% per adjustment period with a maximum
aggregate adjustment of 6% over the life of the loan. We offer adjustable-rate
mortgage loans that provide for initial rates of interest slightly below the
rates that would prevail when the index used for repricing is applied, i.e.,
"teaser" rates. All of our adjustable-rate loans require that any payment
adjustment resulting from a change in the interest rate of an adjustable-rate
loan be sufficient to result in full amortization of the loan by the end of the
loan term and, thus, do not permit any of the increased payment to be added to
the principal amount of the loan, or so-called negative amortization. At
September 30, 1998, $32.1 million, or 31.8%, of our single-family residential
mortgage loans were adjustable-rate loans.
The retention of adjustable-rate loans in our portfolio helps reduce
our exposure to increases or decreases in prevailing market interest rates.
However, there are unquantifiable credit risks resulting from potential
increases in costs to borrowers in the event of upward repricing of
adjustable-rate loans. It is possible that during periods of rising interest
rates, the risk of default on adjustable-rate loans may increase due to
increases in interest costs to borrowers. Further, although adjustable-rate
loans allow us to increase the sensitivity of our interest-earning assets to
changes in interest rates, the extent of this interest sensitivity is limited by
the initial fixed-rate period before the first adjustment and the lifetime
interest rate adjustment limitations. Accordingly, yields on our adjustable-rate
loans may not fully adjust to compensate for increases in our cost of
funds.
Commercial Real Estate Lending. Our commercial real estate loan
portfolio includes loans secured by small office buildings, commercial and
industrial buildings and small apartment buildings. These loans generally range
in size from $100,000 to $3.3 million. At September 30, 1998, our commercial
real estate loans totaled $38.8 million, which amounted to 18.8%, of our gross
loan portfolio. We originate commercial real estate loans for terms of up to 15
years and with interest rates that adjust daily based on our prime rate plus a
negotiated margin typically up to 1% or that carry predetermined rates fixed for
one, three or five years.
61
<PAGE>
Commercial real estate lending entails significant additional risks as
compared with single-family residential property lending. Commercial real estate
loans typically involve larger loan balances to single borrowers or groups of
related borrowers. The payment experience on such loans typically is dependent
on the successful operation of the real estate project, retail establishment,
apartment building or business. These risks can be significantly affected by
supply and demand conditions in the market for office, retail and residential
space, and, as such, may be subject to a greater extent to adverse conditions in
the economy generally. To minimize these risks, we generally originate loans
secured by collateral located in our market area or to borrowers with which we
have prior experience or who are otherwise known to us. It has been our policy
to obtain annual financial statements of the business of the borrower or the
project for which commercial real estate loans are made. In addition, in the
case of commercial mortgage loans made to a partnership or a corporation, we
seek, whenever possible, to obtain personal guarantees and annual financial
statements of the principals of the partnership or corporation.
Home Equity Loans. At September 30, 1998, we had approximately $16.9
million in home equity line of credit loans, representing approximately 8.2% of
our gross loan portfolio. Our home equity lines of credit generally have
adjustable interest rates tied to our prime interest rate plus a margin,
although we currently are offering a program where the interest rate on home
equity loans will be fixed for one or two years. Home equity lines of credit
must be repaid in 15 years or less and require monthly interest payments. Home
equity lines of credit generally are secured by subordinate liens against
residential real property. We require that fire and extended coverage casualty
insurance (and, if appropriate, flood insurance) be maintained in an amount at
least sufficient to cover the loan. Home equity loans generally are limited so
that the amount of such loans, along with any senior indebtedness, does not
exceed 80% of the value of the real estate security.
Construction Lending. We offer residential and commercial construction
loans, with a significant portion of such loans originated to date being for the
construction of owner-occupied, single-family dwellings in our market area.
Residential construction loans are offered primarily to individuals building
their primary or secondary residence, as well as to selected local developers to
build single-family dwellings. In addition, on occasion, we make acquisition and
development loans to local developers to acquire and develop land for sale to
builders who will construct single-family residences. At September 30, 1998,
$18.6 million, or 9.0%, of our gross loan portfolio consisted of construction
loans.
Generally, we originate loans to owner/occupants for the construction
of owner-occupied, single-family residential properties in connection with the
permanent loan on the property, and these loans have a construction term of six
to 12 months. Loans are offered on an adjustable-rate basis. Interest rates on
residential construction loans made to the owner/occupant have interest rates
during the construction period equal to our prime rate. Upon completion of
construction, the loan is converted into a one-year adjustable-rate loan, and
the owner may lock in a fixed-rate loan at any time during the one-year
period.
We make construction loans to builders on either a pre-sold or
speculative basis. However, we limit the number of outstanding loans on unsold
homes under construction to individual builders, with the amount dependent on
the financial strength of the builder, the present exposure of the builder, the
location of the property and prior sales of homes in the development. At
September 30, 1998, speculative construction loans amounted to $5.8 million. At
September 30, 1998, the largest amount of construction loans outstanding to one
builder was $600,000, all of which was for speculative construction. Interest
rates on residential construction loans to builders are set at our prime rate
plus a margin typically up to 1% and adjust with changes in the prime rate, and
are made for terms of up to 24 months.
Interest rates on commercial construction loans are based on the prime
rate plus a negotiated margin typically up to 1%, and adjust with changes in our
prime rate, and are made for terms of up to 24 months, with construction terms
generally not exceeding 12 months.
We make acquisition and development loans at a rate that adjusts
monthly, based on our prime rate plus a negotiated margin, for terms of up to
three years. Interest only is paid during the term of the loan, and the
principal balance of the loan is paid down as developed lots are sold to
builders. For more information regarding the higher
62
<PAGE>
degree of credit risk of these types of loans, see "Risk Factors -- Risks
Related to Commercial and Consumer Lending." At September 30, 1998, we had eight
such loans outstanding totaling $4.1 million. All acquisition and development
loans were performing in accordance with their terms at such date.
Prior to making a commitment to fund a construction loan, we require an
appraisal of the property by appraisers approved by our board of directors. We
also review and inspect each project at the commencement of construction and
either weekly or biweekly during the term of the construction loan. We may
charge a construction fee and/or an inspection fee on construction loans.
Advances are made on a percentage of completed basis.
We consider construction financing generally to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate. Risk
of loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction or
development and the estimated cost, including interest, of construction. During
the construction phase, a number of factors could result in delays and cost
overruns. If the estimate of construction costs proves to be inaccurate and the
borrower is unable to meet our requirements of putting up additional funds to
cover extra costs or change orders, then we will demand that the loan be paid
off and, if necessary, institute foreclosure proceedings or refinance the loan.
If the estimate of value proves to be inaccurate, the collateral may not have
sufficient value to assure full repayment. We have sought to minimize this risk
by limiting construction lending to borrowers based in Alamance County and who
satisfy all credit requirements and whose loans satisfy all other underwriting
standards which would apply to our permanent mortgage loan financing for the
subject property. On loans to builders, we work only with selected builders with
whom we have experience and carefully monitor the creditworthiness of the
builders.
Commercial Lending. We originate commercial loans to small and medium
sized businesses in our market area. Our commercial borrowers are generally
small businesses engaged in manufacturing, distribution or retailing, or
professionals in healthcare, accounting and law. Commercial loans generally are
made to finance the purchase of inventory, new or used equipment or commercial
vehicles and for short-term working capital. Such loans generally are secured by
equipment and inventory, and, if possible, cross-collateralized by a real estate
mortgage, although commercial loans are sometimes granted on an unsecured basis.
Commercial loans generally are made for terms of five years or less, depending
on the purpose of the loan and the collateral, with loans to finance operating
expenses made for one year or less, with interest rates that adjust at least
annually at a rate equal to our prime rate plus a margin typically up to 2%.
Generally, we make commercial loans in amounts ranging between $50,000 and $1.0
million. At September 30, 1998, commercial loans totaled $25.2 million, or 12.2%
of our gross loan portfolio.
We underwrite commercial loans on the basis of the borrower's cash flow
and ability to service the debt from earnings rather than on the basis of
underlying collateral value, and we seek to structure such loans to have more
than one source of repayment. The borrower is required to provide us with
sufficient information to allow us to make our lending determination. In most
instances, this information consists of at least two years of financial
statements, a statement of projected cash flows, current financial information
on any guarantor and any additional information on the collateral. For loans
with maturities exceeding one year, we require that borrowers and guarantors
provide updated financial information at least annually throughout the term of
the loan.
Our commercial loans may be structured as term loans or as lines of
credit. Commercial term loans are generally made to finance the purchase of
assets and have maturities of five years or less. Commercial lines of credit are
typically made for the purpose of providing working capital and are usually
reviewed on an annual basis but may be called on demand. We also offer standby
letters of credit for commercial borrowers. Standby letters of credit are
written for a maximum term of one year.
Commercial loans are often larger and may involve greater risk than
other types of lending. Because payments on commercial loans are often dependent
on successful operation of the business involved, repayment of such loans may be
subject to a greater extent to adverse conditions in the economy. We seek to
minimize these risks through our underwriting guidelines, which require that the
loan be supported by adequate cash flow of the borrower, profitability
63
<PAGE>
of the business, collateral and personal guarantees of the individuals in the
business. In addition, we limit this type of lending to our market area and to
borrowers with which we have prior experience or who are otherwise well known to
us.
Consumer Lending. In recent years, we have gradually increased our
portfolio of consumer loans. Our consumer loans include automobile loans,
savings account loans, unsecured lines of credit and miscellaneous other
consumer loans, including unsecured loans. At September 30, 1998, our consumer
loans totaled $6.3 million, or 3.1% of our gross loan portfolio.
We generally underwrite automobile loans in amounts up to 80% of the
lesser of the purchase price of the automobile or, with respect to used
automobiles, the loan value as published by the National Automobile Dealers
Association. The terms of most such loans do not exceed 72 months. We require
that the vehicles be insured and that we be listed as loss payee on the
insurance policy.
We make savings account loans for up to 90% of the depositor's savings
account balance. The interest rate is normally 2.5% above the annual percentage
yield paid on the savings account. The account must be pledged as collateral to
secure the loan. Interest generally is paid on a monthly basis.
Consumer lending affords us the opportunity to earn yields higher than
those obtainable on single-family residential lending. However, consumer loans
entail greater risk than do residential mortgage loans, particularly in the case
of loans which are unsecured, as is the case with lines of credit, or secured by
rapidly depreciable assets such as automobiles. 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. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by events such as job loss,
divorce, illness or personal bankruptcy. Further, the application of various
state and federal laws, including federal and state bankruptcy and insolvency
law, may limit the amount which may be recovered. In underwriting consumer
loans, we consider the borrower's credit history, an analysis of the borrower's
income and ability to repay the loan, and the value of the collateral.
Loan Fees and Servicing. We receive fees in connection with late
payments and for miscellaneous services related to our loans and deposits. We
also charge fees in connection with loan originations. These fees can consist of
origination, discount, construction and/or commitment fees, depending on the
type of loan. We generally do not service loans for others except for mortgage
loans we originate and sell with servicing retained. Mortgage servicing rights
were not material for any of the periods presented.
Nonperforming Loans and Other Problem Assets. We continually monitor
our loan portfolio to anticipate and address potential and actual delinquencies.
When a borrower fails to make a payment on a loan, we take immediate steps to
have the delinquency cured and the loan restored to current status. Loans which
are delinquent more than 15 days incur a late fee of 4% of the monthly payment
of principal and interest due. As a matter of policy, we will contact the
borrower after the loan has been delinquent 15 days. If payment is not promptly
received, we contact the borrower again, and we try to formulate an affirmative
plan to cure the delinquency. Generally, after any loan is delinquent 45 days or
more, we send a default letter to the borrower. If the default is not cured
after 30 days, we commence formal legal proceedings to collect amounts
owed.
Generally we charge off or reserve through an allowance account
interest on loans, including impaired loans, that are contractually ninety days
or more past due. The allowance is established by a charge to interest income
equal to all interest previously accrued. In certain circumstances, interest on
loans that are contractually ninety days or more past due is not charged off or
reserved through an allowance account when we believe that the loan is both well
secured and in the process of collection. If amounts are received on loans for
which the accrual of interest has been discontinued, we decide whether payments
received should be recorded as a reduction of the principal balance or as
64
<PAGE>
interest income depending on our analysis of the collectibility of principal.
The loan is returned to accrual status when we believe the borrower has
demonstrated the ability to make periodic interest and principal payments on a
timely basis.
We classify real estate acquired as a result of foreclosure as real
estate acquired in settlement of loans until such time as it is sold and is
recorded at the lower of the estimated fair value of the underlying real estate
or the carrying amount of the loan. Subsequent costs directly related to
development and improvement of property are capitalized, whereas costs related
to holding property are expensed. We charge any required write-down of the loan
to its fair value less estimated selling costs upon foreclosure against the
allowance for loan losses. See Note 1 of Notes to Consolidated Financial
Statements.
The following table sets forth information with respect to our
nonperforming assets at the dates indicated. At the dates shown, we had no
restructured loans within the meaning of Statement of Financial Accounting
Standards No. 114, as amended.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis (1)..... $ 263 $ 259 $ 288 $ 3,661 $ 99
======== ======== ======== ======== ========
Accruing loans which are contractually past due
90 days or more ................................ $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Total nonperforming loans .................... $ 263 $ 259 $ 288 $ 3,661 $ 99
======== ======== ======== ======== ========
Total loans ...................................... $200,010 $199,876 $176,345 $173,316 $155,962
======== ======== ======== ======== ========
Percentage of total loans ........................ 0.13% 0.13% 0.16% 2.11% 0.06%
======== ======== ======== ======== ========
Other non-performing assets (2) .................. $ -- $ -- $ 1 $ 1 $ 3,202
======== ======== ======== ======== ========
Loans modified in troubled debt restructuring..... $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
___________________
(1) Payments received on a non-accrual loan are either applied to the
outstanding principal balance or recorded as interest income, depending
on Management's assessment of the collectibility of the loan.
(2) Other non-performing assets consist of property acquired through
foreclosure or repossession.
During the years ended September 30, 1998, 1997 and 1996, gross
interest income of $10,000, $27,000 and $26,000, respectively, would have been
recorded on loans accounted for on a nonaccrual basis if the loans had been
current throughout the year. Interest on such loans included in income during
the years ended September 30, 1998, 1997 and 1996 amounted to $15,000, $16,000
and $12,000, respectively.
At September 30, 1998 there were no loans which are not currently
classified as non-accrual, 90 days past due or restructured but where known
information about possible credit problems of borrowers causes management to
have serious concerns as to the ability of the borrowers to comply with present
loan repayment terms and may result in disclosure as nonaccrual, 90 days past
due or restructured. See " -- Classified Assets" for information regarding
classified assets.
At September 30, 1998, an analysis of our portfolio did not reveal any
impaired loans that needed to be classified under SFAS No. 114.
At September 30, 1998, we had $263,000 of nonaccrual loans, which
consisted of four single-family mortgage loans. At September 30, 1998, we did
not have any real estate owned.
65
<PAGE>
Classified Assets. Regulations require that we classify our assets on a
regular basis. In addition, in connection with examinations of insured
institutions, examiners have authority to identify problem assets and if
appropriate, classify them in their reports of examination. 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. 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 loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Assets classified
as substandard or doubtful require a savings institution to establish general
allowances for loan losses. If an asset or portion thereof is classified loss, a
savings institution must either establish a specific allowance for loss in the
amount of the portion of the asset classified loss, or charge off such amount.
1st State Bank regularly reviews its assets to determine whether any assets
require classification or re-classification. At September 30, 1998, we had $1.0
million in classified assets consisting of $990,000 in assets classified as
substandard, $20,000 in assets classified as doubtful and no assets classified
as loss.
In addition to regulatory classifications, we also classify as special
mention or watch assets that are currently performing in accordance with their
contractual terms but may be classified or nonperforming assets in the future.
At September 30, 1998 we have identified approximately $11.5 million in assets
classified as special mention or watch. Included in this amount are three loans
with an aggregate outstanding balance of $3.5 million at September 30, 1998 to a
company affiliated with one of our directors. In addition to the outstanding
balance on the loans, the borrower has the ability to borrow an additional
$256,000 from us under lines of credit. All the loans are secured by a first
lien on all company assets, including accounts receivable, inventory, equipment,
furniture and real property occupied by the borrower. In addition, the director
has personally guaranteed repayment of the loans. At September 30, 1998, such
loans were current with respect to their payment terms and, except for the
waiver of certain debt covenants by 1st State Bank, were performing in
accordance with the related loan agreements. Based on an analysis of the
borrower's current financial statements, management has concerns that the
borrower may have difficulty in complying with the present loan repayment terms
on an ongoing basis.
Allowance for Loan Losses. Our policy is to establish reserves for
estimated losses on delinquent loans when we determine that losses are expected
to be incurred on such loans. We maintain the allowance for losses on loans at a
level we believe to be adequate to absorb potential losses in the portfolio. Our
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loss experience, current economic conditions, volume, growth and
composition of the portfolio, and other relevant factors. The allowance is
increased by provisions for loan losses which are charged against income.
Although we believe we use the best information available to make
determinations with respect to the allowance for losses and believe such
allowances are adequate, future adjustments may be necessary if economic
conditions differ substantially from the economic conditions in the assumptions
used in making the initial determinations. We anticipate that our allowance for
loan losses will increase in the future as we implement the board of directors'
strategy of continuing existing lines of business while gradually expanding
commercial and consumer lending, which loans generally entail greater risks than
single-family residential mortgage loans.
During 1998 we increased our provision for loan losses to account for
the shift in the mix in our loan portfolio and to provide for certain changes in
the economy. During 1997 and to a greater extent in 1998, we increased
commercial and consumer loans. At September 30, 1998 and 1997, commercial loans
comprised 12.19% and 11.34%, respectively, of total loans, and consumer loans
comprised 3.05% and 2.65%, respectively, of total loans. These loans carry a
higher inherent credit risk than single family residential mortgage loans.
Furthermore, we continued to originate asset-based loans, which are loans whose
repayment is based largely on the liquidation of assets such as inventory and
accounts receivable. These loans carry an even higher incremental risk of loss,
as their repayment is often dependent solely on the financial performance of the
payer of the receivable. At September 30, 1998 and 1997, we had $9.4 million and
$8.1 million, respectively, of loans we considered to be asset-based loans.
66
<PAGE>
In addition, changes in the economy during fiscal year 1998 have
altered the credit risk profile of some of our customers and as a result, we
increased our provision to reflect this additional credit risk. We believe that
our local economy may be nearing the end of a business cycle, which affects all
of our borrowers through a softening economy. We have been further affected by
this trend in that in recent years we have increased lending to smaller
businesses, churches and non-profit organizations, and we have increased the
origination of asset-based loans. We consider these borrowers to be more
vulnerable to changes in the economy than larger, more diversified companies
whose revenues are supported by customers in a variety of locations. The NAFTA
legislation passed by Congress also appears to be having a negative impact on
the textile industry of Alamance County, affecting or potentially affecting
borrowers in the textile industry and borrowers employed by local textile
companies. Finally, we believe increased consumer debt levels and rising
consumer bankruptcy rates nationally and in North Carolina have had a negative
effect on our consumer and mortgage loan portfolios during 1998. Collectively,
these factors prompted us to increase the allowance for loan losses during
1998.
Banking regulatory agencies, including the FDIC, have adopted a policy
statement regarding maintenance of an adequate allowance for loan and lease
losses and an effective loan review system. This policy includes an arithmetic
formula for checking the reasonableness of an institution's allowance for loan
loss estimate compared to the average loss experience of the industry as a
whole. Examiners will review an institution's allowance for loan losses and
compare it against the sum of: (i) 50% of the portfolio that is classified
doubtful; (ii) 15% of the portfolio that is classified as substandard; and (iii)
for the portions of the portfolio that have not been classified (including those
loans designated as special mention), estimated credit losses over the upcoming
12 months given the facts and circumstances as of the evaluation date. This
amount is considered neither a "floor" nor a "safe harbor" of the level of
allowance for loan losses an institution should maintain, but examiners will
view a shortfall relative to the amount as an indication that they should review
management's policy on allocating these allowances to determine whether it is
reasonable based on all relevant factors.
We have our own allowance for loan loss model which is similar to the
FDIC model. Our model indicated that the allowance for loan losses was adequate
at September 30, 1998.
The following table sets forth an analysis of our allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period............... $ 2,754 $ 2,496 $ 2,223 $ 1,767 $ 1,540
---------- --------- --------- --------- ----------
Loans charged off............................ 4 7 13 5 17
---------- --------- --------- --------- ----------
Recoveries................................... 1 4 5 7 4
---------- --------- --------- --------- ----------
Net loans charged off........................ 3 3 8 (2) 13
---------- --------- --------- --------- ----------
Provision for loan losses.................... 477 261 281 454 240
---------- --------- --------- --------- ----------
Balance at end of period..................... $ 3,228 $ 2,754 $ 2,496 $ 2,223 $ 1,767
========== ========= ========= ========= ==========
Average loans outstanding.................... $ 199,203 $ 186,413 $ 171,148 $ 165,347 $ 150,722
========== ========= ========= ========= ==========
Ratio of net loans charged off to average
loans outstanding during the period........ 0.0015% 0.0016% 0.0047% (0.0012)% 0.0086%
========== ========= ========= ========= ==========
</TABLE>
67
<PAGE>
The following table 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 category.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------- -------------------- -------------------- ------------------- ------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage:
Single-family residential $ 400 48.84% $ 376 53.76% $ 387 55.70% $ 326 55.78% $ 277 57.51%
Commercial............... 898 18.76 854 17.02 882 19.62 788 20.23 583 18.89
Home equity.............. 319 8.17 318 8.99 303 8.82 272 9.28 233 9.67
Construction............. 458 8.99 380 6.24 232 4.36 235 4.01 173 3.58
Commercial................. 815 12.19 540 11.34 450 9.44 374 8.52 294 8.13
Consumer................... 338 3.05 286 2.65 242 2.06 228 2.18 207 2.22
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
loan losses............ $ 3,228 100.00% $ 2,754 100.00% $ 2,496 100.00% $2,223 100.00% $1,767 100.00%
======= ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
68
<PAGE>
INVESTMENT ACTIVITIES
General. Interest income from investment securities generally provides our
second largest source of income after interest on loans. Our board of directors
has authorized investment in U.S. Government and agency securities, state
government obligations, municipal securities, obligations of the FHLB, mortgage-
backed securities issued by FNMA, the GNMA and FHLMC and any other securities
authorized by the Administrator as permissible investments. Our objective is to
use these investments to reduce interest rate risk, enhance yields on assets and
provide liquidity. At September 30, 1998, the amortized cost of our investment
securities portfolio amounted to $39.9 million, which included $34.1 million of
U.S. Government and agency securities, $1.7 million of mortgage-backed
securities and $108,000 of collateralized mortgage obligations ("CMO=s"). In
addition, at September 30, 1998, we had a $4.0 million investment in two mutual
funds that invest in U.S. Government and agency securities and mortgage-backed
securities. At that date, we had an unrealized gain of $93,000, net of deferred
taxes, with respect to our investment securities classified as available for
sale.
The board of directors has established an investment policy that sets forth
investment and aggregate investment limitations and credit quality parameters of
each class of investment security. Securities purchases are subject to the
oversight of our Executive Committee. The President has authority to make
specific investment decisions within the parameters determined by the board of
directors.
Pursuant to SFAS No. 115, we had securities with an aggregate cost of $9.7
million and an approximate fair value of $9.9 million at September 30, 1998 as
available for sale. The impact on our financial statements was an after-tax
increase in net worth of approximately $93,000 as of September 30, 1998. The
unrealized gains at September 30, 1998 in our portfolio of investment securities
and mortgage-backed securities were due to decreases in interest rates after we
bought the securities. Upon acquisition, we classify securities as to our
intent. Securities designated as "held to maturity" are those assets which we
have the ability and intent to hold to maturity. The held to maturity
investment portfolio is not used for speculative purposes and is carried at
amortized cost. Securities designated as "available for sale" are those assets
which we may not hold to maturity and thus are carried at fair value with
unrealized gains or losses, net of tax effect, recognized in net worth.
We periodically evaluate investment securities for other than temporary
declines in value and record any losses through an adjustment to earnings.
During the year ended September 30, 1998, we recognized a loss of approximately
$269,000 on the write-down of marketable equity securities for an other than
temporary decline in value.
At September 30, 1998, we had $4.0 million of U.S. Government and agency
securities classified as available for sale, which carry unrealized after-tax
gains of $26,000, and $30.1 million of U.S. Government and agency securities
classified as held to maturity. We attempt to maintain a high degree of
liquidity in our investment securities portfolio by choosing those that are
readily marketable. As of September 30, 1998, the estimated weighted average
life of our U.S. Government and agency securities was approximately 4 years, and
the average yield on our portfolio of U.S. Government and agency securities was
6.22%. In addition, at September 30, 1998, we had $1.3 million of FHLB of
Atlanta stock.
Mortgage-Backed and Related Securities. Included in our portfolio of
investment securities are mortgage-backed and mortgage-related securities.
Mortgage-backed securities represent a participation interest in a pool of
single-family or multi-family mortgages, the principal and interest payments on
which are passed from the mortgage originators through intermediaries that pool
and repackage the participation interest in the form of securities to investors.
Such intermediaries may include quasi-governmental agencies such as FHLMC, FNMA
and GNMA which guarantee the payment of principal and interest to investors.
Mortgage-backed securities generally increase the quality of our assets by
virtue of the guarantees that back them, are more liquid than individual
mortgage loans and may be used to collateralize borrowings or other
obligations.
69
<PAGE>
The FHLMC is a public corporation chartered by the U.S. Government and
owned by the 12 FHLBs and federally insured savings institutions. The FHLMC
issues participation certificates backed principally by conventional mortgage
loans. The FHLMC guarantees the timely payment of interest and the ultimate
return of principal on participation certificates. The FNMA is a private
corporation chartered by the U.S. Congress with a mandate to establish a
secondary market for mortgage loans. The FNMA guarantees the timely payment of
principal and interest on FNMA securities. FHLMC and FNMA securities are not
backed by the full faith and credit of the United States, but because the FHLMC
and the FNMA are U.S. Government-sponsored enterprises, these securities are
considered to be among the highest quality investments with minimal credit
risks.
The GNMA is a government agency within the Department of Housing and Urban
Development which is intended to help finance government-assisted housing
programs. GNMA securities are backed by FHA-insured and VA-guaranteed loans,
and the timely payment of principal and interest on GNMA securities is
guaranteed by the GNMA and backed by the full faith and credit of the U.S.
Government.
Because the FHLMC, the FNMA and the GNMA were established to provide
support for low- and middle-income housing, there are limits to the maximum size
of loans that qualify for these programs. The limit for FNMA and FHLMC
currently is $227,150.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and having varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable-
rate loans. As a result, the risk characteristics of the underlying pool of
mortgages, whether fixed-rate or adjustable-rate, as well as prepayment risk,
are passed on to the certificate holder. The life of a mortgage-backed pass-
through security thus approximates the life of the underlying mortgages.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize borrowings in the event that we determined to utilize borrowings
as a source of funds. Mortgage-backed securities issued or guaranteed by the
FNMA or the FHLMC generally are weighted at no more than 20% for risk-based
capital purposes, compared to a weight of 50% to 100% for residential loans.
See "Regulation -- Depository Institution Regulation -- Capital Requirements" as
to how we assign a risk weight to assets under the risk-based capital
regulations.
Our mortgage-backed and related securities portfolio consists primarily of
seasoned fixed-rate and adjustable-rate, mortgage-backed and related securities.
We make these investments in order to manage cash flow, diversify assets, obtain
yield and to satisfy certain requirements for favorable tax treatment.
At September 30, 1998, the weighted average contractual maturity of our
mortgage-backed securities, all of which carried fixed rates, was approximately
5 years. The actual maturity of a mortgage-backed security varies, depending on
when the mortgagors prepay or repay the underlying mortgages. Prepayments of
the underlying mortgages may shorten the life of the investment, thereby
adversely affecting its yield to maturity and the related market value of the
mortgage-backed security. The yield is based upon the interest income and the
amortization of the premium or accretion of the discount related to the
mortgage-backed security. Premiums and discounts on mortgage-backed securities
are amortized or accreted over the estimated term of the securities using a
level yield method. The prepayment assumptions used to determine the
amortization period for premiums and discounts can significantly affect the
yield of the mortgage-backed security, and we review these assumptions
periodically to reflect the actual prepayment. The actual prepayments of the
underlying mortgages depend on many factors, including the type of mortgage, the
coupon rate, the age of the mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates. The difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates is an important
determinant in the rate of prepayments. During periods of falling mortgage
interest rates, prepayments generally increase, and, conversely, during periods
of rising mortgage interest
70
<PAGE>
rates, prepayments generally decrease. If the coupon rate of the underlying
mortgage significantly exceeds the prevailing market interest rates offered for
mortgage loans, refinancing generally increases and accelerates the prepayment
of the underlying mortgages.
At September 30, 1998, mortgage-backed securities with an amortized cost of
$1.7 million and a carrying value of $1.8 million were held as available for
sale. No mortgage-backed securities were classified as held to maturity.
Mortgage-backed securities classified as available for sale are carried at fair
value. Unrealized gains and losses on available for sale mortgage-backed
securities are recognized as direct increases or decreases in net worth, net of
applicable income taxes. See Notes 1 and 2 of the Notes to Consolidated
Financial Statements for a description of our accounting policies. At September
30, 1998, our mortgage-backed securities had a weighted average yield of
8.20%.
Mortgage-related securities, which include CMOs, are typically issued by a
special purpose entity, which may be organized in a variety of legal forms, such
as a trust, a corporation or a partnership. The entity aggregates pools of
pass-through securities, which are used to collateralize the mortgage-related
securities. Once combined, the cash flows can be divided into "tranches" or
"classes" of individual securities, thereby creating more predictable average
lives for each security than the underlying pass-through pools. Accordingly,
under this security structure, all principal paydowns from the various mortgage
pools are allocated to a mortgage-related securities' class or classes
structured to have priority until it has been paid off. These securities
generally have fixed interest rates, and, as a result, changes in interest rates
generally would affect the market value and possibly the prepayment rates of
such securities.
Some mortgage-related securities instruments are like traditional debt
instruments due to their stated principal amounts and traditionally defined
interest rate terms. Purchasers of certain other mortgage-related securities
instruments are entitled to the excess, if any, of the issuer's cash flows.
These mortgage-related securities instruments may include instruments designated
as residual interest and are riskier in that they could result in the loss of a
portion of the original investment. Cash flows from residual interests are very
sensitive to prepayments and, thus, contain a high degree of interest rate risk.
We do not purchase residual interests in mortgage-related securities.
At September 30, 1998, we had within our investment securities portfolio
CMOs with an amortized cost of $108,000, representing less than .1% of total
assets. Our CMOs had a weighted average yield of 6.57% at September 30, 1998.
The following table sets forth the carrying value of our investment
securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
(In thousands)
Securities available for sale:
U.S. government and agency securities.. $ 4,043 $ 4,012 $ 7,938
FHLMC.................................. 662 1,564 2,131
GNMA................................... 1,147 1,754 1,981
FNMA................................... -- 29 58
Marketable equity securities (1)....... 4,006 3,961 3,916
------- ------- -------
Total................................. $ 9,858 $11,320 $16,024
======= ======= =======
Securities held to maturity:
U.S. government and agency securities.. $30,087 $23,338 $21,317
CMOs................................... 108 144 368
------- ------- -------
Total................................. $30,195 $23,482 $21,685
======= ======= =======
</TABLE>
_______________
(1) Consists of an investment in two mutual funds.
71
<PAGE>
The following table sets forth the scheduled maturities, carrying values,
amortized cost and average yields for our investment securities and mortgage-
backed securities portfolio at September 30, 1998.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years
-------------------- --------------------- --------------------- ---------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
-------- ------- ------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for
sale:
U.S. government and
agency securities...... $ -- --% $ 3,043 6.25% $1,000 6.23% $ -- --%
Mortgage-backed
securities............. -- -- -- -- 251 7.81 1,558 8.26
Marketable equity
securities (1)......... -- -- 2,013 4.79 1,993 6.49 -- --
-------- ------- ------ ------
Total................ $ -- -- $ 5,056 5.67 $3,244 6.51 $1,558 8.26
======== ======= ====== ======
Securities held to
maturity:
U.S. government and
agency securities...... $3,992 6.13% $15,471 6.18% $9,624 6.22% $1,000 7.00%
CMOs.................... -- -- -- -- -- -- 108 6.57
-------- ------- ------ ------
Total.............. $3,992 6.13 $15,471 6.18 $9,624 6.22 $1,108 6.96
======== ======= ====== ======
<CAPTION>
Total Investment Portfolio
--------------------------------
Carrying Market Average
Value Value Yield
-------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C>
Securities available for
sale:
U.S. government and
agency securities...... $ 4,043 $ 4,043 6.25%
Mortgage-backed
securities............. 1,809 1,809 8.20
Marketable equity
securities (1)......... 4,006 4,006 5.64
------- -------
Total................ $ 9,858 $ 9,858 6.34
======= =======
Securities held to
maturity:
U.S. government and
agency securities...... $30,087 $30,307 6.22%
CMOs.................... 108 108 6.57
------- -------
Total.............. $30,195 $30,415 6.22
======= =======
</TABLE>
__________
(1) Consists of an investment in two mutual funds.
72
<PAGE>
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
General. Deposits are our primary source of funds for lending, investment
activities and general operational purposes. In addition to deposits, we derive
funds from loan principal and interest repayments, maturities of investment
securities and interest payments thereon. Although loan repayments are a
relatively stable source of funds, deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds, or on a longer term basis for general operational
purposes. We have access to FHLB of Atlanta advances. Following the
conversion, we will continue to have access to FHLB of Atlanta advances.
Deposits. We attract deposits principally from within Alamance County by
offering a variety of deposit instruments, including checking accounts, money
market accounts, passbook and statement savings accounts, Individual Retirement
Accounts, and certificates of deposit which range in maturity from seven days to
five years. Deposit terms vary according to the minimum balance required, the
length of time the funds must remain on deposit and the interest rate.
Maturities, terms, service fees and withdrawal penalties for our deposit
accounts are established by us on a periodic basis. We review our deposit
pricing on a weekly basis. In determining the characteristics of our deposit
accounts, we consider the rates offered by competing institutions, lending and
liquidity requirements, growth goals and applicable regulations. We believe we
price our deposits comparably to rates offered by our competitors. We do not
accept brokered deposits.
We compete for deposits with other institutions in our market area by
offering competitively priced deposit instruments that are tailored to the needs
of our customers. Additionally, we seek to meet customers' needs by providing
convenient customer service to the community, efficient staff and convenient
hours of service. Substantially all of our depositors are North Carolina
residents. To provide additional convenience, we participate in the HONOR and
CIRRUS Automatic Teller Machine networks at locations throughout the world,
through which customers can gain access to their accounts at any time. To
better serve our customers, we have installed automatic teller machines at five
office locations.
73
<PAGE>
Our savings deposits at September 30, 1998 consisted of the various types
of savings programs described below.
<TABLE>
<CAPTION>
Weighted
Average
Interest Minimum Minimum Balance (in Percentage of
Rate Term Category Amount Thousands) Total Deposits
------ ------- -------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
-- None Non-interest-bearing checking accounts $ 100 $ 8,624 3.66%
2.29% None NOW accounts 300 25,080 10.64
2.84 None Savings Accounts 100 28,091 11.92
3.93 None Money Market Accounts 1,000 13,238 5.62
Certificates of Deposit
-----------------------
4.26 3 months Fixed-term, fixed-rate 500 231 0.10
4.95 6 months Fixed-term, fixed-rate 500 7,098 3.01
4.94 7 months (1) Fixed-term, fixed-rate 5,000 44,862 19.04
5.23 9 months Fixed-term, fixed-rate 500 2,123 0.90
5.00 10 months Fixed-term, fixed-rate 5,000 4,910 2.08
5.35 12 months Fixed-term, fixed-rate 500 41,125 17.45
5.27 18 months Floating rate individual retirement account 50 1,089 0.46
5.49 18 months Fixed-term, fixed-rate 500 2,355 1.00
4.74 20 months Fixed-term, fixed-rate 500 33 0.01
5.41 24 months Fixed-term, fixed-rate 500 9,884 4.19
5.75 30 months Fixed-term, fixed-rate 500 17,610 7.47
5.45 36 months Fixed-term, fixed-rate 500 4,028 1.71
5.52 48 months Fixed-term, fixed-rate 500 4,553 1.93
5.58 60 months Fixed-term, fixed-rate 500 17,856 7.58
5.14 7 to 365 days Fixed-term, fixed-rate 100,000 2,904 1.23
-------- -------
$235,694 100.00%
======== =======
</TABLE>
- --------------------
(1) These certificates of deposit do not carry a penalty for early withdrawal.
As a result, we believe that should interest rates increase materially after
September 30, 1998, borrowers may withdraw funds invested in these
certificates prior to maturity, causing our cost of funds to increase.
74
<PAGE>
The following table sets forth the distribution of our deposit accounts at
the dates indicated and the change in dollar amount of deposits in the various
types of accounts we offer between the dates indicated.
<TABLE>
<CAPTION>
Balance at Balance at Balance at
September 30, % of Increase September 30, % of Increase September 30, % of
1998 Deposits (Decrease) 1997 Deposits (Decrease) 1996 Deposits
------------ --------- ---------- ------------- --------- ----------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand.. $ 8,624 3.66% $ 2,078 $ 6,546 2.85% $ 3,438 $ 3,108 1.48%
Interest-bearing checking... 25,080 10.64 930 24,150 10.53 2,287 21,863 10.43
Money market accounts....... 13,238 5.62 2,120 11,118 4.85 2,006 9,112 4.35
Passbook and savings........ 28,091 11.92 391 27,700 12.08 (764) 28,464 13.57
Certificates of deposit..... 160,661 68.16 834 159,827 69.69 12,667 147,160 70.17
-------- ------ -------- -------- ------- -------- -------- ------
$235,694 100.00% $ 6,353 $229,341 100.00% $ 19,634 $209,707 100.00%
======== ====== ======== ======== ======= ======== ======== ======
</TABLE>
75
<PAGE>
The following table sets forth the average balances and average interest
rates based on daily balances for various types of deposits at the dates
indicated for each category of deposits presented.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------
1998 1997 1996
------------------ ----------------- -----------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
-------- -------- -------- -------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand.. $ 6,417 --% $ 4,972 --% $ 3,056 --%
Interest-bearing checking... 24,987 2.21 23,975 2.23 21,187 2.19
Money market accounts....... 12,277 3.82 10,638 3.42 9,883 3.10
Passbook and savings........ 28,017 2.85 28,650 2.85 29,051 2.85
Certificates of deposit..... 159,053 5.36 152,231 5.27 142,655 5.50
-------- -------- --------
Total...................... $230,751 4.48 $220,466 4.42 $205,832 4.59
======== ======== ========
</TABLE>
The following table sets forth our time deposits classified by rates at the
dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------
1998 1997 1996
----- ------ ------
(In thousands)
<S> <C> <C> <C>
2 - 3.99%............................ $ -- $ 220 $ 294
4 - 5.99%............................ 149,064 147,667 129,549
6 - 7.99%............................ 11,496 11,843 17,228
8 - 9.99%............................ 101 97 89
-------- -------- --------
$160,661 $159,827 $147,160
======== ======== ========
</TABLE>
The following table sets forth the amount and maturities of our time
deposits at September 30, 1998.
<TABLE>
<CAPTION>
Amount Due
---------------------------------------------
Less Than After
Rate One Year 1-2 Years 2-3 Years 3 Years Total
- ---- -------- --------- --------- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
4.00 - 5.99%...... $108,512 $22,193 $10,390 $ 7,969 $149,064
6.00 - 7.99%...... 8,016 3,020 253 207 11,496
8.00 - 9.99%...... -- -- -- 101 101
-------- ------- ------- -------- --------
$116,528 $25,213 $10,643 $ 8,277 $160,661
======== ======= ======= ======== ========
</TABLE>
76
<PAGE>
The following table indicates the amount of our certificates of deposit of
$100,000 or more by time remaining until maturity as of September 30, 1998. At
that date, such deposits represented 12.6% of total deposits and had a weighted
average rate of 5.41%.
<TABLE>
<CAPTION>
Certificate
Maturity Period of Deposit
--------------- --------------
(In thousands)
<S> <C>
Three months or less........... $ 9,937
Over three through six months.. 6,050
Over six through 12 months..... 9,276
Over 12 months................. 4,437
-------
Total......................... $29,700
=======
</TABLE>
We estimate that more than $29 million of certificates of deposit in
amounts of $100,000 or more maturing within one year of September 30, 1998 were
held by our retail and commercial customers, while the remainder of such
deposits were from schools, municipalities and other public entities and were
obtained through competitive rate bidding. We believe certificates of deposits
held by our retail and commercial customers are more likely to be renewed upon
maturity than certificates of deposit obtained through competitive bidding.
The following table sets forth our savings activities for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------
1998 1997 1996
---- ---- -----
(In thousands)
<S> <C> <C> <C>
Net increase (decrease) before interest credited........... $(3,026) $10,693 $ 163
Interest credited.......................................... 9,379 8,941 8,775
------- ------- ------
Net increase in deposits.................................. $ 6,353 $19,634 $8,938
======= ======= ======
</TABLE>
In the unlikely event 1st State Bank is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts prior to
any payment being made to the sole stockholder of 1st State Bank, which is 1st
State Bancorp.
Borrowings. Savings deposits historically have been the primary source of
funds for our lending, investments and general operating activities. We are
authorized, however, to use advances from the FHLB of Atlanta to supplement our
supply of lendable funds and to meet deposit withdrawal requirements. The FHLB
of Atlanta functions as a central reserve bank providing credit for savings
institutions and certain other member financial institutions. As a member of the
FHLB System, we are required to own stock in the FHLB of Atlanta and are
authorized to apply for advances. Advances are obtained pursuant to several
different programs, each of which has its own interest rate and range of
maturities. We have a Blanket Agreement for advances with the FHLB under which
we may borrow up to 25% of assets subject to normal collateral and underwriting
requirements. Advances from the FHLB of Atlanta are secured by our stock in the
FHLB of Atlanta and other eligible assets. We will remain as a member of the
FHLB system following the conversion.
In February 1998, we obtained $20.0 million in fixed-rate FHLB of Atlanta
advances. These advances were structured with maturities estimated to coincide
with the expected repricing of $20.0 million of loans. Through this strategy, we
were able to establish a positive interest rate spread on the $20.0 million of
assets and FHLB of Atlanta
77
<PAGE>
advances. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Asset/Liability Management@ for a more complete
discussion of this strategy.
The following table sets forth certain information regarding our short-term
borrowings at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At or For the
Year Ended September 30,
------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Amounts outstanding at end of period:
FHLB advances......................................... $20,000 $1,000 $1,000
Weighted average rate paid on:
FHLB advances......................................... 5.39% 5.57% 5.48%
<CAPTION>
For the Year
Ended September 30,
------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Maximum amount of borrowings outstanding
at any month end:
FHLB advances........................................... $21,000 $1,000 $2,000
<CAPTION>
For the Year
Ended September 30,
------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Average amounts outstanding:
FHLB advances.......................................... $13,559 $1,000 $ 156
Approximate weighted average rate paid on: (1)
FHLB advances.......................................... 5.46% 5.60% 1.92%
</TABLE>
- -------------------------
(1) Based on month-end balances.
SUBSIDIARY ACTIVITIES
In prior years, we had one subsidiary, First Capital Services, Inc., a
North Carolina corporation ("First Capital"), that engaged in sales of
annuities, mutual funds and insurance products on an agency basis. In September
1997, that corporation transferred its assets and liabilities to a newly formed
North Carolina limited liability company, First Capital Services Company, LLC
(the "LLC"), and the corporation was dissolved. 1st State Bank is the sole
member of the LLC, and since the transfer of assets and liabilities, the LLC has
conducted the activities previously conducted by First Capital. We earned
$262,000 and $232,000 on a pre-tax basis from the activities of the LLC and
First Capital during the years ended September 30, 1998 and 1997,
respectively.
COMPETITION
We face strong competition in originating real estate, commercial business
and consumer loans and in attracting deposits. We compete for real estate and
other loans principally on the basis of interest rates, the types of loans we
originate, the deposit products we offer and the quality of services we provide
to our customers. We also compete by offering products which are tailored to the
local community. Our competition in originating real estate loans comes
primarily from other savings institutions, commercial banks, mortgage bankers
and mortgage brokers. Commercial
78
<PAGE>
banks, credit unions and finance companies provide vigorous competition in
consumer lending. Competition may increase as a result of the continuing
reduction of restrictions on the interstate operations of financial
institutions.
We attract our deposits through our branch offices primarily from the local
communities. Consequently, competition for deposits is principally from other
savings institutions, commercial banks, credit unions and brokers in our primary
market area. We compete for deposits and loans by offering what we believe to be
a variety of deposit accounts at competitive rates, convenient business hours, a
commitment to outstanding customer service and a well-trained staff. We believe
we have developed strong relationships with local realtors and the community in
general.
We consider our primary market area for gathering deposits and originating
loans to be Alamance County in north central North Carolina, which is the county
in which our offices are located. Based on data provided by a private marketing
firm, we estimate that at June 30, 1997, we had 15.2% of deposits held by all
banks and savings institutions in our market area.
OFFICES AND OTHER MATERIAL PROPERTIES
The following table sets forth the location and certain additional
information regarding our offices at September 30, 1998.
<TABLE>
<CAPTION>
Book Value at Deposits at
Year Owned or September 30, Approximate September 30,
Opened Leased 1998 (1) Square Footage 1998
------ ------ -------------------- -------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
MAIN OFFICE:
445 S. Main Street 1988 Owned $3,839 33,700 $101,149
Burlington, NC 27215
BRANCH OFFICES:
2294 N. Church Street 1984 Leased (2) 277 2,600 24,520
Burlington, NC 27215
503 Huffman Mill Road 1982 Owned 348 2,600 42,614
Burlington, NC 27215
102 S. 5th Street 1973 Owned 55 2,000 22,573
Mebane, NC 27302
221 N. Main Street 1974 Owned 110 2,700 32,226
Graham, NC 27253
3466 S. Church Street 1996 Owned 1,451 4,000 12,612
Burlington, NC 27215
</TABLE>
__________
(1) Land and building only.
(2) Land is leased. Lease expires on July 5, 2009, with options to extend
for three five-year periods.
The book value of our investment in premises and equipment was $7.5 million
at September 30, 1998. See Note 6 of Notes to Consolidated Financial Statements
elsewhere in this document.
EMPLOYEES
As of September 30, 1998, we had 68 full-time and 11 part-time employees,
none of whom were represented by a collective bargaining agreement. We believe
that our relationship with our employees is good.
79
<PAGE>
LEGAL PROCEEDINGS
From time to time, we are a party to various legal proceedings incident to
its business. There currently are no legal proceedings to which we are a party,
or to which any of our property was subject, which were expected to result in a
material loss. There are no pending regulatory proceedings to which we are a
party or to which any of our properties is subject which are expected to result
in a material loss.
REGULATION
DEPOSITORY INSTITUTION REGULATION
General. We are a North Carolina-chartered savings bank and a member of the
FHLB of Atlanta and our deposits are insured by the FDIC through the SAIF. As a
North Carolina savings bank, we are subject to regulation and supervision by the
Administrator and the FDIC and to North Carolina and FDIC regulations governing
such matters as capital standards, mergers, establishment of branch offices,
subsidiary investments and activities and general investment authority. The
Administrator and the FDIC periodically examine us for compliance with various
regulatory requirements and for safe and sound operations. The FDIC also has the
authority to conduct special examinations of us because our deposits are insured
by the SAIF. We must file reports with the Administrator describing our
activities and financial condition and must obtain the approval from the
Administrator and the FDIC prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions.
After the conversion, 1st State Bank will be a North Carolina commercial
bank, and our deposit accounts will continue to be insured by the SAIF. 1st
State Bank will be subject to supervision, examination and regulation by the
Commission, rather than the Administrator, and the FDIC and to North Carolina
and federal statutory and regulatory provisions governing such matters as
capital standards, mergers, subsidiary investments and establishment of branch
offices, and will remain subject to the FDIC's authority to conduct special
examinations. 1st State Bank will be required to file reports with the
Commission and the FDIC concerning its activities and financial condition and
will be required to obtain regulatory approvals prior to entering into certain
transactions, including mergers with, or acquisitions of, other depository
institutions.
As a federally insured depository institution, we are and 1st State Bank
will be, subject to various regulations promulgated by the Federal Reserve
Board, including Regulation B (Equal Credit Opportunity), Regulation D (Reserve
Requirements), Regulations E (Electronic Fund Transfers), Regulation Z (Truth in
Lending), Regulation CC (Availability of Funds and Collection of Checks) and
Regulation DD (Truth in Savings).
The system of regulation and supervision applicable to us establishes a
comprehensive framework for our operations and is intended primarily for the
protection of the FDIC and our depositors. Changes in the regulatory framework
could have a material effect on us and our respective operations that in turn,
could have a material effect on 1st State Bancorp.
Proposed Legislative and Regulatory Changes. On May 13, 1998, the U.S.
House of Representatives passed H.R. 10 (the "Act"), the Financial Services
Competition Act of 1998, "which calls for a sweeping modernization of the
banking system that would permit affiliations between commercial banks,
securities firms, insurance companies and, subject to certain limitations, other
commercial enterprises. The stated purposes of the Act are to enhance consumer
choice in the financial services marketplace, level the playing field among
providers of financial services and increase competition. H.R. 10 removed the
restrictions contained in the Glass-Steagall Act of 1933 and 1st State Bank
Holding Company Act of 1956, thereby allowing qualified financial holding
companies to control banks, securities firms, insurance companies, and other
financial firms. Conversely, securities firms, insurance companies and financial
firms would be allowed to own or affiliate with a commercial bank. Under the new
framework, the Federal Reserve would serve as an umbrella regulator to oversee
the new financial holding company structure. Securities affiliates would
80
<PAGE>
be required to comply with all applicable federal securities laws, including
registration and other requirements applicable to broker-dealers. The Act also
provided that insurance affiliates be subject to applicable state insurance
regulations and supervision. The Act preserved the thrift charter and all
existing thrift powers, but restricted the activities of new unitary thrift
holding companies.
At the adjournment of Congress in October 1998, the Senate had not voted on
the legislation and the Act had been returned to the Senate Banking Committee
for further review A bill similar to the Act was introduced for consideration by
Congress in 1999. At this time, we do not know whether the Act will be enacted,
or if enacted, what form the final version of such legislation might take.
Capital Requirements. The Federal Reserve Board and the FDIC have
established guidelines with respect to the maintenance of appropriate levels of
capital by bank holding companies with consolidated assets of $150 million or
more and state non-member banks, respectively. The regulations impose two sets
of capital adequacy requirements: minimum leverage rules, which require bank
holding companies and state non-member banks to maintain a specified minimum
ratio of capital to total assets, and risk-based capital rules, which require
the maintenance of specified minimum ratios of capital to "risk-weighted"
assets. The regulations of the FDIC and the Federal Reserve Board require bank
holding companies and state non-member banks, respectively, to maintain a
minimum leverage ratio of "Tier 1 capital" to total assets of 3%. Tier 1 capital
is the sum of common stockholders' equity, certain perpetual preferred stock,
which must be noncumulative with respect to banks, including any related
surplus, and minority interests in consolidated subsidiaries; minus all
intangible assets other than certain purchased mortgage servicing rights and
purchased credit card receivables, identified losses and investments in certain
subsidiaries. As a SAIF-insured, state-chartered bank, we must also deduct from
Tier 1 capital an amount equal to our investments in, and extensions of credit
to, subsidiaries engaged in activities that are not permissible for national
banks, other than debt and equity investments in subsidiaries engaged in
activities undertaken as agent for customers or in mortgage banking activities
or in subsidiary depository institutions or their holding companies. Although
setting a minimum 3% leverage ratio, the capital regulations state that only the
strongest bank holding companies and banks, with composite examination ratings
of 1 under the rating system used by the federal bank regulators, would be
permitted to operate at or near such minimum level of capital. All other bank
holding companies and banks are expected to maintain a leverage ratio of at
least 1% to 2% above the minimum ratio, depending on the assessment of an
individual organization's capital adequacy by its primary regulator. Any bank or
bank holding companies experiencing or anticipating significant growth would be
expected to maintain capital well above the minimum levels. In addition, the
Federal Reserve Board has indicated that whenever appropriate, and in particular
when a bank holding company is undertaking expansion, seeking to engage in new
activities or otherwise facing unusual or abnormal risks, it will consider, on a
case-by-case basis, the level of an organization's ratio of tangible Tier 1
capital to total assets in making an overall assessment of capital.
In addition to the leverage ratio, the regulations of the Federal Reserve
Board and the FDIC require bank holding companies and state-chartered nonmember
banks to maintain a minimum ratio of qualifying total capital to risk-weighted
assets of at least 8% of which at least 4% must be Tier 1 capital. Qualifying
total capital consists of Tier 1 capital plus Tier 2 or "supplementary" capital
items which include allowances for loan losses in an amount of up to 1.25% of
risk-weighted assets, cumulative preferred stock and preferred stock with a
maturity of 20 years or more, certain other capital instruments and net
unrealized gains on equity securities. The includible amount of Tier 2 capital
cannot exceed the institution's Tier 1 capital. Qualifying total capital is
further reduced by the amount of the bank's investments in banking and finance
subsidiaries that are not consolidated for regulatory capital purposes,
reciprocal cross-holdings of capital securities issued by other banks and
certain other deductions. The risk-based capital regulations assign balance
sheet assets and the credit equivalent amounts of certain off-balance sheet
items to one of four broad risk weight categories. The aggregate dollar amount
of each category is multiplied by the risk weight assigned to that category
based principally on the degree of credit risk associated with the obligor. The
sum of these weighted values equals the bank holding company or the bank's risk-
weighted assets.
The federal bank regulators, including the Federal Reserve Board and the
FDIC, have revised their risk-based capital requirements to ensure that such
requirements provide for explicit consideration of interest rate risk. Under
the
81
<PAGE>
rule, a bank's interest rate risk exposure would be quantified using either the
measurement system set forth in the rule or the bank's internal model for
measuring such exposure, if such model is determined to be adequate by the
bank's examiner. If the dollar amount of a bank's interest rate risk exposure,
as measured under either measurement system, exceeds 1% of the bank's total
assets, the bank would be required under the rule to hold additional capital
equal to the dollar amount of the excess. We believe that the interest rate risk
component does not have a material effect on our capital. Further, the FDIC has
adopted a regulation that provides that the FDIC may take into account whether a
bank has significant risks from concentrations of credit or non-traditional
activities in determining the adequacy of its capital. We have not been advised
that we will be required to maintain any additional capital under this
regulation. The interest rate risk component does not apply to bank holding
companies on a consolidated basis.
In addition to FDIC regulatory capital requirements, the Administrator
requires that net worth equal at least 5% of total assets. Intangible assets
must be deducted from net worth and assets when computing compliance with this
requirement.
At September 30, 1998, we complied with each of the capital requirements of
the FDIC and the Administrator. For a description of our required and actual
capital levels on September 30, 1998, see "Historical and Pro Forma Regulatory
Capital Compliance."
Following the conversion, we will be subject to the Commission's capital
surplus regulation which requires commercial banks to maintain a capital surplus
of at least 50% of common capital. Common capital is defined as the total of
the par value of shares times the number of shares outstanding.
Prompt Corrective Regulatory Action. Under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the federal banking regulators
are required to take prompt corrective action if an insured depository
institution fails to satisfy certain minimum capital requirements. All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees if the institution would
thereafter fail to satisfy the minimum levels for any of its capital
requirements. An institution that fails to meet the minimum level for any
relevant capital measure (an "undercapitalized institution") may be:
. subject to increased monitoring by the appropriate federal banking
regulator;
. required to submit an acceptable capital restoration plan within 45
days;
. subject to asset growth limits; and
. required to obtain prior regulatory approval for acquisitions, branching
and new lines of businesses.
A "significantly undercapitalized" institution may be subject to statutory
demands for recapitalization, broader application of restrictions on
transactions with affiliates, limitations on interest rates paid on deposits,
asset growth and other activities, possible replacement of directors and
officers, and restrictions on capital distributions by any bank holding company
controlling the institution. Any company controlling the institution could also
be required to divest the institution or the institution could be required to
divest subsidiaries. The senior executive officers of a significantly
undercapitalized institution may not receive bonuses or increases in
compensation without prior regulatory approval and the institution is prohibited
from making payments of principal or interest on its subordinated debt. If an
institution's ratio of tangible capital to total assets falls below a "critical
capital level," the institution will be subject to conservatorship or
receivership within 90 days unless periodic determinations are made that
forbearance from such action would better protect the deposit insurance fund.
Federal banking regulators have adopted regulations implementing the prompt
corrective action provisions of FDICIA. Under these regulations, the federal
banking regulators generally will measure a depository institution's capital
adequacy on the basis of:
82
<PAGE>
. the institution's total risk-based capital ratio (the ratio of its total
capital to risk-weighted assets);
. Tier 1 risk-based capital ratio (the ratio of its core capital to risk-
weighted assets); and
. leverage ratio (the ratio of its core capital to adjusted total assets).
Under the regulations, an institution that is not subject to an order or written
directive by its primary federal regulator to meet or maintain a specific
capital level will be deemed "well capitalized" if it also has:
. a total risk-based capital ratio of 10% or greater;
. a Tier 1 risk-based capital ratio of 6% or greater; and
. a leverage ratio of 5% or greater.
An "adequately capitalized" depository institution is an institution that does
not meet the definition of well capitalized and has:
. a total risk-based capital ratio of 8% or greater;
. a Tier 1 risk-based capital ratio of 4% or greater; and
. a leverage ratio of 4% or greater (or 3% or greater if the depository
institution has a composite 1 CAMELS rating).
An "undercapitalized institution" is a depository institution that has:
. a total risk-based capital ratio less than 8%; or
. a Tier 1 risk-based capital ratio of less than 4%; or
. a leverage ratio of less than 4% (or less than 3% if the institution has
a composite 1 CAMELS rating).
A "significantly undercapitalized" institution is defined as a depository
institution that has:
. a total risk-based capital ratio of less than 6%; or
. a Tier 1 risk-based capital ratio of less than 3%; or
. a leverage ratio of less than 3%.
A "critically undercapitalized" institution is defined as a depository
institution that has a ratio of "tangible equity" to total assets of less than
2%. Tangible equity is defined as core capital plus cumulative perpetual
preferred stock (and related surplus) less all intangibles other than qualifying
supervisory goodwill and certain purchased mortgage servicing rights.
The appropriate federal banking agency may reclassify a well capitalized
depository institution as adequately capitalized and may require an adequately
capitalized or undercapitalized institution to comply with the supervisory
actions applicable to institutions in the next lower capital category (but may
not reclassify a significantly undercapitalized institution as critically under-
capitalized) if it determines, after notice and an opportunity for a hearing,
that the institution is in an unsafe or unsound condition or that the
institution has received and not corrected a
83
<PAGE>
less-than-satisfactory rating for any CAMELS rating category. At September 30,
1998, we were classified as "well capitalized" under FDIC regulations, and we
believe that we will, immediately after the conversion, also be classified as
"well-capitalized."
Safety and Soundness Guidelines. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
each federal banking agency was required to establish safety and soundness
standards for institutions under its authority. The interagency guidelines
require depository institutions to maintain internal controls and information
systems and internal audit systems that are appropriate for the size, nature and
scope of the institution's business. The guidelines also establish certain basic
standards for loan documentation, credit underwriting, interest rate risk
exposure, and asset growth. The guidelines further provide that depository
institutions should maintain safeguards to prevent the payment of compensation,
fees and benefits that are excessive or that could lead to material financial
loss, and should take into account factors such as comparable compensation
practices at comparable institutions. If the appropriate federal banking agency
determines that a depository institution is not in compliance with the safety
and soundness guidelines, it may require the institution to submit an acceptable
plan to achieve compliance with the guidelines. A depository institution must
submit an acceptable compliance plan to its primary federal regulator within 30
days of receipt of a request for such a plan. Failure to submit or implement a
compliance plan may subject the institution to regulatory sanctions. Management
believes that 1st State Bank meets all the standards adopted in the interagency
guidelines.
Community Reinvestment Act. 1st State Bank, like other financial
institutions, is subject to the Community Reinvestment Act ("CRA"). The purpose
of the CRA is to encourage financial institutions to help meet the credit needs
of their entire communities, including the needs of low- and moderate-income
neighborhoods. During our last compliance examination, we received a
"satisfactory" rating for CRA compliance. Our CRA rating would be a factor
considered by the Federal Reserve Board and the FDIC in considering applications
to acquire branches or to acquire or combine with other financial institutions
and take other actions and, if such rating was less than "satisfactory," could
result in the denial of such applications.
The federal banking regulatory agencies have implemented an evaluation
system that rates institutions based on their actual performance in meeting
community credit needs. Under the regulations, a bank will first be evaluated
and rated under three categories: a lending test, an investment test and a
service test. For each of these three tests, the savings bank will be given a
rating of either "outstanding," "high satisfactory," "low satisfactory," "needs
to improve," or "substantial non-compliance." A set of criteria for each rating
has been developed and is included in the regulation. If an institution
disagrees with a particular rating, the institution has the burden of rebutting
the presumption by clearly establishing that the quantitative measures do not
accurately present its actual performance, or that demographics, competitive
conditions or economic or legal limitations peculiar to its service area should
be considered. The ratings received under the three tests will be used to
determine the overall composite CRA rating. The composite ratings will be the
same as those that are currently given: "outstanding," "satisfactory," "needs to
improve" or "substantial non-compliance."
Federal Home Loan Bank System. The FHLB System consists of 12 district
FHLBs subject to supervision and regulation by the Federal Housing Finance Board
("FHFB"). The FHLBs provide a central credit facility primarily for member
institutions. As a member of the FHLB of Atlanta, we are required to acquire
and hold shares of capital stock in the FHLB of Atlanta in an amount at least
equal to 1% of the aggregate unpaid principal of home mortgage loans, home
purchase contracts, and similar obligations at the beginning of each year, or
1/20 of advances from the FHLB of Atlanta, whichever is greater. We were in
compliance with this requirement with investment in FHLB of Atlanta stock at
September 30, 1998 of $1.3 million. The FHLB of Atlanta serves as a reserve or
central bank for its member institutions within its assigned district. It is
funded primarily from proceeds derived from the sale of consolidated obligations
of the FHLB System. It offers advances to members in accordance with policies
and procedures established by the FHFB and the board of directors of the FHLB of
Atlanta. Long-term advances may only be made for the purpose of providing funds
for residential housing finance. At September 30, 1998, we had $20.0 million in
advances
84
<PAGE>
outstanding from the FHLB of Atlanta. Upon completion of the conversion, we will
continue to be a member of the FHLB of Atlanta.
Reserves. Under Federal Reserve Board regulations, we must maintain average
daily reserves against transaction accounts. Reserves equal to 3% must be
maintained on transaction accounts of between $4.9 million and $46.5 million,
plus 10% on the remainder. This percentage is subject to adjustment by the
Federal Reserve Board. Because required reserves must be maintained in the form
of vault cash or in a non-interest bearing account at a Federal Reserve Bank,
the effect of the reserve requirement is to reduce the amount of the
institution's interest-earning assets. As of September 30, 1998, we met our
reserve requirements.
After the conversion, we will be subject to the reserve requirements of
North Carolina commercial banks. North Carolina law requires state non-member
banks to maintain, at all times, a reserve fund in an amount set by regulation
of the Commission.
Deposit Insurance. We are required to pay assessments based on a percentage
of insured deposits to the FDIC for insurance of our deposits by the SAIF. Under
the FDIC's risk-based deposit insurance assessment system, the assessment rate
for an insured depository institution depends on the assessment risk
classification assigned to the institution by the FDIC, which is determined by
the institution's capital level and supervisory evaluations. Based on the data
reported to regulators for the date closest to the last day of the seventh month
preceding the semi-annual assessment period, institutions are assigned to one of
three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as in the prompt
corrective action regulations. See "-- Prompt Corrective Regulatory Action" for
definitions and percentage criteria for the capital group categories. Within
each capital group, institutions are assigned to one of three subgroups on the
basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken. In
1996, the FDIC imposed a one-time assessment of 65.7 basis points of insured
deposits as of March 31, 1995, that fully capitalized the SAIF and had the
effect of reducing our future SAIF assessments. Accordingly, although the
special assessment resulted in a one-time charge to us of approximately $1.3
million pre-tax, the recapitalization of the SAIF had the effect of reducing our
future deposit insurance premiums to the SAIF. Both BIF and SAIF members are
assessed an amount for the Financing Corporation Bond payments. BIF members are
assessed approximately 1.3 basis points while the SAIF rate is approximately 6.4
basis points until January 1, 2000. At that time, BIF and SAIF members will
begin pro rata sharing of the payment at an expected rate of 2.43 basis points.
Although 1st State Bank, as a North Carolina commercial bank, would qualify
for insurance of deposits by the BIF, substantial entrance and exit fees apply
to conversions from SAIF to BIF insurance. Accordingly, following the
conversion, we will remain a member of the SAIF, which will insure our deposits
to a maximum of $100,000 for each depositor.
Liquidity Requirements. FDIC policy requires that banks maintain an
average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States government, state, or federal agency
obligations) in an amount which it deems adequate to protect safety and
soundness of the bank. The FDIC currently has no specific level which it
requires.
We also are subject to the Administrator's requirement that the ratio of
liquid assets to total assets equal at least 10%. The computation of liquidity
under North Carolina regulations allows the inclusion of mortgage-backed
securities and investments which, in the judgment of the Administrator, have a
readily ascertainable market value,
85
<PAGE>
including investments with maturities in excess of five years. At September 30,
1998, our liquidity ratio exceeded the North Carolina regulations.
Dividend Restrictions. Under FDIC regulations, we are prohibited from
making any capital distributions if after making the distribution, we would
have:
. a total risk-based capital ratio of less than 8%;
. a Tier 1 risk-based capital ratio of less than 4%; or
. a leverage ratio of less than 4%.
Our earnings appropriated to bad debt reserves and deducted for Federal
income tax purposes are not available for payment of cash dividends or other
distributions to stockholders without payment of taxes at the then current tax
rate on the amount of earnings removed from the pre-1988 reserves for such
distributions. We intend to make full use of this favorable tax treatment and
do not contemplate use of any earnings in a manner which would create federal
tax liabilities.
We may not pay dividends on our capital stock if our regulatory capital
would thereby be reduced below the amount then required for the liquidation
account established for the benefit of certain depositors at the time of the
conversion.
1st State Bancorp is subject to limitations on dividends imposed by the
Federal Reserve Board. See "-- Regulation of 1st State Bancorp Following the
Conversion -- Dividends" for more information.
Transactions with Related Parties. Transactions between a state non-member
bank and any affiliate are governed by Sections 23A and 23B of the Federal
Reserve Act. An affiliate of a state non-member bank is any company or entity
which controls, is controlled by or is under common control with the state non-
member bank. In a holding company context, the parent holding company of a state
non-member bank, such as 1st State Bancorp, and any companies which are
controlled by the parent holding company are affiliates of the savings
institution or state non-member bank. Generally, Sections 23A and 23B (i) limit
the extent to which an institution or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, and contain an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus and (ii) require that all such transactions be on terms
substantially the same, or at least as favorable, to the institution or
subsidiary as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
similar other types of transactions. In addition to the restrictions imposed by
Sections 23A and 23B, no state non-member bank may (i) loan or otherwise extend
credit to an affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies, or (ii) purchase or
invest in any stocks, bonds, debentures, notes or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the state non-member
bank.
State non-member banks also are subject to the restrictions contained in
Section 22(h) of the Federal Reserve Act and the Federal Reserve Board's
Regulation O thereunder on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, executive officer and
to a greater than 10% stockholder of a state non-member bank and certain
affiliated interests of such persons, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the institution's
loans-to-one-borrower limit and all loans to such persons may not exceed the
institution's unimpaired capital and unimpaired surplus. Section 22(h) also
prohibits loans, above amounts prescribed by the appropriate federal banking
agency, to directors, executive officers and greater than 10% stockholders of a
savings institution, and their respective affiliates, unless such loan is
approved in advance by a majority of the board of directors of the institution
with any "interested" director not participating in the voting. Regulation O
prescribes the loan amount, which includes all other outstanding loans to such
person, as to which such
86
<PAGE>
prior board of director approval is required as being the greater of $25,000 or
5% of capital and surplus up to $500,000. Further, Section 22(h) requires that
loans to directors, executive officers and principal stockholders be made on
terms substantially the same as offered in comparable transactions to other
persons. Section 22(h) also generally prohibits a depository institution from
paying the overdrafts of any of its executive officers or directors.
State non-member banks also are subject to the requirements and
restrictions of Section 22(g) of the Federal Reserve Act on loans to executive
officers and the restrictions of 12 U.S.C. Sec. 1972 on certain tying
arrangements and extensions of credit by correspondent banks. Section 22(g) of
the Federal Reserve Act requires loans to executive officers of depository
institutions not be made on terms more favorable than those afforded to other
borrowers, requires approval by the board of directors of a depository
institution for extension of credit to executive officers of the institution,
and imposes reporting requirements for and additional restrictions on the type,
amount and terms of credits to such officers. Section 1972 (i) prohibits a
depository institution from extending credit to or offering any other services,
or fixing or varying the consideration for such extension of credit or service,
on the condition that the customer obtain some additional service from the
institution or certain of its affiliates or not obtain services of a competitor
of the institution, subject to certain exceptions, and (ii) prohibits extensions
of credit to executive officers, directors, and greater than 10% stockholders of
a depository institution by any other institution which has a correspondent
banking relationship with the institution, unless such extension of credit is on
substantially the same terms as those prevailing at the time for comparable
transactions with other persons and does not involve more than the normal risk
of repayment or present other unfavorable features.
Restrictions on Certain Activities. Under FDICIA, state-chartered banks
with deposits insured by the FDIC are generally prohibited from acquiring or
retaining any equity investment of a type or in an amount that is not
permissible for a national bank. The foregoing limitation, however, does not
prohibit FDIC-insured state banks from acquiring or retaining an equity
investment in a subsidiary in which the bank is a majority owner. State-
chartered banks are also prohibited from engaging as principal in any type of
activity that is not permissible for a national bank and subsidiaries of state-
chartered, FDIC-insured state banks may not engage as principal in any type of
activity that is not permissible for a subsidiary of a national bank unless in
either case the FDIC determines that the activity would pose no significant risk
to the appropriate deposit insurance fund and the bank is, and continues to be,
in compliance with applicable capital standards.
The FDIC has adopted regulations to clarify the foregoing restrictions on
activities of FDIC-insured state-chartered banks and their subsidiaries. Under
the regulations, the term activity refers to the authorized conduct of business
by an insured state bank and includes acquiring or retaining any investment
other than an equity investment. An activity permissible for a national bank
includes any activity expressly authorized for national banks by statute or
recognized as permissible in regulations, official circulars or bulletins or in
any order or written interpretation issued by the Office of the Comptroller of
the Currency ("OCC"). In its regulations, the FDIC indicates that it will not
permit state banks to directly engage in commercial ventures or directly or
indirectly engage in any insurance underwriting activity other than to the
extent such activities are permissible for a national bank or a national bank
subsidiary or except for certain other limited forms of insurance underwriting
permitted under the regulations. Under the regulations, the FDIC permits state
banks that meet applicable minimum capital requirements to engage as principal
in certain activities that are not permissible to national banks including
guaranteeing obligations of others, activities which the Federal Reserve Board
has found by regulation or order to be closely related to banking and certain
securities activities conducted through subsidiaries.
Subject to limitation by the Administrator, North Carolina-chartered
savings banks may make any loan or investment or engage in any activity which is
permitted to federally chartered institutions. However, a North Carolina-
chartered savings bank cannot invest more than 15% of its total assets in
business, commercial, corporate and agricultural loans. In addition to such
lending authority, North Carolina-chartered savings banks are authorized to
invest funds, in excess of loan demand, in certain statutorily permitted
investments, including but not limited to:
. obligations of the United States, or those guaranteed by it;
87
<PAGE>
. obligations of the State of North Carolina;
. bank demand or time deposits;
. stock or obligations of the federal deposit insurance fund or a
FHLB;
. savings accounts of any savings institution as approved by the board of
directors; and
. stock or obligations of any agency of the State of North Carolina or of
the United States or of any corporation doing business in North Carolina
whose principal business is to make education loans.
REGULATION OF 1ST STATE BANCORP FOLLOWING THE CONVERSION
General. Following the conversion, 1st State Bancorp, as the sole
shareholder of 1st State Bank, will become a bank holding company and will
register as such with the Federal Reserve Board. Bank holding companies are
subject to comprehensive regulation by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and the regulations of the
Federal Reserve Board. As a bank holding company, 1st State Bancorp will be
required to file with the Federal Reserve Board annual reports and such
additional information as the Federal Reserve Board may require, and will be
subject to regular examinations by the Federal Reserve Board. The Federal
Reserve Board also has extensive enforcement authority over bank holding
companies, including, among other things, the ability to assess 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 Board
approval before:
. 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 majority of such shares);
. acquiring all or substantially all of the assets of another bank or bank
holding company; or
. merging or consolidating with another bank holding company.
Satisfactory financial condition, particularly with respect to capital adequacy,
and a satisfactory CRA rating generally are prerequisites to obtaining federal
regulatory approval to make acquisitions.
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 Board 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
Board includes, among other things:
. operating a savings institution, mortgage company, finance company,
credit card company or factoring company;
. performing certain data processing operations;
. providing certain investment and financial advice;
88
<PAGE>
. 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.
Presently, we have no plans to engage in any of these activities.
Under the BHCA, any company must obtain approval of the Federal Reserve
Board prior to acquiring control of 1st State Bancorp or 1st State Bank. For
purposes of the BHCA, "control" is defined as ownership of more than 25% of any
class of voting securities of 1st State Bancorp or 1st State Bank, the ability
to control the election of a majority of the directors, or the exercise of a
controlling influence over management or policies of 1st State Bancorp or 1st
State Bank. In addition, the Change in Bank Control Act and the related
regulations of the Federal Reserve Board require any person or persons acting in
concert to file a written notice with the Federal Reserve Board before such
person or persons may acquire control of 1st State Bancorp or 1st State Bank.
The Change in Bank Control Act defines "control" as the power, directly or
indirectly, to vote 25% or more of any voting securities or to direct the
management or policies of a bank holding company or an insured bank.
The Federal Reserve Board has adopted guidelines regarding the capital
adequacy of bank holding companies, which require bank holding companies to
maintain specified minimum ratios of capital to total assets and capital to
risk-weighted assets. See " -- Depository Institution Regulation -- Capital
Requirements" for the regulatory capital requirements we must meet.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Reigle-Neal Act") was enacted to ease restrictions
on interstate banking. Effective September 29, 1995, the Act allows the Federal
Reserve Board to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of a bank that has not been in existence for a minimum of five
years, regardless of a longer minimum period specified by the statutory law of
the host state. The Reigle-Neal Act also prohibits the Federal Reserve Board
from approving an application if the applicant and its depository institution
affiliates control or would control more than 10% of the insured deposits in the
United States or 30% or more of the deposits in the target bank's home state or
in any state in which the target bank maintains a branch. The Reigle-Neal Act
does not affect the authority of states to limit the percentage of total insured
deposits in the state which may be held or controlled by a bank or bank holding
company to the extent such limitation does not discriminate against out-of-state
banks or bank holding companies. Individual states may also waive the 30%
statewide concentration limit contained in the Reigle-Neal Act.
Additionally, the federal banking agencies are authorized to approve
interstate merger transactions without regard to whether such transaction is
prohibited by the law of any state, unless the home state of one of the banks
opts out of the Reigle-Neal Act by adopting a law, which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving out-of-
state banks, after the date of enactment of the Reigle-Neal Act and prior to
June 1, 1997. North Carolina has enacted legislation permitting interstate
banking transactions. Interstate acquisitions of branches will be permitted only
if the law of the state in which the branch is located permits such
acquisitions. Interstate
89
<PAGE>
mergers and branch acquisitions will also be subject to the nationwide and
statewide insured deposit concentration amounts described above.
The Reigle-Neal Act authorizes the FDIC to approve interstate branching de
novo by state banks only in states which specifically allow for such branching.
Pursuant to the Riegle-Neal Act, the appropriate federal banking agencies have
adopted regulations which prohibit any out-of-state bank from using the
interstate branching authority primarily for the purpose of deposit production.
These regulations include guidelines to ensure that interstate branches operated
by an out-of-state bank in a host state are reasonably helping to meet the
credit needs of the communities which they serve.
Dividends. The Federal Reserve Board has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve Board'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 Board 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 Board pursuant to FDICIA, the Federal Reserve Board may
prohibit a bank holding company from paying any dividends if the holding
company's bank subsidiary is classified as "undercapitalized". For a definition
of "undercapitalized" institution, see "-- Depository Institution Regulation --
Prompt Corrective Regulatory Action."
Bank holding companies are required to give the Federal Reserve Board 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 the their
consolidated retained earnings. The Federal Reserve Board may disapprove such a
purchase or redemption if it determines that the proposal would constitute an
unsafe or unsound practice or would violate any law, regulation, Federal Reserve
Board order, or any condition imposed by, or written agreement with, the Federal
Reserve Board. Bank holding companies whose capital ratios exceed the
thresholds for "well-capitalized" banks on a consolidated basis are exempt from
the foregoing requirement if they were rated composite 1 or 2 in their most
recent inspection and are not the subject of any unresolved supervisory issues.
FEDERAL SECURITIES LAW
1st State Bancorp has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended, for the registration of the common stock to
be issued in the conversion. Following the conversion, the common stock will be
registered with the SEC under the Securities Exchange Act of 1934, as amended.
1st State Bancorp will then be subject to the information, proxy solicitation,
insider trading restrictions and other requirements of the Exchange Act.
The registration under the Securities Act of the common stock does not
cover the resale of such shares. Nonaffiliates may resell shares without
registration. Shares purchased by an affiliate of 1st State Bancorp will be
subject to the resale restrictions of Rule 144 under the Securities Act. If 1st
State Bancorp meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of 1st State Bancorp who complies with
the other conditions of Rule 144 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 1% of the outstanding shares of 1st State Bancorp or the
average weekly volume of trading in such shares during the preceding four
calendar weeks. 1st State Bancorp may in the future permit affiliates to have
their shares registered for sale under the Securities Act under certain
circumstances. There are currently no demand registration rights outstanding.
However, in the event 1st State Bancorp at some future time determines to issue
additional shares from its authorized but unissued shares, 1st State Bancorp
might offer registration rights to certain of its affiliates who want to sell
their shares.
90
<PAGE>
TAXATION
GENERAL
1st State Bank files a federal income tax return based on a fiscal year
ending September 30.
FEDERAL INCOME TAXATION
Savings institutions such as 1st State Bank are subject to the provisions
of the Internal Revenue Code in the same general manner as other corporations.
Through tax years beginning before December 31, 1995, institutions such as 1st
State Bank which met certain definitional tests and other conditions prescribed
by the Internal Revenue Code benefitted from certain favorable provisions
regarding their deductions from taxable income for annual additions to their bad
debt reserve. For purposes of the bad debt reserve deduction, loans are
separated into "qualifying real property loans," which generally are loans
secured by interests in certain real property, and "nonqualifying loans", which
are all other loans. The bad debt reserve deduction with respect to
nonqualifying loans must be based on actual loss experience. The amount of the
bad debt reserve deduction with respect to qualifying real property loans may be
based upon actual loss experience (the "experience method") or a percentage of
taxable income determined without regard to such deduction (the "percentage of
taxable income method"). Under the experience method, the bad debt deduction for
an addition to the reserve for qualifying real property loans was an amount
determined under a formula based generally on the bad debts actually sustained
by a savings institution over a period of years. Under the percentage of taxable
income method, the bad debt reserve deduction for qualifying real property loans
was computed as 8% of a savings institution's taxable income, with certain
adjustments. We generally elected to use the method which has resulted in the
greatest deductions for federal income tax purposes in any given year.
Legislation that is effective for tax years beginning after December 31,
1995 requires institutions to recapture into taxable income over a six taxable
year period the portion of the tax loan reserve that exceeds the pre-1988 tax
loan loss reserve. As a result of changes in the law, saving institutions were
required to change to either the reserve method or the specific charge-off
method that applied to banks.
We are not required to provide a deferred tax liability for the tax effect
of additions to the tax bad debt reserve through 1987, the base year. Retained
income at September 30, 1998 includes approximately $4.2 million for which no
provision for federal income tax has been made. These amounts represent
allocations of income to bad debt deductions for tax purposes only. Reduction of
such amounts for purposes other than tax bad debt losses could create income for
tax purposes in certain remote instances, which would be subject to the then
current corporate income tax rate.
Our federal income tax returns have not been audited since 1993.
For additional information on our policies regarding tax and accounting
matters, see our consolidated financial statements and related notes, which you
can find beginning on page F-1 of this document.
STATE INCOME TAXATION
Under North Carolina law, the corporate income tax currently is 7.25% of
federal taxable income as computed under the Internal Revenue Code, subject to
certain prescribed adjustments. This rate will be reduced to 7.00% for 1999 and
6.9% for 2000 and thereafter. In addition, for tax years beginning in 1991,
1992, 1993 and 1994, corporate taxpayers were required to pay a surtax equal to
4%, 3%, 2% and 1%, respectively, of the state income tax otherwise payable. An
annual state franchise tax is imposed at a rate of .15% applied to the greatest
of the institution's (i) capital stock, surplus and undivided profits, (ii)
investment in tangible property in North Carolina, or (iii) appraised valuation
of property in North Carolina.
91
<PAGE>
For additional information regarding taxation, see Notes 1 and 10 of the
notes to the consolidated financial statements, which you can find beginning on
page F-1 of this document.
MANAGEMENT OF 1ST STATE BANCORP, INC.
The board of directors of 1st State Bancorp consists of the same
individuals who serve as directors of 1st State Bank. Their biographical
information is set forth under "Management of 1st State Bank -- Directors." The
board of directors of 1st State Bancorp is divided into three classes. Directors
of 1st State Bancorp will serve for three year terms or until their successors
are elected and qualified, with approximately one-third of the directors being
elected at each annual meeting of stockholders, beginning with the first annual
meeting of stockholders following the conversion. Directors Bean, McGill and
Stadler have terms of office expiring at the 2000 annual meeting, Directors
Barnwell, McClure and Quakenbush have terms of office expiring at the 2001
annual meeting, and Directors Keziah and Shirley have terms of office expiring
at the 2002 annual meeting. Under 1st State Bancorp's bylaws, a person who is 75
years of age or older and who is not an employee of 1st State Bancorp or 1st
State Bank is not eligible for election, re-election, appointment, or re-
appointment to the board of directors, and a non-employee director may not serve
beyond the annual meeting of 1st State Bancorp immediately following the non-
employee director becoming 75.
The following individuals hold the offices in 1st State Bancorp set forth
below opposite their names.
Name Title
---- -----
James C. McGill President and Chief Executive Officer
A. Christine Baker Treasurer and Secretary
Fairfax C. Reynolds Vice President and Assistant Secretary
The executive officers of 1st State Bancorp 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 of 1st State
Bancorp.
Since the formation of 1st State Bancorp, none of the executive officers,
directors or other personnel have received remuneration from 1st State Bancorp.
Information concerning the principal occupations and employment of the directors
and executive officers of 1st State Bancorp during the past five years is set
forth under "Management of 1st State Bank -- Directors" and "-- Executive
Officers Who Are Not Directors." Executive officers and directors of 1st State
Bancorp will be compensated as described below under "Management of 1st State
Bank."
MANAGEMENT OF 1ST STATE BANK
DIRECTORS
Because we are a mutual savings bank, our members have elected our board of
directors. Following the conversion, the directors of 1st State Bank immediately
prior to the conversion will continue to serve as directors. Currently, the term
of each director is one year, and all of the members of the board of directors
stand for election each year. This will continue to be the case for 1st State
Bank following the conversion. Because 1st State Bancorp will own all the issued
and outstanding capital stock of 1st State Bank following the conversion, the
board of directors of 1st State Bancorp will elect the directors of 1st State
Bank.
92
<PAGE>
The following table sets forth information regarding the individuals who
serve currently as members of our board of directors. There are no arrangements
or understandings between us and any director by which such person has been
elected a director, and no director is related to any other director or
executive officer by blood, marriage or adoption. All directors= terms expire in
December 1999.
<TABLE>
<CAPTION>
AGE AT
SEPTEMBER 30,
Name 1998 DIRECTOR SINCE
- ---- ---- --------------
<S> <C> <C>
James A. Barnwell, Jr. 58 1988
Bernie C. Bean 68 1978
Richard C. Keziah 66 1983
James G. McClure 53 1989
James C. McGill 57 1988
T. Scott Quakenbush 67 1978
Richard H. Shirley 51 1987
Virgil L. Stadler 62 1982
</TABLE>
Presented below is certain information concerning our directors. Unless
otherwise stated, all directors have held the positions indicated for at least
the past five years.
JAMES A. BARNWELL, JR. is president of Huffman Oil Co., Inc., a petroleum
marketer in Burlington, North Carolina. He has served on the advisory board of
the Salvation Army Boys & Girls Club and the YMCA board.
BERNIE C. BEAN is retired. From 1988 to 1995 he was the national sales
manager of Craftique, Inc., a furniture manufacturer located in Mebane, North
Carolina.
RICHARD C. KEZIAH is president of Monarch Hosiery Mills, Inc. in
Burlington, North Carolina. He also serves on the board of directors of Elon
Homes for Children.
JAMES G. MCCLURE is president of Green & McClure, a retail furniture store
in Graham, North Carolina. He has served as president of the Graham Area
Business Association, on the zoning board for the city of Graham and is an Elder
at the Graham Presbyterian Church.
JAMES C. MCGILL has been our President and Chief Executive Officer since
December 1988. He serves on the Boards of Hospice of Alamance and Alamance
Community College and in 1997 served as the chairman of the North Carolina
Bankers Association.
T. SCOTT QUAKENBUSH retired in April 1997 from his position as vice
president and sales manager with Carolina Paper Box Company in Burlington, North
Carolina.
RICHARD H. SHIRLEY is president of Dick Shirley Chevrolet, Inc., an
automobile dealership located in Burlington, North Carolina. He has served as
the president of the Alamance County YMCA and as a member and chairman of the
Economic Development Committee of the Burlington area Chamber of Commerce.
VIRGIL L. STADLER is the vice president of Stadler Country Hams, Inc. in
Elon College, North Carolina. He is active with the ACC Foundation, Elon Homes
for Children and the Burlington area Chamber of Commerce.
93
<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following sets forth information with respect to executive officers of
1st State Bank who do not serve on the board of directors.
<TABLE>
<CAPTION>
AGE AT
SEPTEMBER 30,
NAME 1998 TITLE WITH 1ST STATE BANK
- ---- ------ --------------------------
<S> <C> <C>
A. Christine Baker 45 Executive Vice President - Chief
Financial Officer, Secretary and
Treasurer
Fairfax C. Reynolds 45 Executive Vice President - Commercial
and Retail Banking
Frank Gavigan 40 Senior Vice President - Senior Credit
Officer
John D. Hansell 61 Manager - First Capital Services, LLC
</TABLE>
A. CHRISTINE BAKER has served as our Executive Vice President, Secretary
and Treasurer since April 1985. She has served as president and director of the
Burlington Rotary Club, director and treasurer of the local chapter of the
American Red Cross and director and vice president of the Childcare Resource and
Referral Service.
FAIRFAX C. REYNOLDS has served as our Executive Vice President in charge of
Retail and Commercial Banking since 1989. He serves on the board of directors of
YMCA of Alamance County, the Alamance County Arts Council, the Alamance County
Area Chamber of Commerce and the Alamance Country Club. He is an Elder of the
First Presbyterian Church.
FRANK GAVIGAN has served as our Senior Vice President - Senior Credit
Officer since 1990. He has served as the budget director and on the executive
committee of the United Way, as Vice President and a director of Alamance County
Meals on Wheels, as President and a director of Alamance Prevention Alliance and
on the finance committee of Front Street United Methodist Church.
JOHN D. HANSELL has served since May 1987 as Manager of 1st Capital
Services Company, LLC and its predecessor, First Capital Services, Inc.,
entities we own that sell annuities, mutual funds and insurance products on an
agency basis. He has served on the small business council of the Alamance
Chamber of Commerce and on the board of directors of the International
Association of Financial Planners.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors meets monthly and may have additional special
meetings. During the year ended September 30, 1998, the board met 12 times. No
director attended fewer than 75% in the aggregate of the total number of Board
meetings held during the year ended September 30, 1998 and the total number of
meetings held by committees on which he served during such fiscal year. The
board of directors has standing Audit and Executive Committees.
The board of directors' Audit Committee consists of Directors Keziah,
Quakenbush and Stadler, who serves as Chairperson. The Audit Committee met one
time during the year ended September 30, 1998. The function of the Audit
Committee is to examine and approve the audit report prepared by the independent
auditors, to review and recommend the independent auditors to be engaged by 1st
State Bank, to review the internal audit function and internal accounting
controls, and to review and approve audit policies.
The board of directors' Executive Committee consists of Directors McGill,
Barnwell, Shirley and Keziah and one additional director who serves on a
rotating basis for a three-month period. The Executive Committee, among other
things, evaluates the compensation and benefits of the directors, officers and
employees, recommends changes,
94
<PAGE>
and monitors and evaluates employee performance. The Executive Committee reports
its evaluations and findings to the full board of directors and all compensation
decisions are ratified by the full board of directors. Directors of 1st State
Bank who also are officers of 1st State Bank abstain from discussion and voting
on matters affecting their compensation. The Executive Committee also monitors
the performance of our investment portfolio and reviews loans. The Executive
Committee is empowered to exercise all of the authority of the board when the
board is not in session. The Executive Committee met 12 times during the fiscal
year ended September 30, 1998.
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for the
last fiscal year awarded to or earned by the President and the four other
executive officers who earned salary and bonus in fiscal 1998 exceeding $100,000
for services rendered in all capacities to 1st State Bank.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------------
Name and Fiscal Other Annual All Other
Principal Position Year Salary Bonus Compensation (1) Compensation (2)
- ------------------ ---- ------ ----- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
James C. McGill 1998 $175,000 $ 257,000 -- 107,352
President and Chief
Executive Officer
A. Christine Baker 1998 95,000 128,500 -- 44,469
Executive Vice President,
Treasurer and Secretary
Fairfax C. Reynolds 1998 95,000 128,500 -- 47,476
Executive Vice President
Frank Gavigan 1998 76,000 30,000 -- 10,260
Senior Vice President
John D. Hansell 1998 42,000 68,220 (3) -- 5,460
Manager
</TABLE>
____________________
(1) Executive officers receive indirect compensation in the form of certain
perquisites and other personal benefits. The amount of such benefits
received by the named executive officer in fiscal 1998 did not exceed 10%
of the executive officer's salary and bonus.
(2) Includes $4,800, $2,850, $2,850, $2,280 and $1,260 in matching
contributions under 1st State Bank's 401(k) Plan and $20,580, $10,830,
$10,830, $7,980 and $4,200 in accruals made pursuant to 1st State Bank's
Money Purchase Pension Plan for executive officers McGill, Baker, Reynolds,
Gavigan and Hansell, respectively. The Money Purchase Pension Plan was
terminated effective September 30, 1998. Also includes $81,972, $30,789 and
$33,766 accrued under our Deferred Compensation Plan for the benefit of
executive officers McGill, Baker and Reynolds, respectively, for service as
an employee during the year ended September 30, 1998. Does not include
amounts accrued pursuant to such plan during the year ended September 30,
1998 for service in prior years.
(3) Consists of commissions.
Employee Stock Ownership Plan. We have established the employee stock
ownership plan for the exclusive benefit of our participating employees, to be
implemented upon the completion of the conversion. Participating employees are
employees who have completed one year of service with us, including at least
1,000 hours of service, and have attained the age of 21. An application for a
letter of determination as to the tax-qualified status of the employee stock
ownership plan will be submitted to the Internal Revenue Service. Although no
assurances can be given, we expect that the employee stock ownership plan will
receive a favorable letter of determination from the Internal Revenue
Service.
95
<PAGE>
The employee stock ownership plan is to be funded by contributions made by
us in cash or common stock. Benefits may be paid either in shares of the common
stock or in cash. In accordance with the Plan, the employee stock ownership plan
may borrow funds to acquire up to 8% of the common stock issued in the
conversion. The employee stock ownership plan intends to borrow funds from 1st
State Bancorp. We expect the loan to be for a term of 10 years at an annual
interest rate equal to the prime rate, adjusted annually on each October 1st.
Presently, we anticipate that the employee stock ownership plan will purchase up
to 8% of the common stock to be issued in the offering, including shares
contributed to the foundation. This would total 190,080 shares at the midpoint
of the offering range. If we receive orders for more shares than are available,
the employee stock ownership plan will purchase shares in the open market after
the conversion. The loan will be secured by the shares purchased. Shares
purchased with such loan proceeds will be held in a suspense account for
allocation among participant accounts as the loan is repaid. We anticipate
contributing approximately $285,000 annually, based on a 190,080 share purchase
at $15.00 per share, to the employee stock ownership plan to meet principal
obligations under the employee stock ownership plan loan, as proposed. It is
anticipated that all such contributions will be tax-deductible. This loan is
expected to be fully repaid in approximately 10 years.
Contributions to the employee stock ownership plan and shares released from
the suspense account will be allocated among participant accounts on the basis
of each participant's annual wages subject to federal income tax withholding,
plus any amounts withheld under a plan qualified under Section 125 or 401(k) of
the Code and sponsored by us. All participants must be employed at least 500
hours in a plan year in order to receive an allocation. Participants will
become 20% vested in their employee stock ownership plan account balances
beginning in their third year for each year of service, up to a maximum of 100%
for seven years of service, with no more than five years of service credited for
employment before October 1, 1998. Vesting will be accelerated upon retirement,
death, disability, change in control of 1st State Bancorp, or termination of the
employee stock ownership plan. Forfeitures will be reallocated to participants
on the same basis as other contributions in the plan year. Benefits will be
payable in the form of a lump sum upon retirement, death, disability or
separation from service. Our contributions to the employee stock ownership plan
are discretionary and may cause a reduction in other forms of compensation.
Therefore, benefits payable under the employee stock ownership plan cannot be
estimated.
In the event of a change in control of 1st State Bancorp, the outstanding
balance of any loans used to finance the purchase of shares by the employee
stock ownership plan will be paid off through a transfer or sale of shares held
as collateral under such loan, with any remaining shares allocated to
participant accounts pro rata based on their account balances. Participants
terminating employment on or after the change in control will be entitled to
receive a cash payment from 1st State Bancorp or its successor equal to the
amount, if any, which would have been allocated to the participant's account
immediately following the change in control but was precluded from allocation
based on allocation limits applicable under federal tax laws.
The board of directors has appointed non-employee directors to the employee
stock ownership plan committee to administer the employee stock ownership plan
and to serve as the initial employee stock ownership plan trustees. The board of
directors or the employee stock ownership plan committee may instruct the
employee stock ownership plan trustees regarding investments of funds
contributed to the employee stock ownership plan. The employee stock ownership
plan trustees must vote all allocated shares held in the employee stock
ownership plan in accordance with the instructions of the participating
employees. Unallocated shares and allocated shares for which no timely direction
is received will be voted by the trustees as directed by the board of directors
or the employee stock ownership plan committee, subject to the trustees'
fiduciary duties.
401(k) Plan. Our 401(k) Plan has been amended to allow participants
initially and on an ongoing basis to direct that all or part of their account
balances be invested in our common stock. Participants will retain the right to
vote those shares held in trust for them under the 401(k) Plan.
Employment Agreements and Guaranty Agreements. 1st State Bank has entered
into employment agreements with James C. McGill, A. Christine Baker and Fairfax
C. Reynolds. The board believes that the employment
96
<PAGE>
agreements assure fair treatment of the employees in their careers with us by
assuring them of some financial security. The proposed employment agreements
will require FDIC approval prior to becoming effective.
The employment agreements will become effective on the date of the
conversion and will provide for a term of three years, with an annual base
salary equal to the employee's existing base salary rate in effect on the date
of conversion. On each anniversary date of the commencement of the employment
agreements, the term of the employee's employment will be extended for an
additional one-year period beyond the then effective expiration date upon a
determination by our board of directors that the performance of the employee has
met the required performance standards and that such employment agreements
should be extended. The employment agreements provide the employee with a salary
review by the board of directors not less often than annually, as well as with
inclusion in any discretionary bonus plans, retirement and medical plans,
vacation and sick leave and any fringe benefits that become available to senior
management, including for example, any stock option or incentive compensation
plans and any other benefits commensurate with their responsibilities. If the
board decides not to renew an employment agreement for any reason, and if the
employee remains an employee of 1st State Bank until the Agreement expires, 1st
State Bank must pay the employee an amount equal to two times total compensation
if the employee is later terminated.
The employment agreements terminate upon the employee's death, may
terminate upon the employee's disability and are determinable for just cause, no
severance benefits are available. If we terminate the employee without just
cause, the employee is entitled to receive three times total compensation as
well as continued medical and dental insurance under any group plan chosen by
the employee from the plans we maintain, unless that coverage is not permitted
by the terms of such plan, in which case we will remit to the employee, not less
frequently than monthly, the actual cost to the employee of equivalent
insurance. These provisions shall be in addition to, and not in lieu of, any
other rights that the employee has under the employment agreement, and shall
continue until the employee first becomes eligible for participation in
Medicare. If the employment agreements are terminated due to the employee's
"disability" as defined in the employment agreements, the employee will be
entitled to a continuation of his or her salary and benefits through the date of
termination, including any period prior to the establishment of the employee's
disability. In the event of the employee's death during the term of the
employment agreements, his or her estate will be entitled to receive three times
total compensation determined as of the date of death. Each employee is able to
voluntarily terminate his or her employment agreement by providing 90 days'
written notice to the board of directors, in which case the employee is entitled
to receive only his or her compensation, vested rights, and benefits up to the
date of termination.
We will pay a severance benefit equal to the difference between the product
of 2.99 and the employee's "base amount" as defined in the Internal Revenue Code
Section 280G(b)(3) and the sum of any other "parachute payments" as defined
under Code Section 280G(b)(2) that the employee receives on account of the
change in control, and (ii) provide long-term disability and medical insurance
for 18 months if any of the following occur:
. the employee's involuntary termination of employment other than for
"just cause" during the period beginning six months before a change in
control and ending on the later of the first anniversary of the change
in control or the expiration date of the employment agreements (the
"Protected Period");
. the employee's voluntary termination within 90 days of the occurrence of
certain specified events occurring during the Protected Period which
have not been consented to by the employee; or
. the employee's voluntary termination of employment for any reason within
the 30-day period beginning on the date of the change in control.
The employee will be paid either in one lump sum within ten days of the
later of the date of the change in control and the employee's last day of
employment or if prior to the date which is 90 days before the date on which a
change in control occurs, the employee filed a duly executed irrevocable written
election, payment of such amount
97
<PAGE>
shall be made according to the elected schedule. "Change in control" generally
refers to the acquisition, by any person or entity, of the ownership or power to
vote more than 25% of our voting stock, the control of the election of a
majority of our directors, or the exercise of a controlling influence over our
management or policies. In addition, under the employment agreements, a change
in control occurs when, during any consecutive two-year period, directors of 1st
State Bancorp or 1st State Bank at the beginning of such period cease to
constitute two-thirds of the board of directors of 1st State Bancorp or 1st
State Bank, unless the election of replacement directors was approved by a two-
thirds vote of the initial directors then in office. The employment agreements
provide that within 10 business days of a change in control, we must deposit in
a trust an amount equal to the Internal Revenue Code Section 280G maximum. The
payments that would be made to Mr. McGill, Ms. Baker and Mr. Reynolds assuming
termination of employment under the foregoing circumstances at September 30,
1998 would have been approximately $1.1 million, $539,000 and $539,000,
respectively. These provisions may have an anti-takeover effect by making it
more expensive for a potential acquiror to obtain control of 1st State Bancorp.
For more information, see "Anti-Takeover Provisions in Our Corporate Documents
- --Benefit Plans." In the event that the employee prevails over us, or obtains a
written settlement, in a legal dispute as to the employment agreement, he or she
will be reimbursed for legal and other expenses.
In addition to the employment agreements, 1st State Bancorp has entered
into guaranty agreements with each of the employees. The guaranty agreements
provide that 1st State Bancorp will perform all covenants and honor all
obligations required to be performed or to which 1st State Bank is subject
pursuant to the employment agreements in the event that such covenants are not
performed or obligations are not honored by 1st State Bank, and that to the
extent permitted by law, 1st State Bancorp will be jointly and severally liable
with 1st State Bank for the payment of all amounts due under the employment
agreements. The guarantee agreements provide the employee with a salary review
by the board of directors not less often than annually, as well as with
inclusion in any discretionary bonus plans, retirement and medical plans,
customary fringe benefits, vacation and sick leave.
DIRECTOR COMPENSATION
Fees. Each non-employee member of 1st State Bank's board of directors
receives a monthly retainer fee based on the following schedule:
. the Chairman of the Board - $2,000;
. members of the Executive Committee - $1,750; and
. other directors - $1,500.
Officers who are directors are not compensated for their service as directors.
Directors also will participate in certain of our benefit plans. See " --
Proposed Future Stock Benefit Plans" for a description of the plans in which
directors will participate.
Deferred Compensation Plan. We adopted the 1st State Bank Deferred
Compensation Plan, effective September 24, 1997 for our directors and select
executive officers. Under the plan, before each fiscal year begins, each non-
employee director may elect to defer receipt of all or part of his future fees
and any other participant may elect to defer receipt of up to 25% of his or her
salary or 100% of his or her bonus compensation for the year. Deferred amounts
are credited at the end of the calendar year to bookkeeping accounts in the name
of each participant.
Under the plan, the accounts of directors Barnwell, Bean, Keziah, McClure,
Quakenbush, Shirley and Stadler were credited, on the plan's effective date,
with $79,152, $70,672, $90,460, $62,819, $70,672, $79,152 and $70,672,
respectively, with respect to prior years of service up to nine years. On each
September 30 after 1997, we will credit the accounts of directors Barnwell,
Bean, Keziah, McClure, Quakenbush, Shirley, and Stadler with $8,795, $7,852,
$10,051, $7,852, $7,852, $8,795 and $7,852, respectively, provided that such
annual credits shall not be made for the benefit of non-employee directors after
12 years of service credits. Similarly, the plan provides supplemental executive
retirement benefits for executive officers McGill, Baker and Reynolds through
initial credits of $737,729, $277,098 and
98
<PAGE>
$270,126, respectively, on September 24, 1997 and, through annual credits, on
each September 30th after 1997, of $81,972, $30,789 and $33,766, respectively.
Each participant is fully vested in his account balance under the plan.
Until distributed in accordance with the terms of the plan, each
participant's account will be credited with a rate of return equal to our
highest rate of interest paid on our one-year certificates of deposit. After the
conversion, each participant may prospectively elect to instead have all or part
of his account credited with the total return on the common stock. Account
balances will normally be distributed in five substantially equal annual
installments beginning during the first quarter of the calendar year following
the calendar year in which the participant ceases to be a director or employee,
with any subsequent payments being made by the last day of the first quarter of
each subsequent calendar year until the participant has received the entire
amount of his or her account. Participants may, however, elect to receive their
distributions in a lump sum or in installments paid over a period of up to 10
years. In the event of a participant's death, the balance of his plan account
will be paid in a lump sum (unless the participant elects to continue the
previously designated distribution method) to his designated beneficiary, or if
none, his estate.
We have established a trust in order to hold assets with which to pay plan
benefits to participants. Trust assets are subject to claims of general
creditors. In the event a participant prevails over us in a legal dispute as to
the terms or interpretation of the plan, he or she would be reimbursed for his
legal and other expenses.
PROPOSED FUTURE STOCK BENEFIT PLANS
Stock Option Plan. We intend to adopt a stock option plan following the
conversion, subject to approval by 1st State Bancorp's stockholders if required
by applicable law. We currently expect to implement this plan no sooner than one
year after the conversion. However, 1st State Bancorp may hold a stockholders'
meeting as soon as six months after the conversion to adopt the option
plan.
If the option plan is adopted during the first year following the
conversion, the option plan would be in compliance with the FDIC conversion
regulations in effect. For a list of the restrictions that the FDIC conversion
regulations would place on the option plan, see "-- Restrictions on Stock
Benefit Plans." If the option plan is implemented more than one year after the
conversion, which we expect, the option plan will comply with FDIC regulations
and policies that are applicable at that time. If the option plan is implemented
within one year after the conversion, in accordance with FDIC regulations, a
number of shares equal to 10% of the aggregate shares of common stock to be
issued in the offering, including shares contributed to the foundation, would be
reserved for issuance by 1st State Bancorp upon exercise of stock options to be
granted to our officers, directors and employees from time to time under the
option plan. The purpose of the option plan would be to provide additional
performance and retention incentives to certain officers, directors and
employees by facilitating their purchase of a stock interest in 1st State
Bancorp. Under the FDIC regulations, the option plan would provide for a term of
10 years after which no awards could be made, unless earlier terminated by the
board of directors pursuant to the option plan. The options would vest over a
five year period, beginning one year after the grant of the option, if the
option plan is implemented within one year of the conversion. Options would
expire no later than 10 years from the date granted and could expire earlier in
the event of termination of employment. Options would be granted based upon
several factors, including seniority, job duties and responsibilities, job
performance, our financial performance and a comparison of awards given by other
savings institutions converting from mutual to stock form.
1st State Bancorp would receive no monetary consideration for the granting of
stock options under the option plan. It would receive the option exercise price
for each share issued to optionees upon the exercise of such options. Shares
issued as a result of the exercise of options will be either authorized but
unissued shares or shares purchased in the open market by 1st State Bancorp. The
exercise of options and payment for the shares received would contribute to the
equity of 1st State Bancorp.
Restricted Stock Plan. We intend to adopt a restricted stock plan following
the conversion. The objective of the plan is to enable us to retain personnel
and directors of experience and ability in key positions of responsibility.
99
<PAGE>
We expect to implement the restricted stock plan no sooner than one year after
the conversion, subject to any stockholder approval required by law, but may
elect instead to hold a stockholders' meeting as early as six months after the
conversion.
If the restricted stock plan is implemented within one year or more after
the conversion, in accordance with applicable FDIC regulations, the shares
granted under the restricted stock plan will be in the form of restricted stock
vesting over a five-year period beginning one year after the date of grant of
the award. Additionally, the number of shares to be granted could not exceed 4%
of the shares sold in the conversion, including shares contributed to the
foundation, if the restricted stock plan is adopted during the first year
following conversion. If the restricted stock plan is implemented more than one
year after the conversion, the restricted stock plan will comply with FDIC
regulations and policies that are applicable at that time.
Compensation expense in the amount of the fair market value of the common
stock granted will be recognized pro rata over the years during which the shares
are payable. Until they have vested, shares may not be sold, pledged or
otherwise disposed of and are required to be held in escrow. Any shares not so
allocated would be voted by the restricted stock plan trustees. Awards would be
granted based upon a number of factors, including seniority, job duties and
responsibilities, job performance, our performance and a comparison of awards
given by other institutions converting from mutual to stock form. The
restricted stock plan would be managed by a committee of non-employee directors.
They would have the responsibility to invest all funds contributed by us to the
trust created for the restricted stock plan.
We expect to contribute sufficient funds to the restricted stock plan so
that the restricted stock plan trust can purchase, in the aggregate, up to 4% of
the amount of common stock that is sold in the conversion, including shares
contributed to the foundation. The shares purchased by the restricted stock
plan could be authorized but unissued shares or could be purchased in the open
market. Whether such shares will be purchased in the open market or newly
issued of 1st State Bancorp, and the timing of such purchases, will depend on
market and other conditions and the alternative uses of capital available. If
the market price of the common stock is greater than the per share conversion
offering price when awards are made, our contribution of funds will be
increased. Likewise, if the market price is lower than the per share conversion
offering price, our contribution will be decreased. In recognition of their
prior and expected services to us and 1st State Bancorp, as the case may be, the
officers, other employees and directors responsible for implementation of the
policies adopted by the board of directors and our profitable operation will,
without cost to them, be awarded stock under the restricted stock plan. Based
upon the issuance of 2,200,000 shares of common stock in the offering at the
midpoint of the offering range and the contribution of 176,000 shares of common
stock to the foundation, the restricted stock plan trust is expected to purchase
up to 95,040 shares of common stock.
Restrictions on Stock Benefit Plans. FDIC regulations provide that in the
event we implement stock option or management and/or employee stock benefit
plans within one year from the date of conversion, such plans must comply with
the following restrictions:
. the plans must be fully disclosed in the prospectus;
. all plans must be approved by a majority of the total votes eligible to
be cast at any duly called meeting of 1st State Bancorp's stockholders
held no earlier than six months following the conversion;
. for stock option plans, the exercise price must be at least equal to the
market price of the stock at the time of grant; and
. for restricted stock plans such as the restricted stock plan, no stock
issued in a conversion may be used to fund the plan.
100
<PAGE>
In addition, the FDIC presumes that a stock option plan or restricted stock plan
that does not conform to applicable Office of Thrift Supervision percentage
limitations constitutes excessive insider benefits. These percentage
limitations are:
. for stock option plans, the total number of shares for which options
may be granted may not exceed 10% of the shares issued in the
conversion, including shares issued to a charitable foundation;
. for restricted stock plans such as the restricted stock plan, the
shares may not exceed 3% of the shares issued in the conversion,
including shares issued to a charitable foundation (4% for
institutions with 10% or greater tangible capital);
. the aggregate amount of stock purchased by the employee stock
ownership plan in the conversion may not exceed 10% (8% for well-
capitalized institutions utilizing a 4% restricted stock plan) of the
shares issued in the conversion, including shares issued to a
charitable foundation;
. no individual employee may receive more than 25% of the available
awards under the option plan or the restricted stock plan;
. directors who are not employees may not receive more than 5%
individually or 30% in the aggregate of the awards under any plan;
and
. neither stock option awards nor restricted stock awards may vest
earlier than 20% as of one year after the date of stockholder approval
and 20% per year thereafter, and vesting may be accelerated only in
the case of disability or death (or if not inconsistent with
applicable FDIC regulations in effect at such time, in the event of a
change in control).
TRANSACTIONS WITH MANAGEMENT
We offer loans to our directors and officers. These loans were made in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal risk of
collectibility or present other unfavorable features. Under current law, our
loans to directors and executive officers are required to be made on
substantially the same terms, including interest rates, as those prevailing for
comparable transactions with other persons and must not involve more than the
normal risk of repayment or present other unfavorable features. Furthermore, all
loans to such persons must be approved in advance by a disinterested majority of
our board of directors. At September 30, 1998, our loans to our directors and
executive officers and their affiliates totaled $7.5 million, or 29.0% of our
net worth, at that date. See Note 3 of notes to consolidated financial
statements, which you can find beginning on page F-1 of this document.
RESTRICTIONS ON ACQUISITION OF
1ST STATE BANCORP, INC. AND 1ST STATE BANK
CONVERSION REGULATIONS
North Carolina regulations provide that for a period of three years
following the conversion, the prior written approval of the Administrator will
be required before any person may, directly or indirectly, acquire beneficial
ownership of or make any offer to acquire any stock or other equity security of
1st State Bancorp if, after the acquisition or consummation of such offer, such
person would be the beneficial owner of more than 10% of such class of stock or
other class of equity security of 1st State Bancorp. If any person were to so
acquire the beneficial ownership of more than 10% of any class of any equity
security without prior written approval, the securities
101
<PAGE>
beneficially owned in excess of 10% would not be counted as shares entitled to
vote and would not be voted or counted as voting shares in connection with any
matter submitted to stockholders for a vote. Approval is not required for any
offer with a view toward public resale made exclusively to 1st State Bancorp or
its underwriters or the selling group acting on its behalf or any offer to
acquire or acquisition of beneficial ownership of more than 10% of the common
stock of 1st State Bancorp by a corporation whose ownership is or will be
substantially the same as the ownership of 1st State Bancorp, provided that the
offer or acquisition is made more than one year following the consummation of
the conversion. The regulation provides that within one year following the
conversion, the Administrator would approve the acquisition of more than 10% of
beneficial ownership only to protect the safety and soundness of the
institution. During the second and third years after the conversion, the
Administrator may approve such an acquisition upon a finding that the
acquisition is necessary to protect the safety and soundness of 1st State
Bancorp and 1st State Bank or the board of directors of 1st State Bancorp and
1st State Bank support the acquisition and the acquiror is of good character and
integrity and possesses satisfactory managerial skills, the acquiror will be a
source of financial strength to 1st State Bancorp and 1st State Bank and the
public interests will not be adversely affected.
CHANGE IN BANK CONTROL ACT AND BANK HOLDING COMPANY ACT
The Change in Bank Control Act, together with North Carolina regulations,
require that the consent of the Administrator and Federal Reserve Board be
obtained prior to any person or company acquiring "control" of a North Carolina-
chartered savings bank or a North Carolina-chartered savings bank holding
company. The consent of the Commission and the Federal Reserve Board is required
to be obtained prior to any person or company acquiring "control" of a North
Carolina-chartered commercial bank. Upon acquiring control, such acquiror will
be deemed to be a bank holding company. Control is conclusively presumed to
exist if, among other things, an individual or company acquires the power,
directly or indirectly, to direct the management or policies of 1st State
Bancorp or 1st State Bank or to vote 25% or more of any class of voting stock.
Control is rebuttably presumed to exist under the Change in Bank Control Act if,
among other things, a person acquires more than 10% of any class of voting
stock, and the issuer's securities are registered under Section 12 of the
Exchange Act or the person would be the single largest stockholder. Restrictions
applicable to the operations of bank holding companies and conditions imposed by
the Federal Reserve Board in connection with its approval of such acquisitions
may deter potential acquirors from seeking to obtain control of 1st State
Bancorp. See "Regulation -- Regulation of 1st State Bancorp Following the
Conversion" for a further discussion of regulations applicable to bank holding
companies.
VIRGINIA STOCK CORPORATION ACT
Virginia corporate law contains a statute designed to provide Virginia
corporations with additional protections against hostile takeovers. The
Virginia Affiliated Transactions Act restricts certain transactions between a
Virginia corporation and a holder of 10% or more of the corporation's
outstanding voting stock, together with affiliates or associates thereof,
defined as an "interested shareholder". For a period of three years following
the date that a stockholder becomes an interested shareholder, the Virginia
Affiliates Transactions Act generally prohibits the following types of
transactions between the corporation and the interested shareholder unless
certain conditions, described below, are met:
. mergers;
. sales, leases, exchanges, mortgages, pledges, transfers or other
dispositions (in one or a series of transactions) having a total market
value in excess of 5% of the corporation's consolidated net worth;
. any guarantees of indebtedness of any interested shareholder in an
amount in excess of 5% of the corporation's consolidated net worth;
. sales or other dispositions by the corporation or any subsidiary thereof
of any voting shares of the corporation or any subsidiary thereof having
a market value of 5% or more of the total market value
102
<PAGE>
of the outstanding voting shares of the corporation to any interested
shareholder or affiliate of any interested shareholder other than
pursuant to a stock dividend or the exercise of rights or warrants;
. the dissolution of the corporation if proposed by or on behalf of an
interested shareholder;
. any reclassification of securities, including any reverse stock split,
or recapitalization of the corporation, or any merger of the corporation
with any of its subsidiaries or any distribution or other transaction
which has the effect directly or indirectly of increasing by more than
5% the percentage of the outstanding voting shares of the corporation or
any of its subsidiaries beneficially owned by any interested
shareholder; and
. any share exchange in which an interested shareholder acquires a class
or series of the corporation's voting stock,
The affiliated transaction may occur if it is approved by a majority of the
disinterested directors and two-thirds of the disinterested voting shares.
Additionally, after the three-year prohibition on affiliated transactions has
expired, an affiliated transaction must be approved by two-thirds of the votes
cast by disinterested stockholders.
The foregoing voting requirements do not apply if the particular affiliated
transaction has been approved by a majority of the disinterested directors,
meets the rigorous fair price requirements of the Virginia Affiliated
Transactions Act, or qualifies for one of the statutory exemptions. A Virginia
corporation may exempt itself from the requirements of the statute in its
articles of incorporation. 1st State Bancorp has not exempted itself from the
provisions of the Virginia Affiliated Transactions Act. Additionally, the
Virginia Affiliated Transactions Act does not apply to corporations with less
than 300 shareholders of record.
The Virginia Control Share Acquisitions Act prohibits voting rights of
common stock of any person who acquires either one-fifth or more, but less than
one-third, of all voting power of the corporation, one-third or more, but less
than a majority, of the voting power of the corporation, or a majority or more
of the voting power of the corporation, unless such person has delivered an
acquiring person's statement to the corporation, and such voting rights are
approved by a majority of the disinterested shares of stock eligible to vote on
the election of directors. A Virginia corporation may include a provision in
its articles of incorporation or bylaws exempting the corporation from
Virginia's Control Share Acquisitions Statute. 1st State Bancorp, however, has
not exempted itself from the provisions of Virginia's Control Share Acquisitions
Statute. In addition, Virginia's Control Share Acquisitions Statute does not
apply to corporations with less than 300 shareholders.
ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE
DOCUMENTS
While the boards of directors of 1st State Bancorp and 1st State Bank are
not aware of any effort that might be made to obtain control of 1st State
Bancorp after the conversion, 1st State Bancorp=s board of directors, as
discussed below, believes that it is appropriate to include certain provisions
as part of its articles of incorporation to protect the interests of 1st State
Bancorp and its stockholders from hostile takeovers which the board of directors
might conclude are not in the best interests of 1st State Bank, 1st State
Bancorp or 1st State Bancorp's stockholders. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
board of directors but which individual stockholders may deem to be in their
best interests or in which stockholders may receive a substantial premium for
their shares over 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. These provisions also will render the removal of our current board of
directors and management more difficult.
The following discussion is a general summary of certain provisions of the
articles of incorporation and bylaws of 1st State Bancorp which may be deemed to
have such an "anti-takeover" effect. The description of these
103
<PAGE>
provisions is necessarily general and you should read the articles of
incorporation and bylaws of 1st State Bancorp for complete information. For
information regarding how to obtain a copy of these documents without charge,
see "Additional Information."
CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS
1st State Bancorp's articles of incorporation provide that the board of
directors is to be divided into three classes which shall be as nearly equal in
number as possible. The directors in each class will hold office following
their initial appointment to office for terms of one year, two years and three
years, respectively, and, upon reelection, will serve for terms of three years
thereafter. Each director will serve until his or her successor is elected and
qualified. The articles of incorporation provide that a director may be removed
only for cause and only by the affirmative vote of the holders of at least 80%
of the outstanding shares entitled to vote.
A classified board of directors could make it more difficult for
stockholders, including those holding a majority of the outstanding shares, to
force an immediate change in the composition of a majority of the board of
directors. Since the terms of only one-third of the incumbent directors expire
each year, it requires at least two annual elections for the shareholders to
change a majority, whereas a majority of a non-classified board may be changed
in one year. In the absence of the provisions of the articles of incorporation
classifying the board, all of the directors would be elected each year.
We believe that the staggered election of directors tends to promote
continuity of management because only one-third of the board of directors is
subject to election each year. Staggered terms guarantee that in the ordinary
course approximately two-thirds of the directors, or more, at any one time have
had at least one year's experience as directors of 1st State Bancorp, and
moderate the pace of changes in the board of directors by extending the minimum
time required to elect a majority of directors from one to two years.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS
1st State Bancorp's articles of incorporation require the approval of the
holders of at least 80% of 1st State Bancorp's outstanding shares of voting
stock, and at least a majority of 1st State Bancorp's outstanding shares of
voting stock, not including shares deemed beneficially owned by a "related
person," to approve certain "business combinations" as defined in the articles
of incorporation, and related transactions. Under Virginia law, in addition to
this provision, business combinations would be subject to the Virginia
Affiliated Transactions Act and, subject to certain exceptions, must be approved
by the vote of the holders of at least a two-thirds of the outstanding
disinterested shares of common stock. For a discussion of the Virginia
statutory voting and other requirements, see "Restrictions on Acquisition of 1st
State Bancorp and 1st State Bank -- Virginia Stock Corporation Act." The
increased voting requirements in 1st State Bancorp's articles of incorporation
apply in connection with business combinations involving a "related person,"
except in cases where the proposed transaction has been approved in advance by
two-thirds of those members of 1st State Bancorp's board of directors who are
unaffiliated with the related person and who were directors prior to the time
when the related person became a related person (the "continuing directors").
The term "related person" is defined to include any individual, corporation,
partnership or other entity or affiliate thereof which owns beneficially or
controls, directly or indirectly, 10% or more of the outstanding shares of
common stock of 1st State Bancorp. A "business combination" is defined to
include:
. any merger or consolidation of 1st State Bancorp with or into a related
person;
. any sale, lease exchange, transfer, or other disposition of more than
25% of 1st State Bancorp's assets to a related person;
. any merger or consolidation of a related person with or into 1st State
Bancorp or a subsidiary;
104
<PAGE>
. any sale, lease, exchange, transfer or other disposition of all or any
substantial part of the assets of a related person to 1st State Bancorp
or a subsidiary;
. the issuance of any securities of 1st State Bancorp or a subsidiary to a
related person;
. the acquisition by 1st State Bancorp or a subsidiary of any securities
of the related person;
. any reclassification of the common stock, or any recapitalization
involving the common stock; and
. any agreement, contract or other arrangement providing for any of the
above transactions.
LIMITATIONS ON CALL OF MEETINGS OF STOCKHOLDERS
1st State Bancorp's articles of incorporation provide that special meetings
of stockholders may only be called by 1st State Bancorp's board of directors,
President or an appropriate committee appointed by the board of directors.
Stockholders are not authorized to call a special meeting, and stockholder
action may be taken only at a special or annual meeting of stockholders or if a
consent in writing setting forth the action taken is signed by all of the
stockholders entitled to vote on the matter.
ABSENCE OF CUMULATIVE VOTING
1st State Bancorp's articles of incorporation provide that there will not
be cumulative voting by stockholders for the election of 1st State Bancorp's
directors. The absence of cumulative voting rights effectively means that the
holders of a majority of the shares voted at a meeting of stockholders may, if
they so choose, elect all directors of 1st State Bancorp to be elected at that
meeting, thus precluding minority stockholder representation on 1st State
Bancorp's board of directors.
RESTRICTIONS ON ACQUISITIONS OF SECURITIES
The articles of incorporation provide that for a period of three years from
the effective date of the conversion, no person may directly or indirectly offer
to acquire or acquire the beneficial ownership of more than 10% of any class of
the equity security of 1st State Bancorp, unless such offer or acquisition shall
have been approved in advance by a two-thirds vote of 1st State Bancorp's
continuing directors. This provision does not apply to any employee stock
benefit plan of 1st State Bancorp or to an underwriter or member of an
underwriting or selling group involving the public sale or resale of securities
of 1st State Bancorp or a subsidiary; provided, that upon completion of the sale
or resale, no such underwriter or member of the selling group is a beneficial
owner of more than 10% of any class of equity securities of 1st State Bancorp.
In addition, during such three-year period, no shares beneficially owned in
violation of the foregoing percentage limitation, as determined by 1st State
Bancorp's board of directors, will be entitled to vote on any matter submitted
to stockholders for a vote. Additionally, the articles of incorporation provide
for further restrictions on voting rights of shares owned in excess of 10% of
any class of equity security of 1st State Bancorp beyond three years after the
conversion. Specifically, the articles of incorporation provide that if, at any
time after three years following the conversion to stock form, any person
acquires the beneficial ownership of more than 10% of any class of equity
security of 1st State Bancorp, then, with respect to each vote in excess of 10%,
the record holders of voting stock of 1st State Bancorp beneficially owned by
such person shall be entitled to cast only one-hundredth of one vote with
respect to each vote in excess of 10% of the voting power of the outstanding
shares of voting stock of 1st State Bancorp which such record holders would
otherwise be entitled to cast without giving effect to the provision, and the
aggregate voting power of such record holders shall be allocated proportionately
among such record holders. An exception from the restriction is provided if the
acquisition of more than 10% of the securities received the prior approval by a
two-thirds vote of 1st State Bancorp's continuing directors. Under 1st State
Bancorp's articles of incorporation, the restriction on voting shares
beneficially owned in violation of the foregoing limitations is
105
<PAGE>
imposed automatically. In order to prevent the imposition of such restrictions,
the board of directors must take affirmative action approving in advance a
particular offer to acquire or acquisition. Unless the board took such
affirmative action, the provision would operate to restrict the voting by
beneficial owners of more than 10% of 1st State Bancorp's common stock in a
proxy contest.
BOARD CONSIDERATION OF CERTAIN NONMONETARY FACTORS IN THE EVENT OF AN OFFER BY
ANOTHER PARTY
The articles of incorporation of 1st State Bancorp permit the board of
directors, in evaluating a business combination or a tender or exchange offer,
to consider, in addition to the adequacy of the amount to be paid in connection
with any such transaction, certain specified factors and any other factors the
Board deems relevant, including
. the social and economic effects of the transaction on 1st State Bancorp
and its subsidiaries, employees, depositors, loan and other customers,
creditors and other elements of the communities in which 1st State
Bancorp and its subsidiaries operate or are located;
. the business and financial condition and earnings prospects of the
acquiring person or entity; and
. the competence, experience and integrity of the acquiring person or
entity and its or their management.
By having the standards in the articles of incorporation of 1st State Bancorp,
the board of directors may be in a stronger position to oppose any proposed
business combination or tender or exchange offer if the board concludes that the
transaction would not be in the best interest of 1st State Bancorp, even if the
price offered is significantly greater than the then market price of any equity
security of 1st State Bancorp.
We feel a responsibility for maintaining the financial and business
integrity of 1st State Bancorp. Savings institutions and banks and their
holding companies occupy positions of special trust in the communities they
serve. They also provide opportunities for abuse by those who are not of
sufficient experience or competence or financial means to act professionally and
responsibly with respect to management of a financial institution. We want to
manage 1st State Bancorp in the interest of the communities that we serve and
that we and our subsidiary bank maintain our integrity as institutions.
One effect of this provision might be to encourage consultation by an
offeror with the board of directors prior to or after commencing a tender offer
in an attempt to prevent a contest from developing. This provision thus may
strengthen the board of directors' position in dealing with any potential
offeror which might attempt to effect a takeover of 1st State Bancorp. The
provision will not make a business combination regarded by the board of
directors as being in the interests of 1st State Bancorp more difficult to
accomplish, but it will permit the board of directors to determine whether a
business combination or tender or exchange offer is not in the interests of 1st
State Bancorp, and thus to oppose it, on the basis of various factors deemed
relevant.
AUTHORIZATION OF PREFERRED STOCK
1st State Bancorp's articles of incorporation authorize us to issue up to
1,000,000 shares of preferred stock, which conceivably could represent an
additional class of stock required to approve any proposed acquisition. We are
authorized to issue preferred stock from time to time in one or more series
subject to applicable provisions of law, and the board of directors is
authorized to fix the powers, designations, preferences and relative,
participating, optional and other special rights of such shares, including
voting rights and conversion rights. Issuance of the preferred stock could
adversely affect the relative voting rights of holders of the common stock. In
the event of a proposed merger, tender offer or other attempt to gain control of
1st State Bancorp that the board of directors did not approve, it might be
possible for the board of directors to authorized the issuance of a series of
preferred stock with rights and preferences that would impede the completion of
such a transaction. An effect of the possible issuance of preferred
106
<PAGE>
stock, therefore, may be to deter a future takeover attempt. We presently have
no plans or understandings to issue any preferred stock and do not intend to
issue any preferred stock except on terms which we deem to be in the best
interests of 1st State Bancorp and its stockholders. This preferred stock,
together with authorized but unissued shares of common stock, also could
represent additional capital required to be purchased by the acquiror. The
articles of incorporation authorize the issuance of up to 7,000,000 shares of
common stock.
PROCEDURES FOR STOCKHOLDER NOMINATIONS
1st State Bancorp's articles of incorporation provide that any stockholder
desiring to make a nomination for the election of directors or a proposal for
new business at a meeting of stockholders must submit written notice to the
secretary of 1st State Bancorp not less than 30 or more than 60 days in advance
of the meeting. The articles of incorporation further provides that if a
stockholder seeking to make a nomination or a proposal for new business fails to
follow the prescribed procedures, the chairman of the meeting may disregard the
defective nomination or proposal. We believe that it is in the best interests
of 1st State Bancorp and our stockholders to provide sufficient time to enable
management to disclose to stockholders information about a dissident slate of
nominations for directors. This advance notice requirement may also give
management time to solicit its own proxies in an attempt to defeat any dissident
slate of nominations should management determine that doing so is in the best
interest of stockholders generally. Similarly, adequate advance notice of
stockholder proposals will give management time to study such proposals and to
determine whether to recommend to the stockholders that such proposals be
adopted.
AMENDMENT OF BYLAWS
1st State Bancorp's articles of incorporation provides that 1st State
Bancorp's bylaws may be amended either by a two-thirds vote of 1st State
Bancorp's board of directors or by the affirmative vote of the holders of not
less than 80% of the outstanding shares of 1st State Bancorp's stock entitled to
vote generally in the election of directors. 1st State Bancorp's bylaws contain
numerous provisions concerning 1st State Bancorp's governance, such as fixing
the number of directors. By reducing the ability of a potential corporate
raider to make changes in 1st State Bancorp's bylaws and to reduce the authority
of the board of directors or impede its ability to manage 1st State Bancorp,
this provision could have the effect of discouraging a tender offer or other
takeover attempt where the ability to make fundamental changes through bylaw
amendments is an important element of the takeover strategy of the
acquiror.
AMENDMENT OF ARTICLES OF INCORPORATION
1st State Bancorp's articles of incorporation provide that specified
provisions contained in the articles of incorporation may not be repealed or
amended except upon the affirmative vote of not less than 80% of the outstanding
shares of 1st State Bancorp's stock entitled to vote generally in the election
of directors, after giving effect to any limits on voting rights. This
requirement exceeds the two-thirds vote of the outstanding stock that would
otherwise be required by Virginia law for the repeal or amendment of a provision
of the articles of incorporation. The specific provisions are those:
. governing the calling of special meetings, the absence of cumulative
voting rights and the requirement that stockholder action be taken only
at annual or special meetings or by unanimous written consent,
. requiring written notice to 1st State Bancorp of nominations for the
election of directors and new business proposals,
. governing the number of 1st State Bancorp's directors, the filling of
vacancies on the board of directors and classification of the board of
directors,
. providing the mechanism for removing directors,
107
<PAGE>
. limiting the acquisition of 10% or more of the capital stock of 1st
State Bancorp except, with the prior approval of the continuing
directors of 1st State Bancorp,
. governing the requirement for the approval of certain business
combinations involving a "related person,"
. regarding the consideration of certain nonmonetary factors in the event
of an offer by another party,
. providing for the indemnification of directors, officers, employees and
agents of 1st State Bancorp,
. pertaining to the elimination of the liability of the directors to 1st
State Bancorp and its stockholders for monetary damages, with certain
exceptions, and
. governing the required stockholder vote for amending the articles of
incorporation or bylaws of 1st State Bancorp.
This provision is intended to prevent the holders of less than 80% of the
outstanding stock of 1st State Bancorp from circumventing any of the foregoing
provisions by amending the articles of incorporation to delete or modify one of
such provisions. This provision would enable the holders of more than 20% of
1st State Bancorp's voting stock to prevent amendments to 1st State Bancorp's
articles of incorporation or bylaws, even if such amendments were favored by the
holders of a majority of the voting stock.
BENEFIT PLANS
In addition to the provisions of 1st State Bancorp's articles of
incorporation and bylaws described above, certain benefit plans of 1st State
Bancorp and 1st State Bank adopted in the conversion contain provisions which
also may discourage hostile takeover attempts which we might conclude are not in
the best interests of 1st State Bancorp, 1st State Bank or 1st State Bancorp's
stockholders. For a description of the benefit plans and the provisions of such
plans relating to changes in control of 1st State Bancorp or 1st State Bank, see
"Management of 1st State Bank -- Proposed Future Stock Benefit Plans."
THE PURPOSE OF AND ANTI-TAKEOVER EFFECT OF 1ST STATE BANCORP'S ARTICLES OF OUR
CORPORATE DOCUMENTS
We believe that the provisions described above reduce 1st State Bancorp's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by our board of directors. These provisions
will also assist us in the orderly deployment of the net proceeds of the
conversion into productive assets during the initial period after the
conversion. We believe these provisions are in the best interests of 1st State
Bank and of 1st State Bancorp and our stockholders. In our judgment, we are in
the best position to consider all relevant factors and to negotiate for what is
in the best interests of the stockholders and 1st State Bancorp's other
constituents. Accordingly, we believe that it is in the best interests of 1st
State Bancorp and its stockholders to encourage potential acquirors to negotiate
directly with our board of directors, and that these provisions will encourage
such negotiations and discourage nonnegotiated takeover attempts. It is also our
view that these provisions should not discourage persons from proposing a merger
or other transaction at prices reflective of our true value and which are in the
best interests of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have become increasingly common. Takeover attempts which 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 which 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 for 1st State Bancorp and our
stockholders,
108
<PAGE>
with due consideration given to matters such as the management and business of
the acquiring corporation and maximum strategic development of our assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause great expense. Although a tender offer or
other takeover attempt may be made at a price substantially above then current
market prices, such offers are sometimes made for less than all 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 which is under
different management and whose objectives may not be similar to those of the
remaining stockholders. The concentration of control that could result from a
tender offer or other takeover attempt could also deprive our remaining
stockholders of certain protective provisions of the Exchange Act.
Despite our belief as to the benefits to stockholders of these provisions
of 1st State Bancorp's articles of incorporation and bylaws, these provisions
may also have the effect of discouraging a future takeover attempt which would
not be approved by 1st State Bancorp's board of directors but pursuant to which
the 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 1st State Bancorp's board of directors and
management more difficult and may tend to stabilize 1st State Bancorp's stock
price, thus limiting gains which might otherwise be reflected in price increases
due to a potential merger or acquisition. We have, however, concluded that the
potential benefits of these provisions outweigh the possible disadvantages.
Pursuant to applicable regulations, at any annual or special meeting of its
stockholders after the conversion, 1st State Bancorp may adopt additional
articles of incorporation provisions regarding the acquisition of its equity
securities that would be permitted to a Virginia corporation. We do not
presently intend to propose the adoption of further restrictions on the
acquisition of 1st State Bancorp's equity securities.
DESCRIPTION OF CAPITAL STOCK
GENERAL
1st State Bancorp is authorized to issue 7,000,000 shares of common stock,
par value $.01 per share, and 1,000,000 shares of serial preferred stock, $.01
par value per share. We currently expect to sell between 1,870,000 and 2,200,000
shares of the common stock, and issue up to 176,000 shares of common stock to
the foundation, in the conversion. We will not issue any shares of serial
preferred stock in the conversion. If the option plan is adopted and
implemented, 1st State Bancorp will reserve for future issuance under the option
plan an amount of authorized but unissued shares of common stock equal to 10% of
the shares to be issued in the conversion, including shares to be contributed to
the foundation. THE CAPITAL STOCK OF 1ST STATE BANCORP WILL REPRESENT
NONWITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL
NOT BE INSURED BY THE FDIC OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL
AGENCY.
COMMON STOCK
Voting Rights. Each share of the common stock will have the same relative
rights and will be identical in all respects with every other share of the
common stock. The holders of the common stock will possess exclusive voting
rights in 1st State Bancorp, except to the extent that shares of serial
preferred stock issued in the future may have voting rights, if any. Each holder
of shares of the common stock will be entitled to one vote for each share held
of record on all matters submitted to a vote of holders of shares of the common
stock. Stockholders are not permitted to cumulate votes in the election of
directors. For information regarding voting limitations, see "Anti-Takeover
Provisions in Our Corporate Documents -- Restrictions on Acquisitions of
Securities."
109
<PAGE>
Dividends. 1st State Bancorp may, from time to time, declare dividends to
the holders of the common stock, who will be entitled to share equally in any
such dividends. For information as to cash dividends and restrictions on our
ability to pay dividends, see "Dividend Policy," "Regulation -- Depository
Institution Regulation -- Dividend Restrictions" and "Taxation."
Liquidation. In the event of any liquidation, dissolution or winding up of
1st State Bank, 1st State Bancorp, as holder of all of 1st State Bank's capital
stock, would be entitled to receive all assets of 1st State Bank after payment
of all debts and liabilities of 1st State Bank and after distribution of the
balance in the liquidation account. In the event of a liquidation, dissolution
or winding up of 1st State Bancorp, each holder of shares of the common stock
would be entitled to receive, after payment of all debts and liabilities of 1st
State Bancorp, a pro rata portion of all assets of 1st State Bancorp available
for distribution to holders of the common stock. If any serial preferred stock
is issued, the holders thereof may have a priority in liquidation or dissolution
over the holders of the common stock. The conversion is not considered a
liquidation of 1st State Bank, and after the conversion 1st State Bank will
continue to maintain the liquidation account according to the same terms.
Restrictions on Acquisition of the Common Stock. For information regarding
limitations on acquisition of shares of the common stock, see "Restrictions on
Acquisition of 1st State Bancorp and 1st State Bank" and "Anti-Takeover
Provisions in Our Corporate Documents."
No Preemptive Rights. Holders of the common stock will not have preemptive
rights with respect to any additional shares of the common stock which may be
issued. Therefore, the board of directors may sell shares of capital stock of
1st State Bancorp without first offering such shares to existing shareholders of
1st State Bancorp.
Other Characteristics. The common stock is not subject to call for
redemption, and the outstanding shares of the common stock, when issued and upon
receipt by 1st State Bancorp of the full purchase price therefor, will be fully
paid and nonassessable.
Transfer Agent and Registrar. The transfer agent and registrar for the
common stock will be Registrar & Transfer Co., Cranford, New Jersey.
SERIAL PREFERRED STOCK
None of the 1,000,000 authorized shares of serial preferred stock of 1st
State Bancorp will be issued in the conversion. After the conversion is
completed, the board of directors of 1st State Bancorp will be authorized to
issue serial preferred stock and to fix and state voting powers, designations,
preferences or other special rights of such shares and the qualifications,
limitations and restrictions thereof. The serial preferred stock may rank prior
to the common stock as to dividend rights or liquidation preferences, or both,
and may have full or limited voting rights. We presently have no intention to
issue any of the serial preferred stock. Should the board of directors of 1st
State Bancorp subsequently issue serial preferred stock, no holder of any such
stock shall have any preemptive right to subscribe for or purchase any stock or
any other securities of 1st State Bancorp other than such, if any, as the board
of directors, in its sole discretion, may determine and at such price or prices
and upon such other terms as the board of directors, in its sole discretion, may
fix.
REGISTRATION REQUIREMENTS
1st State Bancorp will register its common stock with the SEC pursuant to
the Exchange Act upon the completion of the conversion and will not deregister
the shares for a period of at least three years following the conversion. Upon
registration, the proxy and tender offer rules, insider trading reporting and
restrictions, annual and
110
<PAGE>
periodic reporting and other requirements of the Exchange Act will be
applicable. 1st State Bancorp intends to have a fiscal year end of September
30.
LEGAL MATTERS
Housley Kantarian & Bronstein, P.C., Washington, D.C. will pass on the
legality of the common stock for 1st State Bancorp. Housley Kantarian &
Bronstein, P.C. has consented to the references in this document to its opinion.
Patton Boggs LLP, Washington, D.C., will pass on certain legal matters for
Trident Securities.
TAX OPINIONS
Housley Kantarian & Bronstein, P.C., Washington, D.C. will pass on the
federal income tax consequences of the conversion. Housley Kantarian &
Bronstein, P.C. has consented to the references in this document to its opinion.
KPMG LLP will pass on North Carolina income tax consequences of the conversion.
KPMG LLP has consented to the references in this document to its opinion.
EXPERTS
The consolidated financial statements of 1st State Bank and subsidiary as
of September 30, 1998 and 1997, and for each of the years in the three-year
period ended September 30, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
Ferguson & Company has consented to the publication in this document of the
summary of its letter to us setting forth its opinion as to the estimated pro
forma aggregate market value of the common stock to be issued in the conversion
and the value of subscription rights to purchase the common stock and to the use
of its name and statements with respect to it appearing in this document.
ADDITIONAL INFORMATION
1st State Bancorp has filed with the SEC a Registration Statement on
Form S-1 under the Securities Act with respect to the common stock offered in
this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. You may obtain information on the operation of the SEC's
public reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an internet address ("web site") that contains reports, proxy and
information statements and other information regarding registrants, including
1st State Bancorp, that file electronically with the SEC. The address for this
web site is "http://www.sec.gov." The statements contained in this document as
to the contents of any contract or other document filed as an exhibit to the
Form S-1 describe the material features of such contract or document are, of
necessity, brief descriptions and are not necessarily complete; each such
statement is qualified by reference to such contract or document.
We have filed an Application to Convert a Mutual Savings Bank to a Stock
Owned Savings Bank with the Administrator. Pursuant to the North Carolina
conversion regulations, this Prospectus omits certain information contained in
that Application. The Application, which contains a copy of Ferguson & Company's
appraisal, may be inspected at the office of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce, Tower Building,
Suite 301, 1110 Navaho Drive, Raleigh, North Carolina 27609. Copies of the Plan
of Conversion, which includes a copy of 1st State Bank's proposed Amended and
Restated articles of incorporation and bylaws, are available for inspection at
each office of 1st State Bank and may be obtained by writing to 1st State Bank
at 445 S.
111
<PAGE>
Main Street, Burlington, North Carolina 27815; Attention James C. McGill,
President, or by telephoning 1st State Bank at (336) 227-8861. A copy of
Ferguson & Company's independent appraisal is also available for inspection at
the Stock Information Center.
112
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets as of September 30, 1998 and 1997 F-2
Consolidated Statements of Income for the Years Ended F-3
September 30, 1998, 1997 and 1996
Consolidated Statements of Net Worth for the Years Ended F-4
September 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended F-5
September 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements F-7
Schedules - All schedules are omitted because the required information is not
applicable or is presented in the financial statements or accompanying notes.
All financial statements of 1st State Bancorp, Inc. have been omitted because
1st State Bancorp, Inc. has not yet issued any stock, has no assets and no
liabilities and has not conducted any business other than of an organizational
nature.
113
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
1st State Bank
Burlington, North Carolina
We have audited the accompanying consolidated balance sheets of 1st State Bank
and subsidiary as of September 30, 1998 and 1997 and the related consolidated
statements of income, net worth and cash flows for each of the years in the
three-year period ended September 30, 1998. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also include
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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 1st State Bank and
subsidiary at September 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the years in the three-year period ended
September 30, 1998, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
KPMG LLP
Greensboro, North Carolina
October 30, 1998
F-1
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 31,077,054 14,990,413
Investment securities (note 2):
Held to maturity (fair value of $30,415,447 and $23,539,770
at September 30, 1998 and 1997, respectively) 30,195,094 23,481,510
Available for sale (cost of $9,705,529 and $11,441,164 at
September 30, 1998 and 1997, respectively) 9,857,780 11,319,777
Loans held for sale, at lower of cost or fair value 7,539,919 684,438
Loans receivable (net of allowance for loan losses of $3,227,775
and $2,753,793 at September 30 1998 and 1997, respectively)
(notes 3, 4 and 8) 196,782,275 197,121,798
Federal Home Loan Bank stock, at cost (notes 5 and 8) 1,346,500 1,281,200
Premises and equipment (note 6) 7,513,347 6,771,800
Accrued interest receivable 1,807,588 1,556,828
Other assets (note 10) 2,103,659 1,301,640
---------------- -----------------
Total assets $ 288,223,216 258,509,404
================ =================
LIABILITIES AND NET WORTH
Liabilities:
Deposit accounts (note 7) $ 235,693,715 229,340,603
Advances from Federal Home Loan Bank (note 8) 20,000,000 1,000,000
Advance payments by borrowers for property taxes and
insurance 299,939 387,799
Other liabilities (notes 10 and 11) 6,263,957 4,503,659
---------------- -----------------
Total liabilities 262,257,611 235,232,061
---------------- -----------------
Commitments (notes 3 and 12)
Net worth (note 9):
Retained income - substantially restricted 25,872,605 23,351,343
Net unrealized gain (loss) on investment securities
available for sale (note 2) 93,000 (74,000)
---------------- -----------------
Total net worth 25,965,605 23,277,343
---------------- -----------------
Total liabilities and net worth $ 288,223,216 258,509,404
================ =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Consolidated Statements of Income
For the Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 17,184,941 16,167,269 14,620,562
Interest and dividends on investments 2,319,980 2,557,133 2,401,615
Overnight deposits 1,203,594 336,426 372,900
---------------- ---------------- ----------------
Total interest income 20,708,515 19,060,828 17,395,077
---------------- ---------------- ----------------
Interest expense:
Deposit accounts (note 7) 10,330,999 9,743,038 9,450,414
Borrowings (note 8) 740,439 55,910 3,152
---------------- ---------------- ----------------
Total interest expense 11,071,438 9,798,948 9,453,566
---------------- ---------------- ----------------
Net interest income 9,637,077 9,261,880 7,941,511
Provision for loan losses (note 4) (477,017) (261,288) (280,550)
---------------- ---------------- ----------------
Net interest income after provision
for loan losses 9,160,060 9,000,592 7,660,961
---------------- ---------------- ----------------
Other income:
Loan servicing fees (note 3) 103,280 108,517 125,440
Customer service fees 565,693 500,216 411,936
Commission from sales of annuities and
mutual funds 436,568 399,058 285,891
Real estate operations, net (1,734) 19,808 32,216
Mortgage banking income, net 436,401 180,809 103,454
Securities losses, net (note 2) (246,259) -- --
Other 203,581 259,343 220,039
---------------- ---------------- ----------------
Total other income 1,497,530 1,467,751 1,178,976
---------------- ---------------- ----------------
Operating expenses:
Compensation and related benefits (note 11) 4,612,183 4,344,800 2,949,424
Occupancy and equipment (note 12) 1,044,147 939,544 845,799
Deposit insurance premiums 142,015 103,707 464,644
Other expenses 975,983 1,084,618 860,034
SAIF assessment (note 7) -- -- 1,283,320
---------------- ---------------- ----------------
Total operating expenses 6,774,328 6,472,669 6,403,221
---------------- ---------------- ----------------
Income before income taxes 3,883,262 3,995,674 2,436,716
Income taxes (note 10) 1,362,000 1,447,100 840,500
---------------- ---------------- ----------------
Net income $ 2,521,262 2,548,574 1,596,216
================ ================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Consolidated Statements of Net Worth
For the Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss) on
Investment
Securities Total
Retained Available Net
Income for Sale Worth
-------------------- ------------------- -----------------
<S> <C> <C> <C>
Balance at September 30, 1995 $ 19,206,553 (56,000) 19,150,553
Net income 1,596,216 -- 1,596,216
Change in unrealized gain (loss) on investment --
securities available for sale, net of taxes -- (118,000) (118,000)
----------------- ------------------- -----------------
Balance at September 30, 1996 20,802,769 (174,000) 20,628,769
Net income 2,548,574 -- 2,548,574
Change in unrealized gain (loss) on investment --
securities available for sale, net of taxes -- 100,000 100,000
----------------- ------------------- -----------------
Balance at September 30, 1997 23,351,343 (74,000) 23,277,343
Net income 2,521,262 -- 2,521,262
Change in unrealized gain (loss) on investment --
securities available for sale, net of taxes -- 167,000 167,000
----------------- ------------------- -----------------
Balance at September 30, 1998 $ 25,872,605 93,000 25,965,605
================= =================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,521,262 2,548,574 1,596,216
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 477,017 261,288 280,550
Depreciation 424,997 270,572 239,130
Deferred income tax expense (benefit) (601,000) 139,000 172,000
Amortization of premiums and discounts, net 24,419 (37,116) (2,112)
Loan origination fees and unearned discounts
deferred, net of current amortization 2,221 104,658 115,328
Net loss on sale of loans 118,633 15,520 122,309
Gain on sale of other real estate -- (21,288) (43,319)
Securities losses, net 246,259 -- --
Proceeds from loans held for sale 27,635,212 9,165,706 9,181,331
Originations of loans held for sale (34,609,326) (9,765,263) (11,695,278)
Decrease (increase) in other assets (307,657) 586,726 (227,523)
Increase in accrued interest receivable (250,760) (133,747) (101,534)
Increase in other liabilities 1,760,298 1,042,830 606,880
--------------- ---------------- ----------------
Net cash provided by (used in)
operating activities (2,558,425) 4,177,460 243,978
--------------- ---------------- ----------------
Cash flows from investing activities:
Purchase of FHLB stock (65,300) (35,500) (11,900)
Purchases of investment securities held to
maturity (32,614,244) (6,998,750) (12,379,167)
Purchases of investment securities available for
sale (2,002,500) -- (3,972,438)
Proceeds from sales of investment securities
available for sale 2,879,973 -- --
Proceeds from maturities of investment
securities available for sale 588,144 4,000,000 3,000,000
Proceeds from maturities of investment
securities held to maturity 25,900,000 6,107,200 9,407,696
Net increase in loans receivable (139,715) (21,361,303) (3,211,526)
Capital expenditures on real estate acquired in
settlement of loans -- -- (6,692)
Proceeds from disposal of real estate acquired in
settlement of loans -- 22,289 123,478
Purchases of premises and equipment (1,166,544) (355,006) (1,127,174)
--------------- ---------------- ----------------
Net cash used in investing activities (6,620,186) (18,621,070) (8,177,723)
--------------- ---------------- ----------------
</TABLE>
(Continued)
F-5
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Consolidated Statements of Cash Flows - Continued
Years ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 6,353,112 19,633,862 8,937,737
Increase (decrease) in advance payments by
borrowers for property taxes and insurance (87,860) 45,819 199,939
Advances from Federal Home Loan Bank 20,000,000 -- 1,000,000
Repayments of advances from Federal Home
Loan Bank (1,000,000) -- --
---------------- ----------------- -----------------
Net cash provided by financing
activities 25,265,252 19,679,681 10,137,676
---------------- ----------------- -----------------
Net increase in cash and cash
equivalents 16,086,641 5,236,071 2,203,931
Cash and cash equivalents at beginning of year 14,990,413 9,754,342 7,550,411
---------------- ----------------- -----------------
Cash and cash equivalents at end
of year $ 31,077,054 14,990,413 9,754,342
================ ================= =================
Payments are shown below for the following:
Interest $ 10,947,338 9,777,417 9,455,792
================ ================= =================
Income taxes $ 2,301,000 866,300 1,657,500
================ ================= =================
Noncash investing and financing activities:
Transfer from loans to real estate acquired in
settlement of loans $ -- -- 73,468
================ ================= =================
Transfer from loans held for sale to loans
receivable $ -- 2,277,071 --
================ ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
(1) SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of 1st
State Bank, SSB and its wholly-owned subsidiary, First Capital
Services Company, LLC (collectively referred to as "the Bank"). First
Capital Services Company, LLC is engaged primarily in the sale of
insurance products. Intercompany balances and transactions have been
eliminated.
(B) USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts of assets
and liabilities at the date of the financial statements and the
amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
(C) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
include cash and interest-bearing overnight deposits with the Federal
Home Loan Bank ("FHLB") of Atlanta. At September 30, 1998 and 1997,
interest-bearing overnight deposits were $25,558,925 and $7,813,209,
respectively.
(D) INVESTMENT SECURITIES
Investment securities that the Bank has the positive intent and
ability to hold to maturity are classified as held to maturity and
reported at amortized cost. Investment securities held for current
resale are classified as trading securities and reported at fair
value, with unrealized gains and losses included in earnings.
Investment securities not classified either as securities held to
maturity or trading securities are classified as available for sale
and reported at fair value, with net unrealized gains and losses net
of related taxes excluded from earnings and reported as a separate
component of net worth. The classification of investment securities as
held to maturity, trading or available for sale is determined at the
date of purchase.
Realized gains and losses from sales of investment securities are
determined based upon the specific identification method. Premiums and
discounts are amortized as an adjustment to yield over the remaining
lives of the securities using the level-yield method.
(Continued)
F-7
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
Management periodically evaluates investment securities for other than
temporary declines in value and records any losses through an
adjustment to earnings.
(E) LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or fair value in
the aggregate as determined by outstanding commitments from investors
or current investor yield requirements. Gains and losses on loan sales
are determined by the difference between the selling price and the
carrying value of the loans sold.
(F) LOANS RECEIVABLE
Interest on loans, including impaired loans, that are contractually
ninety days or more past due is generally either charged off or
reserved through an allowance account. The allowance is established by
a charge to interest income equal to all interest previously accrued.
In certain circumstances, interest on loans that are contractually
ninety days or more past due is not charged off or reserved through an
allowance account when management determines that the loan is both
well secured and in the process of collection. If amounts are received
on loans for which the accrual of interest has been discontinued, a
determination is made as to whether payments received should be
recorded as a reduction of the principal balance or as interest income
depending on management's judgment as to the collectibility of
principal. The loan is returned to accrual status when, in
management's judgment, the borrower has demonstrated the ability to
make periodic interest and principal payments on a timely basis.
(G) LOAN ORIGINATION FEES AND RELATED COSTS
Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized as an adjustment of
the loan yield using the level-yield method over the contractual life
of the related loans.
(H) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through provisions for
loan losses charged against income. Loans deemed to be uncollectible
are charged against the allowance for loan losses, and subsequent
recoveries, if any, are credited to the allowance.
Management's evaluation of the adequacy of the allowance is based on a
review of individual loans, historical loan loss experience, the value
and adequacy of collateral, and economic conditions in the Bank's
market area. This evaluation is inherently subjective as it requires
material estimates, including the amounts and timing of future cash
flows expected to be
F-8 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
received on impaired loans that may be susceptible to significant
change. Various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize changes to the
allowance based on their judgments about information available to them
at the time of their examinations.
For all specifically reviewed loans for which it is probable that the
Bank will be unable to collect all amounts due according to the terms
of the loan agreement, the Bank determines impairment by computing a
fair value either based on discounted cash flows using the loans'
initial interest rate or the fair value of the collateral if the loan
is collateral dependent. Large groups of smaller balance homogenous
loans that are collectively evaluated for impairment (such as
residential mortgage and consumer installment loans) are excluded from
impairment evaluation, and their allowance for loan losses is
calculated in accordance with the allowance for loan losses policy
described above.
(I) REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans by foreclosure or deed in
lieu of foreclosure is initially recorded at the lower of cost (unpaid
loan balance plus costs of obtaining title and possession) or fair
value less estimated costs to sell at the time of acquisition.
Subsequent costs directly related to development and improvement of
property are capitalized, whereas costs relating to holding property
are expensed.
When the carrying value of real estate exceeds its fair value, less
cost to sell, an allowance for loss on real estate is established and
a provision for loss on real estate is charged to other expenses. At
September 30, 1998 and 1997, the Bank had no real estate acquired in
settlement of loans.
(J) PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is computed generally by the straight-line
method over the estimated useful lives of the related assets.
Estimated lives are 15 to 50 years for buildings and 3 to 15 years for
furniture, fixtures and equipment.
(K) INCOME TAXES
Deferred income taxes are recognized for the future tax consequences
attributed to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates in
F-9 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
effect for the year in which the temporary differences are expected to
be recovered or settled. Deferred tax assets are reduced by a
valuation allowance if it is more likely than not that the tax
benefits will not be realized. 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.
(L) RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 consolidated financial statements
have been reclassified to conform with the presentation adopted in
1998. Such reclassifications did not change net income or net worth as
previously reported.
(2) INVESTMENT SECURITIES
Investment securities consist of the following:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998
Held to maturity:
U.S. Government and agency
securities $ 30,087,456 219,742 -- 30,307,198
Collateralized mortgage
obligations 107,638 611 -- 108,249
--------------- ---------------- ---------------- ----------------
Total $ 30,195,094 220,353 -- 30,415,447
=============== ================ ================ ================
Available for sale:
U.S. Government and
agency securities 4,001,142 42,363 (232) 4,043,273
Marketable equity securities 3,993,081 13,120 -- 4,006,201
FHLMC mortgage-backed
securities 648,029 13,550 -- 661,579
GNMA mortgage-backed
securities 1,063,277 83,450 -- 1,146,727
--------------- ---------------- ---------------- ----------------
Total $ 9,705,529 152,483 (232) 9,857,780
=============== ================ ================ ================
</TABLE>
F-10 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1997
Held to maturity:
U.S. Government and agency
securities $ 23,337,997 82,229 (26,750) 23,393,476
Collateralized mortgage
obligations 143,513 2,781 -- 146,294
--------------- ---------------- ---------------- ----------------
Total $ 23,481,510 85,010 (26,750) 23,539,770
=============== ================ ================ ================
Available for sale:
U.S. Government and
agency securities 3,993,052 18,949 -- 4,012,001
Marketable equity securities 4,262,331 -- (301,949) 3,960,382
FHLMC mortgage-backed
securities 1,507,153 60,679 (3,499) 1,564,333
GNMA mortgage-backed
securities 1,650,088 104,251 -- 1,754,339
FNMA mortgage-backed
securities 28,540 182 -- 28,722
--------------- ---------------- ---------------- ----------------
Total $ 11,441,164 184,061 (305,448) 11,319,777
=============== ================ ================ ================
</TABLE>
Following is a summary of investments in debt securities by maturity at
September 30, 1998. Marketable equity securities, mortgage-backed securities
and collateralized mortgage obligations do not have single maturity dates and
are not included below.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------------- ----------------
<S> <C> <C>
Held to maturity:
Within one year $ 3,992,563 4,014,606
After one but within five years 15,471,247 15,599,483
After five but within ten years 9,623,646 9,687,469
After ten years 1,000,000 1,005,640
---------------- ----------------
Total $ 30,087,456 30,307,198
================ ================
Available for sale:
After one but within five years $ 3,001,142 3,043,505
After five but within ten years 1,000,000 999,768
---------------- ----------------
Total $ 4,001,142 4,043,273
================ ================
</TABLE>
F-11 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
During the year ended September 30, 1998, the Bank recognized gross gains
on the sale of investment securities available for sale of approximately
$23,000. There were no sales in 1997 and 1996. The Bank also recognized a
loss of approximately $269,000 on the write-down of marketable equity
securities for an other than temporary decline in value during the year
ended September 30, 1998.
At September 30, 1998, U.S. Government securities with an amortized cost of
approximately $2,000,000 were pledged as collateral for certain deposit
accounts.
(3) LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1997
---------------- ----------------
<S> <C> <C>
Real estate loans:
One-to-four family residential $ 100,891,490 108,399,580
Commercial real estate and other properties 38,763,299 34,333,514
Home equity and property improvement 16,877,066 18,140,649
Construction loans 18,571,550 12,582,348
---------------- ----------------
Total real estate loans 175,103,405 173,456,091
---------------- ----------------
Other loans:
Commercial 25,189,613 22,869,834
Consumer 6,309,951 5,354,150
---------------- ----------------
Total other loans 31,499,564 28,223,984
---------------- ----------------
Less:
Loans in process (6,446,324) (1,660,110)
Net deferred loan origination fees (146,595) (144,374)
---------------- ----------------
Net loans receivable before allowance for loan losses 200,010,050 199,875,591
Allowance for loan losses (3,227,775) (2,753,793)
---------------- ----------------
Loans receivable, net $ 196,782,275 197,121,798
================ ================
</TABLE>
At September 30, 1998 and 1997 and during the years then ended there are no
loans considered to be impaired.
F-12 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
The Bank grants residential, residential construction, commercial real
estate, home equity and other loans to customers primarily throughout its
market area of Alamance County which includes the cities of Burlington,
Mebane and Graham. As reflected in the summary of loans receivable at
September 30, 1998, the largest component of the Bank's loan portfolio
consists of lower-risk, one-to-four family residential loans. The higher
risk components of the loan portfolio consist of real estate construction
loans, commercial real estate loans and commercial loans for which
repayment is dependent on the current real estate market and general
economic conditions. The consumer portfolio generally consists of smaller
loans to individuals in the Bank's primary market area and can also be
affected by general economic conditions.
The Bank's nonaccrual loans amount to approximately $263,000, $259,000 and
$288,000 at September 30, 1998, 1997 and 1996, respectively. If the Bank's
nonaccrual loans had been current in accordance with their original terms,
gross interest income of approximately $10,100, $27,300 and $25,800 would
have been recorded for the years ended September 30, 1998, 1997 and 1996,
respectively. Interest income on these loans included in net income was
approximately $15,000, $15,700 and $12,300 for 1998, 1997 and 1996,
respectively.
Loans serviced for others at September 30, 1998 and 1997 were approximately
$37,000,000 and $43,000,000, respectively. Mortgage servicing rights were
not material for any of the periods presented.
The Bank offers mortgage and consumer loans to its officers, directors, and
employees for the financing of their personal residences and for other
personal purposes. The Bank also offers commercial loans to companies
affiliated with directors. These loans are made in the ordinary course of
business and, in management's opinion, are made on substantially the same
terms, including interest rates and collateral, prevailing at the time for
comparable transactions with other persons and companies. Management does
not believe these loans involve more than the normal risk of collectibility
or present other unfavorable features, except for certain loans totaling
approximately $3.5 million to a company affiliated with a director. At
September 30, 1998, such loans were current with respect to their payment
terms and except for the waiver of certain debt covenants by the Bank, were
performing in accordance with the related loan agreements. Based on an
analysis of the affiliated company's current financial statements,
management has concerns that the borrower may have difficulty in complying
with the present loan repayment terms on an ongoing basis.
F-13 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
The following is a summary of the activity of loans outstanding to certain
executive officers, directors and their affiliates for the year ended September
30, 1998:
<TABLE>
<S> <C>
Balance at September 30, 1997 $ 7,495,243
New loans 1,412,420
Repayments 1,387,958
-----------------
Balance at September 30, 1998 $ 7,519,705
=================
</TABLE>
The Bank is a party to financial instruments with off-balance sheet risk
including commitments to extend credit under existing lines of credit and
commitments to sell loans. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheets.
Off-balance sheet financial instruments whose contract amount represents credit
and interest rate risk are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1997
------------------- -------------------
<S> <C> <C>
Commitments to originate new loans $ 6,650,700 3,860,732
Commitments to originate new loans held for sale 833,411 224,863
Unfunded commitments to extend credit under existing equity
line and commercial lines of credit 40,444,057 34,593,971
Commercial letters of credit 505,000 874,709
Commitments to sell loans held for sale 1,863,591 684,438
</TABLE>
Commitments to originate new loans or 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 borrower. The Bank's commitments to extend
credit under existing lines of credit relate principally to home equity lines of
credit which are secured by the borrower's primary residence.
Commitments to sell loans held for sale are agreements to sell loans to a third
party at an agreed upon price. At September 30, 1998, the aggregate fair value
of the commitments exceeded the cost of the loans to be sold.
F-14 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
(4) ALLOWANCE FOR LOAN LOSSES
The following is a summary of the activity in the allowance for loan
losses:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at beginning of year $ 2,753,793 2,495,677 2,222,765
Provision for loan losses 477,017 261,288 280,550
Charge-offs (3,731) (7,548) (12,477)
Recoveries 696 4,376 4,839
---------------- ---------------- ----------------
Net charge-offs (3,035) (3,172) (7,638)
---------------- ---------------- ----------------
Balance at end of year $ 3,227,775 2,753,793 2,495,677
================ ================ ================
</TABLE>
(5) INVESTMENT IN FHLB STOCK
As a member of the FHLB of Atlanta, the Bank is required to maintain an
investment in the stock of the FHLB. This stock is carried at cost since it
has no quoted fair value. See also note 8.
(6) PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1997
---------------- ----------------
<S> <C> <C>
Land $ 2,231,450 2,231,450
Building and improvements 5,166,911 5,166,911
Furniture and equipment 3,987,664 2,821,845
---------------- ----------------
11,386,025 10,220,206
Less accumulated depreciation (3,872,678) (3,448,406)
---------------- ----------------
Total $ 7,513,347 6,771,800
================ ================
</TABLE>
F-15 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
(7) DEPOSIT ACCOUNTS
A comparative summary of deposit accounts follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------
WEIGHTED
BALANCE AVERAGE RATE
---------------- -----------------
<S> <C> <C>
Transactions accounts:
Noninterest bearing accounts $ 8,623,397 -- %
Interest bearing accounts:
Checking accounts 25,080,180 2.29%
Money market accounts 13,238,368 3.93%
Passbook and statement savings accounts 28,091,013 2.84%
Certificates of deposit 160,660,757 5.28%
---------------- -----------------
Total $ 235,693,715 4.40%
================ =================
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------
WEIGHTED
BALANCE AVERAGE RATE
---------------- -----------------
<S> <C> <C>
Transactions accounts:
Noninterest bearing accounts $ 6,546,032 -- %
Interest bearing accounts:
Checking accounts 24,149,622 2.32%
Money market accounts 11,117,680 3.64%
Passbook and statement savings accounts 27,699,834 2.84%
Certificates of deposit 159,827,435 5.33%
---------------- -----------------
Total $ 229,340,603 4.48%
================ =================
</TABLE>
Time deposits with balances of $100,000 or greater totaled approximately
$29,700,000 and $29,579,000 at September 30, 1998 and 1997, respectively.
F-16 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
At September 30, 1998, the scheduled maturities of certificate accounts
were as follows:
<TABLE>
<S> <C>
Year ending September 30,
1999 $ 116,528,391
2000 25,212,621
2001 10,643,247
2002 4,052,541
2003 4,188,260
2004 35,697
---------------
Total $ 160,660,757
===============
</TABLE>
Interest expense on deposit accounts is summarized below:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1998 1997 1996
-------------- ------------- --------------
<S> <C> <C> <C>
Interest-bearing transaction accounts $ 1,004,155 898,330 770,911
Passbook and statement savings accounts 797,752 815,816 827,802
Certificate accounts 8,529,092 8,028,892 7,851,701
-------------- ------------- --------------
Total $ 10,330,999 9,743,038 9,450,414
============== ============= ==============
</TABLE>
On September 30, 1996, Congressional legislation was passed allowing a
special assessment to be levied by the FDIC to recapitalize the Savings
Association Insurance Fund ("SAIF"). The special assessment was based on
the level of SAIF deposits a financial institution had as of March 31, 1995
subject to a 20% reduction for certain qualifying deposits. The Bank's
special assessment in 1996 totaled $1,283,320.
(8) ADVANCES FROM FEDERAL HOME LOAN BANK OF ATLANTA
Advances from the FHLB of Atlanta at September 30, 1998 and 1997 totaled
$20,000,000 and $1,000,000, respectively, at an interest rate of 5.39% and
5.57%, respectively. These advances will mature on February 13, 2008.
At September 30, 1998 and 1997, the Bank had pledged all of its stock in
the FHLB (see note 5) and entered into a security agreement with a blanket
floating lien pledging all of its real estate loans to secure potential
borrowings. Under an agreement with the FHLB, the Bank must have
unencumbered collateral with principal balances, when discounted at 75% of
the unpaid principal, at least equal to 100% of the Bank's FHLB advances.
F-17 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
Interest expense on FHLB advances during the years ended September 30,
1998, 1997 and 1996 was $740,439, $55,910 and $3,152 respectively.
(9) NET WORTH AND REGULATORY MATTERS
At September 30, 1998, retained income-substantially restricted included
approximately $4,188,000 for which no provision for Federal income tax has
been made. This amount represents an allocation of income to bad debt
deductions for income tax purposes only. Reduction of such an amount for
purposes other than to absorb bad debt losses could create taxable income
in certain remote instances, which would be subject to the then current
corporate income tax rate.
The Bank is regulated by the Federal Deposit Insurance Corporation ("FDIC")
and the Administrator, Savings Institutions Division, North Carolina
Department of Commerce ("the Administrator"). The Bank must comply with the
capital requirements of the FDIC and the Administrator. The FDIC requires
the Bank to maintain minimum ratios of Tier I capital to risk-weighted
assets and total capital to risk-weighted assets of 4% and 8%,
respectively. To be "well capitalized," the FDIC requires ratios of Tier I
capital to risk-weighted assets and total capital to risk-weighted assets
of 6% and 10%, respectively. Tier I capital consists of total net worth
calculated in accordance with generally accepted accounting principles less
intangible assets, and total capital is comprised of Tier I capital plus
certain adjustments, the only one of which applicable to the Bank is the
allowance for loan losses. Risk-weighted assets reflect the Bank's on- and
off-balance sheet exposures after such exposures have been adjusted for
their relative risk levels using formulas set forth in FDIC regulations.
The Bank is also subject to a leverage capital requirement, which calls for
a minimum ratio of Tier I capital (as defined above) to quarterly average
total assets of 3%, and a ratio of 5% to be "well capitalized." The
Administrator requires a net worth equal to at least 5% of assets.
As summarized below, at September 30, 1998 and 1997, the Bank was in
compliance with all of the aforementioned capital requirements.
At September 30, 1998, the FDIC categorized the Bank as "well capitalized"
under the regulatory framework for prompt corrective action. There are no
events or conditions since the notification that management believes have
changed the Bank's category.
F-18 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
As of September 30:
<TABLE>
<CAPTION>
MINIMUM RATIOS
------------------------------------
TO BE "WELL
FOR CAPITAL CAPITALIZED" FOR
CAPITAL AMOUNT RATIO ADEQUACY PROMPT CORRECTIVE
--------------------- --------------------
1998 1997 1998 1997 PURPOSES ACTION PURPOSES
--------- ---------- --------- --------- --------------- -----------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier I Capital (to risk-
weighted assets) $ 25,873 23,049 14.53% 14.05% 4.00% 6.00%
Total Capital - Tier II
(to risk-weighted
assets) 28,112 25,108 15.78% 15.30% 8.00% 10.00%
Leverage - Tier I capital
(to average assets) 25,873 23,049 9.13% 9.02% 4.00% 5.00%
Total Capital - (to
fourth quarter
average assets) 28,112 25,108 9.92% 9.82% 3.00% 5.00%
</TABLE>
(10) INCOME TAXES
Components of income tax expense (benefit) consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Currently payable:
Federal $ 1,804,000 1,221,100 657,500
State 159,000 87,000 11,000
------------ -------------- --------------
1,963,000 1,308,100 668,500
------------ -------------- --------------
Deferred:
Federal (486,000) 139,000 172,000
State (115,000) -- --
------------ -------------- --------------
(601,000) 139,000 172,000
------------ -------------- --------------
Total $ 1,362,000 1,447,100 840,500
============ ============== ==============
</TABLE>
Other assets include current income taxes receivable of $251,000 at
September 30, 1998. Other liabilities include current income taxes payable
of $76,000 at September 30, 1997.
F-19 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
A reconciliation of reported income tax expense for the years ended September
30 1998 and 1997, to the amount of the income tax expense computed by
multiplying income before income taxes by the statutory federal income tax
rate of 34% follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income tax expense at statutory rate $ 1,320,000 1,359,000 828,500
Increase in income taxes resulting from:
State income taxes, net of federal benefit 29,000 57,000 7,000
Other 13,000 31,100 5,000
--------- --------- ---------
Income tax expense $ 1,362,000 1,447,100 840,500
========= ========= =========
</TABLE>
The significant components of deferred tax assets (liabilities) which are
included in other assets, at September 30, 1998 and 1997, respectively, are:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 1,079,000 851,000
Loan fees deferred for financial reporting, net 52,000 49,000
Deferred compensation 750,000 369,000
Other than temporary declines in value of
securities available for sale 97,000 --
Unrealized gains on investments securities available for sale -- 47,000
Other 3,000 4,000
---------------- ----------------
Total gross deferred tax assets 1,981,000 1,320,000
---------------- ----------------
Less valuation allowance -- --
---------------- ----------------
Deferred tax assets net of valuation allowance 1,981,000 1,320,000
---------------- ----------------
Deferred tax liabilities:
Depreciable basis of fixed assets (288,000) (270,000)
Tax basis of FHLB stock (179,000) (168,000)
Loan fees (231,000) (158,000)
Unrealized losses on investment securities available for sale (59,000) --
Other (17,000) (12,000)
---------------- ----------------
Total gross deferred tax liabilities (774,000) (608,000)
---------------- ----------------
Net deferred tax asset $ 1,207,000 712,000
================ ================
</TABLE>
F-20 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
There is no valuation allowance for deferred tax assets as it is
management's contention that realization of the deferred tax assets is more
likely than not based upon the Bank's history of taxable income and
estimates of future taxable income.
The Bank is permitted under the Internal Revenue Code to deduct an annual
addition to a reserve for bad debts in determining taxable income, subject
to certain limitations. This addition differs significantly from the
provisions for loan and real estate owned losses for financial reporting
purposes. Under FASB 109, the Bank is not required to provide a deferred
tax liability for the tax effect of additions to the tax bad debt reserve
through 1987, the base year. Retained income at September 30, 1998,
includes approximately $4,188,000 for which no provision for federal income
tax has been made. These amounts represent allocations of income to bad
debt deductions for tax purposes only. Reductions of such amounts for
purposes other than tax bad debt losses could create income for tax
purposes in certain remote instances, which would be subject to the then
current corporate income tax rate.
(11) RETIREMENT PLANS
The Bank has two defined contribution retirement plans covering
substantially all of its employees. Retirement costs are funded as accrued.
Contributions to the plans are determined based upon specified percentages
of annual salaries. Retirement expense for the years ended September 30,
1998, 1997, and 1996 was approximately $191,000, $207,000 and $215,000,
respectively.
Directors and certain executive officers participate in a deferred
compensation plan which was approved by the Board of Directors on September
24, 1997. This plan generally provides for fixed payments beginning at age
62. The plan provides for past service credits of up to nine years, with
vesting of 100% and 60% at September 30, 1998 and 1997, respectively. In
addition, an annual amount will be credited to the participants accounts in
subsequent years which will be fully vested at all times. In future years,
directors may elect to defer directors' fees and executive officers may
defer 25% of their salary and 100% of bonus compensation. The expense
related to these plans for the years ended September 30, 1998 and 1997 was
$986,663 and $1,085,000, respectively, and is included in compensation
expense. The related liabilities at September 30, 1998 and 1997 of
approximately $1,085,000 and $2,072,000, respectively, are included in
other liabilities.
F-21
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
(12) LEASING ARRANGEMENTS
Rental expense was approximately $33,000 and $35,000 for the years ended
September 30, 1998 and 1997, respectively. All leases are accounted for as
operating leases. Minimum annual rents under noncancelable operating leases
with remaining terms in excess of one year at September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
OFFICE
PROPERTIES
--------------
<S> <C>
Year ending September 30,
1999 $ 15,000
2000 17,250
2001 18,000
2002 18,000
2003 18,000
Thereafter 127,500
--------------
Total $ 213,750
==============
</TABLE>
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires a company to disclose the fair value of its financial instruments,
whether or not recognized in the balance sheet, where it is practical to
estimate that value.
The fair value estimates are made at a specific point in time based on
relevant market information about the financial instrument. These estimates
do not reflect any premium or discount that could result from offering for
sale at one time the Bank's entire holding of a particular financial
instrument. In cases where quoted market prices are not available, fair
value estimates are based on judgments regarding current economic
conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in the
estimates. Finally, the fair value estimates presented herein are based on
pertinent information available to management as of September 30, 1998 and
1997, respectively. Such amounts have not been comprehensively revalued for
purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
F-22 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
The following methods and assumptions were used by the Bank in estimating
its fair value disclosures for financial instruments:
(A) CASH AND CASH EQUIVALENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents approximate those assets' fair values.
(B) INVESTMENT SECURITIES
Fair values were based on quoted market prices, where available. If
quoted market prices were not available, fair values were based on
quoted market prices of comparable instruments.
(C) LOANS RECEIVABLE
The carrying values of variable-rate loans and other loans with short-
term characteristics were considered to approximate the fair values.
For other loans, the fair values were calculated using discounted cash
flow analyses, using interest rates currently being offered for loans
with similar terms and credit quality.
(D) DEPOSIT ACCOUNTS
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, NOW, passbook, and money market
deposits, was, by definition, equal to the amount payable on demand as
of September 30, 1998 and 1997, respectively. The fair value of
certificates of deposit was estimated using discounted cash flow
analyses, using interest rates currently offered for deposits of
similar remaining maturities.
(E) ADVANCES FROM THE FHLB
The fair value of advances from the FHLB was estimated using
discounted cash flow analyses, using interest rates currently offered
for advances of similar remaining maturities.
F-23 (Continued)
<PAGE>
1ST STATE BANK AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
The estimated fair values of financial instruments are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------------
CARRYING ESTIMATED
VALUE FAIR VALUE
---------------- ----------------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 31,077,054 31,077,054
Investment securities 40,052,874 40,273,227
Loans held for sale 7,539,919 8,192,660
Loans receivable, net of allowance for loan losses 196,782,275 201,783,429
Federal Home Loan Bank stock 1,346,500 1,346,500
================ ================
Financial Liabilities:
Deposit accounts $ 235,693,715 235,904,989
Advances from the Federal Home Loan Bank 20,000,000 21,038,755
================ ================
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
CARRYING ESTIMATED
VALUE FAIR VALUE
---------------- ----------------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 14,990,413 14,990,413
Investment securities 34,801,287 34,859,547
Loans held for sale 684,438 684,438
Loans receivable, net of allowance for loan losses 197,121,798 197,864,510
Federal Home Loan Bank stock 1,281,200 1,281,200
================ ================
Financial Liabilities:
Deposit accounts $ 229,340,603 229,704,672
Advances from the Federal Home Loan Bank 1,000,000 1,000,000
================ ================
</TABLE>
At September 30, 1998 and 1997, the Bank had outstanding commitments to
originate new loans and to extend credit. These off-balance sheet financial
instruments were exercisable at the market rate prevailing at the date the
underlying transaction will be completed and, therefore, they were deemed to
have no current fair market value.
SFAS 107 excludes certain financial instruments and all non-financial
instruments from its disclosure requirements. The disclosures also do not
include premises and equipment and certain intangible assets, such as customer
relationships. Accordingly, the aggregate fair value amounts presented above do
not represent the underlying value of the Bank.
F-24
<PAGE>
GLOSSARY
APB Accounting Principles Board
Administrator Administrator, Savings Institutions
Division, North Carolina Department of
Commerce
BIF Bank Insurance Fund of the FDIC
Commission State Banking Commission of North Carolina,
as well as the State Banking Commissioner of
North Carolina, whose powers are exercised
under the supervision of the Commission
Eligible Account Savings account holders of 1st State Bank
Holders with account balances of at least $50.00 as
of the close of business on December 31,
1994
Exchange Act Securities Exchange Act of 1934, as amended
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
Federal Reserve Board The Board of Governors of the Federal
Reserve System
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
NASD National Association of Securities Dealers,
Inc.
National Market National Market System operated by Nasdaq
NOW account Negotiable order of withdrawal account
A-1
<PAGE>
Other Members Savings account holders (other than Eligible
Account Holders and Supplemental Eligible
Account Holders) and borrowers whose loans
were outstanding on the Voting Record Date
who are entitled to vote at the special
meeting due to the existence of a savings
account or a borrowing, respectively, on the
Voting Record Date for the special
meeting
SAIF Savings Association Insurance Fund of the
FDIC
SEC Securities and Exchange Commission
Securities Act Securities Act of 1933, as amended
SFAS Statement of Financial Accounting Standards
adopted by FASB
Supplemental Eligible Depositors, who are not Eligible Account
Account Holders Holders of 1st State Bank, with account
balances of at least $50.00 on December 31,
1998
Voting Record Date The close of business on ___________, 1999,
the date for determining members of 1st
State Bank entitled to vote at the special
meeting
A-2
<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this document in connection with
the offering made hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by 1st State
Bank, 1st State Bancorp, or Trident Securities. This document does not
constitute an offer to sell, or the solicitation of an offer to buy, any of the
securities offered hereby to any person in any jurisdiction in which such offer
or solicitation would be unlawful. Neither the delivery of this document by 1st
State Bank, 1st State Bancorp, or Trident Securities nor any sale made hereunder
shall in any circumstances create an implication that there has been no change
in the affairs of 1st State Bank or 1st State Bancorp, since any of the dates as
of which information is furnished herein or since the date hereof.
1ST STATE BANCORP, INC.
(Holding Company for 1st State Bank)
UP TO 2,133,750 SHARES
COMMON STOCK
PROSPECTUS
TRIDENT SECURITIES, INC.
DATED __________, 1999
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL ________ __, 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE DEALERS OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Legal Fees and Expenses........................ $ 160,000
Printing, Postage and Mailing.................. 150,000
Appraisal and Business Plan Fees and Expenses.. 35,000
Conversion Agent Fees and Expenses............. 25,000
Transfer Agent Fees and Stock Certificates..... 15,000
Accounting Fees and Expenses................... 125,000
Blue Sky Filing Fees and Expenses
(including counsel fees)..................... 15,000
Filing Fees (Administrator, Commissioner,
SEC, and NASD).............................. 50,000
* Underwriter's Fees and Expenses............... 358,500
Local Counsel.................................. 5,000
Other Expenses................................. 141,500
----------
Total.......................................... $1,080,000 **
==========
- -------------------------
* Calculation of Trident Securities' commissions assumes that the midpoint of
the offering range is sold in the conversion and 8% of the stock is
purchased by the employee stock ownership plan.
** Assumes sale of 1,500,000 shares (the midpoint of the offering range).
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
The Amended and Restated Certificate of Incorporation of 1st State Bank
provides that, to the fullest extent permitted by the North Carolina Business
Corporation Act (the "NCBCA"), no person who serves as a director shall be
personally liable to the Savings Bank or any of its stockholders or otherwise
for monetary damages for breach of any duty as director.
In addition, Article IX of the Amended and Restated Bylaws of the Converted
Bank state that any individual who at any time serves or has served as a
director, officer, employee or agent of the Converted Bank, and any individual
who serves or has served at the request of the Converted Bank as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or as a trustee or
administrator under an employee benefit plan, shall have a right to be
indemnified by the Converted Bank to the fullest extent permitted by law against
liability and litigation expense arising out of such status or activities in
such capacity. Article IX of the Amended and Restated Bylaws of the Commercial
Bank contain similar provisions.
Sections 55-8-50 through 55-8-58 of the NCBCA contain provisions
prescribing the extent to which directors and officers of the Converted Bank and
the Commercial Bank shall or may be indemnified. Section 55-8-51 of the NCBCA
permits a corporation, with certain exceptions, to indemnify a present or former
director against liability if (i) the director conducted himself in good faith,
(ii) the director reasonably believed (x) that the director's conduct in the
director's official capacity with the corporation was in its best interests and
(y) in all other cases the director's conduct was at least not opposed to the
corporation's best interests, and (iii) in the case of any criminal proceeding,
the director had no reasonable cause to believe the director's conduct was
unlawful. A corporation may not indemnify a director in connection with a
proceeding by or in the right of the corporation in which the director was
adjudged liable to the corporation or in connection with a proceeding charging
improper personal benefit to the director. The above standard
II-1
<PAGE>
of conduct is determined by a majority vote of a quorum of the board of
directors consisting of directors not at the time parties to the proceeding, or
majority vote of a duly designated committee of the board of directors, special
legal counsel, or the shareholders as prescribed in Section 55-8-55.
Sections 55-8-52 and 55-8-56 of the NCBCA require a corporation to
indemnify a director or officer in the defense of any proceeding to which the
director or officer was a party against reasonable expenses when the director or
officer is wholly successful in the director's or officer's defense, unless the
articles of incorporation provide otherwise. Upon application, the court may
order indemnification of the director or officer if the director or officer is
adjudged fairly and reasonably so entitled under Section 55-8-54.
In addition, Section 55-8-57 of the NCBCA permits a corporation to provide
for indemnification of directors, officers, employees or agents, in its articles
of incorporation or bylaws or by contract or resolution, against liability in
various proceedings and to purchase and maintain insurance policies on behalf of
these individuals. The Savings Bank currently maintains a directors and officers
liability insurance policy.
Directors, officers and employees of the Company may be entitled to benefit
from the indemnification provisions contained in the Virginia Stock Corporation
Act (the "VSCA") and the Holding Company's Articles of Incorporation. The
general effect of these provisions is summarized below.
In accordance with Sections 13.1-696 through 13.1-704 of the VSCA, a
director or officer of the Company generally shall be indemnified in the defense
of a proceeding if they are successful. A corporation may indemnify a director,
officer, employee or agent under the circumstances in the preceding sentence and
in other circumstances if (i) he conducted himself in good faith; and (ii) he
believed (x) that his conduct in his official capacity with the corporation was
in its best interests and (y) in all other cases his conduct was at least not
opposed to the corporation's best interests, and (iii) in the case of any
criminal proceeding, he had no reasonable cause to believe that his conduct was
unlawful. A corporation may not indemnify a director, officer, employee or agent
in connection with a proceeding by or in the right of the corporation in which
the individual was adjudged liable to the corporation or in connection with a
proceeding charging improper personal benefit to the individual. The above
standard of conduct is determined by a majority vote of a quorum of the board of
directors consisting of directors not at the time parties to the proceeding, or
majority vote of a duly designated committee of the board of directors, special
legal counsel, or the shareholders as prescribed in Section 13.1-701.
Sections 13.1-698 and 13.1-702 of the VSCA require a corporation to
indemnify a director or officer in the defense of any proceeding to which the
director or officer was a party against reasonable expenses when the director or
officer is wholly successful in the director's or officer's defense, unless the
articles of incorporation provide otherwise. Upon application, the court may
order indemnification of the director or officer if the director or officer is
adjudged fairly and reasonably so entitled under Section 13.1-700.1.
In addition, Section 13.1-704 of the VSCA permits a corporation to provide
for indemnification of directors, officers, employees or agents, in its articles
of incorporation or bylaws or by contract or resolution, against liability in
various proceedings and to purchase and maintain insurance policies on behalf of
these individuals, except an indemnity against willful misconduct or a knowing
violation of criminal law.
Article XVI of the Holding Company's Articles of Incorporation provides
that the Holding Company shall indemnify, to the fullest extent permissible
under the VSCA, any individual who is or was a director, officer, employee or
agent of the Holding Company, and any individual who serves or served at the
Holding Company's request as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan, in any proceeding in which the individual
is made a party as a result of his service in such capacity. In addition, the
Holding Company must pay reasonable expenses incurred by any person identified
in the preceding sentence who is a party to a proceeding in advance of the final
disposition of the proceeding upon receipt by the Holding Company of: (i) a
written affirmation by such person of his good faith belief that the standard
II-2
<PAGE>
of conduct necessary for indemnification by the Holding Company as authorized in
Article XVI has been met; and (ii) a written undertaking by or on behalf of such
person to repay the amount if it shall ultimately be determined that the
standard of conduct has not been met.
Article XVI further provides that the Holding Company shall purchase and
maintain insurance on behalf of any person who holds or who has held any
position as a director or officer of the Holding Company against any liability
incurred by him or her in any such position, or arising out of his status as
such, whether or not the Corporation would have power to indemnify him or her
against such liability under Article XVI.
The engagement letter dated July 24, 1998, between the Savings Bank and
Ferguson provides for the indemnification of Ferguson and its employees under
certain circumstances, in connection with the appraisal services rendered under
the terms of that engagement letter. The engagement letter dated July 27, 1998,
between the Savings Bank and Trident Securities provides for the indemnification
of Trident Securities and its controlling persons under certain circumstances,
in connection with the Conversion and Trident Securities' engagement under the
engagement letter. The Sales Agency Agreement to be entered into between Trident
Securities and the Company will provide for the indemnification of Trident
Securities, its affiliates, and their respective officers, directors, employees,
agents and controlling persons under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
NOT APPLICABLE.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:
(a) LIST OF EXHIBITS
* 1.1 Engagement Letter with Trident Securities, Inc.
1.2 Form of Sales Agency Agreement with Trident Securities,
Inc.
2 Plan of Conversion
* 3.1 Articles of Incorporation of 1st State Bancorp, Inc.
* 3.2 Bylaws of 1st State Bancorp, Inc.
* 4 Form of Common Stock Certificate of 1st State Bancorp,
Inc.
* 5 Opinion of Housley Kantarian & Bronstein, P.C. regarding
legality of securities being registered
8.1 Federal Tax Opinion of Housley Kantarian & Bronstein,
P.C.
8.2 State Tax Opinion of KPMG LLP
* 8.3 Opinion of Ferguson & Company as to the value of
subscription rights for tax purposes
II-3
<PAGE>
10.1 Proposed 1st State Bancorp, Inc. 1999 Stock Option and
Incentive Plan
* 10.2 Proposed 1st State Bancorp, Inc. Management Recognition
Plan
* 10.3 Employment Agreements by and between 1st State Bank and
James C. McGill, A. Christine Baker and Fairfax C.
Reynolds
* 10.4 Form of Guaranty Agreement by and between 1st State
Bancorp, Inc. and James C. McGill, A. Christine Baker and
Fairfax C. Reynolds
* 10.5 1st State Bank Deferred Compensation Plan
* 23.1 Consent of Housley Kantarian & Bronstein, P.C. (contained
in opinions filed as Exhibits 5 and 8)
23.2 Consent of KPMG LLP
23.3 Consent of Ferguson & Company
24 Power of Attorney (reference is made to the signature page
of the Form S-1)
* 27 Financial Data Schedule
99.1 Form of Proposed Stock Order Form and Form of Certification
* 99.2 Proxy Statement for Special Meeting of Members of 1st State
Bank; Form of Proxy
99.3 Revised Miscellaneous Solicitation and Marketing
Materials
99.4 Appraisal Reports as of October 30, 1998 and January 29,
1999
________________
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-4
<PAGE>
(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 end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 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 of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Burlington,
State of North Carolina, on January 29, 1999.
1ST STATE BANCORP, INC.
By: /s/ James C. McGill
----------------------------
James C. McGill
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this 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/James C. McGill President, Chief Executive Officer January 29, 1999
- ------------------------ and Director (Principal Executive Officer)
James C. McGill
/s/ A. Christine Baker Executive Vice President-Chief January 29, 1999
- ------------------------ Financial Officer, Secretary and
A. Christine Baker Treasurer (Principal Financial and
Accounting Officer)
* Chairman of the Board January 29, 1999
- ------------------------
Richard C. Keziah
* Director January 29, 1999
- ------------------------
James A. Barnwell, Jr.
* Director January 29, 1999
- ------------------------
Bernie C. Bean
* Director January 29, 1999
- ------------------------
James G. McClure
* Director January 29, 1999
- ------------------------
T. Scott Quakenbush
* Director January 29, 1999
- ------------------------
Richard H. Shirley
* Director January 29, 1999
- ------------------------
Virgil L. Stadler
</TABLE>
* By: /s/ James C. McGill January 29, 1999
-------------------
James C. McGill
Attorney-in-fact
<PAGE>
EXHIBIT 1.2
1ST STATE BANCORP, INC.
Up to 1,725,000 Shares
OF
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
$20 PER SHARE
SALES AGENCY AGREEMENT
----------------------
___________, 1999
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Dear Sirs:
1st State Bancorp, Inc., a Virginia corporation (the "Company") and 1st
State Bank, a North Carolina chartered mutual savings bank (the "Bank"), hereby
confirm as of the date above their respective agreements with Trident
Securities, Inc. ("Trident"), a broker-dealer registered with the Securities and
Exchange Commission (the "Commission") and a member of the National Association
of Securities Dealers, Inc. (the "NASD"), as follows:
1. Introduction. The Bank intends to convert from a North Carolina
------------
chartered mutual savings bank to a North Carolina 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, collectively the "Stock
Conversion") pursuant to a plan of conversion adopted on August 11, 1998 (the
"Plan"). In accordance with the Plan, the Company is offering shares of its
common stock, par value $.01 per share (the "Shares" or the "Common Stock"),
pursuant to nontransferable subscription rights in a subscription offering
("Subscription Offering") to certain depositors and borrowers of the Bank and
the Bank's Employee Stock Ownership Plan (the "ESOP"). Shares of the Common
Stock not sold in the Subscription Offering are being offered to the general
public in a direct community offering, with preference being given to natural
persons residing in the Bank 's Local Community (as defined in the Plan) (the
"Community Offering") and, if necessary, through a syndicate of registered
broker-dealers managed by Trident in a syndicated community offering (the
"Syndicated Community Offering"). The Subscription Offering, the Community
Offering and the Syndicated Community Offering are collectively referred to as
the "Offerings." Purchases of Shares in the Offerings are subject to certain
limitations and restrictions as described in the Plan. The Company and Bank may
reject, in whole or in part, any order received in the Community Offering or
Syndicated Community
<PAGE>
Trident Securities, Inc.
Page 2
Offering. Immediately following the completion of the Stock Conversion, the Bank
will convert to a North Carolina chartered commercial bank and will remain as a
wholly owned subsidiary of the Company (the "Bank Conversion").
In connection with the Stock Conversion and pursuant to the terms of the
Plan as described in the prospectus, immediately following the consummation of
the Stock Conversion, subject to the approval of the members of the Bank and
compliance with certain conditions as may be imposed by regulatory authorities,
the Company will contribute up to 150,000 shares of Common Stock sold in the
Stock Conversion to a charitable foundation (the "Foundation") such shares
hereinafter being referred to as the ("Foundation Shares").
The Company and the Bank have been advised by Trident that it will utilize
its best efforts to assist the Company and the Bank with the sale of the Shares
in the Offerings. Prior to the execution of this Agreement, the Company has
delivered to Trident a prospectus dated as of the date hereof and all
supplements thereto to be used in the Offerings. Such prospectus contains
information with respect to the Company, the Bank, the Shares, the Foundation
Shares, the Stock Conversion and the Bank Conversion.
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 a prospectus relating to the Offerings and
exhibits, and an amendment or amendments thereto, on Form S-1 (No. 333-
_____) for the registration of the Shares and the Foundation Shares
under the Securities Act of 1933, as amended ("Securities Act"); and
such registration statement has been declared effective under the
Securities Act and no stop order has been issued with respect thereto
and no proceedings therefor have been initiated or, to the best
knowledge of the Company and the Bank, 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 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 any
prospectus filed by the Company with the Commission pursuant to Rule
424(b) of the general rules and regulations of the Commission under the
Securities Act (together with the enforceable published policies,
releases and actions of the
<PAGE>
Trident Securities, Inc.
Page 3
Commission thereunder, hereinafter referred to as the "Securities Act
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. The Registration Statement
complies in all material respects with the Securities Act and the
Securities Act Regulations.
(ii) The Bank has filed an application for approval to convert from
the mutual form of ownership to the stock form of ownership with the
Savings Institution Division of the North Carolina Department of
Commerce (the "Department") and the Federal Deposit Insurance
Corporation ("FDIC"). The Department and the FDIC have approved the
Bank's application, including the waiver of certain provisions of
regulations specified in such approval with respect to the
establishment of and contribution to the Foundation. The Prospectus
and the proxy statement for the solicitation of proxies from
depositors for the special meeting to approve the Plan (the "Proxy
Statement") included as part of the Bank's application to convert have
been approved for use by the Department and the FDIC. No order has
been issued by the Department or the FDIC preventing or suspending the
use of the Prospectus or the Proxy Statement; and no action by or
before the Department or the FDIC revoking such approvals is pending
or, to the Bank's best knowledge, threatened. Additionally, the
company has filed an application to register as a bank holding company
with the Federal Reserve Board ("FRB") and has received approval from
the FRB. (The Company and Bank applications are hereafter called the
"Applications.")
(iii) As of [effective date] (i) the Registration Statement and the
Prospectus complied with the Securities Act and the Securities Act
Regulations, (ii) the Registration Statement does 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, in light of the circumstances under which they were made, not
misleading, and (iii) the Prospectus does 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.
(iv) The Company has been duly incorporated as a Virginia
corporation and the Bank has been duly organized as a mutual savings
bank under the laws of North Carolina, and each of them is validly
existing and in good standing under the laws of its jurisdiction of
organization with full power and authority to own its property
<PAGE>
Trident Securities, Inc.
Page 4
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 Atlanta; and the deposit accounts of the Bank are
insured by the Savings Association Insurance Fund ("SAIF")
administered by the FDIC up to the applicable legal limits. The
Company and the Bank are not required to be qualified to do business
as a foreign corporation in any jurisdiction except where non-
qualification would have a material adverse effect on the condition
(financial or otherwise), operations, business, earnings or properties
of the Company and the Bank taken as a whole ("Material Adverse
Effect"). Upon amendment of the Bank's mutual charter and bylaws to a
stock charter and bylaws, completion of the sale by the Company of the
Shares as contemplated by the Prospectus, and the other corporate and
regulatory actions discussed in the Plan, (i) the Bank will be
converted pursuant to the Plan to a North Carolina 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, (iii) the Company will
issue common stock to the Foundation and the public, and (iv) the
Company will have no direct subsidiaries other than the Bank.
(v) The Bank has good and marketable 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 liens, charges, encumbrances or
restrictions, except for liens for ad valorem taxes not yet due,
except as described in the Prospectus and except as do not, and would
not, in the aggregate, have a Material Adverse Effect; and all of the
leases and subleases material to the operations 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 Company and the Bank have obtained all licenses, permits and
other governmental authorizations currently required for the conduct
of their respective businesses except where the failure to obtain such
licenses, permits and governmental authorizations does not, and would
not, have a Material Adverse Effect; all such licenses, permits and
other governmental authorizations are in full force and effect, and
the Company and the Bank are complying therewith in all material
respects.
(vii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and all actions
in connection with the contribution to the Foundation contemplated by
the Plan 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 of each of the Company and
the Bank, enforceable in accordance with its terms except as the
enforceability thereof may be
<PAGE>
Trident Securities, Inc.
Page 5
limited by (a) bankruptcy, insolvency, moratorium, reorganization,
conservatorship, receivership or similar laws relating to or affecting
the enforcement of creditors' rights generally or the rights of
creditors of insured financial institutions and their holding
companies, the accounts of whose subsidiaries are insured by the FDIC;
(b) general equity principles, regardless of whether such principles
are applied in a proceeding in equity or at law; (c) laws relating to
the safety and soundness of insured depository institutions and their
affiliates, and except to the extent that the provisions of Sections 8
and 9 hereof may be unenforceable as against public policy or by
applicable law, including without limitation, Section 23A of the
Federal Reserve Act, 12 U.S.C. Section 371c ("Section 23A").
(viii) Except as described in the Prospectus, there is no litigation
or governmental proceeding pending or, to the best knowledge of the
Company or the Bank, threatened against or involving the Company 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.
(ix) Each of the Company and the Bank has all power, authority,
authorizations, approvals and orders as may be required to enter into
this Agreement, to carry out the provisions and conditions hereof and,
in the case of the Company, to issue and sell the Shares in the
Offerings, and to issue and contribute the Foundation Shares, subject
to the limitations set forth herein and subject to the satisfaction of
certain conditions imposed by the Department, FDIC and the FRB in
connection with approvals of the Applications, 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
(as defined below), 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 a North Carolina-chartered
stock savings bank ("Stock Charter"), the form of which has been
approved by the Department.
(x) The Company and the Bank have received the opinions of Housley
Kantarian & Bronstein, P.C. with respect to the federal income tax
consequences of the Stock Conversion, and of KPMG Peat Marwick, L.L.P.
with respect to the state income tax consequences of the Stock
Conversion, to the effect that the Stock Conversion will constitute a
tax-free reorganization under the Internal Revenue Code of 1986, as
amended (the "Code"), or under the laws of North Carolina, and will
not be a taxable transaction for the Bank or the Company under the
Code or under the laws of North
<PAGE>
Trident Securities, Inc.
Page 6
Carolina; and the facts and representations provided by the Company
and the Bank and relied upon in the rendering of such opinions are
accurate and complete, and neither the Company nor the Bank has taken
any action inconsistent therewith.
(xi) Neither the Company nor the Bank is in violation of any rule or
regulation of the Department or the FDIC that has resulted or could
result in any enforcement action against the Company or the Bank or
their officers or directors, that might have a Material Adverse
Effect.
(xii) Ferguson & Company, the firm that prepared the independent
appraisal included in the Applications, is independent with respect to
the Company and the Bank within the meaning of the Department and FDIC
Regulations. The Company and the Bank believe such firm to be
experienced and expert in providing appraisals of savings banks, and
nothing has come to the attention of the Company or the Bank which has
caused either of them to believe that the appraisal included in the
Applications was not prepared in accordance with the requirements of
the Department and FDIC Regulations.
(xiii) KPMG Peat Marwick, L.L.P., the firm that certified the
financial statements of the Bank filed as part of the Registration
Statement and the Applications, is independent with respect to the
Company and the Bank as required by the Securities Act, the Securities
Act Regulations, the Code of Professional Ethics of the American
Institute of Certified Public Accountants, and Title 12 of the Code of
Federal Regulations Parts 563c and 571, and nothing has come to the
attention of the Company or the Bank which has caused either of them
to believe that such firm is not independent within the meaning of
such provisions.
(xiv) The financial statements and related notes which are included
in the Registration Statement and the Prospectus fairly present the
consolidated financial condition, income, results of operations,
retained earnings and cash flows of the Bank at the respective dates
thereof and for the respective periods covered thereby and comply as
to form with the applicable accounting requirements of the Securities
Act Regulations and the applicable regulations of the Department and
FDIC. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied
throughout the periods involved, except as set forth therein, and such
financial statements are consistent with financial statements and
other reports filed by the Bank with supervisory and regulatory
authorities, except as GAAP may otherwise require. The financial
tables in the Prospectus accurately present the information purported
to be shown thereby at the respective dates thereof and for the
respective periods covered thereby.
<PAGE>
Trident Securities, Inc.
Page 7
(xv) There has been no material change in the condition (financial
or otherwise), results of operations, business, assets or 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 in all material
aspects 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.
(xvi) There has been no breach or default (or the occurrence of any
event which, with notice or lapse of time or both, would constitute a
default) under, or creation or imposition of any lien, charge or other
encumbrance upon any of the properties or assets of the Company or the
Bank pursuant to any of the terms, provisions or conditions of any
agreement, contract, indenture, lease, bond, debenture, note,
instrument or obligation to which the Company or the Bank is a party
or by which any of them or any of their respective assets or
properties may be bound or is subject or any violation of any
governmental license or permit or any enforceable published law,
administrative regulation or order or court order, writ, injunction or
decree, which breach, default, lien, charge, encumbrance or violation
would have a Material Adverse Effect; all agreements which are
material to the financial condition, results of operations, business,
assets or properties of the Company and the Bank, taken as a whole,
are in full force and effect, and no party to any such agreement has
instituted or, to the best knowledge of the Company and the Bank ,
threatened any action or proceeding wherein the Company and the Bank
would be alleged to be in default thereunder.
(xvii) Neither the Company nor the Bank is in violation of its
respective charter, certificate or articles of incorporation or
bylaws. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by the Company
and the Bank do not conflict with or result in a breach of the
charter, certificate or articles of incorporation or bylaws of the
Company or the Bank (in either mutual or stock form), or violate,
conflict with or constitute a material breach 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 agreement, contract, indenture,
lease, bond, debenture, note, instrument or obligation to which the
Company or the Bank is a party (other than the establishment of a
liquidation account
<PAGE>
Trident Securities, Inc.
Page 8
pursuant to the Plan) or violate any governmental license or permit or
any law, administrative regulation or order or court order, writ,
injunction or decree (subject to the satisfaction of certain
conditions imposed by the Department and FDIC in connection with their
approval of the Stock Conversion Application), which breach, default,
encumbrance or violation could have a Material Adverse Effect.
(xviii) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and prior to the
Closing Date, except as otherwise may be indicated or contemplated
therein, neither the Company nor 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 incurred in the ordinary course of business,
or entered into any other transaction not in the ordinary course of
business and not consistent with prior practices, which is material in
light of the business of the Company and the Bank, taken as a whole.
(xix) Upon consummation of the Stock Conversion, the authorized,
issued and outstanding equity capital of the Company shall be as set
forth in the Prospectus under the heading "Capitalization," and no
Common Stock of the Company shall be outstanding immediately prior to
the Closing Date. The issuance and the sale of the Shares of the
Company and the Foundation Shares have been duly authorized by all
necessary action of the Company and approved by the Department and,
when issued in accordance with the terms of the Plan and paid for as
set forth in the Prospectus, shall be validly issued, fully paid and
nonassessable and shall conform in all material respects 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 and Foundation Shares will be
transferred by the Company upon issuance thereof against payment
therefor, free and clear of all claims, encumbrances, security
interests and liens against the Company whatsoever. The certificates
representing the Shares and Foundation Shares will conform with the
requirements of applicable laws and regulations. The issuance and sale
of the capital stock of the Bank to the Company and the Foundation
Shares has been duly authorized by all necessary action of the Bank
and the Company and all applicable regulatory authorities (subject to
the satisfaction of various conditions imposed by the Department and
FDIC in connection with its approvals of the Applications), and such
capital stock and Foundation Shares, when issued in accordance with
the terms of the Plan, will be validly issued, fully paid and
nonassessable and will conform in all material respects to the
description thereof contained in the Prospectus.
<PAGE>
Trident Securities, Inc.
Page 9
(xx) 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 and Foundation Shares,
except for the declaration of effectiveness by the Commission of any
required post-effective amendment of the Registration Statement not
yet filed, except as may be required by the "blue sky" or securities
laws of various jurisdictions, and except as may be required by the
conditions of the approval of the Applications by the Department, the
FDIC, and the FRB, and the issuance of the Stock Charter by the
Department.
(xxi) All contracts and other documents required to be filed as
exhibits to the Registration Statement or the Applications have been
filed with the Commission, the Department, the FDIC and the FRB, as
the case may be.
(xxii) The Company and the Bank have timely filed all required
federal, state and local franchise tax returns, and no deficiency has
been asserted with respect to such returns by any taxing authorities;
and the Company and the Bank have paid all taxes that have become due
and, to the best of their knowledge, the Company and the Bank, have
made adequate reserves for future tax liabilities, except where any
failure to make such filings, payments and reserves, or the assertion
of such a deficiency, could not have a Material Adverse Effect.
(xxiii) All of the loans represented as assets of the Bank as of the
most recent date for which financial condition data is 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,
could not have a Material Adverse Effect.
(xxiv) The records of depositors, account holders, borrowers and
other members of the Bank delivered to Trident by the Bank or its
agent for use during the Stock Conversion have been reviewed by the
Bank and are accurate, reliable and complete.
(xxv) Neither the Company nor 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.
(xxvi) 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 environmental
<PAGE>
Trident Securities, Inc.
Page 10
protection, and neither the Company nor 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, could not have a Material Adverse
Effect. There are no actions, suits, regulatory investigations or
other proceedings pending or, to the best knowledge of the Company or
the Bank, threatened against the Company or the Bank relating to
environmental protection. No disposal, release or discharge of
hazardous or toxic substances, pollutants or contaminants, including
petroleum and gas products, as any of such terms may be defined under
federal, state or local law, has been caused by the Company and the
Bank or, except as disclosed in the Prospectus, has occurred on, in or
at any of the facilities or properties owned or leased by the Company
or the Bank or on any properties pledged to the Bank as security for
any indebtedness, except such disposal, release or discharge as would
not have a Material Adverse Effect.
(xxvii) All documents delivered by the Company or the Bank or their
representatives in connection with the issuance and sale of the Common
Stock, except for those documents that were prepared by parties other
than the Company, the Bank, or their representatives, were, on the
dates on which they were delivered, true, complete and correct in all
material respects.
(xxviii) At the Closing Date, the Company and the Bank will have
completed the conditions precedent to, and will have conducted the
Stock Conversion in all material respects in accordance with, the
Plan, the Department Regulations, FDIC Regulations and all other
applicable laws, regulations, published decisions and orders,
including all terms, conditions, requirements and provisions precedent
to the Stock Conversion imposed by the Department and FDIC.
(xxix) The Foundation has been duly incorporated and is validly
existing as a private charitable foundation in good standing under the
laws of the State of North Carolina with corporate power and authority
to own, lease and operate its properties and to conduct its business
as described in the Prospectus; the Foundation will not be a bank
holding company within the meaning of the Bank Holding Company Act of
1956 as a result of the issuance of the Foundation Shares to it in
accordance with the terms of the Plan and in the amounts as described
in the Prospectus; to the best knowledge of the Company and the Bank,
all approvals required to establish the Foundation and to contribute
the Foundation Shares have been performed as described in the
Prospectus; except as specifically disclosed in the Prospectus and the
Proxy Statement, there are no agreements and/or understandings,
written or oral or otherwise, between the Company and/or the Bank and
the Foundation with respect
<PAGE>
Trident Securities, Inc.
Page 11
to the control, directly or indirectly, over the voting and the
acquisition or disposition of the shares of Common Stock to be
contributed by the Company to the Foundation.
(xxx) The Company and the Bank maintain a system of internal
accounting controls sufficient to provide reasonable assurances that
(i) tranactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with GAAP and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxxi) The Company and the Bank maintain insurance of the types and
in the amounts generally deemed adequate for its business, including,
but not limtied to, directors' and officers' insurance, insurance
covering real and personal property owned or leased by the Company and
the Bank against theft, damage, destruction, acts of vandalism and all
other risks customarily insured against, all of which insurance is in
full force and effect. The Company and the Bank have not been refused
any insurance coverage sought or applied for, and the Company and the
Bank have no reason to believe that they will not be able to renew
their exiting insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material
Adverse Effect.
(b) Trident represents and warrants to the Company and the Bank that:
(i) Trident is registered as a broker-dealer with the NASD.
(ii) Trident is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, with full
corporate power and authority to provide the services to be furnished
to the Company and the Bank hereunder.
(iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary action on the part of Trident,
and this Agreement is a legal, valid and binding obligation of
Trident, enforceable in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws relating to or affecting
the enforcement of creditors' rights generally or the rights of
creditors of registered broker-dealers whose accounts may be protected
by the Securities Investor Protection Corporation or by general
<PAGE>
Trident Securities, Inc.
Page 12
equity principles, regardless of whether such principles are applied
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 by applicable law, including, without limitation,
Section 23A).
(iv) Trident and, to Trident's best 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 in which the Company is relying on such registration for
the sale of the Shares, and will remain so registered until the Stock
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 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 which breach, default or violation would
have a material adverse effect on its ability to perform its
obligations under this Agreement.
(vi) All 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 ("Exchange Act").
(vii) No action or proceeding against Trident before the Commission,
the NASD, any state securities commission, or any state or federal
court is pending or, to Trident's best knowledge, threatened
concerning Trident's activities as a broker-dealer which could have a
material adverse effect on its ability to perform its obligations
under this Agreement.
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 to assist the Company with the
Company's sale of the Shares in the Offerings, and Trident hereby accepts such
employment.
<PAGE>
Trident Securities, Inc.
Page 13
In the event the Company is unable to sell a minimum of 1,275,000 Shares
(or such lesser amount as the Department may permit) within the period described
in the Prospectus, this Agreement shall terminate, and the Company shall refund
promptly to any persons who have subscribed for any of the Shares, the full
amount which they may have received from them, together with interest as
provided in the Prospectus, and no party to this Agreement shall have any
obligation to the other party hereunder, except as set forth in Sections 3(c)
and 3(d) below and Sections 6, 8, 9 and 10 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
will be made prior to the commencement of the Subscription and Community
Offerings, with provision for prompt refund to the purchasers as set forth
above, or for delivery to the Company if all Shares are sold.
If all conditions precedent to the consummation of the Stock 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 for such Shares on or as soon as possible following
the Closing Date against payment to the Company by any means authorized pursuant
to the Prospectus, at the principal executive office of the Bank or at such
other place as shall be agreed upon between the parties hereto. The date upon
which the Company shall release or deliver 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 to the Bank for deposit in a segregated account the
offering price of the Common Stock ordered on or before twelve noon on the next
business day following receipt of an order form by Trident 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 third business day ("Debit Date") following receipt
of the confirmation referred to in (i), and (iv) Trident will forward completed
order forms together with such funds to the Bank on or before twelve noon on the
next business day following the Debit Date for deposit in a segregated account.
Trident acknowledges that if the procedure in (b) is adopted, subscribers' funds
are not required to be in their accounts until the Debit Date.
The Company and the Bank agree to pay Trident the following compensation
and expense reimbursement for its services hereunder:
(a) A commission equal to one and one half percent (1.50%) of the
aggregate dollar amount of the Shares sold in the Subscription Offering and
Community Offering (excluding
<PAGE>
Trident Securities, Inc.
Page 14
Shares sold to the Bank's directors and executive officers, and their
"Associates", as defined in the Plan, the Foundation Shares and Shares sold
to the ESOP). For stock sold by other NASD member firms under selected
dealers agreements, the commission shall not exceed a fee to be agreed upon
jointly by Trident and the Bank to reflect market requirements at the time
of the stock allocation in a Syndicated Community Offering.
(b) The foregoing fees shall be paid to Trident on the Closing Date.
(c) Reimbursement for all allocable out-of-pocket expenses, including but
not limited to travel, food, lodging and legal fees, incurred by Trident
whether or not the Stock Conversion is consummated; provided, however, that
Trident's out-of-pocket expenses shall not exceed $10,000 and its legal
fees shall not exceed $27,500 and neither the Company nor the Bank shall
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. Full reimbursement of
Trident shall be made on the Closing Date or, if the Stock 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 detailing
its allocable expenses. Trident acknowledges receipt of a $10,000 advance
payment from the Bank, which shall be credited against the total
reimbursement due Trident hereunder.
(d) Reimbursement for any expenses of the Company and the Bank set forth
in Section 6 hereof to the extent paid by Trident on behalf of the Company
or the Bank. Full reimbursement shall be made 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 and the Bank of a written
request from Trident detailing such expenses.
Notwithstanding the limitations on reimbursement of Trident for its
allocable expenses provided in subsection (c) above and notwithstanding any
reimbursement of Trident pursuant to subsection (d) above, in the event that a
resolicitation or other event causes the Offerings to be extended beyond the
original expiration date of the Subscription Offering, as set forth in the
Prospectus, Trident shall be reimbursed for its allocable expenses incurred
during such extended period, provided that the allowance for allocable expenses
provided for in subsection (c) above has been exhausted and subject to the
following: such reimbursement shall not exceed an amount equal to the product
obtained by dividing $37,500 (the reimbursable expenses and legal fees
limitation set forth in Section (c) above) 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 (the
<PAGE>
Trident Securities, Inc.
Page 15
number of days from the date of the intended close of the Subscription Offering
to the closing of the extension of the Subscription Offering).
4. Offering. Subject to the provisions of Section 7 hereof, Trident is
--------
assisting the Company and the Bank on a best efforts basis in offering a minimum
of 1,275,000 and a maximum of 1,725,000 Shares, subject to adjustment up to
1,983,750 Shares, in the Offerings, subject to such other adjustments as may be
permitted by the Department and the FDIC. 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) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus and through and including the
Closing Date, except as otherwise may be indicated or contemplated therein,
neither the Company nor the Bank will issue any securities which will
remain issued at the Closing Date or incur any liability or obligation,
direct or contingent, or borrow money, except borrowings or liabilities in
the ordinary course of business, or enter into any other transaction not in
the ordinary course of business and consistent with prior practices, which
is material in light of the financial condition or operations of the
Company and the Bank, taken as a whole.
(b) If any Shares remain unsubscribed following completion of the
Subscription Offering and the Community Offerings, the Company (i) will, if
required by the Securities Act Regulations, 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, if required by the Securities Act
Regulations, file with the Commission a prospectus or prospectus supplement
containing information relating to the results of the Subscription and
Community Offerings and pricing information pursuant to Rule 424(c) of the
Securities Act Regulations, in either case in a form reasonably acceptable
to the Company and Trident.
(c) Upon consummation of the Stock Conversion, the authorized, issued and
outstanding equity capital of the Company shall be within the range as set
forth in the Prospectus under the caption "Capitalization," and no Common
Stock of the Company shall be outstanding immediately prior to the Closing
Date (other than shares of Common Stock issued in connection with the
initial capitalization of the Company, which shares will be canceled upon
consummation of the Stock Conversion), and the certificates representing
the Shares
<PAGE>
Trident Securities, Inc.
Page 16
and Foundation Shares will conform in all material respects with the
requirements of applicable laws and regulations.
(d) Upon amendment of the Bank's charter and bylaws as provided in the
Department Regulations 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 North Carolina-chartered 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.
(e) 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.
(f) The Company will notify Trident immediately, and confirm the notice in
writing, (i) when any post-effective amendment to the Registration
Statement becomes effective or any supplement to the Prospectus has been
filed, (ii) of the issuance by the Commission of any stop order relating to
the Registration Statement or of the initiation or the threat of any
proceedings for that purpose, (iii) of the receipt of any notice with
respect to the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, (iv) of the receipt of any comments from the
staff of the Commission relating to the Registration Statement and (v) of
the issuance by the Department or the FDIC of any stop order relating to
the Stock Conversion or the use of the Prospectus or Proxy Statement or the
initiation or threat of any proceedings for that purpose. 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.
(g) During the time when a prospectus is required to be delivered under
the Securities Act, the Company will comply with all requirements imposed
upon it by the Securities Act and by the Securities Act Regulations 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 or the Bank shall occur as a result of which it is necessary, in
the reasonable opinion of counsel for Trident after consultation with
counsel for the Company and the Bank, 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 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
<PAGE>
Trident Securities, Inc.
Page 17
reasonably 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 unless Trident has been first 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.
(h) The Company and the Bank has taken or will take all necessary action
and furnish to appropriate counsel such information 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 the
Company or its counsel may agree upon; provided, however, that the Company
shall not be obligated to qualify as a foreign corporation to do business
under the laws of any such jurisdiction. In each jurisdiction where such
qualification or registration shall be effected, the Company, unless
Trident agrees that such action is not necessary or advisable in connection
with the distribution of the Shares, shall file and make such statements or
reports as are, or reasonably may be, required by the laws of such
jurisdiction.
(i) Appropriate entries will be made in the financial records of the Bank
to establish a liquidation account for the benefit of eligible account
holders as of December 31, 1994 and supplemental eligible account holders
as of December 31, 1998 in accordance with the Department Regulations.
(j) The Company will file a registration statement for the Common Stock
under Section 12(b) or Section 12(g) of the Exchange Act, as applicable,
prior to completion of the Offerings and shall request that such
registration statement be effective upon or before completion of the Stock
Conversion. The Company shall maintain the effectiveness of such
registration for a minimum period of three (3) years or for such shorter
period as may be required by applicable law.
(k) The Company will make generally available to its security holders, in
the manner contemplated by Rule 158(b) under the Securities Act, as soon as
practicable, but not later than 60 days after the end of its fiscal quarter
in which the first anniversary date of the effective date of the
Registration Statement occurs, an earnings statement which will comply with
Section 11(a) of the Securities Act covering a twelve-month period
beginning after the effective date of the Registration Statement.
<PAGE>
Trident Securities, Inc.
Page 18
(l) For a period of three (3) years from the date of this Agreement, 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.
(m) The Company shall apply the net proceeds from the sale of the Shares
in the manner set forth in the Prospectus under the heading "Use of
Proceeds" and shall file such reports with the Commission with respect to
the sale of the Shares and the application of the proceeds therefrom as may
be required in accordance with Rule 463 under the Securities Act.
(n) The Company will not deliver the Shares until each and every condition
set forth in Section 7 hereof has been satisfied, unless such condition is
waived in writing by Trident.
(o) The Company and the Bank will advise Trident as to the allocation of
the deposits of the Bank's depositors and as to the allocation of votes of
its voting members, and in the event of an oversubscription for Shares in
the Offerings, will determine and provide Trident with final instructions
as to the allocation of the Shares and such information shall be accurate,
reliable and complete. Trident shall be entitled to rely upon such
information and instructions and shall have no liability related to its
reliance thereon, including, without limitation, any liability for or
related to any denial or satisfaction of any subscription in whole or in
part.
(p) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by Trident in order for Trident to
comply with the NASD's "Interpretation Relating to Free-Riding and
Withholding."
(q) The Company and the Bank shall use their best efforts to ensure that
the Foundation submits within the time frames required by applicable law a
request to the Internal Revenue Service to be recognized as a tax-exempt
organization under Section 501(c)(3) of the Code; the Company and the Bank
will take no action which will result in the possible loss of the
Foundation's tax-exempt status; and neither the Company nor the Bank will
contribute any additional assets to the Foundation until such time that
such additional contributions will be deductible for federal and state
income tax purposes.
(r) At the Closing Date, the Company and the Bank will have completed all
conditions precedent to, and shall have conducted the Stock Conversion in
all material respects in accordance with, the Plan, Department and FDIC
Regulations and all other applicable laws,
<PAGE>
Trident Securities, Inc.
Page 19
regulations, published decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Stock Conversion
imposed by the Department and FDIC.
(s) The Company will use its best efforts to obtain approval for and
maintain quotation of its shares of common stock on the Nasdaq National
Market System effective on or prior to the Closing Date.
(t) The Company will not sell or issue, contract to sell or otherwise
dispose of, for a period of 90 days after the Closing Date, without
Trident's prior written consent, any shares of common stock other than as
described in the Prospectus.
(u) The Company and the Bank will maintain appropriate arrangements for
depositing all funds received from persons mailing subscriptions for or
orders to purchase Common Stock in the Subscription and Community Offerings
on an interest bearing basis at the rate described in the Prospectus until
the Closing Date and satisfaction of all conditions precedent to the
delivery of certificates for the Shares to subscribers or until refunds of
such funds have been made to the persons entitled thereto in accordance
with the Plan and as described in the Prospectus.
(v) The Company and Bank will conduct the Stock Conversion in accordance
with the Plan, the Department and FDIC Regulations and all other applicable
laws, regulations, decisions, approvals and orders, including all terms,
conditions, requirements and provisions precedent to the Stock Conversion.
6. Payment of Expenses. Whether or not the Stock Conversion is
-------------------
consummated, the Company and the Bank shall pay all reasonable out-of-pocket
expenses of the Stock Conversion, including, but not limited to, the following
expenses: (a) all regulatory filing fees, including but not limited to those
payable to the Commission, the FDIC, FRB, the Department, state blue sky
authorities and the NASD (including fees payable to the NASD for Trident's
filing pursuant to the NASD Corporate Finance Rule), (b) all stock issue and
transfer taxes which may be payable with respect to the sale of the Shares, (c)
attorneys' fees of the Company and the Bank, (d) attorneys' fees relating to any
required state blue sky laws research and filings, (e) telephone charges, (f)
air freight, (g) rental equipment, (h) supplies, (i) transfer agent and
registrar fees and expenses, (j) auditing and accounting fees and expenses, (k)
fees for appraisals and business plans, (l) conversion agent charges, (m) costs
of printing and mailing all documents necessary in connection with the Stock
Conversion, and (n) slide production expenses in connection with any community
investor meetings to be held in connection with the Stock Conversion.
7. Conditions of Trident's Obligations. Except as may be waived in
-----------------------------------
writing by Trident, the obligations of Trident as provided herein shall be
subject to the accuracy of the representations
<PAGE>
Trident Securities, Inc.
Page 20
and warranties contained in Section 2 hereof as of the date hereof and as of the
Closing Date, to the performance by the Company and the Bank of their
obligations hereunder, and to the following conditions:
(a) On the Closing Date, Trident shall receive the favorable opinion of
Housley Kantarian & Bronstein, P.C., special counsel for the Company and
the Bank, dated the Closing Date, addressed to Trident, in form and
substance reasonably satisfactory to counsel for Trident substantially as
set forth in Exhibit A hereto.
In rendering such opinions, such counsel may rely as to certain
matters of fact on certificates of executive 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 agreement other than the
Company and the Bank. Such opinion may be limited to statutes, regulations
and judicial interpretations and to facts as they exist as of the date of
such opinion. In rendering such opinion, such counsel need assume no
obligation to revise or supplement it should such statutes, regulations and
judicial interpretations be changed thereafter by legislative or regulatory
action, judicial decision or otherwise.
(b) At the Closing Date, Trident shall receive the letter of Housley
Kantarian & Bronstein, P.C., special counsel for the Company and the Bank,
dated the Closing Date, addressed to Trident, in form and substance
reasonably satisfactory to counsel for Trident substantially as set forth
in Exhibit B hereto.
(c) Counsel for Trident shall have been furnished such documents as they
reasonably may require for the purpose of enabling them to review or pass
upon the matters required by Trident, and for the purpose of evidencing the
accuracy, completeness or satisfaction of any of the representations,
warranties or conditions herein contained, including but not limited to,
resolutions of the Board of Directors of the Company and the Bank regarding
the authorization of this Agreement and the transactions contemplated
hereby.
(d) Prior to and at the Closing Date, in the reasonable opinion of
Trident, (i) there shall have been no material adverse change in the
financial condition, results of operations, business or prospects 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 or
contemplated 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) neither
the Company nor the Bank shall have
<PAGE>
Trident Securities, Inc.
Page 21
received from the FDIC, Department, FRB or 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; and (v) the Shares shall have been
qualified or registered for offering 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) On 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 the Prospectus does 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 for final use, no event has occurred which should have been set
forth in an amendment or supplement to the Prospectus which has not been so
set forth, including specifically, but without limitation, any material
adverse change in the business, financial condition, or results of
operations of the Company or the Bank, and the conditions set forth in
clauses (i) through (v) 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, the FDIC or the Department to suspend the
Offerings or the effectiveness of the Prospectus, and no action for such
purposes has been instituted or threatened by the Commission, the FDIC or
the Department; (iv) to the best knowledge of such officers, no person has
sought to obtain review of the final action of the Department or FDIC
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 and the
Company and the Bank have complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to
the Closing Date.
(f) At the Closing Date, Trident shall receive, among other documents, (i)
copies of the letters from the Department and the FDIC 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) a copy of
the certificate from the Department evidencing the corporate existence of
the Bank; (iv) a copy of the certificate from the FDIC evidencing the
insured status of the Bank, (v) a copy of the letter from the appropriate
state authority evidencing the incorporation (and, if generally available
from such authority, good standing)
<PAGE>
Trident Securities, Inc.
Page 22
of the Company, (vi) a copy of the charter, certificate of incorporation or
articles of incorporation of the Company certified by the appropriate state
governmental authority; and (vii) if available, a copy of the letter from
the Department 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 as executed by the appropriate
governmental authority.
(h) Concurrently with the execution of this Agreement, Trident
acknowledges receipt of a letter from KPMG Peat Marwick, L.L.P.,
independent certified public accountants, addressed to Trident and the
Company, in substance and form reasonably satisfactory to counsel for
Trident, with respect to the financial statements of the Bank and certain
financial information contained in the Prospectus.
(i) At the Closing Date, Trident shall receive a letter from KPMG Peat
Marwick, L.L.P., independent certified public accountants, dated the
Closing Date and addressed to Trident and the Company, in form and
substance reasonably satisfactory to counsel for Trident, confirming the
statements made by such accountants in the letter delivered by them
pursuant to the preceding subsection and dated 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 in writing any such conditions which have not been fulfilled,
or may extend the time of their fulfillment. If Trident terminates this
Agreement as aforesaid, the Company and the Bank shall reimburse Trident for its
expenses as provided in Section 3 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 Securities 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
<PAGE>
Trident Securities, Inc.
Page 23
any 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 they were made, not misleading contained in (i)
the Registration Statement or the Prospectus or (ii) any application
(including the Applications) or other document or communication (in this
Section 8 collectively called "Regulatory Application") prepared or
executed by or on behalf of the Company or the Bank or based upon written
information furnished by or on behalf of the Company or the Bank, filed in
any jurisdiction to register or qualify the Shares under the securities
laws thereof or filed with the Department, FDIC, FRB or Commission with
respect to the offering of the Shares, unless such statement or omission
was made in reliance upon and in conformity with information furnished in
writing to the Company or the Bank with respect to Trident by or on behalf
of Trident expressly for use in the Registration Statement or Prospectus or
any amendment or supplement thereto or in any Regulatory Application, as
the case may be, (B) any written or unwritten statement made to a purchaser
of the Shares by any director, officer or employee of the Company or the
Bank, or (C) the inaccuracy of any representation or warranty set forth in
Section 2(a) above or the breach of any covenant or agreement of the
Company or the Bank set forth herein.
(b) The Company shall indemnify and hold Trident harmless from any
liability whatsoever arising out of (i) any instructions given to Trident
as set forth in Section 5(o) above 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 Stock Conversion and Bank
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
Securities 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 (i) statements or omissions, if any, made in the Prospectus
or any amendment or supplement thereof, in any Regulatory Application or to
a purchaser of the Shares in reliance upon, and in conformity with,
information furnished in writing 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 Regulatory Application or
(ii) the inaccuracy of any representation or warranty set forth in Section
2(b) above or the breach of any covenant or agreement of Trident set forth
herein.
(d) Promptly after receipt by an indemnified party under this Section 8 of
notice of any action, proceeding or claim (whether commenced or threatened)
such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this
<PAGE>
Trident Securities, Inc.
Page 24
Section 8, notify the indemnifying party of such action, proceeding or
claim; 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 any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably 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 reasonably 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 there are substantive or procedural issues which raise
conflicts of interest between the indemnified party and 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.
9. Contribution. In order to provide for just and equitable contribution
------------
in circumstances in which the indemnity agreement provided for in Section 8
above is for any reason held to be unavailable to Trident, the Company and/or
the Bank other than in accordance with its terms, the Company and the Bank or
Trident shall contribute to the aggregate losses, liabilities, claims, damages,
and expenses of the nature contemplated by said indemnity agreement incurred by
the Company and the Bank or 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 hand 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, acts 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
proportion as the total net proceeds from the Conversion received by the Company
and the Bank bear to the total fees received by Trident under
<PAGE>
Trident Securities, Inc.
Page 25
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 any 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 exceed the amount of any damages which Trident has
otherwise been required to pay by reason of such untrue or alleged untrue
statement, act, omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
10. Survival of Agreements, Representations and Indemnities. The
--------------------------------------------------------
respective indemnities and contribution agreements of the Company and the Bank
and Trident and the representations and warranties of the Company and the Bank
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. The parties may terminate this Agreement by giving the
-----------
notice indicated below in this Section at any time after this Agreement becomes
effective as follows:
(a) Trident may terminate this Agreement 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
<PAGE>
Trident Securities, Inc.
Page 26
Stock Conversion; or if a moratorium in foreign exchange trading by major
international banks or persons has been declared; or if there shall have
been a material change in the capitalization, financial condition or
business of the Company and the Bank, taken as a whole, or if the Company
and the Bank, taken as a whole, 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) Trident may terminate this Agreement in the event of a material breach
of this Agreement by the Company or the Bank at any time after this
Agreement becomes effective if such breach is not cured within five (5)
days after Trident delivers written notice thereof to the Company and the
Bank, and the Company and the Bank may terminate this Agreement in the
event of a material breach of this Agreement by Trident at any time after
this Agreement becomes effective if such breach is not cured within five
(5) days after the Company or the Bank delivers written notice thereof to
Trident.
(c) The Bank may terminate the Stock Conversion in accordance with the
terms of the Plan. Such termination shall be without liability to any
party, except that the Company and the Bank shall be required to fulfill
their obligations pursuant to Sections 3, 6, 8, and 9 of this Agreement.
(d) If this Agreement is terminated by Trident for any of the reasons set
forth in subsections (a) or (b) above, and to fulfill their obligations, if
any, pursuant to Sections 3, 6, 8 and 9 of this Agreement and upon demand,
the Company and the Bank shall pay Trident the full amount so owing
thereunder.
(e) If this Agreement is terminated as provided in this Section 11, the
party terminating this Agreement shall notify any non-terminating party
promptly by telephone or telegram, confirmed by letter.
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, Patton Boggs LLP, 2550 M Street, N.W., Washington,
D.C. 20037, Attention: Joseph G. Passaic, Jr., Esquire) and if sent to the
Company or the Bank, shall be mailed, delivered or telegraphed and confirmed to
445 S. Main Street, Burlington, North Carolina 27215, Attention: James C.
McGill, President (with a copy to Housley Kantarian & Bronstein, P.C., 1220 19th
Street, N.W., Suite 700, Washington, D.C. 20036, Attention: Joel Rappaport,
Esquire).
<PAGE>
Trident Securities, Inc.
Page 27
13. Parties. The Company and the Bank shall be entitled to act and rely
-------
on any request, notice, consent, waiver or agreement purportedly given on behalf
of Trident when the same shall have been given by the undersigned or any other
officer of Trident. Trident shall be entitled to act and rely on any request,
notice, consent, waiver or agreement purportedly given on behalf of the Company
or the Bank, when the same shall have been given by the undersigned or any other
officer of the Company or the Bank. 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 preempted by 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.
Page 28
Please acknowledge your agreement to the foregoing by signing below and
returning to the Company one copy of this letter.
1st STATE BANCORP, INC.
By: ______________________________________
James C. McGill
President and Chief Executive Officer
1st STATE BANK
By: ______________________________________
James C. McGill
President and Chief Executive Officer
Agreed to and accepted as of
the date first written above:
TRIDENT SECURITIES, INC.
By: ___________________________
Name:
Title:
<PAGE>
EXHIBIT 2
1ST STATE BANK
BURLINGTON, NORTH CAROLINA
PLAN OF CONVERSION
FROM MUTUAL TO STOCK ORGANIZATION
AND
FROM A SAVINGS BANK TO A COMMERCIAL BANK
I. GENERAL.
On August 11, 1998, the Board of Directors of 1st State Bank, Burlington,
North Carolina (the "Bank"), after careful study and consideration, adopted by
unanimous vote this Plan of Conversion (the "Plan"), which provides for (i) the
conversion of the Bank from a North Carolina-chartered mutual savings bank to a
North Carolina-chartered stock savings bank (the "Converted Bank"), (ii) the
concurrent formation of a holding company for the Converted Bank (the "Holding
Company"), and (iii) the subsequent conversion of the Converted Bank from a
North Carolina-chartered stock savings bank to a North Carolina commercial bank
(the "Commercial Bank"). The conversion of the Bank to the Converted Bank and
the acquisition of control of the Converted Bank by the Holding Company are
collectively referred to herein as the "Stock Conversion," the conversion of the
Converted Bank to the Commercial Bank is referred to herein as the "Bank
Conversion" and the Stock Conversion and the Bank Conversion are referred to
herein collectively as the "Conversion."
Pursuant to the Plan, shares of Conversion Stock in the Holding Company
will be offered as part of the Stock Conversion in a Subscription Offering
pursuant to non-transferable Subscription Rights at a predetermined and uniform
price first to Eligible Account Holders of record as of December 31, 1994,
second to Tax-Qualified Employee Stock Benefit Plans, third to Supplemental
Eligible Account Holders of record as of the last day of the calendar quarter
preceding the approval of the Plan by the Administrator, and fourth to Other
Members of the Bank. Concurrently with or following the Subscription Offering,
shares not subscribed for in the Subscription Offering may be offered as part of
the Stock Conversion to the general public in a Community Offering. Shares
remaining will then be offered to the general public in an underwritten public
offering or otherwise. The aggregate Purchase Price of the Conversion Stock
will be based upon an independent appraisal of the Bank and will reflect the
estimated pro forma market value of the Converted Bank, as a subsidiary of the
Holding Company. As part of the Stock Conversion, the Holding Company and the
Bank will establish a charitable foundation and contribute up to 8% of the
shares of Conversion Stock sold in the Stock Conversion, not to exceed
$3,000,000, to the charitable foundation.
Either prior to or immediately following consummation of the Stock
Conversion, the Holding Company, as the sole stockholder of the Converted Bank,
shall approve the Bank Conversion, and the Converted Bank shall take such
actions as may be necessary to consummate the Bank Conversion.
The Stock Conversion is subject to the regulations of the FDIC pursuant to
the Federal Deposit Insurance Act ("FDIA") and Sections 303.15 and 333.4 of the
FDIC Rules and Regulations and to the regulations of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce (the
"Administrator"), pursuant to Subchapter 16G of Chapter 16 of Title 4 of the
North Carolina Administrative Code and Section 54C-33 of the General Statutes of
North Carolina. The Bank Conversion is subject to the requirements of Section
53-17.2 of the General Statutes of North Carolina and the regulations of the
North Carolina Commissioner of Banks promulgated thereunder.
Consummation of the Conversion is subject to the prior written notice of
non-objection of the FDIC and to the approval of this Plan and the Conversion by
the Administrator and by Members of the Bank at a special meeting of the Members
to be called to consider the Conversion by the affirmative vote of Members of
the Bank holding not less than a majority of the total votes eligible to be
cast. Consummation of the Bank Conversion requires approval of the North
Carolina Commissioner of Banks and the Board of Governors of the Federal Reserve
System.
<PAGE>
It is the desire of the Board of Directors to attract new capital to the
Bank to increase its net worth, to support future savings growth, to increase
the amount of funds available for other lending and investment, to provide
greater resources for the expansion of customer services, to facilitate future
expansion and, because applicable laws and regulations do not provide for the
organization of mutual North Carolina commercial banks, to enable the Bank to
complete the Bank Conversion. The purpose of the Bank Conversion is to provide
the Bank with additional operating flexibility and enhance its ability to
provide a full range of banking products and services to its community. It is
the further desire of the Board of Directors to reorganize the Converted Bank
(or the Commercial 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 Commercial Bank to compete more effectively with
other financial service organizations.
No change will be made in the Board of Directors or management of the Bank
as a result of the Conversion.
II. DEFINITIONS.
Acting in Concert: The term "Acting in Concert" means: (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. Any
person (as defined by 12 C.F.R. (S)563b.2(a)(26)) Acting in Concert with another
person ("other party") shall also be deemed to be Acting in Concert with any
person who is also Acting in Concert with that other party, except that any Tax-
Qualified Employee Stock Benefit Plan will not be deemed to be Acting in Concert
with its trustee or a person who serves in a similar capacity solely for the
purpose of determining whether stock held by the trustee and stock held by the
Tax-Qualified Employee Benefit Plan will be aggregated.
Acquisition Application: The term "Acquisition Application" means the
-----------------------
application to the Administrator for approval of the Holding Company's
acquisition of all of the Capital Stock of the Converted Bank.
Administrator: The term "Administrator" means the Administrator, Savings
-------------
Institutions Division, North Carolina Department of Commerce.
Application: The term "Application" means the Application to Convert a
-----------
Mutual Savings Bank Into a Stock Owned Savings Bank submitted to the
Administrator for approval of the Stock Conversion.
Associate: The term "Associate," when used to indicate a relationship with
---------
any person, means: (i) any corporation or organization (other than the Bank, the
Holding Company, or a majority-owned subsidiary of the Bank or Holding Company)
of which such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities; (ii) any
trust or other estate in which such person has a substantial beneficial interest
or as to which such person serves as trustee or in a similar fiduciary capacity,
except that such term shall not include a Tax-Qualified Employee Stock Benefit
Plan in which a person has a substantial beneficial interest or serves as a
trustee in a similar fiduciary capacity, and (iii) any relative or spouse of
such person, or any relative of such spouse, who has the same home as such
person or who is a director of the Bank or the Holding Company, or any of their
subsidiaries.
Bank: The term "Bank" means !st State Bank, in its form as a North
----
Carolina mutual savings bank.
Bank Conversion: The term "Bank Conversion" means the conversion of the
---------------
Converted Bank from a North Carolina-chartered stock savings bank to a North
Carolina commercial bank.
Capital Stock: The term "Capital Stock" means any and all authorized
-------------
shares of stock of the Converted Bank after the Stock Conversion, and of the
Commercial Bank after the Bank Conversion.
2
<PAGE>
Commercial Bank: The term "Commercial Bank" means the North Carolina
---------------
bank resulting from the Bank Conversion.
Commissioner: The term "Commissioner" means the North Carolina
------------
Commissioner of Banks, or any successor office or agency having jurisdiction
over the Bank Conversion.
Community Offering: The term "Community Offering" means the offering of
------------------
shares of Conversion Stock to the general public by the Holding Company
concurrently with or following the Subscription Offering, giving preference to
natural persons and trusts of natural persons (including individual retirement
and Keogh retirement accounts and personal trusts in which such natural persons
have substantial interests) who are permanent Residents in the Bank's Local
Community.
Conversion: Except as provided in Paragraph III.I. herein, the term
----------
"Conversion" means the Stock Conversion and the Bank Conversion.
Conversion Stock: The term "Conversion Stock" means the shares of common
----------------
stock to be issued and sold by the Holding Company pursuant to the Plan in
connection with the Stock Conversion, including shares to be issued to the
Charitable Foundation (defined in Paragraph IX below).
Converted Bank: The term "Converted Bank" means !st State Bank in its form
--------------
as a North Carolina capital stock savings bank resulting from the conversion of
the Bank to the stock form of organization in connection with the Stock
Conversion in accordance with the terms of the Plan.
Eligibility Record Date: The term "Eligibility Record Date" means the
-----------------------
close of business on December 31, 1994.
Eligible Account Holder: The term "Eligible Account Holder" means the
-----------------------
holder of a Qualifying Deposit in the Bank on the Eligibility Record Date.
FDIC: The term "FDIC" means the Federal Deposit Insurance Corporation or
----
any successor federal agency having jurisdiction over the Stock Conversion.
Federal Reserve Board: The term "Federal Reserve Board" means the Board of
---------------------
Governors of the Federal Reserve System.
Holding Company: The term "Holding Company" means a corporation to be
---------------
incorporated by the Bank under state law for the purpose of becoming a savings
and loan holding company for the Converted Bank and, following the Bank
Conversion, the bank holding company for the Commercial Bank through the
issuance and sale of Conversion Stock under the Plan and the concurrent
acquisition of 100% of the Capital Stock to be issued and sold pursuant to the
Plan in connection with the Stock Conversion.
Holding Company Stock: The term "Holding Company Stock" means any and all
---------------------
authorized shares of stock of the Holding Company.
Independent Appraiser: The term "Independent Appraiser" means a person
---------------------
independent of the Bank, experienced and expert in the area of corporate
appraisal, and acceptable to the FDIC and the Administrator, retained by the
Bank to prepare an appraisal of the pro forma market value of the Converted
Bank, as a subsidiary of the Holding Company.
Local Community: The term "Local Community" means the Counties in which
---------------
the Bank has a full-service office.
3
<PAGE>
Market Maker: The term "Market Maker" means a dealer (i.e., any person who
------------
engages, either for all or part of such person's time, directly or indirectly as
agent, broker or principal in the business of offering, buying, selling or
otherwise dealing or trading in securities issued by another person) who, with
respect to a particular security: (i)(a) regularly publishes bona fide,
competitive bid and offer quotations in a recognized interdealer quotation
system or (b) furnishes bona fide competitive bid and offer quotations on
request; and (ii) is ready, willing and able to effect transactions in
reasonable quantities at its quoted prices with other brokers or dealers.
Member: The term "Member" means any person or entity who qualifies as a
------
member of the Bank under its articles of incorporation and bylaws prior to
Conversion.
Notice: The term "Notice" means the Notice of Intent to Convert to Stock
------
Form submitted to the FDIC to obtain written notice of non-objection to the
Stock Conversion.
Officer: The term "Officer" means an executive officer of the Holding
-------
Company , the Bank or the Bank's subsidiary (as applicable), including the
President, Executive Vice Presidents, Senior Vice Presidents in charge of
principal business functions, Secretary and Treasurer.
Order Form: The term "Order Form" means the order form or forms to be used
----------
by Eligible Account Holders, Supplemental Eligible Account Holders and other
persons eligible to purchase Conversion Stock pursuant to the Plan.
Other Member: The term "Other Member" means any person, other than an
------------
Eligible Account Holder or a Supplemental Eligible Account Holder, who is a
Member as of the Voting Record Date.
Plan: The term "Plan" means this Plan of Conversion which provides for the
----
conversion of the Bank from a North Carolina-chartered mutual savings bank to a
North Carolina-chartered stock savings bank (i.e., the Converted Bank), the
concurrent formation of a holding company for the Converted Bank, the subsequent
conversion of the Converted Bank from a North Carolina-chartered stock savings
bank to a North Carolina commercial bank (i.e., the Commercial Bank).
Qualifying Deposit: The term "Qualifying Deposit" means a savings balance
------------------
in any Savings Account in the Bank as of the close of business on the
Eligibility Record Date or the Supplemental Eligibility Record Date, as
applicable, which is equal to or greater than $50.00.
Registration Statement: The term "Registration Statement" means the
----------------------
Registration Statement on Form S-1 and any amendments thereto filed by the
Holding Company with the SEC pursuant to the Securities Act of 1933, as amended,
to register shares of Conversion Stock.
Resident: The term "Resident," as used in this Plan in relation to the
--------
preference afforded natural persons and trusts of natural persons in the Local
Community, means any natural person who occupies a dwelling within the Local
Community, has an intention to remain within the Local Community for a period of
time (manifested by establishing a physical, ongoing, non-transitory presence
within the Local Community) and continues to reside therein at the time of the
Subscription and Community Offerings. The Bank may utilize deposit or loan
records or such other evidence provided to it to make the determination as to
whether a person is residing in the Local Community. To the extent the "person"
is a corporation or other business entity, the principal place of business or
headquarters shall be within the Local Community. To the extent the "person" is
a personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
In all cases, such determination shall be in the sole discretion of the Bank.
Sale: The terms "sale" and "sell" mean every contract to sell or otherwise
----
dispose of a security or an interest in a security for value, but such terms do
not include an exchange of securities in connection with a merger or acquisition
approved by the FDIC or the Administrator or any other state or federal agency
having jurisdiction.
4
<PAGE>
Savings Account: The term "Savings Account" means a withdrawable deposit
---------------
in the Bank, a withdrawable deposit in the Converted Bank after the Stock
Conversion, and a withdrawable deposit in the Commercial Bank after the Bank
Conversion.
SEC: The term "SEC" means the Securities and Exchange Commission or any
---
successor agency.
Special Meeting: The term "Special Meeting" means the Special Meeting of
---------------
Members to be called for the purpose of submitting the Plan to the Members for
their approval.
State Conversion Applications: The term "State Conversion Applications"
-----------------------------
means the following applications submitted to the Commissioner for approval of
the Bank Conversion: the Application to Convert to a State Bank Charter and the
application for acquisition of a North Carolina bank by a bank holding company,
if required by the regulations of the Commissioner.
Stock Conversion: The term "Stock Conversion" means: (i) the amendment of
----------------
the Bank's articles of incorporation and bylaws to authorize issuance of shares
of Capital Stock by the Converted Bank and to conform to the requirements of a
North Carolina capital stock savings bank under the laws of the State of North
Carolina and applicable regulations; (ii) the issuance and sale of Conversion
Stock by the Holding Company in the Subscription and Community Offerings and/or
in an underwritten public offering or otherwise; (iii) the purchase by the
Holding Company of all the Capital Stock of the Converted Bank to be issued in
the Stock Conversion immediately following or concurrently with the close of the
sale of the Conversion Stock; and (iv) the establishment of a charitable
foundation and the contribution to the foundation of up to $4,000,000 of
Conversion Stock.
Subscription Offering: The term "Subscription Offering" means the offering
---------------------
of shares of Conversion Stock to the Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other
Members under the Plan, giving preference to natural persons and trusts of
natural persons (including individual retirement and Keogh retirement accounts
and personal trusts in which such natural persons have substantial interests)
who are permanent Residents of the Bank's Local Community if permitted by
applicable law and approved by the Bank's Board of Directors in its sole
discretion.
Subscription and Community Prospectus: The term "Subscription and
-------------------------------------
Community Prospectus" means the final prospectus to be used in connection with
the Subscription and Community Offerings.
Subscription Rights: The term "Subscription Rights" means non-
-------------------
transferable, non-negotiable, personal rights of Eligible Account Holders, Tax-
Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders
and Other Members to purchase Conversion Stock offered under the Plan in
connection with the Stock Conversion.
Supplemental Eligibility Record Date: The term "Supplemental Eligibility
------------------------------------
Record Date" means the last day of the calendar quarter preceding the approval
of the Plan by the Administrator.
Supplemental Eligible Account Holder: The term "Supplemental Eligible
------------------------------------
Account Holder" means the holder of a Qualifying Deposit in the Bank (other than
Officers and directors and their Associates) on the Supplemental Eligibility
Record Date.
Tax-Qualified Employee Stock Benefit Plan: The term "Tax-Qualified
-----------------------------------------
Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, such as an employee stock
ownership plan, stock bonus plan, profit sharing plan or other plan, which, with
its related trust, meets the requirements to be "qualified" under section 401 of
the Internal Revenue Code of 1986, as amended. A "non tax-qualified employee
stock benefit plan" means any defined benefit plan or defined contribution plan
which is not so qualified.
5
<PAGE>
Voting Record Date: The term "Voting Record Date" means the date fixed by
------------------
the Board of Directors of the Bank to determine Members of the Bank entitled to
vote at the Special Meeting.
Y-3 Application: The term "Y-3 Application" means 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 Commercial Bank.
III. STEPS PRIOR TO SUBMISSION OF THE PLAN TO THE MEMBERS FOR APPROVAL.
Prior to submission of the Plan to its Members for approval, the Bank must
receive notice from the FDIC of its intent to issue a notice of non-objection to
the Stock Conversion and approval of the Application from the Administrator and
approvals from the appropriate regulatory authorities for consummation of the
Conversion in accordance with applicable laws and regulations. The following
steps must be taken prior to receipt of such regulatory approvals:
A. The Board of Directors shall adopt the Plan by not less than
a two-thirds vote.
B. Promptly after adoption of the Plan by the Board of
Directors, the Bank shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in each
community in which the Bank maintains an office and/or by mailing a letter
to each of its Members.
C. A press release relating to the proposed Conversion may be
submitted to the local media.
D. Copies of the Plan adopted by the Board of Directors shall
be made available for inspection at each office of the Bank.
E. The Bank shall cause the Holding Company to be incorporated
under state law, and the Board of Directors of the Holding Company shall
concur in the Plan by at least a two-thirds vote.
F. Also promptly following the adoption of this Plan, the Bank
shall file the State Conversion Applications, and the Holding Company shall
file a draft Y-3 Application.
G. As soon as practicable following the adoption of this Plan,
the Bank shall file the Application with the Administrator and the Notice
with the FDIC, and the Holding Company shall file the Registration
Statement, the Acquisition Application and the final Y-3 Application. Upon
receipt of notification from the Administrator and the FDIC that the
Application and the Notice, respectively, are properly executed and not
materially incomplete, the Bank shall publish notice of the filing of the
Application in a newspaper having a general circulation in each community
in which the Bank maintains an office and shall publish such other notices
of the Conversion as may be required in connection with the Acquisition
Application, the Y-3 Application and the State Conversion Applications by
the regulations and policies of the Administrator, the FDIC, the Federal
Reserve Board and the Commissioner, as applicable. The Bank also shall
prominently display a copy of such notice in each of its offices.
H. The Board of Directors of the Bank may, at any time, elect
not to proceed with the Bank Conversion, in which event the State
Conversion Applications and the Y-3 Application shall be withdrawn. In the
event the Bank Conversion is not pursued, any references to the Bank
Conversion in this Plan shall be deemed to constitute references to the
Stock Conversion and references to the Commercial Bank shall be deemed to
constitute references to the Converted Bank.
I. The Bank shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which
shall state that the Stock Conversion will not result in any gain or loss
6
<PAGE>
for federal income tax purposes to the Bank. Receipt of a favorable opinion
or ruling is a condition precedent to completion of the Conversion.
IV. MEETING OF MEMBERS.
Following receipt of written notice of intent to issue notice of non-
objection to the Plan by the FDIC and approval of the Administrator, the Special
Meeting to vote on the Plan shall be scheduled in accordance with the Bank's
articles of incorporation and bylaws and applicable regulations. Notice of the
Special Meeting will be given by means of a proxy statement authorized for use
by the FDIC and the Administrator. Following receipt of approval of the
Application and at least 20 days but not more than 45 days prior to the Special
Meeting, the Bank will distribute proxy solicitation materials to all voting
Members as of the Voting Record Date established for voting at the Special
Meeting. Proxy materials will also be sent to each beneficial holder of an
Individual Retirement Account or beneficiary of any other trust account where
the name of the beneficial holder is disclosed on the Bank's records. The proxy
solicitation materials will include a copy of the Proxy Statement and other
documents authorized for use by the regulatory authorities and may also include
a Subscription and Community Prospectus as provided in Paragraph VI below. The
Bank will also advise each Eligible Account Holder and Supplemental Eligible
Account Holder not entitled to vote at the Special Meeting of the proposed
Conversion and the scheduled Special Meeting and provide a postage paid card on
which to indicate whether he or she wishes to receive the Subscription and
Community Prospectus, if the Subscription Offering is not held concurrently with
the proxy solicitation of Members for the Special Meeting.
Pursuant to applicable regulations, an affirmative vote of at least a
majority of the total outstanding votes of the Members will be required for
approval of the Plan. Voting may be in person or by proxy.
By voting in favor of the adoption of the Plan and the Conversion, the
Members will be voting in favor of (i) the Stock Conversion and the adoption by
the Bank of the stock articles of incorporation and Bylaws in the forms attached
as Exhibits A and B to this Plan and (ii) the subsequent Bank Conversion and the
adoption by the Converted Bank of the North Carolina commercial bank certificate
of incorporation and bylaws in the forms attached as Exhibits C and D to this
Plan.
The Administrator shall be notified of the actions of the Members at the
Special Meeting promptly following the Special Meeting.
V. SUMMARY PROXY STATEMENT.
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-faced type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage paid
card or other written communication requesting a supplemental information
statement. Without prior approval from the FDIC and the Administrator, the
Special Meeting shall not be held fewer than 20 days after the last day on which
the supplemental information statement is mailed to Members requesting the same.
The supplemental information statement may be combined with the Subscription and
Community Prospectus if the Subscription Offering is commenced concurrently with
the proxy solicitation of Members for the Special Meeting.
7
<PAGE>
VI. OFFERING DOCUMENTS.
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Community
Offering concurrently with or during the proxy solicitation of Members and may
close the Subscription and Community Offerings before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting.
The Bank may require Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members to return to the Bank by a reasonable date
certain a postage-paid written communication requesting receipt of a
Subscription and Community Prospectus in order to be entitled to receive a
Subscription and Community Prospectus, provided that the Subscription Offering
shall not be closed until the expiration of 30 days after mailing proxy
solicitation materials to voting Members and a postage-paid written
communication to non-voting Eligible Account Holders and Supplemental Eligible
Account Holders. If the Subscription Offering is commenced within 45 days after
the Special Meeting, the Bank shall transmit, no more than 30 days prior to the
commencement of the Subscription Offering, to each voting Member who had been
furnished with proxy solicitation materials and to each non-voting Eligible
Account Holder and Supplemental Eligible Account Holder written notice of the
commencement of the Subscription Offering which shall state that the Bank is not
required to furnish a Subscription and Community Prospectus to them unless they
return by a reasonable date certain a postage-paid written communication
requesting the receipt of the Subscription and Community Prospectus.
Prior to commencement of the Subscription and Community Offerings, the
Holding Company shall file the Registration Statement with the SEC pursuant to
the Securities Act of 1933, as amended. The Holding Company shall not
distribute the Subscription and Community Prospectus until the Registration
Statement containing the same has been declared effective by the SEC and the
aforementioned documents have been approved or authorized for use by the FDIC
and the Administrator. The Subscription and Community Prospectus may be
combined with the Proxy Statement for the Special Meeting.
VII. CONSUMMATION OF CONVERSION.
A. Consummation of the Stock Conversion.
------------------------------------
The date of consummation of the Stock Conversion will be the effective
date of the amendment of the Bank's North Carolina mutual articles of
incorporation to read in the form of North Carolina stock articles of
incorporation, which shall be the date of the issuance and sale of the
Conversion Stock. After receipt of all orders for Conversion Stock, and
concurrently with the execution thereof, the amendment of the Bank's North
Carolina mutual articles of incorporation and bylaws to authorize the
issuance of shares of Capital Stock and to conform to the requirements of a
North Carolina capital stock savings bank will be declared effective by the
Administrator, the amended bylaws approved by the Members will become
effective, and the Bank will thereby be and become the Converted Bank. At
such time, the Conversion Stock will be issued and sold by the Holding
Company, the Capital Stock to be issued in the Stock Conversion will be
issued and sold to the Holding Company, and the Converted Bank will become
a wholly owned subsidiary of the Holding Company. The Converted Bank will
issue to the Holding Company 100,000 shares of its common stock,
representing all of the shares of Capital Stock to be issued by the
Converted Bank in the Stock Conversion, and the Holding Company will make
payment to the Converted Bank of at least 50 percent of the aggregate net
proceeds realized by the Holding Company from the sale of the Conversion
Stock under the Plan, or such other portion of the aggregate net proceeds
as may be authorized or required by the FDIC or the Administrator.
8
<PAGE>
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
North Carolina statutes and regulations and the policies of the
Commissioner, the Federal Reserve Board and the Administrator to complete
the conversion of the Converted Bank to a North Carolina commercial bank,
including without limitation the approval of the Bank Conversion by the
Holding Company, as the sole stockholder of the Converted Bank, and the
Converted Bank will thereby be and become the Commercial Bank. The Bank
Conversion shall be consummated as soon as practicable following the
consummation of the Stock Conversion as described in Paragraph VII.A.
herein.
VIII. STOCK OFFERING.
A. General.
-------
The aggregate purchase price of all shares of Conversion Stock which
will be offered and sold will be equal to the estimated pro forma market
value of the Converted Bank, as a subsidiary of the Holding Company, as
determined by an independent appraisal. The exact number of shares of
Conversion Stock to be offered will be determined by the Board of
Directors of the Bank and the Board of Directors of the Holding Company,
or their respective designees, in conjunction with the determination of
the Purchase Price (as that term is defined in Paragraph VIII.B. below).
The number of shares to be offered may be subsequently adjusted prior to
completion of the Stock Conversion as provided below.
B. Independent Evaluation and Purchase Price of Shares.
---------------------------------------------------
All shares of Conversion Stock sold in the Stock Conversion will be
sold at a uniform price per share referred to in this Plan as the
"Purchase Price." The Purchase Price and the total number of shares of
Conversion Stock to be offered in the Stock Conversion will be determined
by the Board of Directors of the Bank and the Board of Directors of the
Holding Company, or their respective designees, immediately prior to the
simultaneous completion of all such sales contemplated by this Plan on
the basis of the estimated pro forma market value of the Converted Bank,
as a subsidiary of the Holding Company, at such time. The estimated pro
forma market value of the Converted Bank, as a subsidiary of the Holding
Company, will be determined for such purpose by an Independent Appraiser
on the basis of such appropriate factors as are not inconsistent with
applicable regulations. Immediately prior to the Subscription and
Community Offerings, a subscription price range of shares for the
offerings will be established (the "Valuation Range"), which will vary
from 15% above to 15% below the midpoint of such range. The number of
shares of Conversion Stock ultimately issued and sold will be determined
at the close of the Subscription and Community Offerings and any other
offering. The subscription price range and the number of shares to be
offered may be changed subsequent to the Subscription and Community
Offerings as the result of any appraisal updates prior to the completion
of the Stock Conversion, without notifying eligible purchasers in the
Subscription and Community Offerings and without a resolicitation of
subscriptions, provided the aggregate Purchase Price is not below the low
end or more than 15 percent above the high end of the Valuation Range
previously approved by the FDIC and the Administrator or if, in the
opinion of the Boards of Directors of the Bank and the Holding Company,
the new Valuation Range established by the appraisal update does not
result in a materially different capital position of the Converted Bank.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Bank and Holding Company and to the FDIC and the
Administrator that, to the best knowledge of the Independent Appraiser,
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause the Independent Appraiser to
9
<PAGE>
conclude that the aggregate value of the Conversion Stock at the Purchase
Price is incompatible with its estimate of the aggregate consolidated pro
forma market value the Converted Bank, as a subsidiary of the Holding
Company. If such confirmation is not received, the Bank may cancel the
Subscription and Community Offerings and/or any other offering, extend
the Stock Conversion, establish a new Valuation Range, extend, reopen or
hold new Subscription and Community Offerings and/or other offerings or
take such other action as the FDIC and the Administrator may permit.
C. Subscription Offering.
---------------------
Non-transferable Subscription Rights to purchase shares of
Conversion Stock will be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members of the Bank pursuant to priorities established
by applicable regulations. All shares must be sold, and, to the extent
that Conversion Stock is available, no subscriber will be allowed to
purchase fewer than $500 of Conversion Stock. The priorities established
by applicable regulations for the purchase of shares are as follows:
1. Category No. 1: Eligible Account Holders.
a. Each Eligible Account Holder (the holder of a savings
account as of December 31, 1994 with a balance equal to or greater
than $50.00), including individuals on a joint account, shall
receive, without payment, non-transferable Subscription Rights to
purchase Conversion Stock in an amount equal to the maximum purchase
limitation in the Community Offering.
b. Non-transferable Subscription Rights to purchase
Conversion Stock received by Officers and directors of the Bank and
their Associates based on their increased deposits in the Bank in
the one year period preceding the Eligibility Record Date shall be
subordinated to all other subscriptions involving the exercise of
non-transferable Subscription Rights to purchase shares pursuant to
this Category.
c. In the event of an oversubscription for shares of
Conversion Stock pursuant to this Category, shares of Conversion
Stock shall be allocated among subscribing Eligible Account Holders
giving preference to natural persons and trusts of natural persons
who are permanent Residents of the Local Community, if permitted by
applicable law and approved by the Bank's Board of Directors in its
sole discretion, as follows:
(I) Shares of Conversion Stock shall be allocated
among subscribing Eligible Account Holders so as to permit
each such Eligible Account Holder, to the extent possible,
to purchase a number of shares of Conversion Stock
sufficient to make its total allocation equal to 100 shares
or the total amount of its subscription, whichever is less.
(II) Any shares not so allocated shall be allocated
among the subscribing Eligible Account Holders on an
equitable basis, related to the amounts of their respective
Qualifying Deposits, as compared to the total Qualifying
Deposits of all subscribing Eligible Account Holders.
2. Category No. 2: Tax-Qualified Employee Stock Benefit Plans.
a. Tax-Qualified Employee Stock Benefit Plans of the
Converted Bank shall receive, without payment, non-transferable
Subscription Rights to purchase up to 10% of the shares of
Conversion Stock issued in the Stock Conversion.
10
<PAGE>
b. Subscription rights received in this Category shall be
subordinated to the Subscription Rights received by Eligible Account
Holders pursuant to Category No. 1.
3. Category No. 3: Supplemental Eligible Account Holders.
a. In the event that the Eligibility Record Date is more
than 15 months prior to the date of the latest amendment of the
Application filed prior to Administrator and FDIC approval, then
each Supplemental Eligible Account Holder, including individuals on
a joint account, shall receive, without payment, non-transferable
Subscription Rights to purchase Conversion Stock in an amount equal
to the maximum purchase limitation in the Community Offering.
b. Subscription Rights received pursuant to this Category
shall be subordinated to the Subscription Rights received by the
Eligible Account Holders and by Tax-Qualified Employee Stock Benefit
Plans pursuant to Category Nos. 1 and 2.
c. Any non-transferable Subscription Rights to purchase
shares received by an Eligible Account Holder in accordance with
Category No. 1 shall reduce to the extent thereof the Subscription
Rights to be distributed to such Eligible Account Holder pursuant to
this Category.
d. In the event of an oversubscription for shares of
Conversion Stock pursuant to this Category, shares of Conversion
Stock shall be allocated among the subscribing Supplemental Eligible
Account Holders giving preference to natural persons and trusts of
natural persons who are permanent Residents of the Local Community,
if permitted by applicable law and approved by the Bank's Board of
Directors in its sole discretion, as follows:
(I) Shares of Conversion Stock shall be allocated
among subscribing Supplemental Eligible Account Holders so
as to permit each such Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares of
Conversion Stock sufficient to make its total allocation
(including the number of shares of Conversion Stock, if any,
allocated in accordance with Category No. 1) equal to 100
shares of Conversion Stock or the total amount of its
subscription, whichever is less.
(II) Any shares of Conversion Stock not allocated in
accordance with subparagraph (I) above shall be allocated
among the subscribing Supplemental Eligible Account Holders
on an equitable basis, related to the amounts of their
respective Qualifying Deposits on the Supplemental
Eligibility Record Date as compared to the total Qualifying
Deposits of all subscribing Supplemental Eligible Account
Holders in each case on the Supplemental Eligibility Record
Date.
4. Category No. 4: Other Members.
a. Each Other Member, including individuals on a joint
account, other than those Members who are Eligible Account Holders
or Supplemental Eligible Account Holders, shall receive, without
payment, non-transferable Subscription Rights to purchase Conversion
Stock in an amount equal to the maximum purchase limitation in the
Community Offering.
b. Subscription Rights received pursuant to this Category
shall be subordinated to the Subscription Rights received by
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans
and Supplemental Eligible Account Holders pursuant to Category Nos.
1, 2 and 3.
11
<PAGE>
c. In the event of an oversubscription for shares of
Conversion Stock pursuant to this Category, the shares of Conversion
Stock available shall be allocated among subscribing Other Members
as to permit each subscribing Other Member, to the extent possible,
to purchase a number of shares sufficient to make his or her total
allocation of Conversion Stock equal to the lesser of 100 shares or
the number of shares subscribed for by the Other Member. The shares
remaining thereafter will be allocated among subscribing Other
Members whose subscriptions remain unsatisfied on an equitable basis
as determined by the Board of Directors, giving preference to
natural persons and trusts of natural persons who are permanent
Residents of the Local Community if permitted by applicable law and
approved by the Bank's Board of Directors in its sole discretion.
Order Forms may provide that the maximum purchase limitation shall be based
on the midpoint of the Valuation Range. In the event the aggregate Purchase
Price of the Conversion Stock issued and sold is below the midpoint of the
Valuation Range, that portion of subscriptions in excess of the maximum purchase
limitation will be refunded. In the event the aggregate Purchase Price of
Conversion Stock issued and sold is above the midpoint of the Valuation Range,
persons who have subscribed for the maximum purchase limitation may be given the
opportunity to increase their subscriptions so as to purchase the maximum number
of shares subject to the availability of shares. The Bank will not otherwise
notify subscribers of any change in the number of shares of Conversion Stock
offered.
D. Community Offering.
------------------
1. Any shares of Conversion Stock not purchased through
the exercise of Subscription Rights in the Subscription Offering may
be sold in a Community Offering, which may commence concurrently
with the Subscription Offering. Shares of Conversion Stock will be
offered in the Community Offering to the general public, giving
preference to natural persons and the trusts of natural persons
(including individual retirement and Keogh retirement accounts and
personal trusts in which such natural persons have substantial
interests) who are permanent Residents of the Local Community. The
Community Offering may commence concurrently with or as soon as
practicable after the completion of the Subscription Offering and
must be completed within 45 days after the last day of the
Subscription Offering, unless extended by the Holding Company with
the approval of the FDIC and the Administrator. The offering price
of the Conversion Stock to the general public in the Community
Offering will be the same price paid for such stock by Eligible
Account Holders and other persons in the Subscription Offering. If
sufficient shares are not available to satisfy all orders in the
Community Offering, the shares available will be allocated by the
Holding Company in its discretion. The Holding Company shall have
the right to accept or reject orders in the Community Offering in
whole or in part.
2. Orders accepted in the Community Offering shall be
filled up to a maximum of 2% of the Conversion Stock, and thereafter
remaining shares shall be allocated on an equal number of shares
basis per order until all orders have been filled.
3. The Conversion Stock to be offered in the Community
Offering will be offered and sold in a manner that will achieve the
widest distribution of the Conversion Stock.
E. Other Offering.
--------------
In the event a Community Offering does not appear feasible,
the Bank will immediately consult with the FDIC and the
Administrator to determine the most viable alternative available to
effect the completion of the Stock Conversion. Should no viable
alternative exist, the Bank may terminate the Stock Conversion with
the concurrence of the FDIC and the Administrator.
12
<PAGE>
F. Limitations Upon Purchases of Shares of Conversion Stock.
--------------------------------------------------------
The following additional limitations and exceptions shall apply to
all purchases of Conversion Stock:
1. No Person may purchase fewer than $500 of Conversion
Stock in the Stock Conversion, to the extent such shares are
available, subject to the provisions of Paragraph VIII.C
herein.
2. No Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member, in their capacity as such, may
subscribe in the Subscription Offering for more than $1,000,000 of
the Conversion Stock; no person, together with Associates of or
persons Acting in Concert with such person, may purchase in the
Community Offering in the aggregate more than $1,000,000 of the
Conversion Stock; and no person, together with Associates of or
persons Acting in Concert with such person, may purchase in the
Stock Conversion more than the overall maximum purchase limitation
of $1,000,000 of the Conversion Stock; except that Tax-Qualified
Employee Stock Benefit Plans may purchase up to 10% of the total
shares of Conversion Stock to be issued in the Stock Conversion, and
shares purchased by the Tax-Qualified Employee Stock Benefit Plans
and attributable to a participant thereunder shall not be aggregated
with shares purchased by such participant or any other purchaser of
Common Stock in the Stock Conversion.
3. Officers and directors of the Bank and the Holding
Company, and Associates thereof, may not purchase in the aggregate
more than 29.7% of the shares of Conversion Stock issued in the
Stock Conversion, or such greater amount as may be permitted under
applicable legal limits.
4. Directors of the Holding Company and the Bank shall not
be deemed to be Associates or a group Acting in Concert with other
directors solely as a result of membership on the Board of Directors
of the Holding Company or the Bank or any of their
subsidiaries.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the Holding Company and the Bank may
increase or decrease any of the purchase limitations set forth herein at
any time. In the event that the individual purchase limitation is
increased after commencement of the Subscription and Community Offerings,
the Holding Company and the Bank shall permit any person who subscribed
for the maximum number of shares of Conversion Stock to purchase an
additional number of shares, such that such person shall be permitted to
subscribe for the then maximum number of shares permitted to be
subscribed for by such person, subject to the rights and preferences of
any person who has priority Subscription Rights. In the event that either
the individual purchase limitation or the number of shares of Conversion
Stock to be sold in the Stock Conversion is decreased after commencement
of the Subscription and Community Offerings, the orders of any person who
subscribed for the maximum number of shares of Conversion Stock shall be
decreased by the minimum amount necessary so that such person shall be in
compliance with the then maximum number of shares permitted to be
subscribed for by such person.
Each person purchasing Conversion Stock in the Stock Conversion
shall be deemed to confirm that such purchase does not conflict with the
purchase limitations under the Plan or otherwise imposed by law, rule or
regulation. In the event that such purchase limitations are violated by
any person (including any Associate or group of persons affiliated or
otherwise Acting in Concert with such person), the Holding Company shall
have the right to purchase from such person at the actual Purchase Price
per share all shares acquired by such person in excess of such purchase
limitations or, if such excess shares have been sold by such person, to
receive the difference between the actual Purchase Price per share paid
for such excess shares and the price at which such excess shares were
sold by such person. This right of the Holding Company to purchase such
excess shares shall be assignable by the Holding Company.
13
<PAGE>
G. Restrictions on and Other Characteristics of Stock Being Sold.
-------------------------------------------------------------
1. Transferability.
---------------
Except as provided in Paragraph XIV below, Conversion Stock
purchased by persons other than directors and Officers of the Bank
and directors and Officers of the Holding Company will be
transferable without restriction. Conversion Stock purchased by such
directors or Officers shall not be sold or transferred for a period
of one year from the effective date of the Stock Conversion except
for any sale or transfer of such shares (i) following the death of
the original purchaser, (ii) resulting from an exchange of
securities in a merger or acquisition approved by the applicable
regulatory authorities, (iii) approved by the Administrator upon a
determination that the restriction imposes a substantial personal
financial hardship on the individuals due to changed unforeseeable
circumstances outside the control of the individual, or (iv)
following consummation of the Bank Conversion unless the
Administrator's approval of or the FDIC's notice of intent not to
object to the Stock Conversion otherwise requires.
The Conversion Stock issued by the Holding Company to such
directors and Officers shall bear the following legend giving
appropriate notice of the one-year holding period restriction:
"The shares of stock evidenced by this Certificate are
restricted as to transfer for a period of one year from the
date of this Certificate pursuant to applicable regulations
of the Administrator, Savings Institutions Division, North
Carolina Department of Commerce and the Federal Deposit
Insurance Corporation. Except in the event of the death of
the registered holder, the shares represented by this
Certificate may not be sold prior thereto without a legal
opinion of counsel for the Holding Company that said sale is
permissible under the provisions of applicable laws and
regulations."
In addition, the Holding Company shall give appropriate
instructions to the transfer agent for the Holding Company Stock
with respect to the applicable restrictions relating to the transfer
of restricted stock. Any shares of Holding Company Stock
subsequently issued as a stock dividend, stock split or otherwise,
with respect to any such restricted stock, shall be subject to the
same holding period restrictions for such directors and Officers as
may be then applicable to such restricted stock.
2. Repurchase and Dividend Rights.
------------------------------
Present regulations provide that the Converted Bank may not
declare or pay a cash dividend on or repurchase any of its Capital
Stock if the result thereof would be to reduce the regulatory
capital of the Converted Bank below the amount required for the
Liquidation Account. Further, any dividend declared or paid on, or
repurchase of, the Capital Stock shall be in compliance with the
rules and regulations of the Federal Reserve Board, the
Commissioner, the FDIC and the Administrator, or other applicable
regulations.
The above limitations shall not preclude payment of
dividends on Holding Company Stock in the event applicable
regulatory limitations are liberalized subsequent to the Stock
Conversion.
14
<PAGE>
3. Voting Rights.
-------------
After the Stock Conversion, holders of Savings Accounts in
and obligors on loans of the Bank will not have voting rights in the
Converted Bank. After the Bank Conversion, holders of Savings
Accounts in and obligors on loans of the Converted Bank and the
Commercial Bank will not have voting rights in the Commercial Bank.
Exclusive voting rights with respect to the Holding Company shall be
vested in the holders of Holding Company Stock, holders of Savings
Accounts in and obligors on loans of the Converted Bank and the
Commercial Bank will not have any voting rights in the Holding
Company except and to the extent that such persons become
stockholders of the Holding Company, and the Holding Company will
have exclusive voting rights with respect to the Converted Bank's
and the Commercial Bank's Capital Stock. Each stockholder of the
Holding Company will be entitled to vote on any matters coming
before the stockholders of the Holding Company for consideration and
will be entitled to one vote for each share of Holding Company Stock
owned by said stockholder.
4. Purchases by Officers, Directors and Associates Following
---------------------------------------------------------
Stock Conversion.
----------------
Without the prior written approval of the FDIC and the
Administrator, Officers and directors of the Converted Bank and
Officers and directors of the Holding Company, and their Associates,
shall be prohibited for a period of three years following completion
of the Stock Conversion from purchasing outstanding shares of
Holding Company Stock, except from a broker or dealer registered
with the Secretary of State of North Carolina and/or the SEC.
Notwithstanding the preceding sentence, this restriction shall not
apply to (i) negotiated transactions involving more than 1% of the
total outstanding shares of Holding Company Stock, and (ii)
purchases made and shares held by a Tax-Qualified Employee Stock
Benefit Plan or non-tax-qualified employee stock benefit plans which
may be attributable to Officers or directors may be made without
FDIC or Administrator permission or the use of a broker or dealer.
H. Mailing of Offering Materials and Collation of Subscriptions.
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the
Plan must be completed within 12 months after approval of the Plan at the
Special Meeting, which time period may be extended up to an additional 12
months by amendment to this Plan. After approval of the Plan by the
appropriate regulatory authorities and the declaration of the
effectiveness of the Subscription and Community Prospectus by the SEC,
the Holding Company shall distribute such Subscription and Community
Prospectus and Order Forms for the purchase of shares in accordance with
the terms of the Plan.
The recipient of an Order Form will be provided neither fewer than
20 days nor more than 45 days from the date of mailing, unless extended,
to complete, execute and return properly the Order Form to the Holding
Company or the Bank. Self-addressed, postage paid return envelopes will
accompany these forms when mailed. The Bank or Holding Company will
collate the returned executed Order Forms upon completion of the
Subscription Offering. Failure of any eligible subscriber to return a
properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such person of any
rights to purchase shares of Conversion Stock hereunder.
The sale of all shares of Conversion Stock shall be completed within
45 days after the last day of the Subscription Offering unless extended
by the Holding Company and the Bank with the approval of the FDIC and the
Administrator.
15
<PAGE>
I. Method of Payment.
-----------------
Payment for all shares of Conversion Stock subscribed for in the
Subscription and Community Offerings must be received in full by the Bank
or the Holding Company, together with properly completed and executed Order
Forms, indicating thereon the number of shares being subscribed for and
such other information as may be required thereon, and, in the case of
orders submitted at an office of the Bank, executed Forms of Certification
as required by regulations, on or prior to the expiration date specified on
the Order Form, unless such date is extended by the Holding Company and the
Bank; provided, however, that payment by Tax-Qualified Employee Stock
Benefit Plans for Conversion Stock may be made to the Bank concurrently
with the completion of the Stock Conversion.
Payment for all shares of Conversion Stock may be made in cash (if
delivered in person) or by check or money order, or, if the subscriber has
a Savings Account in the Bank (including a certificate of deposit), the
subscriber may authorize the Bank to charge the subscriber's Savings
Account for the purchase amount. The Bank shall pay interest at not less
than the passbook rate on all amounts paid in cash or by check or money
order to purchase shares of Conversion Stock in the Subscription and
Community Offerings from the date payment is received until the Stock
Conversion is completed or terminated. The Bank shall not knowingly loan
funds or otherwise extend credit to any person for the purpose of
purchasing Conversion Stock.
If a subscriber authorizes the Bank to charge its Savings Account, the
funds may remain in the subscriber's Savings Account and continue to earn
interest, but may not be used by the subscriber until all Conversion Stock
has been sold or the Stock Conversion is terminated, whichever is earlier.
The withdrawal will be given effect only concurrently with the sale of all
shares of Conversion Stock in the Stock Conversion and only to the extent
necessary to satisfy the subscription at a price equal to the Purchase
Price. The Bank will allow subscribers to purchase shares of Conversion
Stock by withdrawing funds from certificate accounts without the assessment
of early withdrawal penalties. In the case of early withdrawal of only a
portion of such account, the certificate evidencing such account shall be
canceled if the remaining balance of the account is less than the
applicable minimum balance requirement. In that event, the remaining
balance will earn interest at the passbook rate. This waiver of the early
withdrawal penalty is applicable only to withdrawals made in connection
with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, and in the case of an employee stock ownership
plan together with evidence of a loan commitment from the Holding Company
or an unrelated financial institution for the purchase of the shares of the
Conversion Stock, during the Subscription Offering and by making payment
for the shares of Conversion Stock on the date of the closing of the Stock
Conversion. Following the Stock Conversion, the Converted Bank and the
Commercial Bank may make scheduled discretionary payments to such Tax-
Qualified Employee Stock Benefit Plans provided such contributions do not
cause the Converted Bank or the Commercial Bank to fail to meet net worth
or other regulatory capital requirements.
J. Undelivered, Defective or Late Order Forms; Insufficient Payment.
----------------------------------------------------------------
In the event an Order Form: (i) is not delivered and is returned to
the Holding Company or the Bank by the United States Postal Service (or the
Holding Company or the Bank is unable to locate the addressee); (ii) is not
received by the Holding Company or the Bank, or is received by the Holding
Company or the Bank after termination of the date specified thereon; (iii)
is defectively completed or executed; 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
will not be honored and will be treated as though such person failed to
return the completed Order Form within the time period specified therein.
Alternatively, the Holding Company or the Bank may, but will not be
required to, waive any
16
<PAGE>
irregularity relating to any Order Form or require the submission of a
corrected Order Form or the remittance of full payment for subscribed
shares of Conversion Stock by such date as the Holding Company or the Bank
may specify. Subscription orders, once tendered, cannot be revoked. The
Holding Company's and Bank's interpretation of the terms and conditions of
this Plan and acceptability of the Order Forms will be final and
conclusive.
K. Members in Non-Qualified States or in Foreign Countries.
-------------------------------------------------------
The Holding Company will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons
entitled to subscribe for Conversion Stock pursuant to the Plan reside.
However, no such person will be offered or receive any Conversion Stock
under this Plan who resides in a foreign country or who resides in a state
of the United States with respect to which any or all of the following
apply: (i) a small number of persons otherwise eligible to subscribe for
shares of Conversion Stock under this Plan reside in such state or foreign
country; (ii) the granting of Subscription Rights or the offer or sale of
shares of Conversion Stock to such person would require the Holding Company
or the Bank or their employees to register, under the securities laws of
such state, as a broker, dealer, salesman or agent or to register or
otherwise qualify its securities for sale in such state or foreign country;
and (iii) such registration or qualifica tion would be impracticable for
reasons of cost or otherwise. No payments will be made in lieu of the
granting of Subscription Rights to any such person.
L. Sales Commissions.
-----------------
Sales commissions may be paid as determined by the Boards of Directors
of the Bank and the Holding Company or their designees to securities
dealers assisting subscribers in making purchases of Conversion Stock in
the Subscription Offering or in the Community Offering, if the securities
dealer is named by the subscriber on the Order Form. In addition, a sales
commission may be paid to a securities dealer for advising and consulting
with respect to, or for managing the sale of Conversion Stock in, the
Subscription Offering, the Community Offering or any other offering.
IX. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Stock Conversion, the Company and the Bank intend to
establish a charitable foundation (the "Charitable Foundation"), that will be a
nonstock corporation and will qualify as an exempt organization under Section
501(c)(3) of the Internal Revenue Code, and to donate to the Charitable
Foundation cash, securities or Conversion Stock in an amount up to 8% of the
shares of the Conversion Stock sold in the Stock Conversion, not to exceed
$3,000,000. The Charitable Foundation is being formed in connection with the
Stock Conversion in order to complement the Bank's existing community
reinvestment activities and to share with the Bank's local community a part of
the Bank's financial success as a locally headquartered, community-oriented,
financial services institution. The Charitable Foundation will be dedicated to
the promotion of charitable purposes, including community development, including
grants or donations to support housing assistance, education, not-for-profit
community groups and other types of organizations or civic-minded projects. It
is expected that the Charitable Foundation will annually distribute total grants
to assist charitable organizations or to fund projects within its local
community of not less than 5% of the average fair value of Charitable Foundation
assets each year. In order to serve the purposes for which it was formed and
maintain its Section 501(c)(3) qualification, the Charitable Foundation may
sell, on an annual basis, a limited portion of any securities contributed to
it.
The board of directors of the Charitable Foundation will be comprised of
individuals who are officers or directors of the Bank, as well as other members
of the community. The board of directors of the Charitable Foundation will be
responsible for establishing the policies of the Charitable Foundation with
respect to grants or donations, consistent with the stated purposes of the
Charitable Foundation.
17
<PAGE>
X. ARTICLES OF INCORPORATION, CERTIFICATE OF INCORPORATION AND BYLAWS.
As part of the Stock Conversion, North Carolina stock articles of
incorporation and bylaws will be adopted to authorize the Converted Bank to
operate as a North Carolina capital stock savings bank. By approving the Plan,
the Members of the Bank will thereby approve amending the Bank's existing North
Carolina mutual articles of incorporation and bylaws to read in the form of
North Carolina stock articles of incorporation and bylaws. Prior to completion
of the Stock Conversion, the proposed North Carolina stock articles of
incorporation and bylaws may be amended in accordance with the provisions and
limitations for amending the Plan under Paragraph XVI below. The effective date
of the amendment of the Bank's existing North Carolina mutual articles of
incorporation and bylaws to read in the form of North Carolina stock articles of
incorporation and bylaws shall be the date of the issuance of the Conversion
Stock, which shall be the date of consummation of the Stock Conversion.
As part of the Bank Conversion, a North Carolina commercial bank
certificate of incorporation and bylaws will be adopted in connection with the
conversion of the Converted Bank to a North Carolina commercial bank. By
approving the Plan, the Members of the Bank will thereby approve such North
Carolina commercial bank certificate of incorporation and bylaws. Prior to
completion of the Bank Conversion, the North Carolina commercial bank
certificate of incorporation and bylaws may be amended in accordance with the
provisions and limitations for amending the Plan under Paragraph XVI below. The
effective date of the certificate of incorporation and bylaws of the Commercial
Bank shall be the date of the consummation of the Bank Conversion.
XI. REGISTRATION AND MARKET MAKING.
In connection and concurrently with the Stock Conversion, the Holding
Company shall register the Holding Company Stock with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, and shall undertake not to
deregister the Holding Company Stock for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the Holding Company
Stock. The Holding Company shall also use its best efforts to have the Holding
Company Stock quoted on the Nasdaq or listed on a national or regional
securities exchange.
XII. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION.
All Savings Accounts in the Bank will retain the same status after
Conversion as these accounts had prior to the Conversion. Subject to Paragraph
VIII.I. hereof, each holder of a Savings Account in the Bank shall retain,
without payment, a withdrawable Savings Account or Savings Accounts in the
Converted Bank, equal in dollar amount and on the same terms and conditions
(except with respect to voting and liquidation rights) as in effect prior to
consummation of the Stock Conversion. Each Person holding a Savings Account at
the Converted Bank as of immediately prior to consummation of the Bank
Conversion as set forth in Paragraph VII.B. herein shall receive, without
payment, a withdrawable Savings Account or Savings Accounts in the Commercial
Bank equal in dollar amount and on the same terms and conditions as in effect as
of immediately prior to the consummation of the Bank Conversion. All Savings
Accounts will continue to be insured by the Savings Association Insurance Fund
of the FDIC up to the applicable limits of insurance coverage. All loans shall
retain the same status after the Conversion as these loans had prior to
Conversion.
After the Stock Conversion, holders of Savings Accounts in and obligors on
loans of the Bank will not have voting rights in the Converted Bank. After the
Bank Conversion, holders of Savings Accounts in and obligors on loans of the
Converted Bank will not have voting rights in the Commercial Bank. Exclusive
voting rights with respect to the Holding Company shall be vested in the holders
of the Conversion Stock. Holders of Savings Accounts in and obligors on loans of
the Converted Bank and the Commercial Bank will not have any voting rights in
the Holding Company except and to the extent that such persons become
stockholders of the Holding Company, and the Holding Company will have exclusive
voting rights with respect to the Converted Bank's and the Commercial Bank's
Capital Stock.
18
<PAGE>
XIII. EFFECT OF CONVERSION.
Upon consummation of the Stock Conversion, the corporate existence of the
Bank shall not cease, but the Converted Bank shall be deemed to be a
continuation of the Bank, and shall succeed to all the rights, interests, duties
and obligations of the Bank as in existence as of immediately prior to the
consummation of the Stock Conversion as described in Paragraph VII.A. herein,
including but not limited to all rights and interests of the Bank in and to its
assets and properties, whether real, personal or mixed.
Upon completion of the Bank Conversion, the corporate existence of the
Converted Bank shall not cease, but the Commercial Bank shall be deemed to be a
continuation of the Converted Bank, and shall succeed to all the rights,
interests, duties and obligations of the Converted Bank as in existence as of
immediately prior to the consummation of the Bank Conversion as described in
Paragraph VII.B. herein, including but not limited to all rights and interests
of the Converted Bank in and to its assets and properties, whether real,
personal or mixed.
XIV. LIQUIDATION ACCOUNT.
After the Conversion, holders of Savings Accounts will not be entitled to
share in the residual assets after liquidation of the Converted Bank or the
Commercial Bank. However, pursuant to applicable regulations, the Bank shall,
at the time of the Stock Conversion, establish a Liquidation Account in an
amount equal to its net worth as of the date of the latest statement of
financial condition contained in the final prospectus to be used in connection
with the Stock Conversion. The function of the Liquidation Account is to
establish a priority on liquidation, and, except as provided in Paragraph
VIII.G.2. above, the existence of the Liquidation Account shall not operate to
restrict the use or application of any of the net worth accounts of the
Converted Bank.
The Liquidation Account shall be maintained by the Converted Bank
subsequent to the Stock Conversion for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders who retain their Savings Accounts in
the Converted Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to each Savings Account held, have a related
inchoate interest in a portion of the Liquidation Account ("subaccount
balance").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the Liquidation Account by a fraction of
which the numerator is the amount of the qualifying deposit in the related
Savings Account and the denominator is the total amount of the qualifying
deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders in the Bank. Such initial subaccount balance shall not be increased but
shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder to which the subaccount relates
at the close of business on any annual closing date subsequent to the Eligi
bility Record Date or Supplemental Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any annual closing date subsequent to the Eligibility Record Date or
the Supplemental Eligibility Record Date, or (ii) the amount of the Qualifying
Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
savings account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related Savings
Account. If any such Savings Account is closed, the related subaccount balance
shall be reduced to zero.
In the event of a complete liquidation of the Converted Bank (and only in
such event), each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
Liquidation Account in the amount of the then-current adjusted subaccount
balances for Savings Accounts then held
19
<PAGE>
before any liquidation distribution may be made to stockholders. No merger,
consolidation, sale of bulk assets or similar combination or transaction with
another institution insured by the FDIC shall be considered to be a complete
liquidation for these purposes. In such transactions, the Liquidation Account
shall be assumed by the surviving institution.
The Bank Conversion shall not be deemed to be a complete liquidation of the
Converted 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 Bank in connection therewith, shall be
assumed by the Commercial Bank.
The Liquidation Account shall be maintained by the Commercial Bank, under
the same rules and conditions applicable to the Converted Bank, subsequent to
the Bank Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Commercial
Bank.
XV. RESTRICTIONS ON ACQUISITION OF HOLDING COMPANY.
A. Present regulations provide that for a period of three years
following completion of the Stock Conversion, no person (i.e., an individual, a
group Acting in Concert, a corporation, a partnership, an association, a joint
stock company, a trust or any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution or its holding company) shall
directly, or indirectly, offer to purchase or actually acquire the beneficial
ownership of more than 10% of any class of Holding Company Stock without the
prior approval of the FDIC and the Administrator. However, approval is not
required for purchases directly from the Holding Company or underwriters or a
selling group acting on their behalf with a view towards public resale, for
purchases not exceeding 1% per annum of the shares outstanding or for the
acquisition of securities by one or more Tax-Qualified Employee Stock Benefit
Plans of the Holding Company or the Converted Bank, provided that the plan or
plans do not have beneficial ownership in the aggregate of more than 25% of any
class of Holding Company Stock. Civil penalties may be imposed by the FDIC and
the Administrator for willful violation or assistance of any violation. Where
any person, directly or indirectly, acquires beneficial ownership of more than
10% of any class of Holding Company Stock within such three-year period, without
the prior approval of the FDIC and the Administrator, Holding Company Stock
beneficially owned by such person in excess of 10% shall not be counted as
shares entitled to vote and shall not be voted by any person or counted as
voting shares in connec tion with any matter submitted to the stockholders for a
vote.
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 certificate of incorporation
a provision that, for a specified period of up to five years following the date
of the completion of the Stock Conversion, no person shall directly or
indirectly offer to acquire or actually acquire the beneficial ownership of more
than 10% of any class of Holding Company Stock except with respect to purchases
by one or more Tax-Qualified Employee Stock Benefit Plans of the Holding Company
or Converted Bank. The Holding Company may provide in its certificate of
incorporation for such other provisions affecting the acquisition of Holding
Company Stock as shall be determined by its Board of Directors.
20
<PAGE>
XVI. INTERPRETATION AND AMENDMENT OR TERMINATION OF THE PLAN.
The Bank's Board of Directors shall have the sole discretion to interpret
and apply the provisions of the Plan to particular facts and circumstances and
to make all determinations necessary or desirable to implement such provisions,
including but not limited to matters with respect to giving preference to
natural persons and trusts of natural persons who are permanent Residents of the
Bank's Local Community, and any and all interpretations, applications and
determinations made by the Board of Directors in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the Bank and its Members and
subscribers in the Subscription and Community Offerings, subject to the
authority of the FDIC and the Administrator.
If deemed necessary or desirable, the Plan may be substantively amended
at any time prior to submission of the Plan and proxy materials to the Members
by a two-thirds vote of the Bank's Board of Directors. After submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Bank's Board of Directors at any time prior to the Special Meeting
and at any time following such Special Meeting with the concurrence of the FDIC
and the Administrator. In its discretion, the Board of Directors may modify or
terminate the Plan upon the order of the regulatory authorities without a
resolicitation of proxies or another Special Meeting.
In the event that mandatory new regulations pertaining to the Conversion
are adopted by the FDIC, the Administrator, the Federal Reserve Board, or the
Commissioner, or any successor agency, prior to the completion of the Conver
sion, the Plan will be amended to conform to the new mandatory regulations
without a resolicitation of proxies or another Special Meeting. In the event
that new conversion regulations adopted by the FDIC, the Administrator, the
Federal Reserve Board, or the Commissioner, or any successor agency, prior to
completion of the Conversion contain optional provisions, the Plan may be
amended to utilize such optional provisions at the discretion of the Board of
Directors without a resolicitation of proxies or another Special Meeting.
By adoption of the Plan, the Bank's Members authorize the Board of
Directors to amend and/or terminate the Plan under the circumstances set forth
above.
XVII. EXPENSES OF THE CONVERSION.
The Holding Company and the Bank will use their best efforts to assure
that expenses incurred in connection with the Conversion shall be reasonable.
XVIII. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS.
The Holding Company, the Converted Bank and the Commercial Bank may make
scheduled discretionary contributions to their Tax-Qualified Employee Stock
Benefit Plans, provided such contributions do not cause the Converted Bank or
the Commercial Bank to fail to meet then-applicable regulatory capital
requirements.
21
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF HOUSLEY KANTARIAN & BRONSTEIN, P.C.]
February 3, 1999
Board of Directors
1st State Bank
445 S. Main Street
Burlington, North Carolina 27215
Re: Certain Federal Income Tax Consequences Relating to Proposed Holding
Company Conversion and Subsequent Conversion to Commercial Bank
--------------------------------------------------------------------
Gentlemen:
In accordance with your request, set forth hereinbelow is the opinion of
this firm relating to certain federal income tax consequences of (i) the
proposed conversion of 1st State Bank (the "Bank") from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered stock savings bank
(the "Converted Bank") and the concurrent acquisition of 100% of the outstanding
capital stock of the Converted Bank by 1st State Bancorp, Inc. (the "Company"),
a Virginia corporation formed at the direction of the Board of Directors of the
Bank to become the parent holding company of the Converted Bank and, thereafter,
the Commercial Bank (as hereinafter defined) (the "Stock Conversion"); and, then
immediately thereafter, (ii) the conversion of the Converted Bank to a North
Carolina-chartered commercial bank (the "Bank Conversion") (the "Commercial
Bank"). 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 the Board of Directors of the Bank on
August 11, 1998 (the "Plan"); the North Carolina mutual certificate of
incorporation and bylaws of the Bank; the Amended and Restated Certificate of
Incorporation and Bylaws of the Converted Bank; the Amended and Restated
Certificate of Incorporation and Bylaws of the Commercial Bank; the Articles of
Incorporation and Bylaws of the Company; the Affidavit of representations dated
February 3, 1998, provided to us by the Bank (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 30, 1998
(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
<PAGE>
Board of Directors
1st State Bank
February 3, 1999
Page 2
used but not defined herein, whether capitalized or not, shall have the same
meaning as defined in the Plan.
BACKGROUND
----------
Based solely upon our review of such documents, and upon such information
as the Bank has provided to us (which we have not attempted to verify in any
respect), and in reliance upon such documents and information, we set forth
hereinbelow a general summary of the relevant facts and proposed transactions,
qualified in its entirety by reference to the documents cited above.
The Bank is a North Carolina-chartered mutual savings bank which is in the
process of converting to a North Carolina-chartered stock savings bank and
thereafter to a North Carolina-chartered commercial bank. The Bank is currently
a member of the Federal Home Loan Bank ("FHLB") System and its deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC") up to the
applicable limits. The Bank is subject to comprehensive regulation and
supervision by the FDIC and the Administrator, Savings Institutions Division,
North Carolina Department of Commerce (the "Administrator"), and to examination
by the Administrator. The Bank is headquartered in Burlington, North Carolina,
where its main office is located, and serves north-central North Carolina
through five branch offices.
The Bank's business consists principally of attracting deposits from the
general public and investing these funds in loans secured by single-family
residential and commercial real estate, secured and unsecured commercial loans
and consumer loans. Its profitability depends primarily on its net interest
income, which is the difference between the income it receives on its loan and
investment securities portfolios and its cost of funds, which consists of
interest paid on deposits and borrowed funds. It also earns income from
miscellaneous fees related to its loans and deposits, mortgage banking income
and commissions from sales of annuities and mutual funds. At September 30,
1998, the Bank had total assets of $288.2 million, deposits of $235.7 million
and total net worth of $26.0 million.
As a North Carolina-chartered mutual savings bank, the Bank has no
authorized capital stock. Instead, the Bank, in mutual form, has a unique
equity structure. A savings depositor of the Bank is entitled to payment of
interest on his account balance as declared and paid by the Bank, but has no
right to a distribution of any earnings of the Bank except for interest paid on
his deposit. Rather, such earnings become retained income of the Bank.
However, a savings depositor does have a right to share pro rata, with
--- ----
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Bank is ever liquidated. Further,
savings depositors and certain borrowers are members of the Bank
<PAGE>
Board of Directors
1st State Bank
February 3, 1999
Page 3
and thereby have voting rights in the Bank. Under the Bank's North Carolina
mutual charter and bylaws, savings depositors are entitled to cast one vote for
each $100 or fraction thereof held in a withdrawable deposit account of the Bank
and each borrower member (hereinafter "borrower") is entitled to one vote in
addition to the votes (if any) to which such person is entitled in such
borrower's capacity as a savings depositor of the Bank. Also under such mutual
charter, no member is entitled to cast more than 1,000 votes. All of the
interests held by a savings depositor in the Bank cease when such depositor
closes his accounts with the Bank.
The Company was incorporated in November 1998 under the laws of the
Commonwealth of Virginia to act as the holding company of the Converted Bank
upon consummation of the Stock Conversion, and then as the holding company of
the Commercial Bank upon consummation of the Bank Conversion. Prior to
consummation of the Stock Conversion, the Company has not engaged and is not
expected to engage in any material operations. After the Conversion, the
Company's principal business will be overseeing the business of the Commercial
Bank and investing the portion of the net Stock Conversion proceeds retained by
it, and, assuming the requisite federal regulatory approvals are obtained, the
Company will register with the Board of Governors of the Federal Reserve Board
(the "FRB") as a bank holding company. The Company has an authorized capital
structure of 7,000,000 shares of common stock (the "Common Stock") and 1,000,000
shares of serial preferred stock.
PROPOSED TRANSACTION
--------------------
The Board of Directors of the Bank has decided that in order to attract new
capital to the Bank to increase its net worth, to support future savings
growth, to increase the amount of funds available for lending and investment, to
provide greater resources for the expansion of customer services, and to
facilitate future expansion, and because applicable laws and regulations do not
provide for the organization of mutual North Carolina commercial banks, it would
be advantageous for the Bank to convert from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered stock savings bank, and thereafter to
convert to a North Carolina- chartered commercial bank. In addition, the Board
of Directors intends to implement stock option plans and other stock benefit
plans following the Stock Conversion in order to better attract and retain
qualified directors and officers. The purpose of the Bank Conversion is to
provide the Bank with additional operating flexibility and enhance its ability
to provide a full range of banking products and services to its community. It
is the further desire of the Board of Directors to reorganize the Converted Bank
(and the Commercial Bank upon the Bank Conversion) as the wholly owned
subsidiary of the Company to enhance flexibility of operations, diversification
of business opportunities and financial capability for business and regulatory
purposes and to enable the Commercial Bank to compete more effectively with
other financial service organizations.
<PAGE>
Board of Directors
1st State Bank
February 3, 1999
Page 4
The Stock Conversion. Accordingly, pursuant to the Plan, the Bank will
---------------------
undergo the Stock Conversion whereby it will be converted from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered stock savings bank.
As part of the Stock Conversion, the Bank will amend and restate its existing
North Carolina mutual Certificate of Incorporation and Bylaws to read in the
form of a North Carolina stock savings bank Certificate of Incorporation and
Bylaws. The Converted Bank will then issue to the Company 100,000 shares of the
Converted Bank's common stock, representing all of the shares of capital stock
to be issued by the Converted Bank in the Stock Conversion, in exchange for
payment by the Company to the Converted Bank of at least 50% of the aggregate
net proceeds realized by the Company from the sale of the Common Stock under the
Plan, after deducting the amount necessary to fund a loan to an Employee Stock
Option Plan being established in connection with the Stock Conversion, or such
other portion of the aggregate net proceeds as may be authorized or required by
the FDIC or the Administrator.
Also pursuant to the Plan, the Company will offer its shares of Common
Stock for sale in a Subscription Offering. Shares of Common Stock remaining,
if any, may then be offered to the general public in a Community Offering.
Shares of the Common Stock not otherwise subscribed for in the Subscription
Offering and Community Offering may be offered at the discretion of the Company
to certain members of the general public as part of a community offering on a
best efforts basis by a selling group of selected broker-dealers.
The purchase price per share and total number of shares of Common Stock to
be offered and sold pursuant to the Plan will be determined by the Boards of
Directors of the Bank and the Company, or their respective designees,
immediately prior to the simultaneous completion of all such sales of Common
Stock contemplated by the Plan, on the basis of the estimated pro forma market
--- -----
value of the Converted Bank, as a subsidiary of the Company, which will in turn
be determined by an independent appraiser. The aggregate purchase price for all
shares of the Common Stock will be equal to an amount that is within a valuation
range (the "Estimated Valuation Range") which will vary from 15% above to 15%
below the estimated midpoint of the Estimated Valuation Range and which may also
be in the range that is 15% above the high end of the Estimated Valuation Range.
Pursuant to the Plan, all such shares of Common Stock 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 Converted Bank to the Company, will be deemed
effective concurrently with the closing of the sale of the Common Stock.
Under the Plan and in accordance with regulations of the Administrator and
the FDIC, 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:
<PAGE>
Board of Directors
1st State Bank
February 3, 1999
Page 5
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
However, any shares of Common Stock sold in excess of the maximum of the
Estimated Valuation Range may be first sold to Tax-Qualified Employee Stock
Benefit Plans set forth in category (2) above. In the event of an
oversubscription within any of the remaining subscription priority categories,
preference may be given within such category to natural persons and trusts of
natural persons who are permanent Residents of the Local Community, if permitted
by applicable law and approved by the Bank's Board of Directors in its sole
discretion.
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered in the Community Offering in the following order of priority:
(a) Natural persons and trusts of natural persons who are permanent
Residents of the Local Community; and
(b) The general public.
Shares not sold in the Subscription Offering and the Community Offering, if any,
may thereafter be offered for sale to certain members of the general public as
part of a community offering on a best efforts basis by a selling group of
selected broker-dealers. The sale of shares in the Subscription Offering,
Community Offering, and as sold through the selected broker-dealers would be
consummated at the same time.
The Bank has received an opinion from Ferguson & Company, an independent
appraiser (the "Appraiser's Opinion"), which concludes that the subscription
rights to be received by Eligible Account Holders, Supplemental Eligible Account
Holders and other eligible subscribers does not have any ascertainable fair
market value, since they are acquired by the recipients without cost, are non-
transferable and of short duration, and afford the recipients the right only to
purchase shares of the Common Stock at a price equal to the same price as the
price paid by the purchasers in the Community Offering for unsubscribed shares
of Common Stock.
The Plan also provides for the establishment of a Liquidation Account by
the Converted Bank for the benefit of all Eligible Account Holders and
Supplemental Eligible Account Holders
<PAGE>
Board of Directors
1st State Bank
February 3, 1999
Page 6
in an amount equal to the net worth of the Bank as of the date of the latest
statement of financial condition contained in the final prospectus issued in
connection with the Stock Conversion. The establishment of the Liquidation
Account will not operate to restrict the use or application of any of the net
worth accounts of the Converted Bank, except that the Converted Bank may not
declare or pay cash dividends on or repurchase any of its stock if the result
thereof would be to reduce its net worth below the amount required to maintain
the Liquidation Account. All such account holders will have an inchoate interest
in a proportionate amount of the Liquidation Account with respect to each
savings account held and will be paid by the Converted Bank in event of
liquidation prior to any liquidating distribution being made with respect to
capital stock. We have assumed for purposes of this opinion that the fair market
value of each savings account plus an interest in the Liquidation Account to be
received by each depositor of the Bank in the Converted Bank will, in each
instance, be approximately equal to the fair market value of each savings
account of the Bank plus the interest in the residual equity of the Bank
surrendered in exchange therefor. Under the Plan, the Bank Conversion shall not
be deemed to be a liquidation of the Converted Bank for purposes of distribution
of the Liquidation Account. Instead, upon consummation of the Bank Conversion,
the Liquidation Account, together with the related rights and obligations of the
Converted Bank, shall be assumed by the Commercial Bank.
The Stock Conversion will not interrupt the business of the Bank. The
Converted Bank will, after the Stock Conversion, engage in the same business as
that of the Bank immediately prior to the Stock Conversion, and will continue to
be subject to regulation and supervision by the Administrator and the FDIC.
Further, the deposits of the Converted Bank will continue to be insured by the
FDIC. Each depositor will retain a withdrawable savings account or accounts
equal in dollar amount to, and on the same terms and conditions as, the
withdrawable account or accounts at the time of Stock Conversion except to the
extent funds on deposit are used to pay for Common Stock purchased in connection
with the Stock Conversion. All loans of the Bank will remain unchanged and
retain their same characteristics in the Converted Bank immediately following
the Stock Conversion.
Following the Stock Conversion, voting rights in the Converted Bank will
rest exclusively with the sole holder of stock in the Converted Bank, which will
be the Company. Following the Bank Conversion, voting rights in the Commercial
Bank will similarly be vested in the Company. Voting rights in the Company,
both after the Stock Conversion and after the Bank Conversion, will be vested in
the holders of the Common Stock.
The Bank Conversion. Immediately following completion of the Stock
--------------------
Conversion, the Company, as the sole stockholder of the Converted Bank, shall
approve the Bank Conversion, whereby the Converted Bank intends to convert from
a North Carolina stock savings bank to the Commercial Bank.
<PAGE>
Board of Directors
1st State Bank
February 3, 1999
Page 7
The purpose of the Bank Conversion is to provide the Bank with additional
operating flexibility and to enhance its ability to provide a full range of
banking products and services to its community. Beginning in the late 1980's,
the Bank has sought to gradually increase its percentage of assets invested in
commercial real estate loans, commercial loans and consumer loans, which have
higher interest rates and shorter terms and adjust more frequently to changes in
interest rates than single-family residential mortgage loans. At September 30,
1998, commercial real estate, commercial and consumer loans totaled $38.8
million, $25.2 million and $6.3 million, respectively, which represented 18.8%,
12.2% and 3.1%, respectively, of gross loans. At September 30, 1998, $100.9
million, or 51.2% of gross loans, consisted of residential real estate mortgage
loans. Effectuation of the Bank Conversion will help the Commercial Bank to
follow the Bank's current strategy of seeking growth opportunities through
increasing its portfolio of commercial real estate, commercial and consumer
loans while continuing to pursue single-family residential mortgage loan
originations.
As with the Stock Conversion, the Bank Conversion will not interrupt the
business of the Converted Bank. The Commercial Bank will continue to conduct
business in substantially the same manner as that of the Converted Bank prior to
the Bank Conversion. Further, the Bank Conversion is expected to allow the
Commercial Bank to enhance its ability to structure its banking services to
respond to prevailing market conditions. The Commercial Bank will also continue
to have its savings accounts insured by the FDIC, although it will be subject to
regulation, supervision and examination by the North Carolina Commissioner of
Banks (the "Commissioner") rather than the Administrator. 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 the Bank Conversion. All loans of the Converted Bank will remain
unchanged and retain their same characteristics in the Commercial Bank
immediately following the Bank Conversion.
Other. The Plan must be approved by the Administrator and by an
------
affirmative vote of at least a majority of the total votes eligible to be cast
at a meeting of the Bank's members called to vote on the Plan. The Bank
Conversion is also subject to approval of the Board of Governors of the Federal
Reserve System and the Commissioner.
Immediately prior to the Conversion, the Bank will have a positive net
worth determined in accordance with generally accepted accounting principles.
<PAGE>
Board of Directors
1st State Bank
February 3, 1999
Page 8
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 the Bank or the Converted Bank as a result of the Stock
Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78).
---
2. The assets of the Bank will have the same basis in the hands of the
Converted Bank as in the hands of the Bank immediately prior to the
Stock Conversion (Section 362(b) of the Code).
3. The holding period of the assets of the Bank to be received by the
Converted Bank will include the period during which the assets were
held by the Bank prior to the Stock Conversion (Section 1223(2) of the
Code).
4. No gain or loss will be recognized by the Converted Bank upon its
receipt of money from the Company in exchange for shares of common
stock of the Converted Bank (Section 1032(a) of the Code). The
Company will be transferring solely cash to the Converted Bank in
exchange for all the outstanding capital stock of the Converted Bank
and therefore will not recognize any gain or loss upon such transfer.
(Section 351(a) of the Code; see Rev. Rul. 69-357, 1969-1 C.B. 101).
---
5. No gain or loss will be recognized by the Company upon its receipt of
money in exchange for shares of the Common Stock (Section 1032(a) of
the Code).
6. No gain or loss will be recognized by the Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members of the Bank
upon the issuance to them of deposit accounts in the Converted Bank in
the same dollar amount and on the same terms and conditions in
exchange for their deposit accounts in the Bank held immediately prior
to the Stock Conversion. (Section 1001(a) of the Code; Treas. Reg.
(S)1.1001-1(a)).
7. The tax basis of the savings accounts of the Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members in the
Converted Bank received as part of the Stock Conversion will equal the
tax basis of such
<PAGE>
Board of Directors
1st State Bank
February 3, 1999
Page 9
account holders' corresponding deposit accounts in the Bank
surrendered in exchange therefor (Section 1012 of the Code).
8. Each depositor of the Bank will recognize gain upon the receipt of his
or her respective interest in the Liquidation Account established by
the Converted Bank pursuant to the Plan and the receipt of his or her
subscription rights deemed to have been received for federal income
tax purposes, but only to the extent of the excess of the combined
fair market value of a depositor's interest in such Liquidation
Account and subscription rights over the depositor's basis in the
former interests in the Bank other than deposit accounts. A
depositor's interest in the Liquidation Account will have nominal, if
any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on
such opinion, that the subscription rights do not have any
ascertainable fair market value at the time of distribution or
exercise, no taxable income will be recognized by the depositors of
the Bank upon the distribution to them of subscription rights.
(Section 1001 of the Code; see Paulsen v. Commissioner, 469 U.S. 131,
-----------------------
139 (1985)).
Notwithstanding the Appraiser's Opinion, if the subscription rights
are subsequently found to have a fair market value, income may be
recognized by the depositors of the Bank, and the distribution of the
subscription rights may be taxable to the Company and/or Bank.
(Section 311 of the Code). Persons who subscribe in the Stock
Conversion but who are not depositors of the Bank will recognize gain
upon the receipt of subscription rights deemed to have been received
for federal income tax purposes, but only to the extent of the excess
of the fair market value of such subscription rights over such
person's former interests in the Bank, if any. Any such gain realized
in the Stock Conversion would be subject to immediate recognition.
9. The basis of each account holder's interest in the Liquidation Account
received in the Stock Conversion and to be established by the
Converted Bank 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 shares of Common Stock acquired in the Stock
Conversion will be equal to the purchase price of such shares,
increased, in the case of such shares
<PAGE>
Board of Directors
1st State Bank
February 3, 1999
Page 10
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, and no gain or loss will
be recognized to either the Converted Bank (Section 361(a) of the
Code) or the Commercial Bank (Section 1032(a) of the Code).
14. The assets of the Converted Bank will have the same basis in the hands
of the Commercial Bank as in the hands of the Converted Bank
immediately prior to the Bank Conversion (Section 362(b) of the Code).
15. The holding period of the assets of the Converted Bank to be received
by the Commercial Bank will include the period during which the assets
were held by the Converted Bank prior to the Bank Conversion (Section
1223(2) of the Code).
16. The Company will not recognize gain or loss on the exchange of its
stock in Converted Bank for stock in Commercial Bank (Section
354(a)(1) of the Code).
17. The Company's basis in its stock in Commercial Bank shall be equal to
its basis in its stock in Converted Bank. (Section 358(a)(1) of the
Code).
18. The Company's holding period for its stock in Commercial Bank will
include the holding period for its stock in Converted Bank. (Section
1223(1) 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 state,
local, foreign or other federal tax considerations. If any of the information
upon which we have relied is incorrect, or if changes in the relevant facts
occur after the date hereof, our opinion could be affected thereby. Moreover,
our opinion is based on the case law, Code, Treasury Regulations thereunder and
Internal Revenue
<PAGE>
Board of Directors
1st State Bank
February 3, 1999
Page 11
Service rulings as they now exist. These authorities are all subject to change,
and such change may be made with retroactive effect. We can give no assurance
that, after such change, our opinion would not be different. We undertake no
responsibility to update or supplement our opinion subsequent to consummation of
the Stock Conversion. Prior to that time, we undertake to update or supplement
our opinion in the event of a material change in the federal income tax
consequences set forth above and to file such revised opinion as an exhibit to
the Registration Statement and the Bank's Application to Convert a Mutual
Savings Bank into a Stock Owned Savings Bank filed with the Administrator (the
"Stock Conversion Application"). 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 Administrator as
an exhibit to the Stock Conversion Application filed by the Bank with the
Administrator in connection with the Stock Conversion.
We also hereby consent to the filing of this opinion with the SEC as an
exhibit to the Registration Statement and the reference to our firm in the
Prospectus, which is a part of the Registration Statement, under the headings
"The Conversion -- Effect of Conversion to Stock Form on Depositors and
Borrowers of the Bank -- Tax Effects," "Tax Opinions" and "Legal Opinions."
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By: /s/ Gary R. Bronstein
--------------------------------
Gary R. Bronstein
<PAGE>
EXHIBIT 8.2
January 28, 1999
Mr. James C. McGill
President, Chief Executive Officer
1/st/ State Bancorp, Inc.
445 S. Main Street
Burlington, North Carolina 27215
Dear Jim:
1/st/ State Bank (the "Bank") has requested the opinion of KPMG LLP ("KPMG")
regarding certain North Carolina income tax consequences resulting from the
conversion of the Bank from a North Carolina-chartered mutual savings bank to a
North Carolina-chartered commercial bank (hereinafter the "Conversion") and the
creation of a holding company structure for the North Carolina-chartered
commercial bank.
The opinions contained in this letter are based in part on the FACTS and
REPRESENTATIONS stated herein. Any inaccuracy or incompleteness of any of the
FACTS or REPRESENTATIONS could cause us to change our opinion. Therefore, if
any of the FACTS or REPRESENTATIONS are inaccurate or incomplete, you should
communicate such to us immediately in writing. You have provided KPMG with an
opinion rendered by Housley Kantaruan & Bronstein, P.C. and addressed to the
Board of Directors of the Bank regarding the federal income tax consequences of
the Conversion and the creation of the holding company structure (the "Federal
Opinion"). In rendering this opinion, KPMG is relying upon the Federal Opinion.
KPMG has not reviewed all of the legal documents associated with the
transactions described herein. We assume that all necessary legal documents
will be properly executed under applicable law and will be consistent with the
transactions described in this letter. Unless otherwise stated, all section
references herein are to the Internal Revenue Code of 1986, as amended
(including amendments made by the Taxpayer Relief Act of 1997).
FACTS
<PAGE>
Page 2
February 3, 1999
Based solely upon our review of such documents, and upon such information that
the Bank has provided to us (which we have not attempted to verify in any
respect), and in reliance upon such documents and information, we set forth
below a general summary of the relevant facts and proposed transaction,
qualified in its entirety by reference to the documents cited above.
The Bank is a community- and customer-oriented North Carolina-chartered mutual
savings bank headquartered in Burlington, North Carolina with five full-service
branch offices located in north-central North Carolina. The Bank is a member of
the Federal Home Loan Bank ("FHLB") System, and its deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC"). The Bank is subject to
comprehensive regulation and supervision by the FDIC, Savings Institutions
Division, and the North Carolina Department of Commerce.
1/st/ State Bancorp (the "Company") is a Virginia corporation, and it will
ultimately act as a holding company after the Conversion. Prior to consummation
of the Conversion, the Company has not engaged, and is not expected to engage,
in any material operations. After the Conversion, the Company's principal
business will be overseeing the business of the Bank and investing the portion
of the net Stock Conversion proceeds retained by it, and, assuming the requisite
federal regulatory approvals are obtained, the Company will register with the
Board of Governors of the Federal Reserve Board (the "FRB") as a bank holding
company. The Company has an authorized capital structure of 7,000,000 shares of
common stock and 1,000,000 shares of serial preferred stock.
The purpose of the Conversion is
1. to provide the Bank with additional operating flexibility and enhance
its ability to provide a full range of banking products and services
to the community;
2. to enhance the flexibility of operations, diversification of business
opportunities, and financial capability for business and regulatory
purposes; and
3. to enable the Bank to compete more effectively with other financial
service organizations.
In addition, the Board of Directors intends to implement stock option plans and
other stock benefit plans following the Conversion to better attract and retain
qualified directors and officers.
<PAGE>
Page 3
February 3, 1999
The Bank will first be converted from a North Carolina-chartered mutual savings
bank to a North Carolina-chartered stock savings bank (the "Converted Bank" and
the "Stock Conversion"). As part of this transaction, the Bank will amend and
restate its existing North Carolina mutual Certificate of Incorporation and
Bylaws so that it has a North Carolina stock savings bank Certificate of
Incorporation and Bylaws. The Converted Bank will then issue to the Company
100,000 shares of the Converted Bank's common stock in exchange for cash. This
stock will represent all of the shares of capital stock to be issued by the
Converted Bank.
The Company will offer its shares of common stock through a subscription
offering. The subscription rights will be non-transferable, and they will be
granted on the basis of the following preference categories in order of
priority:
1. Eligible Account Holders;
2. Tax-Qualified Employee Stock Benefit Plans;
3. Supplemental Eligible Account Holders; and
4. Other Members.
After the subscription offering, any unsubscribed shares of Common Stock may be
offered in a community offering in the following order of priority:
(a) Natural persons and trusts of natural persons who are permanent
Residents of the Local Community; and
(b) The general public.
Shares not sold in the subscription offering and the community offering, if any,
may be offered for sale to certain members of the general public as part of a
community offering on a best efforts basis by a selling group of selected
broker-dealers. The sale of shares in the subscription offering, community
offering, and as sold through the selected broker-dealers would be consummated
at the same time.
The Company will use the proceeds from the offering as follows (as estimated):
. 50% will be invested in the Bank by buying all of its capital stock;
. 8% will be loaned to the ESOP to fund its purchase of common stock;
and
<PAGE>
Page 4
February 3, 1999
. 42% will be retained for other general corporate purposes, and it may
be used as a possible source of funds for the payment of dividends to
stockholders or the repurchase plan.
Following the Stock Conversion, voting rights in the Converted Bank will be
vested in the Company. Voting rights in the Company will be vested in the
holders of the Company's common stock.
The Converted Bank will then convert from a North Carolina stock savings bank to
the North Carolina commercial bank (the "Commercial Bank"). This transaction
(the "Bank Conversion") will cause the Commercial Bank to be subject to
regulation, supervision, and examination by the North Carolina Commissioner of
Banks.
REPRESENTATIONS
The Bank and the Company have instructed KPMG to rely exclusively on the Federal
Opinion for purposes of determining the federal income tax consequences of the
transactions described herein. KPMG has not been engaged to comment or opine on
any matter of federal income tax regarding the transactions described herein,
and the Bank and the Company are relying solely on the Federal Opinion in regard
thereto.
OPINION
Based solely on the statements, FACTS and REPRESENTATIONS above, and the Legal
Opinion, and subject to the SCOPE OF THE OPINION below, KPMG renders the
following opinion with respect to the Conversion:
North Carolina Income Tax Consequences
It is our opinion that the State of North Carolina should (as it relates to the
Bank, the Company, and other parties to the Conversion) treat the Conversion in
a manner substantially the same for North Carolina income tax purposes as it is
treated by the Internal Revenue Service for federal income tax purposes. N.C.
Gen. Stat. (S)(S) 105-120.2, 105-130.3, 105-130.5, 105-134.1, 105-134.2, 105-
134.5, 105-134.6, 105-134.7, and 105-228.3.
With regards to the filing method required by North Carolina, North Carolina
should require corporate entities subject to the Conversion to file separate
company income tax returns. N.C. Gen. Stat. (S) 105-130.14.
<PAGE>
Page 5
February 3, 1999
SCOPE OF THE OPINION
The opinions expressed above are rendered only with respect to the specific
matters discussed herein, and KPMG expresses no opinion with respect to any
other federal, state, local, or foreign tax or legal aspect of the transactions
described. No inference should be drawn on any matter not specifically opined
on above.
In rendering our opinions, KPMG is relying upon the relevant provisions of the
internal revenue laws; including the Internal Revenue Code of 1986 (as amended),
the North Carolina General Statutes, the regulations thereunder, and judicial
and administrative interpretations thereof; all of which are subject to change
or modification by subsequent legislative, regulatory, administrative, or
judicial decisions. Any such change that is made could be retroactive and could
have an effect on the validity or correctness of our opinions. Unless otherwise
specifically requested in writing, KPMG undertakes no responsibility to update
these opinions in the event of such subsequent change.
These opinions are not binding on the Internal Revenue Service, any other tax
authority, or any court, and no assurance can be given that a position contrary
to that expressed herein will not be asserted by a tax authority and ultimately
sustained by a court.
Very truly yours,
/s/ KPMG LLP
KPMG LLP
<PAGE>
EXHIBIT 10.1
1/ST/ STATE BANCORP, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of this Plan is to advance the interests of the Company through
providing select key Employees and Directors of the Bank, the Company, and their
Affiliates with the opportunity to acquire Shares. By encouraging such stock
ownership, the Company seeks to attract, retain and motivate the best available
personnel for positions of substantial responsibility and to provide additional
incentives to Directors and key Employees of the Company or any Affiliate to
promote the success of the business.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into in accordance
with Paragraph 5(c).
(c) "Awards" shall mean Options, unless the context clearly indicates a
different meaning.
(d) "Bank" shall mean 1/st/ State Bank.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean not only the Stock Option Committee consisting
of at least two Non-Employee Directors appointed by the Board in accordance with
Paragraph 5(a) hereof, but also the Board.
(h) "Common Stock" shall mean the common stock of the Company.
(i) "Company" shall mean 1/st/ State Bancorp, Inc.
(j) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case of
sick leave, military leave or any other leave of absence approved by the
Company, in the case of transfers between payroll locations of the Company or
between the Company, an Affiliate or a successor, or in the case of a Director's
performance of services in an emeritus or advisory capacity.
(k) "Date of Conversion" shall mean the date of the conversion of the Bank
from mutual to stock form.
(l) "Director" shall mean any member of the Board, and any member of the
board of directors of an Affiliate whose members the Board has by resolution
designated as being eligible for participation in this Plan.
(m) "Disability" shall mean a physical or mental condition, which in the
sole and absolute discretion of the Committee, is reasonably expected to be of
indefinite duration and to substantially prevent a Participant from fulfilling
his or her duties or responsibilities to the Company or an Affiliate.
(n) "Effective Date" shall mean the date specified in Paragraph 13
hereof.
(o) "Employee" shall mean any person employed by the Company, the Bank, or
an Affiliate.
<PAGE>
(p) "Exercise Price" shall mean the price per Optioned Share at which an
Option may be exercised.
(q) "FDIC Award Limitations" shall mean the following percentage
limitations, determined with respect to the total Shares reserved for Awards
under this Plan: 25% for total Awards to any particular Employee, 5% for total
Awards to any particular non-Employee Director, and 30% for total Awards to the
non-Employee Directors as a group.
(r) "ISO" shall mean an option to purchase Common Stock which meets the
requirements set forth in the Plan, and which is intended to be and is
identified as an "incentive stock option" within the meaning of Section 422 of
the Code.
(s) "Market Value" shall mean the fair market value of the Common Stock,
as determined under Paragraph 8(b) hereof.
(t) "Non-Employee Director" shall have the meaning provided in Rule 16b-3.
(u) "Non-ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan but which is not intended to be and is not
identified as an ISO.
(v) "Option" means an ISO and/or a Non-ISO.
(w) "Optioned Shares" shall mean Shares subject to an Award granted
pursuant to this Plan.
(x) "Participant" shall mean any person who receives an Award pursuant to
the Plan.
(y) "Plan" shall mean this 1/st/ State Bancorp, Inc. 1999 Stock Option and
Incentive Plan.
(z) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(aa) "Share" shall mean one share of Common Stock.
(bb) "Year of Service" shall mean a full twelve-month period, measured from
the date of an Award and each annual anniversary of that date, during which a
Participant has not terminated Continuous Service for any reason.
3. TERM OF THE PLAN AND AWARDS.
(a) Term of the Plan. The Plan shall continue in effect for a term of ten
years from the Effective Date, unless sooner terminated pursuant to Paragraph 15
hereof. No Award shall be granted under the Plan after ten years from the
Effective Date.
(b) Term of Awards. The term of each Award granted under the Plan shall
be established by the Committee, but shall not exceed ten years; provided,
however, that in the case of an Employee who owns Shares representing more than
10% of the outstanding Common Stock at the time an ISO is granted, the term of
such ISO shall not exceed five years.
4. SHARES SUBJECT TO THE PLAN.
(a) General Rule. Except as otherwise required under Paragraph 10, the
aggregate number of Shares deliverable pursuant to Awards shall not exceed
________ Shares, which equals 10% of the Shares issued by the Company in
connection with the Bank's conversion from mutual to stock form ("Conversion").
Such Shares may either be authorized but unissued Shares, Shares held in
treasury, or Shares held in a grantor trust created by the
-2-
<PAGE>
Company. If any Awards should expire, become unexercisable, or be forfeited for
any reason without having been exercised, the Optioned Shares shall, unless the
Plan shall have been terminated, be available for the grant of additional Awards
under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) Appointment of the Committee. The Plan shall be administered by the
Committee. Members of the Committee shall serve at the pleasure of the Board. In
the absence at any time of a duly appointed Committee, the Plan shall be
administered by the Board.
(b) Powers of the Committee. Except as limited by the express provisions
of the Plan or by resolutions adopted by the Board, the Committee shall have
sole and complete authority and discretion (i) to select Participants and grant
Awards, (ii) to determine the form and content of Awards to be issued in the
form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan, and (v)
to make other determinations necessary or advisable for the administration of
the Plan. The Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to time. A majority
of the entire Committee shall constitute a quorum and the action of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee without a meeting, shall be
deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Company and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The terms
of each such Agreement shall be in accordance with the Plan, but each Agreement
may include such additional provisions and restrictions determined by the
Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular, the
Committee shall set forth in each Agreement (i) the Exercise Price of an Option,
(ii) the number of Shares subject to the Award, and its expiration date, (iii)
the manner, time, and rate (cumulative or otherwise) of exercise or vesting of
such Award, and (iv) the restrictions, if any, to be placed upon such Award, or
upon Shares which may be issued upon exercise of such Award. The Chairman of the
Committee and such other Directors and officers as shall be designated by the
Committee are hereby authorized to execute Agreements on behalf of the Company
and to cause them to be delivered to the recipients of Awards.
(d) Effect of the Committee's Decisions. All decisions, determinations,
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
(e) Indemnification. In addition to such other rights of indemnification
as they may have, the members of the Committee shall be indemnified by the
Company in connection with any claim, action, suit or proceeding relating to any
action taken or failure to act under or in connection with the Plan or any
Award, granted hereunder to the full extent provided for under the Company's
governing instruments with respect to the indemnification of Directors.
6. GRANT OF OPTIONS TO EMPLOYEES.
(a) General Rule. Only Employees shall be eligible to receive Awards. In
selecting those Employees to whom Awards will be granted and the number of
shares covered by such Awards, the Committee shall consider the position, duties
and responsibilities of the eligible Employees, the value of their services to
the Company and its Affiliates, and any other factors the Committee may deem
relevant. Notwithstanding the foregoing, the Committee shall automatically make
the Awards specified in Paragraphs 6(b) and 7 hereof, and (ii) no Employee or
non-Employee Director shall receive Options in excess of the FDIC Award
Limitations. [NOT APPLICABLE IF PLAN IS IMPLEMENTED MORE THAN ONE YEAR AFTER THE
DATE OF THE CONVERSION.]
(b) Automatic Grants to Employees. On the Effective Date, each of the
following Employees shall
-3-
<PAGE>
receive an Option (in the form of an ISO, to the extent permissible under the
Code) to purchase the number of Shares listed below (but not to exceed the FDIC
Award Limitations), at an Exercise Price per Share equal to the Market Value of
a Share on the Effective Date; provided that such grant shall not be made to an
Employee whose Continuous Service terminates on or before the Effective Date:
Percentage of Shares
Participant Reserved under Paragraph 4(a)
----------- -----------------------------
With respect to each of the above-named Participants, the Option granted to the
Participant hereunder (i) shall vest in accordance with the general rule set
forth in Paragraph 9(a) of the Plan, (ii) shall have a term of ten years from
the Effective Date, and (iii) shall be subject to the general rule set forth in
Paragraph 9(c) with respect to the effect of a Participant's termination of
Continuous Service on the Participant's right to exercise his Options.
(c) Special Rules for ISOs. The aggregate Market Value, as of the date the
Option is granted, of the Shares with respect to which ISOs are exercisable for
the first time by an Employee during any calendar year (under all incentive
stock option plans, as defined in Section 422 of the Code, of the Company or any
present or future Affiliate of the Company) shall not exceed $100,000.
Notwithstanding the foregoing, the Committee may grant Options in excess of the
foregoing limitations, in which case Options granted in excess of such
limitation shall be Non-ISOs.
7. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Automatic Grants. Notwithstanding any other provisions of this Plan,
each Director who is not an Employee but is a Director on the Effective Date
shall receive, on said date, Non-ISOs to purchase a number of Shares (not to
exceed FDIC Award Limitations) equal to the lesser of five percent (5%) of the
number of Shares reserved under Paragraph 4(a) hereof, and the quotient obtained
by dividing --
(i) 30 percent (30%) of the number of Shares reserved under Paragraph 4(a)
hereof, by
(ii) the number of Directors entitled to receive an Option on the Effective
Date, pursuant to this Paragraph 7(a).
[FORMULA AND LIMITS MAY CHANGE IF PLAN IS ADOPTED MORE THAN ONE YEAR AFTER THE
CONVERSION.]
(b) Terms of Exercise. Options received under the provisions of this
Paragraph (i) shall become exercisable in accordance with paragraph 9(a) of the
Plan, and (ii) may be exercised from time to time by written notice of intent to
exercise the Option with respect to all or a specified number of the Optioned
Shares, and payment to the Company (contemporaneously with the delivery of such
notice), in cash, in Common Stock, or a combination of cash and Common Stock, of
the amount of the Exercise Price for the number of the Optioned Shares with
respect to which the Option is then being exercised. Each such notice and
payment shall be delivered, or mailed by prepaid registered or certified mail,
addressed to the Treasurer of the Company at the Company's executive offices. A
Director who exercises Options pursuant to this Paragraph may satisfy all
applicable federal, state and local income and employment tax withholding
obligations, in whole or in part, by irrevocably electing to have the Company
withhold shares of Common Stock, or to deliver to the Company shares of Common
Stock that he already owns, having a value equal to the amount required to be
withheld; provided that to the extent not inconsistent herewith, such election
otherwise complies with those requirements of Paragraphs 8 and 18 hereof.
Options granted under this Paragraph shall have a term of ten years;
provided that Options granted under this Paragraph shall expire one year after
the date on which a Director terminates Continuous Service on the Board for a
reason other than death, but in no event later than the date on which such
Options would otherwise expire. In
-4-
<PAGE>
the event of such Director's death during the term of his directorship, Options
granted under this Paragraph shall become immediately exercisable, and may be
exercised within two years from the date of his death by the personal
representatives of his estate or person or persons to whom his rights under such
Option shall have passed by will or by laws of descent and distribution, but in
no event later than the date on which such Options would otherwise expire. In
the event of such Director's Disability during his or her directorship, the
Director's Option shall become immediately exercisable, and such Option may be
exercised within one year of the termination of directorship due to Disability,
but not later than the date that the Option would otherwise expire. Unless
otherwise inapplicable or inconsistent with the provisions of this Paragraph,
the Options to be granted to Directors hereunder shall be subject to all other
provisions of this Plan.
(c) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
8. EXERCISE PRICE FOR OPTIONS.
(a) Limits on Committee Discretion. The Exercise Price as to any
particular Option shall not be less than 100% of the Market Value of the
Optioned Shares on the date of grant. In the case of an Employee who owns Shares
representing more than 10% of the Company's outstanding Shares of Common Stock
at the time an ISO is granted, the Exercise Price shall not be less than 110% of
the Market Value of the Optioned Shares at the time the ISO is granted.
(b) Standards for Determining Exercise Price. If the Common Stock is
listed on a national securities exchange (including the NASDAQ National Market
System) on the date in question, then the Market Value per Share shall be the
average of the highest and lowest selling price on such exchange on such date,
or if there were no sales on such date, then the Exercise Price shall be the
mean between the bid and asked price on such date. If the Common Stock is traded
otherwise than on a national securities exchange on the date in question, then
the Market Value per Share shall be the mean between the bid and asked price on
such date, or, if there is no bid and asked price on such date, then on the next
prior business day on which there was a bid and asked price. If no such bid and
asked price is available, then the Market Value per Share shall be its fair
market value as determined by the Committee, in its sole and absolute
discretion.
9. EXERCISE OF OPTIONS.
(a) Generally. Each Option shall become exercisable with respect to twenty
percent (20%) of the Optioned Shares upon the Participant's completion of each
of five Years of Service, provided that an Option shall become fully (100%)
exercisable immediately upon termination of the Participant's Continuous Service
due to the Participant's Disability or death. [MAY BE DIFFERENT IF THE PLAN IS
IMPLEMENTED MORE THAN ONE YEAR AFTER THE DATE OF CONVERSION.] An Option may not
be exercised for a fractional Share. [IF THE PLAN IS IMPLEMENTED MORE THAN ONE
YEAR AFTER THE DATE OF CONVERSION, VESTING WOULD ACCELERATE TO 100% UPON A
PARTICIPANT'S RETIREMENT OR TERMINATION OF SERVICE IN CONNECTION WITH A CHANGE
IN CONTROL.]
(b) Procedure for Exercise. A Participant may exercise Options, subject to
provisions relative to its termination and limitations on its exercise, only by
(1) written notice of intent to exercise the Option with respect to a specified
number of Shares, and (2) payment to the Company (contemporaneously with
delivery of such notice) in cash, in Common Stock, or a combination of cash and
Common Stock, of the amount of the Exercise Price for the number of Shares with
respect to which the Option is then being exercised. Each such notice (and
payment where required) shall be delivered, or mailed by prepaid registered or
certified mail, addressed to the Treasurer of the Company at its executive
offices. Common Stock utilized in full or partial payment of the Exercise Price
for Options shall be valued at its Market Value at the date of exercise, and may
consist of Shares subject to the Option being exercised.
(c) Period of Exercisability. Except to the extent otherwise provided in
the terms of an Agreement, an Option may be exercised by a Participant only
while he is an Employee and has maintained Continuous Service
-5-
<PAGE>
from the date of the grant of the Option, or within one year after termination
of such Continuous Service (but not later than the date on which the Option
would otherwise expire), except if the Employee's Continuous Service terminates
by reason of --
(1) "Just Cause" which for purposes hereof shall have the meaning set
forth in any unexpired employment or severance agreement between the
Participant and the Bank and/or the Company (and, in the absence of any
such agreement, shall mean termination because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order), then the
Participant's rights to exercise such Option shall expire on the date of
such termination; or
(2) death, then to the extent that the Participant would have been
entitled to exercise the Option immediately prior to his death, such Option
of the deceased Participant may be exercised within two years from the date
of his death (but not later than the date on which the Option would
otherwise expire) by the personal representatives of his estate or person
or persons to whom his rights under such Option shall have passed by will
or by laws of descent and distribution.
(d) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
(e) Mandatory Six-Month Holding Period. Notwithstanding any other
provision of this Plan to the contrary, common stock of the Company that is
purchased upon exercise of an Option may not be sold within the six-month period
following the grant of that Option.
10. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN.
(a) Recapitalizations; Stock Splits, Etc. The number and kind of shares
reserved for issuance under the Plan, and the number and kind of shares subject
to outstanding Awards, and the Exercise Price thereof, shall be proportionately
adjusted for any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the Company which
results from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares, or similar
event in which the number or kind of shares is changed without the receipt or
payment of consideration by the Company.
(b) Transactions in which the Company is Not the Surviving Entity. In the
event of (i) the liquidation or dissolution of the Company, (ii) a merger or
consolidation in which the Company is not the surviving entity, or (iii) the
sale or disposition of all or substantially all of the Company's assets (any of
the foregoing to be referred to herein as a "Transaction"), all outstanding
Awards, together with the Exercise Prices thereof, shall be equitably adjusted
for any change or exchange of Shares for a different number or kind of shares or
other securities which results from the Transaction.
(c) Special Rule for ISOs. Any adjustment made pursuant to subparagraphs
(a) or (b) hereof shall be made in such a manner as not to constitute a
modification, within the meaning of Section 424(h) of the Code, of outstanding
ISOs.
(d) Conditions and Restrictions on New, Additional, or Different Shares or
Securities. If, by reason of any adjustment made pursuant to this Paragraph, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the Shares pursuant to the Award before the adjustment was made.
(e) Other Issuances. Except as expressly provided in this Paragraph, the
issuance by the Company or
-6-
<PAGE>
an Affiliate of shares of stock of any class, or of securities convertible into
Shares or stock of another class, for cash or property or for labor or services
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, shall not affect, and no adjustment shall be made with respect to, the
number, class, or Exercise Price of Shares then subject to Awards or reserved
for issuance under the Plan.
(f) Certain Special Dividends. The Exercise Price of shares subject to
outstanding Awards shall be proportionately adjusted upon the payment of a
special large and nonrecurring dividend that has the effect of a return of
capital to the stockholders, except that this subparagraph (f) shall not apply
to any dividend which is paid to the Participant pursuant to Paragraph 7(b) or
9(b) hereof.
11. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, or any other provision of this
Plan, a Participant who holds Awards may transfer such Awards (but not ISOs) to
his or her spouse, lineal ascendants, lineal descendants, or to a duly
established trust for the benefit of one or more of these individuals. Awards so
transferred may thereafter be transferred only to the Participant who originally
received the grant or to an individual or trust to whom the Participant could
have initially transferred the Awards pursuant to this Paragraph 11. Awards
which are transferred pursuant to this Paragraph 11 shall be exercisable by the
transferee according to the same terms and conditions as applied to the
Participant.
12. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be the later of the
date on which the Committee makes the determination of granting such Award, and
the Effective Date. Notice of the determination shall be given to each
Participant to whom an Award is so granted within a reasonable time after the
date of such grant.
13. EFFECTIVE DATE.
The Plan shall become effective immediately upon its approval by a
favorable vote of stockholders owning at least a majority of the total votes
eligible to be cast at a duly called meeting of the Company's stockholders held
in accordance with applicable laws, provided that the Plan shall not be
submitted for such approval within the six-month period after the Bank completes
its mutual-to-stock conversion. [`STOCKHOLDER APPROVAL MAY BE UNNECESSARY, OR
INVOLVE A DIFFERENT VOTE REQUIREMENT, IF THE PLAN IS IMPLEMENTED MORE THAN ONE
YEAR AFTER THE DATE OF CONVERSION.] No Awards may be made prior to approval of
the Plan by the stockholders of the Company.
14. MODIFICATION OF AWARDS.
At any time, and from time to time, the Board may authorize the Committee
to direct execution of an instrument providing for the modification of any
outstanding Award, provided no such modification shall confer on the holder of
said Award any right or benefit which could not be conferred on him by the grant
of a new Award at such time, or impair the Award without the consent of the
holder of the Award.
15. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan and, with
respect to any Shares at the time not subject to Awards, suspend or terminate
the Plan. No amendment, suspension or termination of the Plan shall, without the
consent of any affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
16. CONDITIONS UPON ISSUANCE OF SHARES.
-7-
<PAGE>
(a) Compliance with Securities Laws. Shares of Common Stock shall not be
issued with respect to any Award unless the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities law, and the requirements of any
stock exchange upon which the Shares may then be listed.
(b) Special Circumstances. The inability of the Company to obtain approval
from any regulatory body or authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an Option, the Company may require the
person exercising the Option to make such representations and warranties as may
be necessary to assure the availability of an exemption from the registration
requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the discretionary
authority to impose in Agreements such restrictions on Shares as it may deem
appropriate or desirable, including but not limited to the authority to impose a
right of first refusal or to establish repurchase rights or both of these
restrictions.
17. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and keep available a
number of Shares sufficient to satisfy the requirements of the Plan.
18. WITHHOLDING TAX.
The Company's obligation to deliver Shares upon exercise of Options shall
be subject to the Participant's satisfaction of all applicable federal, state
and local income and employment tax withholding obligations. The Committee, in
its discretion, may permit the Participant to satisfy the obligation, in whole
or in part, by irrevocably electing to have the Company withhold Shares, or to
deliver to the Company Shares that he already owns, having a value equal to the
amount required to be withheld. The value of the Shares to be withheld, or
delivered to the Company, shall be based on the Market Value of the Shares on
the date the amount of tax to be withheld is to be determined. As an
alternative, the Company may retain, or sell without notice, a number of such
Shares sufficient to cover the amount required to be withheld.
19. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility to participate or
participation in the Plan create or be deemed to create any legal or equitable
right of the Employee, Director, or any other party to continue service with the
Company, the Bank, or any Affiliate of such corporations. Except to the extent
provided in Paragraphs 6(b) and 7(a), no Employee or Director shall have a right
to be granted an Award or, having received an Award, the right to again be
granted an Award. However, an Employee or Director who has been granted an Award
may, if otherwise eligible, be granted an additional Award or Awards.
20. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws of
the State of North Carolina, except to the extent that federal law shall be
deemed to apply.
-8-
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
-----------------------------
Board of Directors
1st State Bank:
We consent to the use of our report included herein, and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Greensboro, North Carolina
February 2, 1999
<PAGE>
EXHIBIT 23.3
FERGUSON & COMPANY LETTERHEAD APPEARS HERE
FEBRUARY 2, 1999
BOARD OF DIRECTORS
1st STATE BANK
445 S. MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
DIRECTORS:
We hereby consent to the use of our firm's name in the applications
for conversion of 1st State Bank, Burlington, North Carolina, and any amendments
thereto, filed with the Division of Savings Institutions, North Carolina
Department of Commerce (the "Division"), and the FDIC, in the Form S-1
Registration Statement and any amendments thereto, and in the Acquisition
Application and the Holding Company Application for 1st State Bancorp, Inc. as
filed with the Division and the Federal Reserve Board, respectively. We also
hereby consent to the inclusion of, a summary of, and references to our
Appraisal Report and our opinion concerning subscription rights in such filings
including the Prospectus of 1st State Bancorp, Inc. and the Proxy Statement of
1st State Bank.
Sincerely,
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
EXHIBIT 99.1
1ST State Bancorp, Inc.
Stock Order Form
--------------------------------------------------
1ST State Bank Expiration Date for
445 South Main Street Stock Order Forms:
Burlington, NC 27215
(336) - March , 1999
12:00 Noon, Eastern Time
<TABLE>
<S> <C>
====================================================================================================================================
IMPORTANT--PLEASE NOTE: A properly completed original stock order form must be used to subscribe for common stock. Faxes or copies
of this form may not be accepted. Please read the Stock Ownership Guide and Stock Order Form Instructions as you complete this
Form.
====================================================================================================================================
(1) Number of Shares Subscription Price (2) Total Payment Due (3) Employee/Officer/Director Information
------------------ ----------------- [_] Check here if you are a director, officer or employee of
X $20.00 = $ 1st State Bank or a member of such person's immediate
------------------ ----------------- family.
====================================================================================================================================
(4) Method of Payment/Check --------- (6) Purchaser Information
Enclosed is a check, bank draft or money order made $ a. [_] Eligible Account Holder -- Check here if you were a
payable to 1st State Bancorp, Inc. in the amount of: --------- depositor of at least $50.00 at 1st State Bank on
December 31, 1994. Enter information below for all
deposit accounts that you had at 1st State Bank on
No wire transfers will be accepted. December 31, 1994.
===================================================================
(5) Method of Payment/Withdrawal b. [_] Supplemental Eligible Account Holder -- Check here if
The undersigned authorizes withdrawal from the following you were a depositor of at least $50.00 at 1st State
account(s) at 1st State Bank. There is no penalty for Bank on December 31, 1998 but are not an Eligible
early withdrawal for purposes of this payment. Account Holder. Enter information below for all
- ------------------------------------------------------------- deposit accounts that you had at 1st State Bank on
Account Number(s) Withdrawal Amount(s) December 31, 1998.
- ------------------------------------------------------------- c. [_] Other Member -- Check here if you were a depositor
$ on , 1999, or a borrower of 1st State Bank with
- ------------------------------------------------------------- loans outstanding as of , 1999, but are not an
$ Eligible Account Holder or Supplemental Eligible
- ------------------------------------------------------------- Account Holder. Enter information below for all
$ deposit accounts that you had at 1st State Bank
- ------------------------------------------------------------- on ,1999 and/or for all loans you had with 1st
Total Withdrawal Amount $ State Bank as of , 1999.
------------------------------ ----------------------------------------------------------
In order to subscribe for shares through an individual retirement
account ("IRA") at 1st State Bank, you must contact the Stock
Information Center at 1st State Bank no later than , 1999.
===================================================================
ACCOUNT INFORMATION ----------------------------------------------------------
- -------------------------------------------------------------------
. These account numbers correspond to the preprinted account -------------------------------------------------------------
registration in the top left hand corner of this form. Account Title (Names on Accounts) Account Number(s)
- ------------------------------------------------------------------- -------------------------------------------------------------
. These may not be all of your qualifying accounts.
- ------------------------------------------------------------------- -------------------------------------------------------------
. You must list any account number from other stock order forms
you have received in the mail and any other accounts -------------------------------------------------------------
that you have, or have had ownership in, at 1st State Bank.
- ------------------------------------------------------------------- -------------------------------------------------------------
. If you do not list all of your accounts, you may not receive
all of the shares that you are eligible for.
====================================================================================================================================
(7) Stock Registration/Form of Stock Ownership
[_] Individual [_] Joint Tenants [_] Tenants in Common [_] Fiduciary (Under Agreement Dated ____, 19 __)
[_] Individual Retirement [_] Corporation or [_] Uniform Transfer to [_] Other ______________________________________
Account (IRA) Partnership Minors Act
====================================================================================================================================
(8) Name(s) in which shares are to be registered (Please print clearly) Social Security # or Tax ID
--------------------------------------------------------------------------- ---------------------------------------------------
--------------------------------------------------------------------------- ---------------------------------------------------
Name(s) continued Telephone (Daytime)
--------------------------------------------------------------------------- ---------------------------------------------------
Street Address City State Zip Code
--------------------------------------------- -------------------------- --------------------- -----------------------------
--------------------------------------------- -------------------------- --------------------- -----------------------------
====================================================================================================================================
(9) NASD AFFILIATION (10) ASSOCIATE--ACTING IN CONCERT
[_] Check here if you are a member of the National Association [_] Check here and complete the reverse side of
of Securities Dealers, Inc. ("NASD"), a person associated this Form, if you or any associate (as defined
with an NASD member, a member of the immediate family of any on the reverse side of this Form) or persons
such person to whose support such person contributes, acting in concert with you have submitted
directly or indirectly, or the holder of an account in which other orders for shares in the Subscription
an NASD member or person associated with an NASD member has a Offering and/or the Community Offering.
beneficial interest. To comply with conditions under which an
exemption from the NASD's Interpretation With Respect to Free-
Riding and Withholding is available, you agree, if you have
checked the NASD Affiliation box, (i) not to sell, transfer or
hypothecate the stock for a period of 90 days following issuance,
and (ii) to report this subscription in writing to the
applicable NASD member within one day of payment therefor.
====================================================================================================================================
(11) Acknowledgment
To be effective, this fully completed Stock Order Form and Form of Certification must be actually received by 1st State Bank, no
later than 12:00 noon, Eastern Time on March , 1999, unless extended; otherwise this Stock Order Form and all subscription rights
will be void. Completed Stock Order Forms, together with the executed Form of Certification and the required payment or withdrawal
authorization, may be delivered to 1st State Bank or may be mailed to the address indicated on the enclosed business reply
envelope. All rights exercisable hereunder are not transferable and shares purchased upon exercise of such rights must be purchased
for the account of the person exercising such rights.
It is understood that this Stock Order Form will be accepted in accordance with, and subject to, the terms and conditions of the
Plan of Conversion ("Plan") of 1st State Bank described in the accompanying Prospectus. If the Plan is not approved by the members
of 1st State Bank at a Special Meeting to be held on , 1999, or any adjournment thereof, all orders will be canceled and funds
received as payment, with accrued interest, will be returned promptly.
The undersigned agrees that after receipt by 1st State Bank, this Stock Order Form may not be modified, withdrawn or canceled
without 1st State Bank's consent, and if authorization to withdraw from deposit accounts at 1st State Bank has been given as
payment for shares, the amount authorized for withdrawal shall not otherwise be available for withdrawal by the undersigned.
Under penalty of perjury, I certify that the Social Security or Tax ID Number and the other information provided in this Stock
Order Form are true, correct and complete, that I am not subject to back-up withholding, that I am purchasing only for my own
account and that there is no agreement or understanding regarding the transfer of my subscription rights or the sale or transfer of
these shares.
Federal regulations prohibit any person from transferring or entering into any agreement directly or indirectly to transfer the
legal or beneficial ownership of subscription rights, or the underlying securities to the account of another. 1st State Bank and
1st State Bancorp, Inc. will pursue any and all legal and equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor orders known by them to involve such transfer. I acknowledge that the common stock offered
is not a savings or deposit account and is not insured by the Savings Association Insurance Fund, the Bank Insurance Fund, the
Federal Deposit Insurance Corporation, or any other government agency, may lose value and is not guaranteed by 1st State Bank or
1st State Bancorp, Inc. I further acknowledge receipt of the Prospectus at least 48 hours prior to delivery of this Stock Order
Form to 1st State Bank.
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED TWICE: BELOW AND ON THE FORM OF CERTIFICATION ON THE REVERSE HEREOF.
Signature Date Signature Date OFFICE USE
-------------------------------------- --------------------------------------- -------------
Date Received
- --------------------------------------- --------------------------------------- ----------- --------------
A SIGNED FORM OF CERTIFICATION MUST ACCOMPANY ALL STOCK ORDER FORMS (SEE REVERSE SIDE) Batch # Order #
====================================================================================================================================
</TABLE>
<PAGE>
Item (6)a, b--(continued)
Account Title (Names on Account Account Title (Names on Account
Accounts) Number(s) Accounts) Number(s)
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
Item (11)--(continued) "Associate" is defined as (i) any
corporation or organization (other than 1st
List below all other orders State Bank, 1st State Bancorp, Inc. or a
submitted by you or your majority-owned subsidiary of 1st State Bank
Associates (as defined) or by or 1st State Bancorp, Inc.) of which such
persons acting in concert with person is an officer or partner or is,
you. directly or indirectly, the beneficial owner
- -------------------------------- of 10% or more of any class of equity
Number of securities, (ii) any trust or other estate
Name(s) Listed on Shares in which such person has a substantial
Other Stock Order Ordered beneficial interest or as to which such
Forms person serves as trustee or in a similar
- -------------------------------- fiduciary capacity, except that such term
shall not include a tax-qualified employee
- -------------------------------- stock benefit plan of 1st State Bank or 1st
State Bancorp, Inc. in which a person has a
- -------------------------------- substantial beneficial interest or serves as
a trustee in a similar fiduciary capacity;
- -------------------------------- and (iii) any relative or spouse of such
person, or any relative of such spouse, who
- -------------------------------- has the same home as such person or who is a
director of 1st State Bank or 1st State
- -------------------------------- Bancorp, Inc. or any of their
subsidiaries.
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED BELOW AND ON THE FRONT OF
THIS FORM.
================================================================================
CERTIFICATION
I/WE ACKNOWLEDGE THE COMMON STOCK OF 1st STATE BANCORP, INC. IS NOT A
DEPOSIT OR SAVINGS ACCOUNT AND IS NOT FEDERALLY INSURED, AND IS NOT
GUARANTEED BY 1st STATE BANK, 1st STATE BANCORP, INC. OR BY THE FEDERAL
GOVERNMENT. THE ENTIRE AMOUNT OF AN INVESTOR'S PRINCIPAL IS SUBJECT TO
LOSS.
If anyone asserts that the common stock is federally insured or guaranteed,
or is as safe as an insured deposit, I should call the Federal Deposit
Insurance Corporation Regional Director, Lawrence C. Morgan at (404) 817-
1300.
I/We further certify that, before purchasing the common stock, par value of
$0.01 per share, of 1st State Bancorp, Inc., the proposed holding company
for 1st State Bank, I/we received a Prospectus dated February , 1999 (the
"Prospectus"), which contains disclosure concerning the nature of the
common stock being offered and describes the following risks involved in
the investment under the heading "RISK FACTORS" beginning on page 1 of the
Prospectus.
<TABLE>
<C> <S> <C>
1. Risks Related to Commercial and Consumer Lending............. (page )
2. Potentially Adverse Impact of Interest Rates................. (page )
3. Anticipated Low Return on Equity ............................ (page )
4. The Expense and Dilutive Effect of the Contribution of Shares
to the Charitable Foundation................................. (page )
5. Concentration of Our Business in Alamance County............. (page )
6. Strong Competition Within Alamance County.................... (page )
7. Risk to Stock Value from our Ability to Impede Potential
Takeovers.................................................... (page )
8. Potential Cost of Future Employee Stock Benefit Plans........ (page )
9. Possible Dilutive Effect of Employee Stock Benefit Plans..... (page )
10. Valuation Not Indicative of Future Price of Common Stock..... (page )
11. Possible Adverse Tax Consequences of Subscription Rights..... (page )
12. Potential Stock Price Decline Due to Stock Market
Volatility................................................... (page )
13. No Opinion or Recommendation by Sales Agent; Best Efforts
Offering..................................................... (page )
14. Potential Inability to Make Technological Advances;
Consequences of Year 2000 Computer Failure................... (page )
15. Operations are Subject to Regulatory Changes................. (page )
16. Risk of Loss of Principal.................................... (page )
</TABLE>
BY EXECUTING THIS CERTIFICATION, INVESTORS ARE NOT WAIVING ANY RIGHTS UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.
Signature Date Signature Date
---------------------------------- ------------------------------------
---------------------------------- ------------------------------------
Name (Please Print) Name (Please Print)
---------------------------------- ------------------------------------
---------------------------------- ------------------------------------
<PAGE>
1st State Bancorp, Inc.
Stock Order Form Instructions
==============================================================================
Stock Ownership Guide
- ------------------------------------------------------------------------------
Item 1--
. Fill in the number of shares that you wish to purchase.
. The minimum order is 25 shares. The maximum order for any person, including
Associates of and persons acting in concert with that person, is 50,000
shares in the Subscription Offering and 50,000 shares in the Community
Offering. The total number of shares any person, including Associates of and
persons acting in concert with that person, may purchase in the stock
conversion is 50,000 shares.
. 1st State Bancorp, Inc. and 1st State Bank have the right to reject the
order of any subscriber who (i) submits false or misleading information on a
Stock Order Form or otherwise, (ii) attempts to purchase shares in violation
of the Plan or applicable law or (iii) fails to cooperate with attempts to
verify information with respect to subscription rights.
Item 2--
. Multiply the shares ordered by $20 per share.
Item 3--
. Check the box if you are a director, officer or employee of 1st State Bank
or are a member of such person's immediate family.
Item 4--
. You can pay for shares in cash (if delivered by you) or by check, bank draft
or money order made payable to 1st State Bancorp, Inc.
. Funds earn interest at the current 1st State Bank passbook rate until the
Offering is completed or terminated.
. Do not mail cash to purchase stock.
. Wire transfers will not be accepted as payment.
Item 5--
. If you plan to pay for your order by a withdrawal from a 1st State Bank
deposit account, list the account number(s) and the amount of withdrawal for
each account.
. Your order will be returned if, on the date your order is received, the
accounts designated do not contain sufficient funds to complete your
purchase.
. There is no penalty for early withdrawals to use funds on deposit at 1st
State Bank to pay for stock purchases.
. In order to use your 1st State Bank IRA to order stock, you must call the
Stock Information Center before , 1999 and complete all required
paperwork.
Item 6--
. Please check the appropriate box to tell us when you were a depositor of at
least $50.00 at 1st State Bank.
. The preprinted account numbers correspond to the preprinted name and address
at the top of the order form.
. These may not be all of your qualifying accounts.
. You must make sure that every account you have ownership in or have had at
1st State Bank is listed.
. If you do not list all of your accounts, you may not receive all of the
shares you are eligible for.
Item 7--
. Please consult the Stock Ownership Guide below for help with these sections.
Item 8--
. The name and address for the stock registration should be the same as the
name and address in the preprinted section at the top of your Stock Order
Form.
Item 9--
. Please check the box if you are a member of the NASD or if this item
otherwise applies to you.
Item 10--
. Please check this box if any of your Associates or persons acting in concert
with you (as defined on the back of the Stock Order Form) have submitted
other orders for shares.
Item 11--
. Please sign and date the Stock Order Form where indicated.
. Review the Stock Order Form carefully, including the Acknowledgment, before
you sign.
. An additional signature is required only when payment is authorized from a
deposit account that requires multiple signatures to withdraw funds.
. If you have any remaining questions, or for assistance in completing your
Stock Order Form, please call the Stock Information Center at (336) -
- --------------------------------------------------------------------------------
STOCK OWNERSHIP GUIDE
================================================================================
If you decide to subscribe for common stock, you will need to register your
common stock in one of the following ways. Please consult this guide when
completing items 7 and 8 of your Stock Order Form.
Individual
. Include the first name, middle initial and last name of the shareholder.
. Avoid the use of two initials.
. Omit titles such as "Mr." "Mrs." or "Dr."
Joint Tenants
. Joint Tenant can be used to identify two or more owners.
. When stock is held by joint tenants, ownership passes automatically to the
surviving joint tenant (s) upon the death of any joint tenant.
. All parties must agree to the transfer or sale of shares held by joint
tenants.
. In order to subscribe as joint tenants, all tenants must appear together on
an eligible joint tenant account at 1st State Bank.
Tenants in Common
. Tenants in common may be used to identify two or more owners.
. When stock is held by tenants in common, upon the death of one co-tenant,
ownership of the stock is held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant.
. All parties must agree to the transfer or sale of shares held by tenants in
common.
. In order to subscribe as tenants in common, all tenants must appear
together on an eligible tenants in common account at 1st State Bank.
Uniform Transfer to Minors
. Shares may be held in the name of a custodian for a minor under the Uniform
Transfer to Minors Acts of each state.
. There may be only one custodian and one minor designated on a stock
certificate.
. Example, shares held by John Doe as custodian for Susan Doe under the North
Carolina Uniform Transfer to Minors Act will be abbreviated: John Doe, CUST
Susan Doe UTMA, NC.
. Use the minor's social security number.
Fiduciaries
Information provided with respect to shares to be held in a fiduciary capacity
must contain the following:
. The name(s) of the fiduciary. If an individual, list the first name, middle
initial and last name. If a corporation, list the full corporate title. If
an individual and a corporation, list the corporation before the
individual.
. The fiduciary capacity, such as administrator, executor, trustee,
committee, etc.
. The date of the document governing the relationship.
. The name of the maker, donor or testator and the name of the beneficiary.
. An example of fiduciary ownership in the case of a trust is:
John Doe, Trustee Under Agreement Dated 10-1-87 for Susan Doe.
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.3
1ST STATE BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR
1ST STATE BANK)
BURLINGTON, NORTH CAROLINA
PROPOSED MARKETING MATERIALS
<PAGE>
Marketing Materials for
1st State Bank
Table of Contents
-----------------
I. Press Release
A. Explanation
B. Schedule
C. Distribution List
D. Examples
II. Question and Answer Brochure
A. Explanation
B. Method of Distribution
C. Example
III. Officer and Director Brochure
A. Explanation
B. Method of Distribution
C. Example
IV. Counter Cards, Lobby Posters and a Tombstone Announcement
A. Explanation
B. Quantity
C. Examples
V. Community Meeting Materials and Prospect Letters
A. Explanation
B. Examples
VI. Cover Letters
A. Explanation
B. Method of Distribution
C. Examples
VII. IRA Mailing
A. Explanation
B. Quantity
C. Example
VIII. Proxygram
A. Explanation
B. Example
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers, community members, and other
interested investors receive prompt accurate information in a simultaneous
manner, Trident Securities, Inc. advises 1st State Bank to forward press
releases to national and regional publications, newspapers, radio stations,
etc., at various points during the conversion process.
Only press releases approved by Conversion Counsel will be forwarded for
publication in any manner.
B. Press Releases
1. Approval of Conversion by the FDIC, Administrator, Savings
Institutions Division, North Carolina Department of Commerce and the
Securities and Exchange Commission
2. Close of Stock Offering
C. Distribution Lists (see attached)
D. Examples (see attached)
<PAGE>
C. National Media Distribution List
------------------------------------
American Banker
- ---------------
One State Street Plaza
New York, New York 10004
Michael Weinstein
Wall Street Journal
- -------------------
World Financial Center
200 Liberty
New York, New York 10004
SNL Securities
- --------------
Post Office Box 2124
Charlottesville, Virginia 22902
Barrons
- -------
Dow Jones & Company
Barron's Statistical Information
200 Burnett Road
Chicopee, Massachusetts 01020
Investors Business Daily
- ------------------------
12655 Beatrice Street
Post Office Box 661750
Los Angeles, California 90066
Local Media Distribution List
-----------------------------
(to be provided)
<PAGE>
Press Release
FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
James C. McGill, President
Telephone: (336) 227-8861
1st STATE BANK
--------------
STOCK SALE APPROVED
-------------------
Burlington, North Carolina - Mr. James C. McGill, President of 1st State
Bank, Burlington, North Carolina, announced today that 1st State Bank has
received approval from the FDIC and the Administrator, Savings Institution
Division, North Carolina Department of Commerce to convert from a North Carolina
mutual savings bank to a North Carolina stock savings bank and to become a
wholly-owned subsidiary of a newly-formed holding company, 1st State Bancorp,
Inc. (the "Company"). Following completion of the stock conversion, 1st State
Bank intends to convert from a North Carolina stock savings bank to a North
Carolina commercial bank to be known as "1st State Bank."
A Prospectus and Proxy Statement describing the Plan of Conversion will be
mailed to certain members of 1st State Bank on or about ___________, 1999.
Under the Plan of Conversion, the Company is offering an estimated 1,500,000
shares, subject to adjustment, of common stock at $20.00 per share. Certain of
1st State Bank's past and present depositors and borrowers will have the
opportunity to purchase stock through a subscription offering that closes on
________, 1999. Shares that are not subscribed for during the subscription
offering, if any, will be offered to the general public, with preference given
to natural persons and trusts of natural persons who are permanent residents of
Alamance County, North Carolina, in a community offering. The offerings are
being managed by Trident Securities, Inc., of Raleigh, North Carolina.
James C. McGill stated "1st State Bank remains committed to serving its
local market as a hometown community financial institution."
<PAGE>
1st State Bank is based in Burlington, North Carolina. The Bank was founded
in 1914. At September 30, 1998, 1st State Bank had total assets of $288.2
million and retained income of $26.0 million. Customers or interested members of
the community with questions concerning the stock offering should call the
institution at (336) _________ or visit 1st State Bank.
<PAGE>
Press Release FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
James C. McGill, President
Telephone: (336) 227-8861
1st STATE BANCORP, INC., HOLDING
--------------------------------
COMPANY FOR 1st STATE BANK,
---------------------------
COMPLETES INITIAL STOCK OFFERING
--------------------------------
Burlington, North Carolina - Mr. James C. McGill, President of 1st State
Bank, based in Burlington, North Carolina, announced today that 1st State
Bancorp, Inc., the holding company for 1st State Bank, has completed its initial
common stock offering. It is anticipated that the common stock of 1st State
Bancorp, Inc. will begin trading on the Nasdaq National Market System under the
symbol "____" on or about ___________, 1999. Trident Securities, Inc., Raleigh,
North Carolina and Atlanta, Georgia, will be a market maker. In addition,
following the stock conversion, the institution will convert to a North Carolina
commercial bank. 1st State Bancorp, Inc., will issue __________ shares of its
common stock.
The net proceeds contributed to 1st State Bank upon conversion will
substantially increase its capital. 1st State Bank ultimately intends to use
such funds for general corporate purposes, among them the origination of loans
and other investments. It is expected that in the interim all or part of the
proceeds will be invested in short-term and intermediate-term securities.
On __________, 1999, 1st State Bank's Plan of Conversion was approved by
1st State Bank's depositor and borrower members at a Special Meeting that was
held at the main office of the institution.
Mr. McGill indicated that the Officers and Board of Directors of 1st State
Bank want to express their thanks for the response by customers and the
community to the stock offering and that the Bank looks forward to serving the
needs of its customers as a stock institution.
<PAGE>
II. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
conversion. It serves to answer some of the most commonly asked questions
in "plain, everyday language." Although most of the answers are taken
verbatim from the Prospectus and Proxy Statement, it assists the individual
in finding answers to simple questions.
Conversion Counsel approves the language for each Question and Answer.
Trident Securities, Inc. and 1st State Bank will be responsible for any
introductory or concluding remarks, design, layout, color, and paper stock.
This will be coordinated through Trident Securities, Inc. in conjunction
with the financial printer.
B. Method of Distribution
There are three primary methods of distribution of the Question and Answer
brochure. However, regardless of the method, the brochure is always
accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial mailing to
all members of 1st State Bank.
2. Question and Answer brochures are available in 1st State Bank's
office.
3. Question and Answer brochures are sent out in a standard information
packet to all interested investors who phone the Stock Information
Center requesting information.
C. Example
<PAGE>
1st State Bank
Burlington, North Carolina
MUTUAL TO STOCK CONVERSION
--------------------------
1st State Bank's Board of Directors has unanimously voted to convert the savings
bank from its present mutual form to a stock institution, subject to approval of
the conversion by 1st State Bank's members and regulatory authorities, and,
immediately thereafter, to convert to a North Carolina commercial bank.
Complete details on the conversion, including reasons for conversion, are
contained in the Prospectus and Proxy Statement. We urge you to read them
carefully.
This brochure is provided to answer basic questions you might have about the
conversion. Remember, the conversion will not affect the rate on any of your
savings accounts, deposit certificates, or loans.
1. Q. What is a "Conversion"?
A. Conversion is a change in the legal form of organization. Following
completion of the conversion from a North Carolina mutual savings bank
to a North Carolina stock savings bank, 1st State Bank intends to
convert to a North Carolina commercial bank to be known as "1st State
Bank" (the "Bank"). 1st State Bank currently operates as a North
Carolina mutual savings bank with no shareholders. Through the
conversion, 1st State Bank will form a holding company, 1st State
Bancorp, Inc., which will ultimately own all of the outstanding stock
of the Bank. 1st State Bancorp, Inc. will issue stock in the
conversion, as described below, and will be a publicly-owned company.
2. Q. Why is 1st State Bank converting?
A. The stock form of ownership is used by most business corporations and
financial institutions. 1st State Bank has reached an important point
in its development with its decision to convert to the stock form of
ownership. 1st State Bank's management believes the continued
diversification of the institution's asset and deposit base and the
establishment of new banking services should enhance long-term
operating potential. The capital raised by issuing stock will:
* Enhance the Bank's capital position.
* Facilitate future access to the capital markets.
* Provide additional funds for increased lending and investment
opportunities.
* Support future growth by the Bank
<PAGE>
3. Q. Will the conversion have any effect on savings accounts,
certificates of deposit or loans with 1st State Bank?
A. No. The conversion will not change the amount, interest rate or
withdrawal rights of savings and checking accounts or certificates of
deposit. The rights and obligations of borrowers under their loan
agreements will not be affected. However, upon consummation of the
conversion, 1st State Bank's deposit account holders and borrowers
will no longer have voting rights unless they purchase common stock in
1st State Bancorp, Inc.
4. Q. Will the conversion cause any changes in personnel or management?
A. No. The conversion will not cause any changes in personnel or
management of 1st State. The normal day-to-day operations will
continue as before.
5. Q. Did the Board of Directors of 1st State Bank approve the conversion?
A. Yes. The Board of Directors unanimously adopted the Plan of Conversion
on ________.
THE SUBSCRIPTION AND COMMUNITY OFFERING
---------------------------------------
6. Q. Who is entitled to buy 1st State Bancorp, Inc. common stock?
A. Subscription rights to buy common stock will be given in order of
priority to (i) depositors of the Bank as of December 31, 1994 with a
$50.00 minimum deposit at that date (the "Eligible Account Holders");
(ii) the Company's employee stock ownership plan (the "ESOP"), a tax
qualified employee stock benefit plan; (iii) depositors of the Bank
with $50.00 or more on deposit as of December 31, 1998 (the
"Supplemental Eligible Account Holders"); and (iv) certain depositors
and borrowers as of ________ ("Other Members"), subject to the
purchase limitations set forth in the Plan of Conversion.
Shares that are not subscribed for during the subscription offering,
if any, may be offered to the general public through a community
offering with preference given to natural persons and trusts of
natural persons who are permanent residents of Alamance County, North
Carolina (the "Local Community"). It is anticipated that any shares
not subscribed for in the Subscription and Community Offerings will be
offered to certain members of the general public through a syndicate
of registered broker dealers pursuant to selected dealers agreements
in a Syndicated Community Offering.
7. Q. How do I subscribe for shares of stock?
A. Eligible customers wishing to exercise their subscription rights must
return the enclosed Stock Order Form to 1st State Bank. The Stock
Order Form must be completed and returned along with full payment or
appropriate instructions authorizing a withdrawal from a deposit
account at 1st State Bank on or prior to the close of the Subscription
Offering which is 12:00 noon, Eastern time, on ________, 1999, unless
extended.
8. Q. How can I pay for my subscription?
<PAGE>
A. First, you may pay for your stock in cash (if delivered in person to
1st State Bank) or by check or money order. These funds will earn
interest at 1st State Bank's passbook rate from the day we receive
them until the completion or termination of the conversion.
Second, you may authorize us to withdraw funds from your 1st State
Bank savings account or certificate of deposit without early
withdrawal penalty. These funds will continue to earn interest at the
rate in effect for your account until completion of the offering at
which time your funds will be withdrawn for your purchase. Funds
remaining in this account (if any) will continue at the contractual
rate unless the withdrawal reduces the account balance below the
applicable minimum in which case you will receive interest at the
passbook rate. A hold will be placed on your account for the amount
you specify for stock payment. You will not have access to these funds
from the day we receive your order until the completion or termination
of the conversion.
If you want to use Individual Retirement Account deposits held at 1st
State Bank to purchase stock, call our Stock Information Center at
________ for assistance. This transaction takes several days to
complete. Therefore, you must make arrangements to utilize 1st State
IRA funds no later than ________. There will be no early withdrawal or
IRS penalties incurred by these transactions, but additional paperwork
is necessary.
9. Q. When must I place my order for shares of stock?
A. To exercise subscription rights in the subscription offering, a Stock
Order Form must be received by 1st State Bank with full payment for
all shares subscribed for not later than 12:00 noon, Eastern time, on
________, 1999.
Non-customers desiring to order shares through the community offering,
if any, must order shares before the close of the community offering,
which will be no sooner than 12:00 noon, Eastern time on March 24,
1999, unless extended.
10. Q. How many shares of stock are being offered?
A. 1st State Bancorp, Inc. is offering 1,500,000 shares of common stock
at a price of $20.00 per share. The number of shares may be decreased
to 1,275,000 or increased to 1,983,750 in response to the independent
appraiser's final determination of the consolidated pro forma market
---------
value of the common stock issued in the conversion.
11. Q. What is the minimum and maximum number of shares that I can purchase
during the offering period?
A. The minimum number of shares that may be purchased is 25 shares. No
Stock Order Form will be accepted for less than $500.00. No person,
including associates of and persons acting in concert with such person
(other than the ESOP), including individuals on a joint account or
having the same address on the Bank's records, may purchase in the
Stock Conversion more than $1,000,000 or 50,000 shares of common
stock.
12. Q. How was it determined that between 1,275,000 shares and 1,983,750
shares of stock would be issued at $20.00 per share?
A. The share range was determined through an appraisal of 1st State Bank
by Ferguson &
<PAGE>
Company, an independent appraisal firm specializing in the thrift
industry.
13. Q. Must I pay a commission on the stock for which I subscribe?
A. No. You will not pay a commission on stock purchased in the
Subscription Offering or the Community Offering or Syndicated
Community Offering, if any. Conversion expenses, including
commissions, will be deducted from the proceeds of the offering upon
completion of the conversion.
14. Q. Will I receive interest on funds I submit for stock purchases?
A. Yes. 1st State Bank will pay its current passbook rate from the date
funds are received (with a completed Stock Order Form) during the
subscription and community offerings until completion of the
conversion.
15. Q. If I have misplaced my Stock Order Form, what should I do?
A. 1st State Bank will mail you another order form or you may obtain one
from the 1st State Bank main office. If you need assistance in
obtaining or completing a Stock Order Form, a 1st State Bank employee
or Trident Securities, Inc. representative will be happy to help you.
16. Q. Will there be any dividends paid on the stock?
A. Subject to regulatory and other considerations, the Company intends to
establish a quarterly cash dividend following the Conversion of $.10
per share (or $0.40 per share annually) commencing during the first
full calendar quarter following the Stock Conversion. No assurance
can be given that dividends will be paid on the common stock or that,
if paid, such dividends will not be reduced or eliminated in future
periods.
17. Q. How much stock do the directors and officers of 1st State Bank intend
to purchase through the Subscription Offering?
A. Directors and executive officers and the honorary director intend to
purchase approximately $___ million (___% at the midpoint of the
offering) of the stock to be offered in the conversion. The purchase
price paid by directors and officers will be the same as that paid by
customers and the general public.
18. Q. Are the subscription rights transferable to another party?
A. No. Pursuant to federal regulations, subscription rights granted to
Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members may be exercised only by the person(s) to whom they are
granted. Any person found to be transferring or selling subscription
rights will be subject to forfeiture of such rights and other
penalties.
19. Q. I closed my account several months ago. Someone told me that I am
still eligible to buy stock. Is that true?
A. If you were an account holder on the Eligibility Record Date, December
31, 1994, or the Supplemental Eligibility Record Date, December 31,
1998, you are entitled to purchase
<PAGE>
stock without regard to whether you continued to hold your 1st State
Bank account.
20. Q. May I obtain a loan from 1st State Bank using stock as collateral
to pay for my shares?
A. No. Regulations do not allow 1st State Bank to make loans for this
purpose, but other financial institutions could make a loan for this
purpose.
21. Q. Will the FDIC (Federal Deposit Insurance Corporation) insure the
shares of stock?
A. No. The shares are not and may not be insured by the FDIC. However,
the Savings Association Insurance Fund of the FDIC will continue to
insure savings accounts and certificates of deposit up to the
applicable limits allowed by law.
22. Q. Will there be a market for the stock following the conversion?
A. Neither the Company nor the Bank has ever issued stock before, and
consequently there is no established market for the Company common
stock. The Company has received conditional approval to have the
common stock listed on the Nasdaq National Market System under the
symbol "____". Trident Securities intends to make a market in the
common stock of the Company. However, purchasers of common stock
should have a long-term investment intent and recognize that no
assurance can be given than an active and liquid trading market will
develop.
23. Q. Can I purchase stock using funds in a 1st State Bank IRA account?
A. Yes. Contact the Stock Information Center for the additional
information. It takes several days to process the necessary IRA forms
and, therefore, it is necessary that you make arrangements by
________, 1999, to accommodate your order.
ABOUT VOTING "FOR" THE PLAN OF CONVERSION
24. Q. Am I eligible to vote at the Special Meeting of Members to be held
to consider the Plan of Conversion?
A. At the Special Meeting of Members to be held on ________, 1999, you
are eligible to vote if you are one of the "Voting Members," who are
holders of 1st State Bank's deposits or other authorized accounts or
loans as of ________, 1999 (the "Voting Record Date") for the Special
Meeting. However, Bank members of record as of the close of business
on the Voting Record Date who cease to be depositors or borrowers
prior to the date of the Special Meeting are no longer members and
will not be entitled to vote at the Special Meeting. If you are a
Voting Member, you should have received a proxy statement and proxy
card with which to vote.
25. Q. How many votes do I have as a Voting Member?
A. Each account holder is entitled to one vote for each $100, or fraction
thereof, on deposit in such account. Each borrower who holds eligible
borrowings is entitled to cast one vote in addition to the number of
votes, if any, he or she is entitled to vote as an account holder. No
member may cast more than 1,000 votes.
<PAGE>
26. Q. If I vote "against" the Plan of Conversion and it is approved,
will I be prohibited from buying stock during the subscription
offering?
A. No. Voting against the Plan of Conversion in no way restricts you
from purchasing stock in either the subscription offering or the
community offering.
27. Q. What happens if 1st State Bank does not get enough votes to
approve the Plan of Conversion?
A. 1st State Bank's Conversion would not take place and 1st State Bank
would remain a mutual savings bank.
28. Q. As a qualifying depositor or borrower of 1st State Bank, am I
required to vote?
A. No. However, failure to return your proxy card will have the same
effect as a vote "Against" the Plan of Conversion.
29. Q. What is a Proxy Card?
A. A Proxy Card gives you the ability to vote without attending the
Special Meeting in person. You may attend the meeting and vote in
person, even if you have returned your proxy card, if you choose to do
so. However, if you are unable to attend, you would still be
represented by proxy.
30. Q. How does the conversion affect me?
A. The conversion is intended, among other things, to assist 1st State
Bank in maintaining and expanding its many services to 1st State
Bank's customers and community. By purchasing stock, you will also
have the opportunity to invest in 1st State Bancorp, Inc., the holding
company that will own the North Carolina-chartered commercial bank
into which 1st State Bank will convert. However, there is no
obligation to purchase stock; the purchase of stock is strictly
optional.
31. Q. How can I get further information concerning the stock offering?
A. You may call the Stock Information Center, collect at (336) ________
for further information or an additional copy of the Prospectus, Stock
Order Form, Proxy Statement and Proxy Card.
Statements in this document concerning expectations for the future
constitute forward-looking statements. Such forward-looking statements contain
known and unknown risks and uncertainties. The Company's actual actions or
results may differ materially from those discussed in the forward-looking
statements. Specific factors that might cause such a difference include, but are
not limited to, the risks related to commercial and consumer lending,
potentially adverse impact of changes in interest rates, the uncertainty as to
the existence of growth opportunities, competition, local economic conditions in
1st state Bank's market area, volatility in the stock markets, changes in the
regulations relating to financial institutions and general economic conditions
in the United States. See addition discussion in the Prospectus under "Risk
Factor."
<PAGE>
THERE SHALL BE NO SALE OF STOCK IN ANY STATE IN WHICH ANY OFFER,
SOLICITATION OF AN OFFER OR SALE OF STOCK WOULD BE UNLAWFUL.
THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT OF 1ST STATE BANK AND IS NOT
FEDERALLY INSURED OR GUARANTEED.
FOR YOUR CONVENIENCE
In order to assist you during the stock offering period, we have
established a Stock Information Center to answer your questions. Please call
collect:
(336) ________
<PAGE>
III. Officer and Director Brochure
A. Explanation
An Officer and Director Brochure merely highlights the intended stock
purchases shown in the Prospectus.
B. Method of Distribution
There are three primary methods of distribution of Officer and Director
Brochures. However, regardless of the method, they are always accompanied
by a Prospectus.
1. An Officer and Director Brochure may be sent out in the initial
mailing to all members of the Bank.
2. Officer and Director Brochures may be available in any of the Bank's
offices.
3. Officer and Director Brochures may be sent out in a standard
information packet to all interested investors who telephone the Stock
Information Center requesting information.
<PAGE>
OFFICER AND DIRECTOR STOCK PURCHASE COMMITMENTS
Name and Position Amount Shares Percent at Midpoint
----------------- ------ ------ -------------------
James A. Barnwell, Jr.,
Director
Bernie C. Bean,
Director
Richard C. Keziah,
Chairman of the Board
James C. McClure,
Director
James C. McGill,
President, CEO & Director
T. Scott Quakenbush,
Director
Richard H. Shirley,
Director
Virgil L. Stadler,
Director
A. Christine Baker,
EVP and CEO
Fairfax C. Reynolds,
EVP, Retail Administration
John D. Hansell,
Mgr. First Capital Services LLC
Frank Gavigan,
Senior VP, Senior Credit Officer
All directors & executive officers,
as a group (12 persons) & their
associates
THIS INFORMATION IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT OF 1ST STATE BANK AND IS NOT
FEDERALLY INSURED OR GUARANTEED.
<PAGE>
IV. Counter Cards, Lobby Posters and the Tombstone Announcement
A. Explanation
Counter cards, lobby posters and the tombstone announcement serve three
-----
purposes: (1) As a notice to 1st State Bank's customers and members of the
local community that the stock sale is underway; (2) to remind the
customers of the end of the Subscription Offering; and (3) to invite
members of the community to an informational meeting, if applicable.
Trident has learned in the past that many people need reminding of the
deadline for subscribing and therefore we suggest the use of these simple
reminders.
B. Quantity
Approximately 3 - 4 counter cards will be used at the Bank's office, at
teller windows and on customer service representatives' desks. These
counter cards will be exact duplicates of the lobby poster and will be no
larger than 8-1/2" x 11".
Approximately 1 - 2 lobby posters will be used at the offices of the Bank.
These posters will be approximately 2' x 3'.
Tombstone announcements may be used for placement in local newspapers. The
advertisements will run no more than twice each in the local newspaper.
The ads will be no larger than 8-1/2" x 11".
C. Examples enclosed
<PAGE>
POSTER
1st State Bank
STOCK OFFERING MATERIALS
AVAILABLE HERE
Customer and Community Priority Rights for the Stock Offering
by 1st State Bancorp, Inc.
Expire on _______, 1999
<PAGE>
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of an
offer to buy these securities. The offer is made only by the Prospectus. These
shares have not been approved or disapproved by the Securities and Exchange
Commission, Administrator Savings Institutions Division, North Carolina
Department of Commerce or Federal Deposit Insurance Corporation, nor has such
Commission, Office or Corporation passed upon the accuracy or adequacy of the
Prospectus and Proxy Statement. Any representation to the contrary is unlawful.
NEW ISSUE __________, 1999
- ---------
UP TO 1,983,750 SHARES
These shares are being offered pursuant
to a Plan of Conversion whereby
1ST STATE BANK
of Burlington, North Carolina will convert from a
North Carolina mutual savings bank to a North Carolina stock
savings bank and, following completion of the offering, convert to a
North Carolina commercial bank and become the wholly-owned subsidiary of
1ST STATE BANCORP, INC.
COMMON STOCK
_______________
PRICE $20.00 PER SHARE
_______________
Copies of the Prospectus may be obtained in any State in which this announcement
is circulated from such of the undersigned or other brokers and dealers
as may legally offer these securities in such state.
TRIDENT SECURITIES, INC.
For a copy of the Prospectus call (336) ________.
<PAGE>
The Directors and Officers
of
1st State Bank
cordially invite you to attend a brief
presentation regarding the stock offering of
1st State Bancorp, Inc., our proposed holding company
Please join us at the
Place
Address
Date
at 7:00 p.m.
for hors d'oeuvres
R.S.V.P.
(___) (Collect)
<PAGE>
V. Community Meeting Materials and Prospect Letters
A. Explanation
In order to educate the public about the stock offering, Trident suggests
holding Community meetings in various locations. In an effort to target a
group of interested investors, Trident requests that each Director of the
Bank submit a list of acquaintances that he or she would like to invite to
a Community meeting.
B. Method of Distribution of Invitations and Prospect Letters
Each Director submits his list of prospects.
Invitations are sent to each Director's prospects through the mail. All
invitations are preceded by a Prospectus and all attendees are given a
Prospectus at the meeting.
C. Examples enclosed
<PAGE>
The Directors and Officers
of
1st State Bank
cordially invite you to attend a brief
presentation regarding the stock offering of
1st State Bancorp, Inc., our proposed holding company
Please join us at the
Place
Address
Date
at 7:00 p.m.
for hors d'oeuvres
R.S.V.P.
(___) (Collect)
<PAGE>
Example
(Introductory Letter)
(1st State Bank Letterhead)
_______, 1999
Name
Address
City, State, Zip
Dear ______________:
You have probably read recently in the newspaper that 1st State Bank is
converting from mutual to stock form. This conversion is the biggest step in
the history of 1st State Bank in that it allows customers, community members,
employees and directors the opportunity to subscribe for common stock in our new
holding company, 1st State Bancorp, Inc.
I have enclosed a Prospectus and a stock order form which will allow you to
subscribe for shares and possibly become a charter stockholder of 1st State
Bancorp, Inc. In addition, we will be holding several presentations for friends
of 1st State Bank in order to explain the Conversion and review the merits of
possibly becoming a charter stockholder of 1st State Bancorp, Inc. You will
receive an invitation shortly.
I hope that if you have any questions you will feel free to call 1st State
Bank's Stock Information Center at (336)________. I look forward to seeing you
at our presentation.
Sincerely,
Director
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy stock.
The offer will be made only by the Prospectus. There shall be no sale of stock
in any state in which any offer, solicitation of an offer or sale of stock would
be unlawful.
<PAGE>
Example
(Thank You Letter)
(1st State Bank Letterhead)
___________, 1999
Name
Address
City, State, Zip
Dear ______________:
On behalf of the Board of Directors and management of 1st State Bank, I
would like to thank you for attending our recent presentation regarding the
stock offering of 1st State Bancorp, Inc. We are enthusiastic about the stock
offering and look forward to completing the Subscription Offering on __________,
1999.
I hope that you will join me in being a charter stockholder, and once again
thank you for your interest.
Sincerely,
James C. McGill
President
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy stock.
The offer will be made only by the Prospectus. There shall be no sale of stock
in any state in which any offer, solicitation of an offer or sale of stock would
be unlawful.
<PAGE>
Example
(Sorry You Were Unable to Attend)
(1st State Bank Letterhead)
____________, 1999
Name
Address
City, State, Zip
Dear ____________:
I am sorry you were unable to attend our recent presentation regarding 1st
State Bank's mutual to stock conversion. The Board of Directors and management
as a group intend to invest $_________ of our own funds in the common stock of
1st State Bancorp, Inc. We are enthusiastic about the stock offering and look
forward to completing the Subscription Offering on _______, 1999.
Enclosed is a Prospectus explaining the conversion process and stock
offering. We have established a Stock Information Center to answer any questions
regarding the stock offering. Should you require any assistance between now and
________, 1999, I encourage you either to stop by or call our Stock Information
Center at _____________.
I hope you will join me in becoming a charter stockholder of 1st State
Bancorp, Inc.
Sincerely,
James C. McGill
President
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy stock.
The offer will be made only by the Prospectus. There shall be no sale of stock
in any state in which any offer, solicitation of an offer or sale of stock would
be unlawful.
<PAGE>
Example
(Final Reminder Letter)
(1st State Bank Letterhead)
________, 1999
Name
Address
City, State, Zip
Dear ________________:
Just a quick note to remind you that the deadline is quickly approaching
for purchasing stock in 1st State Bancorp, Inc., the proposed holding company
for 1st State Bank. I hope you will join me in becoming a charter stockholder in
what will be North Carolina's newest publicly owned financial institution
holding company.
The deadline for subscribing for shares in the Subscription Offering is
_______, 1999. If you have any questions, I hope you will call our Stock
Information Center at _____________.
Once again, I look forward to having you join me as a stockholder of 1st
State Bancorp, Inc.
Sincerely,
James C. McGill
President
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy stock.
The offer will be made only by the Prospectus. There shall be no sale of stock
in any state in which any offer, solicitation of an offer or sale of stock would
be unlawful.
<PAGE>
VI. Cover Letters
A. Explanation
Cover letters to accompany offering materials.
B. Method of Distribution
Enclosed with the initial mailing.
C. Examples
<PAGE>
(Trident Letterhead)
___________, 1999
To Members and Friends of 1st State Bank:
Trident Securities, Inc., member of the National Association of
Securities Dealers, Inc., is assisting 1st State Bank in its Conversion from a
mutual savings bank to a stock savings bank and the concurrent offering of
common shares by 1st State Bancorp, Inc. (the "Company"), a Virginia corporation
recently formed for the purpose of acquiring all of the stock of 1st State Bank.
At the request of 1st State Bank, we are enclosing a Prospectus and
other materials explaining the Conversion process and your right to subscribe
for common shares of the Company. Please read the enclosed offering materials
carefully before subscribing for stock.
If you have any questions, please call the Stock Information Center at
(336) ________.
Sincerely,
TRIDENT SECURITIES, INC.
Enclosures
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
<PAGE>
(1st State Bank Letterhead)
___________, 1999
Dear Valued Member:
1st State Bank is pleased to announce that we have received regulatory
approval to proceed with our plan to convert from a mutual savings bank to a
stock savings bank (the "Conversion"), conditioned upon receipt of approval by
1st State Bank's members, among other things. This Conversion is a significant
event in the history of 1st State Bank in that it allows customers, directors
and employees an opportunity to subscribe for common shares of 1st State
Bancorp, Inc., the proposed holding company for 1st State Bank.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on deposits at 1st
State Bank, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with 1st State Bank. Let us also assure
you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of 1st State Bank.
A special meeting of the members of 1st State Bank will be held on
___________, 1999 at _______, Eastern Time, at 1st State Bank's main office to
consider and vote upon 1st State Bank's Plan of Conversion. Enclosed is a proxy
card. The Board of Directors of 1st State Bank solicits your vote "FOR" the Plan
of Conversion. A vote in favor of the Plan of Conversion does not obligate you
to purchase common shares of 1st State Bancorp, Inc. If you do not plan to
attend the special meeting, please sign and return your proxy card promptly.
Your vote is important to us.
As one of our valued members, you have the opportunity to invest in
the future of 1st State Bank by purchasing common shares of 1st State Bancorp,
Inc. during the Subscription Offering, without paying a sales commission.
If you decide to exercise your subscription rights to purchase shares,
you must return a properly completed stock order form together with full payment
for the subscribed shares so that it is received by 1st State Bank not later
than 12:00 Noon, Eastern Time on _________, 1999.
We also have enclosed a Prospectus and Proxy Statement which fully
describes the Conversion and provides financial and other information about 1st
State Bancorp, Inc. and 1st State Bank. Please review these materials carefully
before you vote or invest. For your convenience we have established a Stock
Information Center. If you have any questions, please call the Stock Information
Center at (336) ________.
We look forward to continuing to provide quality financial services to
you in the future.
Sincerely,
James C. McGill
President
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
<PAGE>
(Optional)
(1st State Bank Letterhead)
____________, 1999
Dear Interested Investor:
1st State Bank is pleased to announce that we have received regulatory
approval to proceed with our plan to convert from a mutual savings bank to a
stock savings bank (the "Conversion"), conditioned upon receipt of approval by
1st State Bank's members, among other things. This Conversion is a significant
event in the history of 1st State Bank in that it allows customers, community
members, directors and employees an opportunity to purchase common shares of 1st
State Bancorp, Inc., the proposed holding company for 1st State Bank.
We want to assure you that the Conversion will not result in any
changes in the management, personnel or the Board of Directors of 1st State
Bank.
Enclosed is a Prospectus which fully describes 1st State Bancorp, Inc.
and 1st State Bank, their management, board and financial condition. Please
review it carefully before you make an investment decision. If you decide to
invest, please return to 1st State Bank a properly completed stock order form
together with full payment for shares at your earliest convenience. For your
convenience we have established a Stock Information Center. If you have any
questions, please call the Stock Information Center at (336) ________.
Sincerely,
James C. McGill
President
Enclosures
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
<PAGE>
(1st State Bank Letterhead)
____________, 1999
Dear Friend:
1st State Bank is pleased to announce that we have received regulatory
approval to proceed with our plan to convert from a mutual savings to a stock
savings bank (the "Conversion"), conditioned upon receipt of approval by 1st
State Bank's members, among other things. The Conversion is a significant event
in the history of 1st State Bank in that it allows customers, directors and
employees an opportunity to subscribe for common shares of 1st State Bancorp,
Inc., the proposed holding company for 1st State Bank.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on deposits at 1st
State Bank, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with 1st State Bank. Let us also assure
you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of 1st State Bank.
Our records indicate that you were a depositor of 1st State Bank on
December 31, 1994 or December 31, 1998. Therefore, under applicable law, you are
entitled to subscribe for common shares of 1st State Bancorp, Inc. in the
Subscription Offering. Orders submitted by you and others in the Subscription
Offering are contingent upon the current members' approval of the Plan of
Conversion at a special meeting of members to be held on __________, 1999, and
upon receipt of all required regulatory approvals.
If you decide to exercise your subscription rights to purchase shares,
you must return a properly completed stock order form together with full payment
for the subscribed shares so that it is received at 1st State Bank not later
than 12:00 Noon, Eastern Time on __________, 1999.
Enclosed is a Prospectus which fully describes 1st State Bancorp, Inc.
and 1st State Bank, their management, board and financial condition. Please
review it carefully before you invest. For your convenience, we have established
a Stock Information Center. If you have any questions, please call the Stock
Information Center at (336) ________.
Sincerely,
James C. McGill
President
Enclosures
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
<PAGE>
(Optional)
(1st State Bank Letterhead)
___________, 1999
Dear Member:
As a qualified member of 1st State Bank, you have the right to vote
upon 1st State Bank's proposed Plan of Conversion and also generally have the
right to subscribe for common shares of 1st State Bancorp, Inc., the proposed
holding company for 1st State Bank. However, the proposed Plan of Conversion
provides that 1st State Bancorp, Inc. will not offer shares in any state in
which compliance with the securities laws would be impracticable for reasons of
cost or otherwise. Unfortunately, the securities laws of your state would
require 1st State Bancorp, Inc. to register its common shares and /or its
employees in order to sell the common shares to you. Such registration would be
prohibitively expensive or otherwise impracticable in light of the few members
residing in your state.
You may vote on the proposed Plan of Conversion and we urge you to
read the enclosed Summary Proxy Statement and execute the enclosed Revocable
Proxy. Questions regarding the execution of the Revocable Proxy should be
directed to 1st State Bank's Stock Information Center at (336) ________.
Sincerely,
James C. McGill
President
Enclosures
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
<PAGE>
VII. IRA Mailing
A. Explanation
A special IRA mailing is proposed to be sent to all IRA customers of 1st
State Bank in order to alert the customers that funds held in an IRA can be
used to purchase stock. Since this transaction is not as simple as
designating funds from a certificate of deposit like a normal stock
purchase, this letter informs the customer that this process is slightly
more detailed and cannot be done through the mail.
B. Quantity
One IRA letter is proposed to be mailed to each IRA customer of 1st State
Bank. These letters would be mailed following OTS approval of the
Conversion and after each customer has received the initial mailing
containing a Proxy Statement and a Prospectus.
C. Example - Enclosed
<PAGE>
1st State Bank Letterhead
________, 1999
Dear Individual Retirement Account Participant:
As you know, 1st State Bank is in the process of converting from a North
Carolina chartered mutual savings bank to a North Carolina stock savings bank
and has formed 1st State Bancorp, Inc. to hold all of the stock of 1st State
Bank (the "Conversion"). Through the Conversion, certain current and former
depositors of 1st State Bank have the opportunity to purchase shares of common
stock of 1st State Bancorp, Inc. in a Subscription Offering. 1st State Bancorp,
Inc. currently is offering up to 1,983,750 common shares, subject to adjustment,
at a price of $20.00 per share.
As the holder of an individual retirement account ("IRA") at 1st State
Bank, you may use your IRA funds to subscribe for stock. If you desire to
purchase common shares of 1st State Bancorp, Inc. through your IRA, please
contact your broker or 1st State Bank can assist you in self-directing those
funds. This process can be done without an early withdrawal penalty and
generally without a negative tax consequence to your IRA.
If you are interested in receiving more information on self-directing your
IRA, please contact the Stock Information Center at (336) ________. Because it
takes several days to process the necessary IRA forms, you must complete these
forms by ________, 1999 to accommodate your interest.
Sincerely,
James C. McGill
President
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
<PAGE>
VIII. Proxy Reminder
A. Explanation
A proxygram is used when the majority of votes needed to adopt the Plan of
Conversion is still outstanding. The proxygram is mailed to those "target
vote" depositors who have not previously returned their signed proxy.
The target vote depositors are determined by the conversion agent.
B. Example enclosed
<PAGE>
B. Example
_______________________________________________________________________________
___________________________________________________________________________
P R O X Y G R A M
(LOGO)
________________________________________________________________________________
________________________________________________________________________________
YOUR VOTE ON OUR PLAN OF CONVERSION HAS NOT BEEN RECEIVED.
---- --------
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
- ---------------------------
VOTING AGAINST THE PLAN OF CONVERSION.
VOTING FOR THE PLAN OF CONVERSION WILL NOT AFFECT THE INSURANCE COVERAGE OF YOUR
ACCOUNTS. ALL ACCOUNTS WILL CONTINUE TO BE INSURED UP TO THE LEGAL LIMIT
--------------------------------
($100,000 PER ACCOUNT AS DEFINED BY LAW) BY THE SAVINGS ASSOCIATION INSURANCE
FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION, AN AGENCY OF THE U.S.
GOVERNMENT.
REMEMBER, VOTING FOR THE PLAN OF CONVERSION DOES NOT OBLIGATE YOU TO BUY ANY
--------
SHARES.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL OR DELIVER IT TO
----------
1st STATE BANK
WE RECOMMEND THAT YOU VOTE "FOR" THE PLAN OF CONVERSION.
-----
THANK YOU!
________________________________________________________________________________
________________________________________________________________________________
THE BOARD OF DIRECTORS OF
1st STATE BANK
<PAGE>
SUBSCRIPTION RIGHTS
SPECIAL NOTICE
Any Transfer of, or attempt to transfer, a subscription right to any other
person is illegal and subject to civil fines and/or penalties. 1st State Savings
Bank intends to prosecute vigorously any transfer of, or attempt to transfer,
subscription rights that comes to its attention.
If you are (or have been already) contacted by anyone offering to give you money
to buy stock in exchange for transferring the stock to them later or for sharing
in any way proceeds upon the sale of the stock, or to transfer your subscription
rights in any other way, please call us immediately at (336) ___-___.
<PAGE>
EXHIBIT 99.4
CONVERSION VALUATION REPORT
Valued as of October 30, 1998
1ST STATE BANK
Burlington, North Carolina
Prepared By:
Ferguson & Company
Suite 305
860 West Airport Freeway
Hurst, Texas 76054
817/577-9558
<PAGE>
[LETTERHEAD OF FERGUSON & COMPANY APPEARS HERE]
STATEMENT OF APPRAISER'S INDEPENDENCE
1st State Bank
--------------
Burlington, North Carolina
--------------------------
We are the appraiser for 1st State Bank ("1st State" or "Bank") in
connection with its mutual to stock conversion. We are submitting our
independent estimate of the pro forma market value of the Bank's stock to be
issued in the conversion. In connection with our appraisal of the Bank's 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 the Bank, its conversion counsel,
its selling agent, or any other party connected with the conversion. We also
received a fixed fee for assisting the Bank in connection with the preparation
of its business plan to be submitted with the conversion application.
1st State 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, if the Bank
misrepresented or omitted material facts, except to the extent such liabilities
are determined to have arisen because of our negligence, failure to exercise due
diligence, or willful conduct.
Ferguson & Company
/s/ Robin L. Fussell
Robin L. Fussell
Principal
November 17, 1998
<PAGE>
[LETTER HEAD OF FERGUSON & COMPANY APPEARS HERE]
NOVEMBER 17, 1998
BOARD OF DIRECTORS
1ST STATE BANK
445 S. MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
DEAR DIRECTORS:
We have completed and hereby provide, as of October 30, 1998, an
independent appraisal of the estimated pro forma market value of 1st State Bank,
Burlington, North Carolina ("1st State " or "Bank"), in connection with the
conversion of 1st State from the mutual to stock form of organization
("Conversion"). This appraisal report is furnished pursuant to the regulatory
filing of the Bank's applications for conversion with the Federal Deposit
Insurance Corporation ("FDIC") and the Savings Institutions Division of the
North Carolina Department of Commerce ("Division").
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 1st State'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 1st State's Notice of Intent
to Convert to Stock Form and Application to Convert a Mutual Savings Bank to a
Stock Owned Savings Bank, including the Proxy Statement, as filed with the FDIC
and the Division, respectively. We conducted an analysis of 1st State that
included discussions with KPMG Peat Marwick LLP, the Bank's independent
auditors, and with Housley Kantarian & Bronstein, P.C., 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 1st State's primary market 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 1st State's representation that the information
contained in the applications for conversion 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 1st State and its auditors, nor did we independently
value the assets or liabilities of the Bank. The valuation considers 1st State
only as a going concern and should not be considered an indication of its
liquidation value.
It is our opinion that, as of October 30, 1998, the estimated pro forma
market value of 1st State was $30,000,000, or 1,500,000 shares at $20.00 per
share. The resultant valuation range was $25,500,000 at the minimum (1,275,000
shares at $20.00 per share) to $34,500,000 at the maximum (1,725,000 shares at
<PAGE>
BOARD OF DIRECTORS
NOVEMBER 17, 1998
PAGE 2
$20.00 per share), based on a range of 15 percent below and above the midpoint
valuation. The supermaximum was $39,675,000 (1,983,750 shares at $20.00 per
share).
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 1st
State, could materially affect the assumptions used in preparing this appraisal.
The valuation reported herein will be updated as provided in the conversion
regulations and guidelines. Any updates will consider, among other things, any
developments or changes in 1st State'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/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
TABLE OF CONTENTS
1ST STATE BANK
BURLINGTON, NORTH CAROLINA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION 1
SECTION I. - FINANCIAL CHARACTERISTICS 2
PAST & PROJECTED ECONOMIC CONDITIONS 2
FINANCIAL CONDITION OF INSTITUTION 2
BALANCE SHEET TRENDS 2
ASSET/LIABILITY MANAGEMENT 2
INCOME AND EXPENSE TRENDS 3
REGULATORY CAPITAL REQUIREMENTS 3
LENDING 3
NON-PERFORMING ASSETS 3
CLASSIFIED ASSETS 3
LOAN LOSS ALLOWANCE 3
INVESTMENTS 3
SAVINGS DEPOSITS 4
BORROWINGS 4
SUBSIDIARIES 4
LEGAL PROCEEDINGS 4
EARNINGS CAPACITY OF THE INSTITUTION 4
ASSET-SIZE-EFFICIENCY OF ASSET UTILIZATION 4
INTANGIBLE VALUES 5
EFFECT OF GOVERNMENT REGULATIONS 5
OFFICE FACILITIES 5
FOUNDATION CONTRIBUTION 5
SECTION II - MARKET AREA 1
DEMOGRAPHICS 1
</TABLE>
i
<PAGE>
TABLE OF CONTENTS - CONTINUED
1ST STATE BANK
BURLINGTON, NORTH CAROLINA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 2
FUTURE PLANS 2
SECTION IV - CORRELATION OF MARKET VALUE 1
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED 1
FINANCIAL ASPECTS 1
MARKET AREA 2
MANAGEMENT 2
DIVIDENDS 2
LIQUIDITY 3
THRIFT EQUITY MARKET CONDITIONS 3
NORTH CAROLINA ACQUISITIONS 3
EFFECT OF INTEREST RATES ON THRIFT STOCK 4
ADJUSTMENTS CONCLUSION 5
VALUATION APPROACH 5
VALUATION CONCLUSION 6
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS - CONTINUED
1ST STATE BANK
BURLINGTON, NORTH CAROLINA
<TABLE>
<CAPTION>
TABLE
NUMBER TABLE TITLE PAGE
------ ----------- ----
<S> <C>
SECTION I - FINANCIAL CHARACTERISTICS
1 Selected Financial and Other Data 6
2 Selected Financial Ratios and Other Data 7
3 Loan Maturities 8
4 Interest Rate Sensitivity Analysis 9
5 Interest Rate Shock 10
6 Regulatory Capital Compliance 11
7 Loan Portfolio Composition 12
8 Loan Origination, Purchase, and Sales Activity 13
9 Average Balances, Rates, and Yields 14
10 Rate/Volume Analysis 15
11 Loan Delinquencies at September 30, 1998 16
12 Non-Performing Assets 17
13 Analysis of Allowance for Loan Losses 18
14 Allocation of Allowance for Loan Losses 19
15 Investments at September 30, 1998 20
16 Investment Securities 21
17 Deposit Portfolio 22
18 Savings Deposits Detail 23
19 Certificates of Deposit Maturities 24
20 Large CD Maturities 25
21 Savings Flows 26
22 Banking Offices 27
SECTION II - MARKET AREA
1 Key Economic Indicators 3
2 Percent Employment by Industry 4
3 Market Area Deposits 5
4 Summary of Building Permits 6
SECTION III - COMPARISON WITH PUBLICLY
TRADED THRIFTS
1 Comparatives General Characteristics 4
2 Key Financial Indicators 5
3 Pro Forma Comparisons 6
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS - CONTINUED
1ST STATE BANK
BURLINGTON, NORTH CAROLINA
<TABLE>
<CAPTION>
TABLE
NUMBER TABLE TITLE PAGE
------ ----------- ----
<S> <C>
SECTION IV - CORRELATION OF MARKET VALUE
1 Appraisal Earnings Adjustments 2
2 North Carolina Acquisitions 7
3 Recent Conversions 9
4 Comparison of Pricing Ratios 12
FIGURE
NUMBER LIST OF FIGURES
------ ---------------
PAGE
SECTION IV - CORRELATION OF MARKET VALUE ----
1 SNL Index 13
2 Interest Rates 14
</TABLE>
EXHIBIT TITLE
-------------
Exhibit I - Ferguson & Company Qualifications
Exhibit II - Selected Region, State, and Comparatives Information
Exhibit III - 1st State Bank BankSearch Report
Exhibit IV - Comparative Group BankSearch Reports
Exhibit V - Selected Publicly Traded Thrifts
Exhibit VI - Comparative Group Selection
Exhibit VII - 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
iv
<PAGE>
SECTION I
FINANCIAL CHARACTERISTICS
<PAGE>
INTRODUCTION
1st State Bank ("1st State" or "Bank") is a state chartered, federally
insured mutual savings bank located in Burlington, North Carolina. It was
chartered in 1914 as a mutual building and loan association. Its name was
changed to 1st Savings Bank in 1997. In August 1998, its Board of Directors
adopted a plan to convert to stock form via a standard mutual to stock
conversion. It will form a holding company and the savings bank will convert to
a North Carolina state chartered commercial bank.
At September 30, 1998, 1st State had total assets of $288.2 million,
loans held for investment of $196.8 million, loans held for sale of $7.5
million, investment securities held to maturity of $30.2 million, investment
securities available for sale of $9.9 million, cash and cash equivalents of
$31.1 million, deposits of $235.7 million, borrowings of $20.0 million, and
equity of $26.0 million, or 9.0% of assets.
The Bank has six banking offices, which are located in Alamance County
in north central North Carolina. North Carolina is in the southeastern portion
of the United States. 1st State's main office is located in Burlington, which
is approximately 20 miles east of Greensboro on interstate highway 85.
1st State is a thrift in transition to a commercial bank, as evidenced
by its asset and deposit composition. Unlike today's typical thrift, 1st State
has a high loan to deposit ratio, a moderate ratio of passive investments, and a
higher than normal percentage of its deposits in transaction accounts. In
addition, it has experienced healthy growth in recent years, including de novo
branching. It has developed a loan servicing portfolio in recent years, with
approximately $37 million in servicing at September 30, 1998. This has enabled
the Bank to service the public through the origination of home loans, avoid the
attendant interest rate risk associated with such loans, and build a stream of
noninterest income.
1st State invests primarily in (1) 1-4 family, multifamily,
commercial, and construction real estate loans, commercial non-real estate
loans, and consumer loans, (2) United States government and agency securities,
and (3) temporary cash investments. It is funded principally by savings
deposits and existing net worth. It has utilized borrowings recently, albeit
not extensively.
The Bank offers a variety of loan products to accommodate its customer
base and single family loans dominate the Bank's loan portfolio. In recent
years, however, the importance of commercial non-real estate and consumer
lending has grown. At September 30, 1998, loans on 1-4 family dwellings made up
48.8% of the gross loan portfolio (down from 55.7% at September 30, 1996),
commercial real estate loans made up 18.8% of the gross loan portfolio,
commercial non-real estate loans made up 12.2% of the gross loan portfolio, and
consumer loans made up 3.1% of the gross loan portfolio. Net loans held for
investment made up 68.3% of total assets. Cash and investment securities made
up 24.7% of 1st State's assets at September 30, 1998.
1st State had $263 thousand in non-performing assets at September 30,
1998 (0.09% of total assets), as compared to $259 thousand at September 30, 1997
(0.10% of total assets), and $289 thousand at September 30, 1996 (0.12% of total
assets).
Savings deposits increased $47.4 million during the period from
September 30, 1994, to September 30, 1998, a compound annual growth rate of
5.8%. Savings increased $8.9 million (4.5%) in 1996, increased $19.6 million
(9.4%) in 1997, and increased $6.4 million (2.8%) for the year ended September
30, 1998. 1st State's reliance on borrowings increased in 1998 to a high of $20
million for the four year period.
The Bank's capital to assets ratio has shown only minor change, as the
growth in asset size has kept pace with the growth in capital. Equity capital,
as a percentage of assets, has gone from 7.9% at September 30, 1994, to 9.0% at
September 30, 1998. 1st State's assets increased $79.9 million during the four
years ended September 30, 1998, an annual compound growth rate of 8.5%.
1st State's profitability, as measured by return on average assets
("ROAA"), was as follows: Year ending September 30 1994--0.60%, 1995--1.07%,
1996--0.70%, 1997--1.03%, and 1998--0.92%. In return on equity for the same
periods, 1st State earned 7.75%, 12.94%, 7.92%, 11.34%, and 10.20%,
respectively. Income for 1996 was reduced by the SAIF assessment, which was
$1,283,000 before taxes.
<PAGE>
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 and then leveled off on the short end and
increased on the long end. Earlier in 1998, the short end of the rate spectrum
remained constant, while the long end declined. More recently, short term rates
have declined while long term rates have stood still. The Federal Reserve
lowered short term rates by 25 basis points on September 29, 1998, and again on
October 15, 1998. Consequently, the yield curve is almost flat. The spread
between the one year treasury bill and the thirty year treasury bond was only
103 basis points at October 30, 1998. 1st State's spread was 3.52% for the year
ended September 30, 1996. It increased to 3.85% for the year ended September
30, 1997, and then decreased to 3.54% for the year ending September 30, 1998.
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. 1st State has a much lower exposure to interest
rate risk than the thrift industry in general.
FINANCIAL CONDITION OF INSTITUTION
BALANCE SHEET TRENDS
As Table I.1 shows, 1st State experienced a healthy increase in assets
during the period of four years ending September 30, 1998. Assets increased
$79.9 million, or 8.45% compounded annually, during the period. Loans held for
investment increased $42.62 million (6.29% annual compound growth rate); cash
and cash equivalents increased $26.2 million (59.04% annual compound growth
rate); and investment securities increased $2.9 million. Savings deposits
increased by $47.4 million, or 5.77% compound annual growth. Equity increased
$9.4 million, or 11.92% annual compound growth.
ASSET/LIABILITY MANAGEMENT
Managing interest rate risk is a major component of the strategy used
in operating a thrift. 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 to maturities 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, 1998. Table I.4 shows the gap
analysis of 1st State's interest earning assets and interest bearing liabilities
at September 30, 1998. It shows that, within one year of September 30, 1998,
1st State has a negative gap to interest bearing liabilities of 26.5% and a
negative gap to total assets of 16.9%. 1st State has a negative cumulative gap
to assets of 14.7% of assets at the end of three years and a negative cumulative
gap to assets of 2.2% of assets at the end of five years. Table I.5 provides
rate shock information at varying levels of interest rate change. The Bank has
manageable interest rate risk, and should be able to maintain, within practical
limits, its net interest margin and the market value of its portfolio equity.
1st State's basic approach to interest rate risk management has been
to emphasize adjustable mortgage loans, shorten fixed rate mortgage terms,
increase consumer and commercial non-real estate loans, and increase
noninterest-bearing deposits. 1st State currently is not utilizing synthetic
hedge instruments but has used borrowings in recent years. 1st State's business
plan calls for emphasizing short to intermediate term loans.
2
<PAGE>
INCOME AND EXPENSE TRENDS
1st State was profitable for each of the years in the five year period
ended September 30, 1998. Fluctuations in income over the period have resulted
from increasing net interest income resulting from growth, and changes in the
operation have affected noninterest income and expense. In 1996, the SAIF
resolution assessment increased noninterest expense by $1,283,000.
REGULATORY CAPITAL REQUIREMENTS
As Table I.6 demonstrates, 1st State 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.
LENDING
Table I.7 provides an analysis of the Bank's loan portfolio by type of
loan and security. This analysis shows that, from September 30, 1996, through
September 30, 1998, 1st State's loan composition has been dominated by 1-4
family dwelling loans, but the loan mix is currently emphasizing other loans.
Table I.8 provides information with respect to loan originations,
purchases, and sales. It indicates healthy growth trends in most areas of
activity.
Table I.9 provides rates, yields, and average balances for the three
years ended September 30, 1998. Interest rates earned on interest-earning assets
increased from 8.07% in 1996 to 8.23% in 1997. Interest rates earned on
interest-bearing assets decreased from 8.23% in 1997 to 8.10% in 1998. Interest
rates paid on interest-bearing liabilities decreased from 4.66% in 1996 to 4.53%
in 1997 and then increased to 4.65% in 1998. 1st State's spread increased from
3.41% in 1996 to 3.70% in 1997 and then decreased to 3.45% in 1998. The spread
was 3.11% at September 30, 1998.
Table I.10 provides a rate volume analysis, measuring differences in
interest earning assets and interest costing liabilities and the interest rates
thereon during the years ended September 30, 1996, 1997, and 1998. It
demonstrates that increases in volume were more significant (than increases in
rates) to the change in net interest income during 1997 and 1998. However, rate
changes siginficantly affected the change in net interest income in 1997.
NON-PERFORMING ASSETS
As shown in Table I.11, 1st State had $1.1 million in delinquent loans
between 30 and 90 days delinquent and it had $263,000 in nonaccrual loans at
September 30, 1998. As shown in Table I.12, 1st State's total nonperforming
assets as of September 30, 1998, were $263,000, or 0.09% of total assets. Most
of the nonperforming assets as of that date were delinquent loans secured by 1-4
family residences. The Bank had no repossessed assets.
CLASSIFIED ASSETS
1st State had $1.0 million in classified assets at September 30, 1998.
The classified assets consisted of $990 thousand classified as substandard, $20
thousand classified doubtful, and none classified loss. The Bank had a loan
loss allowance of $3.228 million, or 320% of classified assets at September 30,
1998. The Bank also had $11.5 million in loans classified as special mention or
watch.
LOAN LOSS ALLOWANCE
Table I.13 provides an analysis of 1st State's loan loss allowance.
Table I.14 shows the allocation of the loan loss allowance among the loan
categories as of September 30, 1996, 1997, and 1998.
INVESTMENTS
Table I.15 provides information on the Bank's investments at September
30, 1998, including a breakdown, yields earned, and scheduled maturities. Table
I.16 provides an analysis of investments as of September 30, 1996, 1997, and
1998.
3
<PAGE>
SAVINGS DEPOSITS
At September 30, 1998, 1st State's deposit portfolio was composed as
follows: Passbook accounts--$28.09 million or 11.9%; Transaction accounts--
$46.94 million or 19.9%; and certificate accounts--$160.66 million or 68.2% (see
Table I.17). Table I.18 shows the deposit composition at September 30, 1996,
1997, and 1998, with time deposits broken down into rate categories. Table I.19
shows the totals of time deposits and the maturities by year at September 30,
1998. At September 30, 1998, 72.53% of 1st State's certificates matured within
one year and 88.22% matured within two years.
1st State is not overly dependent on large certificates of deposit.
At September 30, 1998, the Bank had $29.70 million in certificates that were
issued for $100 thousand or more, or 12.60% of its total deposits (see Table
I.20).
Table I.21 presents information on deposit flows for the years ending
September 30, 1996, 1997, and 1998.
BORROWINGS
1st State had $20 million in Federal Home Loan Bank borrowings at
September 30, 1998, with a fixed interest rate of 5.39% and a maturity date of
2008.
SUBSIDIARIES
1st State owns a limited liability company which is principally
engaged in the sale of insurance products.
LEGAL PROCEEDINGS
From time to time, 1st State 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 1st State's financial
position, results of operations, or liquidity.
EARNINGS CAPACITY OF THE INSTITUTION
As in any interest sensitive industry, the future earnings capacity of
1st State 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 fixed rate loans and
adjustable loans as rates decline.
1st State is no exception to the aforementioned phenomenon. With its
current asset and liability structure, however, the effect of rising interest
rates will generally be temporary. As 1st State progresses in its conversion
from thrift to commercial bank, the effect on income of changing interest rates
will continue to decrease.
The addition of capital through the conversion will allow 1st State 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. Though the Bank's projected growth rate is healthy, Management expects
to control the 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, 1st State
is a moderately efficient operation. With total assets of approximately $288.2
million, 1st State has 74 full time equivalent employees. Recognizing that the
Bank is servicing approximately $37 million in loans for others, and it
essentially has in place the infrastructure of a commercial bank, its employees
to assets ratio is not like the typical thrift.
4
<PAGE>
INTANGIBLE VALUES
1st State's greatest intangible value lies in its loyal deposit base.
1st State has an 84 year history of sound operations, controlled growth, and
consistent earnings. The Bank currently has 15.14% of the deposit market in its
area, and it has the ability to increase market share.
1st State has no significant intangible values that could be
attributed to unrecognized asset gains on investments and real estate.
EFFECT OF GOVERNMENT REGULATIONS
Although still considered a thrift, 1st State has emphasized
commercial bank operations during recent years. With its continued transition
to commercial bank, the Bank's loan mix and deposit mix are both expected to
continue to change. 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. No specific future plans currently exist to make acquisitions or
purchase branches or complicate operations with matters that would add to
reporting and regulatory compliance. However, the Bank is interested in growth
and will pursue de novo branching, branch purchases, or whole bank acquisitions
if appropriate opportunities arise.
OFFICE FACILITIES
1st State's offices are well maintained and are considered adequate
for the convenience and needs of the Bank's customer base. Table I.22 provides
information on all of 1st State's banking offices.
FOUNDATION CONTRIBUTION
1st State's conversion includes a contribution of $3 million in its
stock to a charitable foundation that will provide funding for worthwhile
charities. This gesture should provide tremendous future benefits to the Bank
in its development within the community. The contribution will be charged to
expense at the time it is made, which will be upon the termination of the stock
conversion. This will reduce earnings in the quarter in which the conversion is
completed (assumed to be the March 1999 quarter) by the $3 million, less the
related tax benefit. The projected expense net of tax is $1.98 million.
5
<PAGE>
Table I.1 - Selected Financial and Other Data
<TABLE>
<CAPTION>
Compound
At September 30 Growth
--------------------------------------------------------------------
1998 1997 1996 1995 1994 Rate
---- ---- ---- ---- ---- ----
($000's)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
- ---------------------------------
Total assets 288,223 258,509 235,073 222,802 208,350 8.45%
Loans receivable:
Available for sale 7,540 684 2,377 - - NA
Held for investment 196,782 197,122 173,849 171,093 154,195 6.29%
Cash and cash equivalents 31,077 14,990 9,754 7,550 4,858 59.04%
Investment securities:
Available for sale 9,858 11,320 16,023 16,307 19,004 -15.13%
Held to maturity 30,195 23,482 21,685 17,649 18,197 13.50%
Deposits 235,694 229,341 209,707 200,769 188,309 5.77%
Borrowings 20,000 1,000 1,000 - 1,000 111.47%
Equity
25,965 23,277 20,564 19,037 16,549 11.92%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
($000's)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
- ------------------------
Interest income 20,708 19,061 17,395 16,146 13,374
Interest expense 11,071 9,799 9,453 8,584 7,175
-----------------------------------------------------------------
Net interest income 9,637 9,262 7,942 7,562 6,199
Provision for loan losses 477 261 281 454 240
-----------------------------------------------------------------
Net interest income after
provision for loan losses 9,160 9,001 7,661 7,108 5,959
-----------------------------------------------------------------
Noninterest income 1,497 1,468 1,179 1,600 295
-----------------------------------------------------------------
Sub-total 10,657 10,469 8,840 8,708 6,254
-----------------------------------------------------------------
Noninterest expense:
Compensation and benefits 4,612 4,345 2,949 2,897 2,267
Other (1) 2,162 2,128 3,454 2,109 2,049
-----------------------------------------------------------------
Total noninterest expense 6,774 6,473 6,403 5,006 4,316
-----------------------------------------------------------------
Income before taxes 3,883 3,996 2,437 3,702 1,938
Income tax expense 1,362 1,447 841 1,378 686
-----------------------------------------------------------------
Net income 2,521 2,549 1,596 2,324 1,252
=================================================================
</TABLE>
(1) Other expense in 1996 includes the
SAIF assessment of $1,283,000.
6
<PAGE>
Table I.2 - Selected Financial Ratios and Other Data
<TABLE>
<CAPTION>
AT OF FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
- ------------------
Return on assets (ratio of net earnings
to average total assets) 0.92% 1.03% 0.70% 1.07% 0.60%
Return on equity (ratio of net earnings
to average equity) 10.20% 11.34% 7.92% 12.94% 7.75%
Ratio of average interest-earning assets to
average interest-bearing liabilities 105.02% 104.02% 104.07% 103.44% 101.21%
Net interest rate spread 3.54% 3.85% 3.52% 3.56% 3.18%
Net yield on average interest-earning assets 3.76% 4.02% 3.70% 3.70% 3.23%
Ratio of other expense to average assets 2.48% 2.62% 2.80% 2.30% 2.07%
QUALITY RATIOS:
- --------------
Non-performing loans to total loans
at end of period 0.13% 0.13% 0.16% 2.11% 0.06%
Non-performing assets to total assets
at end of period 0.09% 0.10% 0.12% 1.64% 1.58%
Allowance for loan losses to non-performing
loans at end of period 1227.29% 1063.24% 866.55% 60.71% 1785.32%
Allowance for loan losses to total loans, net 1.61% 1.38% 1.42% 1.28% 1.13%
Provision for loan losses to total loans 0.24% 0.13% 0.16% 0.26% 0.15%
CAPITAL RATIOS:
- --------------
Equity to total assets at end of period 9.01% 8.97% 8.75% 8.54% 7.94%
Average equity to average assets 9.05% 9.10% 8.80% 8.25% 7.75%
OTHER DATA:
- ----------
Number of full service offices 6 6 6 5 5
</TABLE>
7
<PAGE>
Table I.3 - Loan Maturities
The following table sets forth certain information at September 30, 1998,
regarding the amount of loans maturing in the loan portfolio, based on
contractual terms to maturity, before giving effect to net items. Demand loans,
loans having no stated schedule of repayments and no stated maturity and
overdrafts are reported as due in one year.
<TABLE>
<CAPTION>
Under One to Three to Five to Ten to Over
One Year Three Years Five Years Ten years Fifteen Years Fifteen Years Total
------------ ------------ ----------- ------------ ------------- ---------------- ------------
($000,s)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans
1-4 family 3,140 4,851 5,887 12,368 15,753 58,892 100,891
Commercial 3,020 3,432 15,314 7,028 7,431 2,538 38,763
Home equity 309 34 396 5,083 11,055 - 16,877
Construction 8,605 3,148 373 - - - 12,126
Commercial 12,181 6,731 4,727 790 761 - 25,190
Consumer 2,024 2,037 2,056 193 - - 6,310
============ ========= ============== =========== ============= ============== ============
Total 29,279 20,233 28,753 25,462 35,000 61,430 200,157
============ ========= ============== =========== ============= =============== ===========
</TABLE>
Set forth below is a schedule of loans, before net items, due after September
30, 1999, classified by fixed or adjustable rates.
<TABLE>
<CAPTION>
Adjustable
Fixed Rates Rates Total
--------------- --------------- ---------------
($000's)
<S> <C> <C> <C>
Real estate loans
1-4 family 66,846 30,905 97,751
Commercial 22,485 13,258 35,743
Home equity 2,811 13,757 16,568
Construction 569 2,952 3,521
Commercial 4,199 8,810 13,009
Consumer 4,205 81 4,286
--------------- -------------- --------------
Total 101,115 69,763 170,878
=============== =============== ===============
</TABLE>
8
<PAGE>
Table I.4 - Interest Rate Sensitivity Analysis
September 30, 1998
<TABLE>
<CAPTION>
Over One Over Three
One Year to Three to Five Over Five
or Less Years Years Years Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
- ------------------------
Loans 105,214 32,288 37,193 29,627 204,322
Investments 3,992 9,484 7,000 20,923 41,399
Other interest-earning assets 25,559 - - - 25,559
-------------------------------------------------------------------------------------
Total interest-earning assets 134,765 41,772 44,193 50,550 271,280
====================================================================================
INTEREST-BEARING LIABILITIES:
- -----------------------------
Transaction accounts 38,318 - - - 38,318
Passbook savings accounts 28,091 - - - 28,091
Certificates of deposit 117,037 35,408 8,218 - 160,663
Borrowings - - - 20,000 20,000
-------------------------------------------------------------------------------------
$ 183,446 $ 35,408 $ 8,218 $ 20,000 $ 247,072
====================================================================================
Interest-earning assets less
interest-bearing liabilities $ (48,681) $ 6,364 $ 35,975 $ 30,550 $ 24,208
====================================================================================
Cumulative interest-rate sensitivity gap $ (48,681) $ (42,317) $ (6,342) $ 24,208
======================================================================
Cumulative interest-rate sensitivity gap
as a percentage of interest-earning assets -17.9% -15.6% -2.3% 8.9%
======================================================================
Cumulative ratio of interest earning
assets to interest-bearing liabilities 73.5% 80.7% 97.2% 109.8%
======================================================================
Cumulative interest rate sensitivity gap
as a percent of total assets -16.9% -14.7% -2.2% 8.4%
======================================================================
</TABLE>
9
<PAGE>
Table I.5 - Interest Rate Shock
<TABLE>
<CAPTION>
Net Portfolio Value
September 30, 1998 Maximum
---------------------------------------------- Allowable
Under
Bank
Change Estimated Policy
in Rates NPV $ Change % Change % Change
- --------------------------------------- ----------------- -------- ----------------- --------------------
($000's)
<S> <C> <C> <C> <C>
+400 bp $ 28,281 (5,254) -16% -50%
+300 bp 29,839 (3,696) -11% -25%
+200 bp 31,397 (2,138) -6% -15%
+100 bp 32,466 (1,069) -3% -10%
0 bp 33,535 - - -
- --100 bp 33,638 103 0% -5%
- --200 bp 33,742 207 1% -10%
- --300 bp 33,156 (379) -1% -15%
- --400 bp 32,571 (964) -3% -20%
</TABLE>
10
<PAGE>
Table I.6 - Regulatory Capital Compliance
September 30, 1998
<TABLE>
<CAPTION>
Amount %
------------- -----------
($000's)
<S> <C> <C>
GAAP capital $ 25,966 9.0%
============== ===========
Tier 1 leverage capital $ 25,873 9.1%
Required 11,334 4.0%
------------- -----------
Excess $ 14,539 5.1%
============= ===========
Tier 1 risk adjusted capital $ 25,873 14.5%
Required 7,124 4.0%
------------- -----------
Excess $ 18,749 10.5%
============= ===========
Risk-based Capital $ 28,112 15.8%
Required 14,249 8.0%
------------- -----------
Excess $ 13,863 7.8%
============= ===========
North Carolina Savings Bank Capital $ 28,112 9.8%
Required 14,411 5.0%
============= ===========
Excess $ 13,701 4.8%
============= ===========
</TABLE>
Note: All of the above calculations were based on assets as of 9-30-98,
except for Tier 1 leverage capital, which was based on average assets
for the 9-30-98 quarter.
11
<PAGE>
Table I.7 - Loan Portfolio Composition
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------------------------------
1998 1997 1996
------------------------ ----------------------------- -----------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
($000's)
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS:
1-4 family 100,891 48.8% 108,400 53.7% 100,247 55.7%
Commercial 38,763 18.8% 34,333 17.0% 35,302 19.6%
Home equity 16,877 8.2% 18,141 9.0% 15,872 8.8%
Construction 18,572 9.0% 12,582 6.2% 7,838 4.4%
------------------------- ----------------------------- -----------------------------
Total real estate loans 175,103 84.8% 173,456 86.0% 159,259 88.5%
Commercial 25,190 12.2% 22,870 11.3% 16,989 9.4%
Consumer 6,310 3.1% 5,354 2.7% 3,706 2.1%
------------------------- ----------------------------- -----------------------------
Total loans 206,603 100.0% 201,680 100.0% 179,954 100.0%
========================== ============================= =============================
Less:
Loans in process 6,446 1,660 3,515 2.02%
Deferred fees and discounts 147 144 94 0.05%
Allowance for losses 3,228 2,754 2,496 1.44%
--------------- ----------------- ---------------------------
Loan portfolio, net 196,782 197,122 173,849 100.00%
=============== ================= ===========================
</TABLE>
12
<PAGE>
Table I.8 - Loan Origination, Purchase, and Sales Activity
<TABLE>
<CAPTION>
For the Year Ended September 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
($000's)
<S> <C> <C> <C>
ORIGINATIONS BY TYPE:
- --------------------
REAL ESTATE LOANS:
- -----------------
One- to four-family 44,118 27,731 20,517
Commercial 9,437 5,446 9,536
Home equity 7,351 6,340 5,083
Construction 19,158 17,082 12,912
-------- -------- -------
Total real estate 80,064 56,599 48,048
-------- -------- -------
Commercial 18,982 15,835 11,210
Consumer 6,361 6,801 3,670
-------- -------- -------
Total loans originated 105,407 79,235 62,928
======== ======== =======
PURCHASES:
- ---------
Real estate loans 135 97 15
Other loans 18 - -
-------- -------- -------
Total loans purchased 153 97 15
======== ======== =======
LOANS SOLD: 27,635 9,166 9,181
- ----------- ======== ======== =======
</TABLE>
13
<PAGE>
Table I.9 - Average Balances, Rates, and Yields
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------------------------------
1998 1997
--------------------------------------- -----------------------------------------
Average Interest Average Interest
Outstanding Earned/ Average Outstanding Earned/ Average
Balance Paid Yield/Rate Balance Paid Yield/Rate
--------------------------------------- ------------------------------------------
($000's)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
- -----------------------
Loans receivable 199,203 17,185 8.63% 186,413 16,167 8.67%
Investment securities 35,938 2,320 6.46% 39,101 2,557 6.54%
Other interest-earning assets 20,409 1,203 5.89% 6,116 337 5.51%
--------------------------------------- ------------------------------------------
Total interest-earning assets 255,550 20,708 8.10% 231,630 19,061 8.23%
========================== ==========================
Non-interest earning assets 17,499 15,362
--------- ------------
Total assets 273,049 246,992
========= ============
INTEREST-BEARING LIABILITIES:
- ----------------------------
Deposits 224,334 10,331 4.61% 215,494 9,743 4.52%
Borrowings 13,559 740 5.46% 1,000 56 5.60%
--------------------------------------- ------------------------------------------
Total interest-bearing liabilities 237,893 11,071 4.65% 216,494 9,799 4.53%
========================== ==========================
Non-interest bearing liabilities 10,436 8,026
--------- ------------
Total liabilities 248,329 224,520
--------- ------------
Equity 24,720 22,472
--------- ------------
Total liabilities and equity 273,049 246,992
========= ============
Net interest income 9,637 9,262
========== ==========
Net interest rate spread (1) 3.45% 3.70%
=========== ==========
Net interest earnings assets 17,657 15,136
========= ============
Net interest margin (2) 3.77% 4.00%
=========== ==========
Average interest-earning assets to
average interest-bearing liabilities 107.42% 106.99%
========== ===========
<CAPTION>
----------------------------------------
1996
----------------------------------------
Average Interest
Outstanding Earned/ Average
Balance Paid Yield/Rate
----------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
- -----------------------
Loans receivable 171,148 14,620 8.54%
Investment securities 37,854 2,402 6.35%
Other interest-earning assets 6,605 373 5.65%
----------------------------------------
Total interest-earning assets 215,607 17,395 8.07%
==========================
Non-interest earning assets 13,313
----------
Total assets 228,920
==========
INTEREST-BEARING LIABILITIES:
- ----------------------------
Deposits 202,776 9,450 4.66%
Borrowings 156 3 1.92%
----------------------------------------
Total interest-bearing liabilities 202,932 9,453 4.66%
==========================
Non-interest bearing liabilities 5,842
----------
Total liabilities 208,774
----------
Equity 20,146
----------
Total liabilities and equity 228,920
==========
Net interest income 7,942
=========
Net interest rate spread (1) 3.41%
==========
Net interest earnings assets 12,675
==========
Net interest margin (2) 3.68%
==========
Average interest-earning assets to
average interest-bearing liabilities 106.25%
==========
</TABLE>
(1) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate on interest-bearing
liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
14
<PAGE>
Table I.10 - Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes due to
changes in outstanding balances and those due to changes in interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by prior interest rate), (ii) changes in rate
(changes in rate multiplied by prior volume), and (iii) changes in rate/volume
(changes in volume multiplied by changes in rates).
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
------------------------------------------ ----------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
---------------------------- Total ---------------------------- Total
Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------- ---- ------- ---------- ------ ---- ------ ---------
($000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable 1,109 (85) (6) 1,018 1,304 223 20 1,547
Investment securities (207) (33) 3 (237) 97 56 2 155
Other 788 23 55 866 (28) (9) 1 (36)
---------------------------------------- ----------------------------------------
Total interest-earning assets 1,690 (95) 52 1,647 1,373 270 23 1,666
---------------------------------------- ----------------------------------------
INTEREST-BEARING LIABILITIES:
Deposits 400 181 7 588 593 (282) (18) 293
Borrowings 703 (1) (18) 684 16 6 31 53
---------------------------------------- ----------------------------------------
Total interest-bearing liabilities 1,103 180 (11) 1,272 609 (276) 13 346
---------------------------------------- ----------------------------------------
Increase (decrease) in
net interest income 587 (275) 63 375 764 546 10 1,320
======================================== ========================================
</TABLE>
15
<PAGE>
Table I.11 - Loan Delinquencies at September 30, 1998
<TABLE>
<CAPTION>
DELINQUENT LOANS STILL ACCRUING
-----------------------------------------------------------
30-89 Days 90 Days and Over TOTAL NONACCRUAL
----------------------------- --------------------------- -----------------------------
Percent Percent
of Gross of Gross
Amount Loans Amount Loans Amount Percent
------ ----- ------ ----- ------ -------
($000's)
<S> <C> <C> <C> <C> <C> <C>
Real estate 802 0.39% - 0.00% 225 0.11%
Installment 123 0.06% - 0.00% 20 0.01%
Credit cards & related 4 0.00% - 0.00% - 0.00%
Commercial 134 0.06% - 0.00% 18 0.01%
Other - 0.00% - 0.00% - 0.00%
---------------------------- -------------------------- -----------------------------
Total 1,063 0.51% - 0.00% 263 0.13%
============================ ========================== =============================
</TABLE>
16
<PAGE>
Table I.12 - Non-Performing Assets
The table below sets forth the amounts and categories of non-performing assets.
Loans are placed on non-accrual status when the collection of principal or
interest becomes doubtful.
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------------------------
1998 1997 1996
---- ---- ----
($000's)
<S> <C> <C> <C>
Loans accounted for an a nonaccrual basis 263 259 288
===================================================================
Accruing loans which are contractually past
due 90 days or more - - -
===================================================================
Total nonperforming loans 263 259 288
===================================================================
Gross loans 206,603 201,680 179,954
===================================================================
Nonperforming loans as a percentage
of gross loans 0.13% 0.13% 0.16%
===================================================================
Other nonperforming assets - - 1
===================================================================
Total nonperforming assets 263 259 289
===================================================================
Total assets 288,223 258,509 235,073
===================================================================
Nonperforming assets as a percentage 0.09% 0.10% 0.12%
===================================================================
of total assets
</TABLE>
17
<PAGE>
Table I.13 - Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------
1998 1997 1996
---- ---- ----
($000's)
<S> <C> <C> <C>
Balance at beginning of period 2,754 2,496 2,223
--------------- --------------- ---------------
Charge-offs 4 7 13
Recoveries 1 4 5
--------------- --------------- ---------------
Net charge-offs 3 3 8
--------------- --------------- ---------------
Additions charged to operations 477 261 281
=============== =============== ===============
Balance at end of period 3,228 2,754 2,496
=============== =============== ===============
Allowance for loan losses to total
non-performing loans at end of period 1227.38% 1063.32% 866.67%
=============== =============== ===============
Allowance for loan losses to net
loans at end of period 1.64% 1.40% 1.44%
=============== =============== ===============
</TABLE>
18
<PAGE>
Table I.14 - Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------- -------------------------------- -----------------------------
Percent Percent Percent
of Loans of Loans of Loans
in Each in Each in Each
Amount of Category Amount of Category Amount of Category
Loan Loss to Gross Loan Loss to Gross Loan Loss to Gross
Allowance Loans Allowance Loans Allowance Loans
------------ -------- --------- -------- --------- --------
($000's)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
1-4 family 400 48.84% 376 53.76% 387 55.70%
Multi-family 898 18.76% 854 17.02% 882 19.62%
Non-residential 319 8.17% 318 8.99% 303 8.82%
Construction 458 8.99% 380 6.24% 232 4.36%
Commercial 815 12.19% 540 11.34% 450 9.44%
Consumer 338 3.05% 286 2.65% 242 2.06%
-------------------------------- ----------------------------- ---------------------------
3,228 100.00% 2,754 100.00% 2,496 100.00%
================================ ============================= ===========================
</TABLE>
19
<PAGE>
Table I.15 - Investments at September 30, 1998
<TABLE>
<CAPTION>
Maturity Period at September 30, 1998
--------------------------------------------------------------
One Year or Less One to Five Years Over Five Years Total
--------------------- ----------------- ---------------- ----------------------------
Carrying Carrying Carrying Carrying Market
Value Yield Value Yield Value Yield Value Value Yield
----- ----- ----- ----- ----- ----- ----- ----- -----
($000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. government & agency - 0.00% 3,043 6.26% 1,000 6.23% 4,043 4,043 6.25%
Mortgatge-backed securities - 0.00% - 0.00% 1,809 8.20% 1,809 1,809 8.20%
Mutual funds - 0.00% 2,013 4.79% 1,993 6.49% 4,006 4,006 5.64%
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total - 0.00% 5,056 5.67% 4,802 7.08% 9,858 9,858 6.35%
======== ======= ======= ======= ======= ======= ======= ======= =======
Held to maturity:
U.S. government & agency 3,992 6.13% 15,471 6.19% 10,624 6.29% 30,087 30,307 6.22%
CMO's - 0.00% - 0.00% 108 6.57% 108 108 6.57%
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total 3,992 0.00% 15,471 6.19% 10,732 6.30% 30,195 30,415 6.22%
======== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
20
<PAGE>
Table I.16 - Investment Securities
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
($000's))
<S> <C> <C> <C>
Securities available for sale:
- -----------------------------
U.S. government and agency 4,043 4,012 7,938
FHLMC 662 1,564 2,131
GNMA 1,147 1,754 1,981
FNMA - 29 58
Mutual funds 4,006 3,961 3,916
--------------- --------------- ---------------
Total 9,858 11,320 16,024
=============== =============== ===============
Securities held to maturity:
- ---------------------------
U.S. government and agency 30,087 23,338 21,317
CMO's 108 144 368
--------------- --------------- ---------------
Total 30,195 23,482 21,685
=============== =============== ===============
</TABLE>
21
<PAGE>
Table I.17 - Deposit Portfolio
<TABLE>
<CAPTION>
Balance Percent
Interest September 30, of
Category Term Rate 1998 Deposits
- -------- ---- ---- ---- --------
($000's)
--------
<S> <C> <C> <C> <C>
Savings and Transactions Accounts
- ---------------------------------
Non-interest checking None 0.00% 8,624 3.66%
NOW accounts None 2.29% 25,080 10.64%
Savings accounts None 2.84% 28,091 11.92%
Money market accounts None 3.93% 13,238 5.62%
-------------- -------------
75,033 31.83%
-------------- -------------
Certificates of Deposit
- -----------------------
Fixed term, fixed rate 3 months 4.26% 231 0.10%
Fixed term, fixed rate 6 months 4.95% 7,098 3.01%
Fixed term, fixed rate 7 months 4.94% 44,862 19.03%
Fixed term, fixed rate 9 months 5.23% 2,123 0.90%
Fixed term, fixed rate 10 months 5.00% 4,910 2.08%
Fixed term, fixed rate 12 months 5.35% 41,125 17.45%
Floating rate IRA 18 months 5.27% 1,089 0.46%
Fixed term, fixed rate 18 months 5.49% 2,355 1.00%
Fixed term, fixed rate 20 months 4.74% 33 0.01%
Fixed term, fixed rate 24 months 5.41% 9,884 4.19%
Fixed term, fixed rate 30 months 5.75% 17,610 7.47%
Fixed term, fixed rate 36 months 5.45% 4,028 1.71%
Fixed term, fixed rate 48 months 5.52% 4,553 1.93%
Fixed term, fixed rate 60 months 5.58% 17,856 7.58%
Fixed term, fixed rate jumbos 7 to 365 days 5.14% 2,904 1.23%
-------------- -------------
Total certificates of deposits 160,661 68.17%
-------------- -------------
Total savings deposits 235,694 100.00%
============== =============
</TABLE>
22
<PAGE>
Table I.18 - Savings Deposits Detail
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ------------------------------ -------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
($000's)
<S> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
- ----------------------------------
Noninterest checking 8,624 3.66% 6,546 2.85% 3,108 1.48%
NOW accounts 25,080 10.64% 24,150 10.53% 21,863 10.43%
Savings accounts 13,238 5.62% 11,118 4.85% 9,112 4.35%
Money market accounts 28,091 11.92% 27,700 12.08% 28,464 13.57%
------------------------------ ------------------------------ -------------------------
Total transaction accounts 75,033 31.83% 69,514 30.31% 62,547 29.83%
------------------------------ ------------------------------ -------------------------
Certificates:
- ------------
2.00 to 3.99% - 0.00% 220 - 294 0.14%
4.00 - 5.99% 149,064 63.24% 147,667 64.39% 129,549 61.78%
6.00 - 7.99% 11,496 4.88% 11,843 5.16% 17,228 8.22%
Over 8.00% 101 0.04% 97 0.04% 89 0.04%
------------------------------ ------------------------------ -------------------------
Total certificates 160,661 68.17% 159,827 69.59% 147,160 70.17%
------------------------------ ------------------------------ -------------------------
Total deposits 235,694 100.00% 229,341 99.90% 209,707 100.00%
============================== ============================== =========================
</TABLE>
23
<PAGE>
Table I.19 - Certificates of Deposit Maturities
The table below provides CD maturities at September 30, 1998, by year in rate
ranges.
<TABLE>
<CAPTION>
Under 1 to 2 2 to 3 Over 3 Percent
1 Year Years Years Years Total of Total
------ ------ ------ ------ ----- --------
($000's)
<S> <C> <C> <C> <C> <C> <C>
Rate:
4.00 - 5.99% 108,512 22,193 10,390 7,969 149,064 92.78%
6.00 - 7.99% 8,016 3,020 253 207 11,496 7.16%
Over 8.00% - - - 101 101 0.06%
----------------------------------------------------------------------
Total 116,528 25,213 10,643 8,277 160,661 100.00%
======================================================================
Percent of total 72.53% 15.69% 6.62% 5.15% 100.00%
======================================================================
</TABLE>
24
<PAGE>
Table I.20 - Large CD Maturities
<TABLE>
<CAPTION>
LARGE CERTIFICATES OF DEPOSIT
MATURING IN PERIOD ENDING: Amount
- -------------------------------------- -------------------
($000's)
<S> <C>
Within three months 9,937
Three through six months 6,050
Six through twelve months 9,276
After September 30, 1998 4,437
-------------------
Total 29,700
===================
</TABLE>
25
<PAGE>
Table I.21 - Savings Flows
The following table sets forth the savings flows for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------
1998 1997 1996
---- ---- ----
($000's)
<S> <C> <C> <C>
Opening balance 229,341 209,707 200,769
Net increase (decrease)
before interest credited (3,026) 10,693 163
Interest credited 9,379 8,941 8,775
------------------- ------------------- -------------------
Ending Balance 235,694 229,341 209,707
=================== =================== ===================
Net increase (decrease) 6,353 19,634 8,938
=================== =================== ===================
Percent increase (decrease) 2.77% 9.36% 4.45%
=================== =================== ===================
</TABLE>
26
<PAGE>
Table I.22 - Banking Offices
September 30, 1998
<TABLE>
<CAPTION>
Net Book Year Owned or Lease Exp. Square
Physical address Value (1) Opened Leased Date Footage
- ---------------- --------- ------ ------- ---- -------
($000's)
<S> <C> <C> <C> <C> <C>
MAIN OFFICE:
- -----------
445 S. Main Street $ 3,839 1988 Owned NA 33,700
Burlington, NC 27215
BRANCH OFFICES:
- --------------
2294 N. Church Street 277 1984 Leased (2) 7-5-2009 2,600
Burlington, NC 27215
503 Huffman Mill Road 348 1982 Owned NA 2,600
Burlington, NC 27215
102 S. 5th Street 55 1973 Owned NA 2,000
Mebane, NC 27302
221 N. Main Street 110 1974 Owned NA 2,700
Graham, NC 27253
3466 S. Church Street 1,451 1996 Owned NA 4,000
Burlington, NC 27215
</TABLE>
(1) Cost less accumulated depreciation and amortization.
(2) Land lease. There are three five-year renewal options.
27
<PAGE>
SECTION II
MARKET AREA
<PAGE>
II. MARKET AREA
DEMOGRAPHICS
1st State Bank ("1st State" or "Bank") conducts its operations through
six offices located in Alamance County, North Carolina. North Carolina is in
the southeastern region of the United States. Alamance County is in the north
central section of North Carolina.
1st State has determined that its principal trade area is Alamance
County and parts of the contiguous counties. Table II.1 presents historical and
projected trends for the United States, North Carolina, and Alamance County.
The information addresses population, income, employment, and housing trends.
As indicated in Table II.1, population growth rates for North Carolina
are above the United States growth rate. Growth rates for Alamance County are
below those for North Carolina but above those of the United States. Household
income growth for North Carolina and Alamance County is projected to be below
that of the United States for the period 1996 to 2001. Household income growth
for Alamance County is projected to be below that of North Carolina for the
period 1996 to 2001.
In the period from 1990 until 1996, the population of the State of
North Carolina grew 10.37%. During the same period, the Alamance County
population increased 7.56%, and the United States population increased 6.67%.
Projections of population growth from 1996 through 2001 indicate that the State
of North Carolina will increase 7.52%, while Alamance County is projected to
increase by 5.62%, and the United States population is projected to increase by
5.09%.
Household income is projected to decrease by 5.80% for Alamance County
from 1996 to 2001. For the same period, household income is projected to
decrease by 5.37% for the State of North Carolina, and decline by 3.88% for the
United States. Per capita and household income levels for the State of North
Carolina are below those of the United States, and per capita and household
income levels for Alamance County are close but slightly below the State of
North Carolina.
The 2001 estimate shows that, for Alamance County, households with
incomes less than $15,000 are expected to be 21%; those with incomes between
$15,000 and $25,000 are estimated at 18%; those with incomes between $25,000 and
$50,000 are estimated at 38%; those with incomes between $50,000 and $100,000
are estimated at 20%; and households with incomes in excess of $100,000 are
projected to be 3%. The 2001 estimates for North Carolina are 22%, 18%, 36%,
21%, and 4%, respectively.
The number of households in Alamance County is projected to increase
by 5.74% from 1996 to 2001, well below the projection for the State of North
Carolina, which calls for an increase of 7.79%. While the household growth rate
for North Carolina is higher than that of the United States (7.79% versus
5.14%), the household growth rate for Alamance County at 5.74% is above but
close to the 5.14% projected growth rate for the United States.
With projections of a moderate increase in population and number of
households, combined with projections of a declining household income, the
market for housing units will be flat. Alamance County has approximately 45,300
housing units, of which 67.63% are owner occupied, and a vacancy rate of 5.87%.
The principal sources of employment in Alamance County are
manufacturing--33.8%; trade--23.9%; and services--22.0%.
Analysis of the data presented above presents a picture of limited
economic opportunity, suggesting that 1st State' growth opportunities within its
current market area will be limited.
Based on information publicly available on deposits as of June 30,
1997 (see Table II.3), Alamance County had $1,500.1 million in deposits and 1st
State had 15.14% of the deposit market, up slightly from 14.71% of the market at
June 30, 1995. The Bank's recent deposit growth rate has been positive,
slightly above the overall market. 1st State's competition consists of 27
commercial bank offices, 1 credit union office, and 5 other thrift offices.
Table
1
<PAGE>
II.3 shows that from June 30, 1995 to 1997, 1st State's deposits increased by
$25.496 million (12.65%), while the overall market increased $129.585 million in
deposits (9.46%). The Bank's business plan projects that its deposits will grow
at a moderate pace in the future. The Bank intends to market its services and
products aggressively.
Building permit information is shown in Table II.4. Permit
information indicates that construction for 1998 is on track to surpass 1997.
Projected population and household income growth rates in 1st State's market
area, considered in tandem with building permit information, indicates adequate
lending opportunities within the market.
Growth opportunities for 1st State 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 the Bank, we must also assess the willingness
and flexibility of Management to respond to the competitive factors that exist
in the market area. Our analysis of the economic potential and the potential of
Management affects the valuation of the Bank.
Burlington is approximately 20 miles east of Greensboro and
approximately 35 miles west of Durham. While Alamance County may at some point
present limited economic opportunity, Guilford County, which includes
Greensboro, Durham County, which includes Durham, and Orange County, which
includes Chapel Hill and Hillsborough, all have good economic bases and are
reasonably close to Burlington. Therefore, if the Bank reaches a position of
limited opportunities within the immediate trade area, it is fairly simple to
expand its trade area by branching or opening loan production offices.
Management is well aware of this, and is prepared to expand if the economics
justify it.
2
<PAGE>
Table II.1 - Key Economic Indicators
<TABLE>
<CAPTION>
United States, North Carolina, and Alamance County
==============================================================================
UNITED NORTH ALAMANCE
KEY ECONOMIC INDICATOR STATES CAROLINA COUNTY
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Population, 2001 Est. 278,802,003 7,865,805 122,936
1996 - 2001 Percent Change, Est. 5.09 7.52 5.62
Total Population, 1996 Est. 265,294,885 7,315,856 116,392
1990 - 96 Percent Change, Est. 6.67 10.37 7.56
Total Population, 1990 248,709,873 6,628,637 108,213
- ------------------------------------------------------------------------------
Household Income, 2001 Est. 33,189 28,922 28,372
1996 - 2001 Percent Change, Est. (3.88) (5.37) (5.80)
Household Income, 1996 Est. 34,530 30,562 30,118
- ------------------------------------------------------------------------------
Per Capita Income, 1990 16,738 15,147 14,956
- ------------------------------------------------------------------------------
Household Income Distribution-2001
Est. (%)
$15,000 and less 20 22 21
$15,000 - $25,000 16 18 18
$25,000 - $50,000 34 36 38
$50,000 - $100,000 24 21 20
$100,000 - $150,000 4 3 2
$150,000 and over 2 1 1
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Unemployment rate, 1990 6.24 4.63 3.23
- ------------------------------------------------------------------------------
Median Age of Population, 1996 Est. 34.3 34.8 37.1
Median Age of Population, 1990 32.9 33.1 35.6
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Average Housing Value, 1990 79,098 79,714 77,078
- ------------------------------------------------------------------------------
Total Households, 2001 Est. 103,293,062 3,005,720 48,564
1996 - 2001 Percent Change, Est. 5.14 7.79 5.74
Total Households, 1996 98,239,161 2,788,382 45,926
1990 - 96 Percent Change, Est. 6.84 10.78 7.68
Total Households, 1990 91,947,410 2,517,026 42,652
- ------------------------------------------------------------------------------
Total Housing Units, 1990 101,641,260 2,818,193 45,312
% Vacant 10.07 10.69 5.87
% Occupied 89.93 89.31 94.13
% By Owner 57.78 60.74 67.63
% By Renter 32.15 28.57 26.50
==============================================================================
</TABLE>
3
<PAGE>
TABLE II.2 - Percent Employment by Industry
United States, North Carolina, and Alamance County
<TABLE>
<CAPTION>
UNITED NORTH ALAMANCE
INDUSTRY STATES CAROLINA COUNTY
- ------------------------ -------- --------- ----------
<S> <C> <C> <C>
Construction/Agriculture/Mining 9.5 7.3 4.8
Manufacturing 17.7 23.4 33.8
Transportation/Utilities 7.1 4.6 2.5
Trade 21.2 22.5 23.9
Finance/Insurance 6.9 4.2 3.3
Services 32.7 21.8 22.0
Public Administration 4.9 16.2 9.6
</TABLE>
4
<PAGE>
Table II.3 - Market Area Deposits
<TABLE>
<CAPTION>
======================================================================================================
1997 1996 1995
-----------------------------------------------
Alamance County (in Thousands)
--------------------------
<S> <C> <C> <C>
1st State Bank -Total $ 227,057 $ 209,773 $ 201,561
-----------------------------------------------
Number of offices 6 5 5
Other Savings Associations $ 165,313 $ 155,188 $ 150,607
-----------------------------------------------
Number of offices 5 5 5
Total Savings Association Deposits $ 392,370 $ 364,961 $ 352,168
-----------------------------------------------
Number of Branches 11 10 10
Total Credit Union Deposits $ 1,957 $ 1,841 $ 1,758
-----------------------------------------------
Number of Branches 1 1 1
Total Bank Deposits $1,105,728 $ 1,067,003 $ 1,016,544
-----------------------------------------------
Number of Branches 27 29 30
Total Market Area Deposits $1,500,055 $ 1,433,805 $ 1,370,470
===============================================
1st State Bank - Market Share
To Total Market Area Deposits 15.14% 14.63% 14.71%
===============================================
======================================================================================================
</TABLE>
5
<PAGE>
Table II.4 - Summary of Building Permits
<TABLE>
<CAPTION>
================================================================================
Alamance County
- ---------------
Six Months Ended Year Ended
June 30, December 31,
1998 1997
---------------- ---------------
Value Value
($000) ($000)
---------------- ---------------
<S> <C> <C>
Residential-new $ 81,169 $ 126,508
Commercial-new 22,769 34,038
Repairs and improvements 39,557 50,923
---------- ----------
Total $ 143,495 $ 211,469
========== ==========
</TABLE>
================================================================================
6
<PAGE>
SECTION III
COMPARISON WITH PUBLICLY
TRADED THRIFTS
<PAGE>
III. COMPARISON WITH PUBLICLY TRADED THRIFTS
COMPARATIVE DISCUSSION
This section presents an analysis of 1st State relative to a group of
twelve 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 1st State'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 1st State to the comparative group. Exhibits III and IV contain
selected financial information on 1st State and the comparative group. This
information is derived from quarterly TFR's filed with the OTS and call reports
filed with the FDIC. 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 either listed on 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 twelve months. We have also excluded mutual
holding companies (see Exhibit VI).
Because of the limited number of similar size thrifts with sufficient
trading volume, we looked for members of the comparative group among thrifts
with assets between $200 million and $400 million. The Southeast Region, which
includes North Carolina, had 14 thrifts that met the aforementioned
requirements. We found 92 thrifts that met the asset size requirements in the
entire country (we consider 10 to be the minimum number), and we retained 12 and
eliminated 80 for the following reasons: (a) Eight were mutual holding
companies; (b) Twenty-one had less than one full year reporting as a stock; (c)
Two had no meaningful earnings data and six had price-earnings ratios in excess
of 35; (d) Forty-four had equity either under 10% of assets or over 25% of
assets; (e) eight had agreed to be acquired: (f) Fifteen had non-performing
assets in excess of 1.0% of total assets; (g) Twenty-seven had less than 60% of
their assets in loans; and (h) Seven had loans serviced in excess of 40% of
assets. After eliminating the thrifts described above, there were 19 left. We
eliminated those with assets under $225 million, leaving us with 14. We then
eliminated the remaining thrift with the most assets and the one with the least
assets, reducing the group to 12.
The principal source of data was SNL Securities, Charlottesville,
Virginia. There are approximately 366 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:
. eliminated companies with losses,
. We eliminated indicated acquisition targets,
. We eliminated companies with price/earnings ratios in excess of
35, and
. We eliminated companies that had not reported as a stock
institution for one complete year.
The resulting group of 259 publicly traded thrifts is included in Exhibit V.
1
<PAGE>
The selected group of comparatives has sufficient trading volume to provide
meaningful price data. One of the comparative group members is located in the
Southeast and the others are located in the Midwest (8), Mid-Atlantic (1), and
Southwest (2) Regions. With total assets of approximately $288.2 million, 1st
State is slightly below the group selected, which has average assets of $293.4
million and median assets of $296.7 million. However, 1st State's assets after
conversion should exceed the comparative group. Pro forma assets at the
midpoint are $313.2 million.
PROFITABILITY
Using the comparison of profitability components as a percentage of average
assets, 1st State was below the comparative group in return on assets, 1.02% to
1.05%; loss provisions, 0.17% to 0.05%; and operating expense, 2.48% to 1.96%.
1st State was above the comparative group in net interest income, 3.53% to
3.21%; other operating income, 0.55% to 0.36%; and core income, 1.02% to 0.98%.
1st State's operating expense minus other income was 1.93% versus 1.60% for the
comparative group. After conversion, deployment of the proceeds will provide
additional income, and 1st State will compare more favorably with the
comparative group in terms of return on average assets, with a return of 1.06%
at the midpoint of the appraisal range. Pro forma return on average equity is
6.25% at the midpoint, versus a mean of 6.82% and median of 6.93% for the
comparative group.
BALANCE SHEET CHARACTERISTICS
The general asset composition of 1st State is similar to that of the
comparative group. 1st State has a higher level of passive investments with
25.14% of its assets invested in cash, investments, and mortgage-backed
securities, versus 22.68% for the comparative group. 1st State has a lower
percentage of its assets in loans, at 70.89% versus 76.80% for the comparative
group. 1st State's percentage of earning assets to interest costing liabilities
is lower than that of the group. 1st State has 109.8% and the comparative group
averages 115.35%. After conversion, 1st State's ratio will be above that of the
group of comparatives (approximately 120% at the midpoint).
The liability side differs mainly in that 1st State has a lower percentage
of borrowings and equity and a higher percentage of deposits. 1st State has
borrowings equal to 6.94% of assets versus 11.00% for the comparative group and
1st State has deposits equal to 81.77% of assets versus 74.33% for the
comparative group. 1st State's equity to assets ratio is 9.01% versus 13.63%
for the group. 1st State's pro forma equity to assets ratio at the midpoint is
16.6%.
RISK FACTORS
Both 1st State and the comparative group have low levels of nonperforming
assets, with 1st State's being slightly lower than the comparative group. 1st
State's loan loss allowance is 1.64% of net loans, which compares favorably with
the comparative group. 1st State's one year gap to assets is negative 16.90%
versus negative 19.20% for the comparative group.
SUMMARY OF FINANCIAL COMPARISON
Based on the above discussion of operational, balance sheet, and risk
characteristics of 1st State compared with the group, we believe that 1st
State's performance is level with that of the comparative group. While 1st
State's capital level is below the comparative group, the conversion proceeds
will increase its capital above the comparatives.
FUTURE PLANS
1st State's future plans are to remain a well capitalized, profitable
institution with good asset quality and a commitment to serving the needs of its
trade area, emphasizing lending and the continuing transition from thrift to
commercial bank. The business plan emphasizes growth in consumer lending and
commercial lending. Management recognizes that it will take time to invest the
proceeds of its capital
2
<PAGE>
infusion in a manner consistent with its historic performance and current
policy. During that period of time, management is willing to accept a lower
return on equity.
1st State has always adhered to a controlled growth policy, and in recent
years, it has continued to experience healthy growth. 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 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, savings
deposits, and liquidity. And Management intends to continue to build the Bank's
mortgage banking operation.
1st State has no current plans to open or acquire branches. However, the
additional capital and the formation of a holding company would make acquisition
of branches or another financial institution a viable option. Management
intends to expand and may open additional full service branches and loan
production offices if necessary to meet the Bank's growth plans.
Increasing market penetration by increasing the number of services and
products available, coupled with opening additional offices, are the most likely
methods to be employed to achieve growth on a long-term basis.
3
<PAGE>
Table III.1 - Comparatives General Characteristics
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
Type of $000) Price Value
Ticker Short Name City State Thrift (1) Offices MRQ IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANA Acadiana Bancshares Inc. Lafayette LA Trad. 5 289,187 07/16/96 17.188 39.17
ASBI Ameriana Bancorp New Castle IN Trad. 9 375,297 03/02/87 18.000 58.55
CBK Citizens First Financial Corp. Bloomington IL Trad. 6 281,068 05/01/96 15.000 34.33
FFFD North Central Bancshares Inc. Fort Dodge IA Trad. 7 334,718 03/21/96 16.750 51.99
HBFW Home Bancorp Fort Wayne IN Trad. 9 360,286 03/30/95 26.625 62.60
HRBF Harbor Federal Bancorp Inc. Baltimore MD Trad. 9 231,693 08/12/94 20.500 38.19
JXVL Jacksonville Bancorp Inc. Jacksonville TX Trad. 7 242,673 04/01/96 14.750 35.72
MFBC MFB Corp. Mishawaka IN Trad. 5 310,030 03/25/94 20.750 30.59
MFFC Milton Federal Financial Corp. West Milton OH Trad. 4 235,275 10/07/94 14.375 32.15
OHSL OHSL Financial Corp. Cincinnati OH Trad. 5 252,396 02/10/93 14.625 36.50
PFDC Peoples Bancorp Auburn IN Trad. 7 304,320 07/07/87 20.000 67.50
SOPN First Savings Bancorp Inc. Southern Pines NC Trad. 5 304,168 01/06/94 22.750 84.73
Maximum 9 375,297 26.625 84.73
Minimum 4 231,693 14.375 30.59
Average 7 293,426 18.443 47.67
Median 7 296,678 17.594 38.68
</TABLE>
(1) Type thrift determined by reference to BankSearch,
published by Sheshunoff Information Services, Inc. Information
included in BankSearch is derived from call reports filed with
the FDIC and TFR's filed with the OTS. The institutions
included in the comparative group above are all considered
traditional, though several of them exhibit tendencies of a
thrift in transition to a commercial bank.
4
<PAGE>
Table III.2 - Key Financial Indicators
<TABLE>
<CAPTION>
1ST STATE COMPARATIVE
BANK GROUP
--------------------- -------------------
<S> <C> <C>
Profitability
(% of average assets)
Net income (1) 1.02 1.05
Net interest income 3.53 3.21
Loss (recovery) provisions 0.17 0.05
Other operating income 0.55 0.36
Operating expense 2.48 1.96
Efficiency ratio 60.84 55.69
Core income ( excluding gains
and losses on asset sales) (1) 1.02 0.98
Balance Sheet Factors
(% of assets)
Cash and investments 24.48 18.89
Mortgage-backed securities (including CMO's) 0.66 3.79
Loans 70.89 76.80
Savings deposits 81.77 74.33
Borrowings 6.94 11.00
Equity 9.01 13.63
Tangible equity 9.01 13.47
Risk Factors
(%)
Earning assets/costing liabilities 109.80 115.35
Non-performing assets/assets 0.09 0.35
Loss allowance/non performing assets 1,227.38 102.47
Loss allowance/loans 1.64 0.45
One year gap/assets (2) (16.90) (19.20)
</TABLE>
(1) Used appraisal earnings.
(2) Only 8 of the 12 in the group reported one year gap.
5
<PAGE>
Table III.3 - Pro Forma Comparisons
As of October 30, 1998
<TABLE>
<CAPTION>
Ticker Name Price Mk Value PE P/Book P/TBook P/Assets Div Yld
($) ($Mil) (X) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st State Bank
--------------
Before Conversion N/A N/A N/A N/A N/A N/A N/A
Pro Forma Supermaximum 20.000 39.68 12.9 70.7 70.7 13.3 2.00
Pro Forma Maximum 20.000 34.50 11.6 67.1 67.1 11.8 2.00
Pro Forma Midpoint 20.000 30.00 10.4 63.5 63.5 10.5 2.00
Pro Forma Minimum 20.000 25.50 9.2 59.3 59.3 9.2 2.00
Comparative Group
-----------------
Averages 18.443 47.67 19.0 118.2 119.7 16.2 2.60
Medians 17.594 38.68 17.8 117.6 120.9 15.1 2.55
North Carolina Thrifts
----------------------
Averages 13.906 35.27 15.6 103.5 103.9 19.6 3.51
Medians 13.063 25.79 16.8 99.1 100.7 18.2 3.60
Southeast Region Thrifts
------------------------
Averages 16.177 68.96 18.9 137.7 142.2 16.9 2.68
Medians 15.000 40.78 18.5 120.9 120.3 15.6 2.63
All Public Thrifts
------------------
Averages 17.165 267.87 17.6 131.7 138.7 14.7 2.23
Medians 15.250 43.46 16.5 120.3 122.3 13.8 2.26
Comparative Group
-----------------
ANA AcadianaBcshs-LA 17.188 39.17 14.8 99.2 99.2 13.5 2.56
ASBI AmerianaBancorp-IN 18.000 58.55 18.0 128.3 130.6 15.6 3.56
CBK CitizensFirst-IL 15.000 34.33 34.9 96.6 96.6 13.5 -
FFFD NorthCentral-IA 16.750 51.99 12.7 104.6 120.3 15.5 1.91
HBFW HomeBancorp-IN 26.625 62.60 21.3 145.7 145.7 17.4 1.20
HRBF HarborFedBncp-MD 20.500 38.19 20.7 129.0 129.0 16.5 2.54
JXVL Jacksonville-TX 14.750 35.72 11.7 101.9 101.9 14.7 3.39
MFBC MFBCorp-IN 20.750 30.59 16.6 99.1 99.1 9.9 1.64
MFFC MiltonFedFinl-OH 14.375 32.15 25.2 113.8 113.8 13.7 4.17
OHSL OHSLFinancial-OH 14.625 36.50 19.0 131.5 131.5 14.5 3.42
PFDC PeoplesBancorp-IN 20.000 67.50 15.9 147.4 147.4 22.1 2.40
SOPN FirstSvngsBncp-NC 22.750 84.73 17.5 121.5 121.5 27.8 4.40
</TABLE>
6
<PAGE>
Table III.3 - Pro Forma Camparisons
As of October 30, 1998
<TABLE>
<CAPTION>
Ticker Name Assets Eq/A TEq/A EPS ROAA ROAE
($000) (%) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
1st State Bank
--------------
Before Conversion 288,223 9.0 9.0 N/A 1.02 1.30
Pro Forma Supermaximum 321,604 18.8 18.8 1.55 1.08 5.60
Pro Forma Maximum 317,121 17.6 17.6 1.72 1.07 5.92
Pro Forma Midpoint 313,223 16.6 16.6 1.92 1.06 6.25
Pro Forma Minimum 309,325 15.5 15.5 2.17 1.05 6.63
Comparative Group
-----------------
Averages 293,426 13.6 13.5 1.05 0.98 6.82
Medians 296,678 13.2 13.0 1.21 0.84 6.93
North Carolina Thrifts
----------------------
Averages 183,650 19.6 19.6 0.94 1.27 6.37
Medians 139,663 18.0 18.0 0.74 1.31 6.12
Southeast Region Thrifts
------------------------
Averages 509,581 13.6 13.6 0.91 0.98 7.73
Medians 186,341 12.9 13.1 0.81 0.98 7.31
All Public Thrifts
------------------
Averages 1,787,673 11.9 11.7 1.08 0.92 8.60
Medians 360,286 10.2 9.9 0.96 0.85 7.64
Comparative Group
-----------------
ANA AcadianaBcshs-LA 289,187 13.7 13.7 1.16 0.94 6.13
ASBI AmerianaBancorp-IN 375,297 12.2 12.0 1.00 0.84 7.33
CBK CitizensFirst-IL 281,068 14.0 14.0 0.43 0.41 2.93
FFFD NorthCentral-IA 334,718 14.9 13.2 1.32 1.38 8.34
HBFW HomeBancorp-IN 360,286 11.9 11.9 1.25 0.83 6.68
HRBF HarborFedBncp-MD 231,693 12.8 12.8 0.99 0.77 6.03
JXVL Jacksonville-TX 242,673 14.5 14.5 1.26 1.33 9.13
MFBC MFBCorp-IN 310,030 10.0 10.0 1.25 0.71 6.24
MFFC MiltonFedFinl-OH 235,275 11.2 11.2 0.57 0.54 4.67
OHSL OHSLFinancial-OH 252,396 10.8 10.8 0.77 0.78 7.17
PFDC PeoplesBancorp-IN 304,320 15.0 15.0 1.26 1.45 9.56
SOPN FirstSvngsBncp-NC 304,168 22.9 22.9 1.30 1.76 7.64
Note: Stock prices are closing prices or last trade. Pro forma
calculations for 1st State are based on sales at $20 a share
with a minimum of $25,500,000, midpoint of $30,000,000,
maximum of $34,500,000, and supermaximum of $39,675,000.
Sources: 1st State's audited and unaudited financial Statements,
SNL Securities, and F&C calculations.
</TABLE>
7
<PAGE>
SECTION IV
CORRELATION OF MARKET
VALUE
<PAGE>
IV. CORRELATION OF MARKET VALUE
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED
Certain factors must be considered to determine whether adjustments
are required in correlating 1st State's market value to the comparative group.
Those factors include financial aspects, market area, management, dividends,
liquidity, thrift equity market conditions, and subscription interest.
This section addresses the aforementioned factors and the estimated
pro forma market 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 1st
State'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, 1st State is
below its comparative group in return on assets but above its comparative group
in core income as a percentage of average assets. 1st State's net interest
income as a percent of assets is 3.53% versus 3.21% for the comparatives. The
difference is attributable to the loan mix (i.e., 1st State has more in consumer
and commercial loans, which have higher yields), and 1st State's deposit mix,
which includes more transaction accounts. 1st State's higher ratio of assets in
passive investments, at 25.14% versus 22.68% for the comparatives, reduces net
interest income as a percentage of assets as contrasted with the comparatives.
1st State's loan loss provisions are well above its comparative group,
with loss provisions of 0.17% of assets versus 0.05% of assets for the
comparative group. This results from 1st State having higher levels of consumer
and commercial loans, which generally entail more risk. 1st State's other
operating income is 0.55% of average assets, versus 0.36% for the comparative
group. 1st State's higher ratio results from its higher level of off-balance
sheet assets (i.e., loan servicing) and from its loan and deposit mix, which are
more commercial bank oriented, and give rise to more fee income.
1st State's operating expense ratio, at 2.48% of average assets, is
well above that of the comparative group, which is 1.96%. 1st State's higher
ratio results from its generally higher level of loan servicing and from its
generally higher levels of commercial bank type loans and deposits.
After 1st State completes its stock conversion, its core income as a
percentage of average assets will increase. Table III.3 projects that 1st
State's return on assets will be 1.06% at the midpoint, versus a mean of 0.98%
and median of 0.84% for the comparative group.
1st State's pro forma equity to assets ratio at the midpoint is 16.6%,
versus a mean of 13.6% and median of 13.2% for the comparative group, making it
difficult for 1st State to achieve a reasonable return on equity. 1st State's
pro forma return on equity is below the comparative group--6.25% at the midpoint
versus a mean of 6.82% and median of 6.93% for the comparative group.
1st State's recorded earnings have been adjusted for appraisal
purposes. The Bank recorded higher than normal loan loss provisions and
securities losses.
1
<PAGE>
TABLE IV.1 - APPRAISAL EARNINGS ADJUSTMENTS
<TABLE>
<S> <C>
Net income, year ended September 30, 1998 $2,521,000
Plus securities losses 246,000
Plus loan loss provisions in excess of normal amount--477,000 - 315,000 162,000
Less applicable taxes on above adjustments at 36.0% -147,000
-------------------
Appraisal earnings, year ended September 30, 1998 $2,782,000
===================
</TABLE>
1st State's asset composition is similar but more passive, than the
comparative group. 1st State has a lower ratio of loans to assets, higher ratio
of investments and mortgage-backed securities to assets, higher ratio of
deposits to assets, and lower ratio of borrowings to assets. From the risk
factor viewpoint, 1st State is similar to the comparative group. 1st State has
a slightly lower level of non performing assets. 1st State's loan loss
allowance is 1.64% of net loans, comparing favorably with the comparative group,
which is 0.45%. 1st State has a higher level of consumer and commercial loans,
which entail a higher level of risk. Its ratio of interest earning assets to
interest bearing liabilities (109.80%) is slightly below the comparative group
(115.35%). 1st State's ratio will be above the comparative group after
conversion. From an interest rate risk factor, 1st State has no more interest
rate risk than the comparative group.
We believe that NO ADJUSTMENT is necessary relative to financial
-------------
aspects of 1st State.
MARKET AREA
Section II describes 1st State's market area.
We believe that NO ADJUSTMENT is required for 1st State's market area.
-------------
MANAGEMENT
The President, who functions as CEO, has been with 1st State 10 years,
serving as CEO since 1988. Prior to joining 1st State, the CEO spent 23 years
with a major North Carolina commercial bank. The Executive Vice President and
Chief of Commercial and Retail Banking ("CCR") has been with the Bank for 9
years, after serving for 13 years with a major North Carolina commercial bank.
The Executive Vice President and CFO, a certified public accountant, has been
with the Bank 13 years. Prior to joining 1st State, she spent 4 years in public
accounting and 5 years in the insurance and banking business. The rest of the
officers have either served 1st State for many years or other financial
institutions performing the duties they perform for 1st State. To facilitate
the Bank's conversion from thrift to commercial bank, the Bank's management
staff includes a wealth of commercial bank experience with quality, major banks.
1st State's results compare well with the comparative group. 1st State's
management has done a better job of planning and preparing for the Bank's
future. 1st State has a management succession plan.
We believe that an UPWARD ADJUSTMENT is required for 1st State'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 price of 2.60% and a median of 2.55%, while all public thrifts are
paying a mean of 2.23% and median of 2.26%. 1st State intends to pay a dividend
at an initial annual rate of 2.00%.
We believe that NO ADJUSTMENT is required relative to 1st State's
-------------
intention to pay dividends.
2
<PAGE>
LIQUIDITY
The Holding Company has never issued capital stock to the public, and
as a result, no existing market for the Common Stock exists. 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 market place, of
both willing buyers and sellers of the Common Stock. These characteristics are
not within the control of the Bank 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 $30.59 million to $84.73 million, with a mean
value of $47.67 million and a median value of $38.68 million. The midpoint of
1st State's valuation range is $33.0 million at $20 a share, or 1,650,000 shares
(including the 150,000 shares that will be contributed to the charitable
foundation).
We believe NO ADJUSTMENT is required relative to the liquidity of 1st
-------------
State's stock.
THRIFT EQUITY MARKET CONDITIONS
The SNL Thrift Index is summarized in Figure IV.1. As the table
demonstrates, the Thrift Index has performed well since the end of 1990. The
Index has grown as follows: Year ended December 31, 1991--increased 49.0% from
96.6 to 143.9; Year ended December 31, 1992--increased 39.7% to 201.1; Year
ended December 31, 1993--increased 25.6% to 252.5; Year ended December 31, 1994-
- -decreased 3.1% to 244.7; Year ended December 31, 1995--increased 53.9% to
376.5; Year ended December 31, 1996--increased 28.4% to 483.6; Year ended
December 31, 1997--increased 68.3% to 814.1; and Period ended October 30, 1998--
decreased 16.9% to 676.3. It is market value weighted with a base value of 100
as of March 31, 1984.
As shown in Figure IV.1, which is a graph of the SNL Thrift Index
covering from December 31, 1990 through October 30, 1998, the market, as
depicted by the index, has experienced fluctuations recently. It dipped in the
latter part of 1994, but recovered during the first quarter of 1995. It
subsequently enjoyed a robust climb through March 1998. However, the Index
dropped 22.2% from March 31, 1998 to October 30, 1998. As has been the case
with the equities market in general, there have been significant fluctuations
during the recent months. For example, the index declined by 18.7% during the
eight day period from September 30, 1998 to October 8, 1998 (651.3 to 529.7),
then increased 24.1% during the eight day period from October 8, 1998, to
October 16, 1998 (529.7 to 657.1).
The increase in the SNL Index, in general, has been parallel with the
increases in other equity markets with some interim fluctuations caused by
changes or anticipated changes in interest rates. Another factor, however, is
also notable. In other markets, increased prices are responding to improved
profits, with price to earnings ratios increasing as earnings potentials are
anticipated. However, the thrift IPO market has been affected by speculation
that the majority of the institutions will become viable consolidation
candidates and sell at some expanded multiple of book value.
NORTH CAROLINA ACQUISITIONS
Table IV.2 provides information relative to acquisitions of financial
institutions in North Carolina announced between January 1, 1997 and October 30,
1998. There were seven thrift acquisitions and five bank acquisitions announced
during that time frame. Seven of the acquisitions were announced in 1997 and
five have been announced in 1998. Currently, there are 12 publicly held thrifts
in the State of North Carolina. There are 53 publicly held thrifts in the
southeast region of the country. Bank acquisitions in North Carolina since
January 1, 1997, have averaged 338.0% of tangible book value and 34.6 times
earnings. The median price has been 322.3% of tangible book value and 30.7
times earnings. Thrifts
3
<PAGE>
generally sell at lower price/book multiples than do banks. Thrifts in North
Carolina during that period have averaged 146.7% of tangible book value and 32.5
times earnings. 1st State, unlike many other thrifts in North Carolina, has
never seriously considered an offer to be acquired.
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 reduced short term interest rates 25 basis points
("BP") on September 29, 1998, and again on October 15, 1998. Unemployment has
now reached new low levels and inflation is still in check. One of the major
reasons the inflationary trends are acceptable is the impact on the U. S.
economy by the economic problems in the Asian rim. Several of the economies in
that region are experiencing significant problems, and could in fact be
considered in a depression. Notable impact from these faltering economies is
the recent decline in oil prices and the lack of stability in Asian rim
currencies. Recently, the Fed working in conjunction with the Japanese central
bank did support and stabilize the Yen. However, this is only one skirmish in a
major war. The Yen will devaluate before year-end. The economic problems of
the East will have a negative impact on our economy as these countries try to
export themselves out of their cash problems. The prices of their products will
fall and their purchase of our export goods will diminish and U.S. trade
deficits will increase. Problems in that region have and will continue to cause
problems in the U. S. equities markets and could cause our economy to slow.
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 by the fact that thrift
conversion 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. 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 IV.2) is 1.03% between the one year T-
Bill and the 30 year long bond. Historically, when the yield curve becomes
flat, the "GDP" growth also slows.
With the Federal Reserve always ready to raise (or lower) rates as
economic conditions warrant, it is likely that during the next few months,
interest 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.
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 other than the Asian
situation that would interfere with continuing economic expansion for at least
another six months to nine 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.
Figure IV.2 graphically displays the rate environment since May 15,
1998. At that time, the yield curve was relatively flat, with only a 52 BP
difference between the one year treasury bill rate and the 30 year treasury.
Since that time, the yield curve has become more sloped, with a 103 BP spread
between the one year treasury bill rate and the 30 year treasury rate at October
30, 1998.
4
<PAGE>
At May 15, 1998, the spread between the 1 year T-Bill and the 5 year
T-Note was negative 23 BP, and the spread between the 5 year T-Note and the 30
year bond was 31 BP. On October 30, 1998, the spreads were 13 BP and 90 BP,
respectively.
From May 15, 1998, to October 30, 1998, the Fed Funds rate decreased
54 BP and the Prime Rate decreased 50 BP.
Increased cost of funds will serve to narrow the net interest margins
of thrifts. A thrift's ability to maintain net interest margins through
business cycles is important to investors, unless thrifts can offset the decline
in net interest income by other sources of revenue or reductions in noninterest
expense. The former is difficult and the latter is unlikely.
1st State, with its interest rate risk management combined with its
equity position (especially on a pro forma basis), is less vulnerable to rising
rates than most.
During 1993, conversion stocks often experienced first day 30% or more
increases in value. However, as Table IV.3 shows, recent price appreciation has
not been as robust. While price appreciation for conversions closing between
July 1, 1997, and March 31, 1998, were shattering previous records for immediate
increases, the pops have subsided significantly since that time. Table IV.3
provides information on 13 conversions completed since April 30, 1998. The
average change in price since conversion is a loss of 0.7% and the median change
is 0.0%. Within that group, 6 have decreased in value, 5 have increased in
value, and 2 experienced no change. The worst performer decreased 23.8% in
value and the best performer increased 40.0% in value. The average increase in
value at one day, one week, and one month after conversion has been 10.2%,
11.0%, and 9.5%, respectively. The median increase in value at one day, one
week, and one month after conversion has been 14.4%, 8.1%, and 12.5%,
respectively.
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 some information available for reviewing the price
to book ratio. The average price-to-book ratio, as of October 30, 1998, is
74.9% and the median is 74.9%. That compares to the offering price to pro forma
book, where the average was 73.5% and the median was 74.8%.
We believe a DOWNWARD ADJUSTMENT is required for the new issue
-------------------
discount.
ADJUSTMENTS CONCLUSION
ADJUSTMENTS SUMMARY
- --------------------------------------------------------------------------------
NO CHANGE UPWARD DOWN
Financial Aspects X
Market Area X
Management X
Dividends X
Liquidity X
Thrift Equity Market Conditions X
- --------------------------------------------------------------------------------
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
5
<PAGE>
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 1st State's pro forma ratios and compares them to
the ratios of its comparative group and the publicly held thrift industry as a
whole. 1st State's earnings for the twelve months ended September 30, 1998, were
approximately $2,521,000, with adjustments of $261,000 required to determine
appraisal earnings of $2,782,000. Management has indicated an intention,
through its diversification of deposit and loan products, to exhibit the
flexibility in operations needed to serve both the public and the institution.
The Bank is positioned to manage reasonable interest rate variations. The Bank
projects moderate growth.
The comparative group traded at an average of 19.0 times earnings at
October 30, 1998, and at 118.2% of book value. The comparative group traded at
a median of 17.8 times earnings and a median of 117.6% of book value. At the
midpoint of the valuation range, 1st State is priced at 10.4 times earnings and
63.5% of book value. At the maximum end of the range, 1st State is priced at
11.6 times earnings and 67.1% of book value. At the supermaximum, 1st State is
priced at 12.9 times earnings and 70.7% of book value.
The midpoint valuation of $30,000,000 represents a discount of 46.3%
from the average and a discount of 46.0% from the median of the comparative
group on a price/book basis. The price/earnings ratio for 1st State at the
midpoint represents a discount of 45.3% from the comparative group's mean and a
discount of 41.6% from the median price/earnings ratio.
The maximum valuation of $34,500,000 represents a discount of 43.2%
from the average and 42.9% from the median of the comparative group on a
price/book basis. The price/earnings ratio for 1st State at the maximum
represents a discount of 38.9% from the average and a discount of 34.8% from the
median of the comparative group.
As shown in Table IV.3, conversions closing since April 30, 1998
(excluding mutual holding companies), have closed at an average price to book
ratio of 73.5% and median of 74.8%. 1st State's pro forma price to book ratio
is 63.5% at the midpoint, 67.1% at the maximum, and 70.7% at the supermaximum of
the range. At the midpoint, 1st State is 13.6% below the average and 15.1%
below the median. At the maximum of the range, 1st State is 8.7% below the
average and 10.3% below the median. At the supermaximum of the range, 1st
State's pro forma price to book ratio is 3.8% below the average and 5.5% below
the median. However, it should be noted that the last three standard
conversions that closed prior to October 30, 1998, closed at price to book
ratios of 71.7%, 69.9%, and 62.7%, respectively.
VALUATION CONCLUSION
We believe that as of October 30, 1998, the estimated pro forma market
value of 1st State was $30,000,000. The resulting valuation range was
$25,500,000 at the minimum to $34,500,000 at the maximum, based on a range of
15% below and 15% above the midpoint valuation. The supermaximum is
$39,675,000, 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 VII.
6
<PAGE>
Table IV.2 - North Carolina Acquisitions
(Announced Since January 1, 1997)
<TABLE>
<CAPTION>
Seller: Seller: Ann'd
1:Total 1:Eqty/ Deal Pr/
Bank/ Bank/ Announce Assets Assets Assets
Buyer ST Thrift Seller ST Thrift Date ($000) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carolina First BcShs NC Bank Community B&T NC Bank 4/15/98 94,982 10.4 35.3
Triangle Bancorp NC Bank Guaranty State Bncp NC Bank 10/16/97 103,830 10.8 34.2
First Charter Corp. NC Bank Carolina State Bank NC Bank 6/30/97 139,014 9.0 30.4
Triangle Bancorp NC Bank Bank of Mecklenburg NC Bank 3/27/97 259,280 7.0 16.2
LSB Bancshares NC Bank Old North State Bank NC Bank 1/21/97 128,497 8.4 25.3
Capital Bank NC Bank Home SB of Siler Cty NC Thrift 9/29/98 58,813 16.7 25.0
Centura Banks Inc. NC Bank Scotland Bncp Inc. NC Thrift 8/26/98 61,082 24.9 37.2
First Western Bank NC Bank Mitchell Bancorp NC Thrift 8/13/98 37,306 39.2 50.9
First Charter Corp. NC Bank HFNC Financial Corp. NC Thrift 5/18/98 979,554 17.2 24.5
Triangle Bancorp NC Bank United Federal Svgs NC Thrift 12/26/97 301,924 7.8 18.1
Southern Bancshares NC Bank ESB Bncp NC Thrift 11/21/97 26,502 19.0 24.2
First Citizens BcShs NC Bank First Savings Fin'l NC Thrift 4/3/97 55,850 16.4 19.0
Maximum 979,554 39.2 50.9
Minimum 26,502 7.0 16.2
Average 187,220 15.6 28.3
Median 99,406 13.6 25.1
Bank Average 145,121 9.1 28.3
Bank Median 128,497 9.0 30.4
Thrift Average 217,290 20.2 28.4
Thrift Median 58,813 17.2 24.5
</TABLE>
7
<PAGE>
Table IV.2 - North Carolina Acquisitions
(Announced Since January 1, 1997)
<TABLE>
<CAPTION>
Ann'd Ann'd Ann'd Ann'd Ann'd Seller: Seller:
Deal Deal Pr/ Deal Pr/ Deal TgBk Prem/ 1:YTD 1:YTD
Pr/Bk 4-Qtr Tg Bk Pr/Deps CoreDeps ROAA ROAE Consider
Seller (%) EPS (x) (%) (%) (%) (%) (%) Type
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Community B&T 338.9 59.7 479.0 40.57 35.36 0.61 5.86 Com Stock
Guaranty State Bncp 301.5 30.7 301.5 39.44 31.77 1.15 10.71 Com Stock
Carolina State Bank 336.3 35.1 356.8 35.25 30.24 0.78 8.46 Com Stock
Bank of Mecklenburg 217.8 20.6 230.3 23.83 19.18 0.82 11.27 Com Stock
Old North State Bank 284.1 27.0 322.3 29.59 24.83 0.98 11.64 Com Stock
Home SB of Siler Cty 147.4 58.1 147.4 30.56 10.89 0.49 2.91 Com Stock
Scotland Bncp Inc. 147.6 23.5 147.6 50.69 18.18 0.96 3.95 Cash
Mitchell Bancorp 127.2 40.0 127.2 88.11 28.50 1.23 2.99 Mixture
HFNC Financial Corp. 142.1 18.6 142.1 55.59 21.98 1.48 8.12 Com Stock
United Federal Svgs 233.9 29.3 233.9 20.69 13.30 0.66 8.84 Com Stock
ESB Bncp 126.9 25.3 126.9 30.48 8.30 1.98 10.55 Cash
First Savings Fin'l 102.1 NA 102.1 23.40 3.88 (0.99) (5.64) Cash
Maximum 338.9 59.7 479.0 88.11 35.36 1.98 11.64
Minimum 102.1 18.6 102.1 20.69 3.88 (0.99) (5.64)
Average 208.8 33.4 226.4 39.02 20.53 0.85 6.64
Median 182.7 29.3 189.0 32.91 20.58 0.89 8.29
Bank Average 295.7 34.6 338.0 33.74 28.28 0.87 9.59
Bank Median 301.5 30.7 322.3 35.25 30.24 0.82 10.71
Thrift Average 146.7 32.5 146.7 42.79 15.00 0.83 4.53
Thrift Median 142.1 27.3 142.1 30.56 13.30 0.96 3.95
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Conversion Gross Offering
Assets Proceeds Price
Ticker Short Name State IPO Date ($000) ($000) ($)
<S> <C> <C> <C> <C> <C> <C>
FNFI First Niles Financial Inc. OH 10/27/98 72,497 17,544 10.000
SFFS Sound Federal Bancorp (MHC) NY 10/08/98 254,749 22,995 10.000
CNYF CNY Financial Corp. NY 10/06/98 233,729 52,516 10.000
WEBK West Essex Bancorp (MHC) NJ 10/05/98 299,025 17,729 10.000
CITZ CFS Bancorp Inc. IN 07/24/98 746,050 178,538 10.000
HSTD Homestead Bancorp Inc. LA 07/20/98 NA NA 10.000
PSBI PSB Bancorp Inc. PA 07/17/98 NA NA 10.000
THTL Thistle Group Holdings Co. PA 07/14/98 NA NA 10.000
UCFC United Community Finl Corp. OH 07/09/98 1,044,993 334,656 10.000
BCSB BCSB Bankcorp Inc. (MHC) MD 07/08/98 251,738 22,866 10.000
HRBT Hudson River Bancorp NY 07/01/98 664,996 173,337 10.000
LIBB Liberty Bancorp Inc. (MHC) NJ 07/01/98 217,437 18,336 10.000
FKAN First Kansas Financial Corp. KS 06/29/98 95,655 15,539 10.000
Maximum 1,044,993 334,656 10.000
Minimum 72,497 15,539 10.000
Average 388,087 85,406 10.000
Median 253,244 22,931 10.000
Excluding
MHC's:
- ----------------
Maximum 1,044,993 334,656 10.000
Minimum 72,497 15,539 10.000
Average 476,320 128,688 10.000
Median 449,363 112,927 10.000
</TABLE>
9
<PAGE>
Table IV.3 - Recent Conversions
(Completed since April 30, 1998)
<TABLE>
<CAPTION>
Conversion Pricing Ratios
--------------------------------------------------------
Price/ Price/ Price/ Price/ Current Current Current
Pro-Forma Pro-Forma Pro-Forma Adjusted Stock Price/ Price/ Tang
Book Value Tang. Book Earnings Assets Price Book Value Book Value
Ticker (%) (%) (x) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
FNFI 62.7 62.7 23.9 19.5 10.813 NA NA
SFFS 100.0 100.0 15.6 8.3 10.000 NA NA
CNYF 69.9 69.9 47.2 18.3 10.000 NA NA
WEBK 95.4 95.4 40.2 5.6 9.750 NA NA
CITZ 71.7 NA 18.2 19.3 9.875 NA NA
HSTD 100.0 NA NA NA 8.000 NA NA
PSBI 100.0 NA NA NA 7.625 NA NA
THTL 100.0 NA NA NA 9.000 NA NA
UCFC 77.8 77.8 14.1 24.3 14.000 NA NA
BCSB 142.3 142.3 26.1 8.3 10.063 NA NA
HRBT 80.1 NA 22.3 20.7 10.313 75.0 75.1
LIBB 121.6 121.6 20.4 7.8 9.625 NA NA
FKAN 78.5 78.5 14.0 14.0 10.063 74.8 75.7
Maximum 142.3 142.3 47.2 24.3 14.000 75.0 75.7
Minimum 62.7 62.7 14.0 5.6 7.625 74.8 75.1
Average 92.3 93.5 24.2 14.6 9.933 74.9 75.4
Median 95.4 87.0 21.4 16.2 10.000 74.9 75.4
Excluding
MHC's:
- -----------
Maximum 80.1 78.5 47.2 24.3 14.000 75.0 75.7
Minimum 62.7 62.7 14.0 14.0 9.875 74.8 75.1
Average 73.5 72.2 23.3 19.4 10.844 74.9 75.4
Median 74.8 73.9 20.3 19.4 10 74.9 75.4
</TABLE>
10
<PAGE>
Table IV.3 - Recent Conversions
(Completed Since April 30, 1998)
<TABLE>
<CAPTION>
Price One Price One Price One Post Conversion Price Increases (Decreases)
--------------------------------------------------------------------
Day After Week After Month After One One One To Since End
Conversion Conversion Conversion Day Week Month Date of Day 1
Ticker ($) ($) ($) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FNFI 11.500 10.813 NA 15.0 8.1 NA 8.1 (6.0)
SFFS 8.500 8.938 NA (15.0) (10.6) NA - 17.6
CNYF 9.500 9.500 NA (5.0) (5.0) NA - 5.3
WEBK 10.000 9.938 NA - (0.6) NA (2.5) (2.5)
CITZ 11.438 10.938 9.750 14.4 9.4 (2.5) (1.3) (13.7)
HSTD 9.313 9.250 8.500 (6.9) (7.5) (15.0) (20.0) (14.1)
PSBI 9.188 9.125 7.813 (8.1) (8.8) (21.9) (23.8) (17.0)
THTL 9.938 9.813 9.000 (0.6) (1.9) (10.0) (10.0) (9.4)
UCFC 15.000 16.000 15.750 50.0 60.0 57.5 40.0 (6.7)
BCSB 12.563 12.625 11.625 25.6 26.3 16.3 0.6 (19.9)
HRBT 12.563 13.500 13.375 25.6 35.0 33.8 3.1 (17.9)
LIBB 11.438 11.625 11.250 14.4 16.3 12.5 (3.8) (15.9)
FKAN 12.313 12.250 11.500 23.1 22.5 15.0 0.6 (18.3)
Maximum 15.000 16.000 15.750 50.0 60.0 57.5 40.0 17.6
Minimum 8.500 8.938 7.813 (15.0) (10.6) (21.9) (23.8) (19.9)
Average 11.020 11.101 10.951 10.2 11.0 9.5 (0.7) (9.1)
Median 11.438 10.813 11.250 14.4 8.1 12.5 - (13.7)
Excluding
MHC's:
- ----------
Maximum 15.000 16.000 15.750 50.0 60.0 57.5 40.0 5.3
Minimum 9.500 9.500 9.750 (5.0) (5.0) (2.5) (1.3) (18.3)
Average 12.052 12.167 12.594 20.5 21.7 25.9 8.4 (9.5)
Median 11.907 11.594 12.438 19.1 15.9 24.4 1.9 (10.2)
</TABLE>
11
<PAGE>
Table IV.4
Comparison Of Pricing Ratios
<TABLE>
<CAPTION>
Group Percent Premium
1st State Compared to (Discount) Versus
-------------------------------- ---------------------------------
Bank Average Median Average Median
--------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
COMPARISON OF PE RATIO AT
MIDPOINT TO:
- ------------------------------
Comparative group 10.4 19.0 17.8 (45.3) (41.6)
North Carolina thrifts 10.4 15.6 16.8 (33.3) (38.1)
Southeast Region thrifts 10.4 18.9 18.5 (45.0) (43.8)
All public thrifts 10.4 17.6 16.5 (40.9) (37.0)
Recent conversions 10.4 23.3 20.3 (55.4) (48.8)
COMPARISON OF PE RATIO AT
MAXIMUM TO:
- ------------------------------
Comparative group 11.6 19.0 17.8 (38.9) (34.8)
North Carolina thrifts 11.6 15.6 16.8 (25.6) (31.0)
Southeast Region thrifts 11.6 18.9 18.5 (38.6) (37.3)
All public thrifts 11.6 17.6 16.5 (34.1) (29.7)
Recent conversions 11.6 23.3 20.3 (50.2) (42.9)
COMPARISON OF PE RATIO AT
FINAL VALUE TO:
- ------------------------------
Comparative group 12.9 19.0 17.8 (32.1) (27.5)
North Carolina thrifts 12.9 15.6 16.8 (17.3) (23.2)
Southeast Region thrifts 12.9 18.9 18.5 (31.7) (30.3)
All public thrifts 12.9 17.6 16.5 (26.7) (21.8)
Recent conversions 12.9 23.3 20.3 (44.6) (36.5)
COMPARISON OF PB RATIO AT
MIDPOINT TO:
- ------------------------------
Comparative group 63.5 118.2 117.6 (46.3) (46.0)
North Carolina thrifts 63.5 103.5 99.1 (38.6) (35.9)
Southeast Region thrifts 63.5 137.7 120.9 (53.9) (47.5)
All public thrifts 63.5 131.7 120.3 (51.8) (47.2)
Recent conversions 63.5 73.5 74.8 (13.6) (15.1)
COMPARISON OF PB RATIO AT
MAXIMUM TO:
- ------------------------------
Comparative group 67.1 118.2 117.6 (43.2) (42.9)
North Carolina thrifts 67.1 103.5 99.1 (35.2) (32.3)
Southeast Region thrifts 67.1 137.7 120.9 (51.3) (44.5)
All public thrifts 67.1 131.7 120.3 (49.1) (44.2)
Recent conversions 67.1 73.5 74.8 (8.7) (10.3)
COMPARISON OF PB RATIO AT
FINAL VALUE TO:
- ------------------------------
Comparative group 70.7 118.2 117.6 (40.2) (39.9)
North Carolina thrifts 70.7 103.5 99.1 (31.7) (28.7)
Southeast Region thrifts 70.7 137.7 120.9 (48.7) (41.5)
All public thrifts 70.7 131.7 120.3 (46.3) (41.2)
Recent conversions 70.7 73.5 74.8 (3.8) (5.5)
</TABLE>
12
<PAGE>
Figure IV.1 - SNL Index
<TABLE>
<CAPTION>
% CHANGE SINCE
----------------------
SNL PREVIOUS
DATE INDEX DATE 12/31/97
---- ----- ---- --------
<S> <C> <C> <C>
12/31/90 96.6
12/31/91 143.9 49.0%
12/31/92 201.1 39.7%
12/31/93 252.5 25.6%
12/31/94 244.7 -3.1%
12/31/95 376.5 53.9%
12/31/96 483.6 28.4%
12/31/97 814.1 68.3%
3/31/98 869.3 6.8% 6.8%
6/30/98 833.5 -4.1% 2.4%
7/31/98 783.7 -3.7% -3.7%
8/31/98 598.6 -23.6% -26.5%
9/30/98 651.3 8.8% -20.0%
10/30/98 676.3 3.8% -16.9%
</TABLE>
SNL INDEX
[GRAPH APPEARS HERE]
13
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------- ---------------
1 Year 5 Year 10 Year 30 Year 1 to 30
Fed Fds (*) T-bill Treas. Treas. Treas. Yr. Spread
- ----------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
15-May-98 5.49 5.46 5.67 5.70 5.98 0.52
--------------------------------------------------------------------------------------------- ---------------
29-May-98 5.45 5.42 5.57 5.57 5.83
12-Jun-98 5.43 5.42 5.53 5.51 5.72 0.30
--------------------------------------------------------------------------------------------- ---------------
26-Jun-98 5.42 5.41 5.50 5.46 5.65
10-Jul-98 5.47 5.34 5.41 5.41 5.61 0.27
--------------------------------------------------------------------------------------------- ---------------
24-Jul-98 5.50 5.35 5.47 5.46 5.68
7-Aug-98 5.61 5.31 5.43 5.43 5.66 0.35
--------------------------------------------------------------------------------------------- ---------------
21-Aug-98 5.59 5.23 5.32 5.39 5.53
4-Sep-98 5.61 4.91 4.92 5.05 5.32 0.41
--------------------------------------------------------------------------------------------- ---------------
18-Sep-98 5.54 4.71 4.62 4.83 5.21
2-Oct-98 5.58 4.41 4.24 4.46 5.00 0.59
--------------------------------------------------------------------------------------------- ---------------
16-Oct-98 5.14 4.12 4.22 4.58 5.02
30-Oct-98 4.95 4.09 4.22 4.63 5.12 1.03
--------------------------------------------------------------------------------------------- ---------------
</TABLE>
Rates May 15th, 1998 through October 30, 1998
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------- ---------------
1 Year 5 Year 10 Year 30 Year 1 to 30
Fed Fds (*) T-bill Treas. Treas. Treas. Yr. Spread
- ----------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
30-Oct-98 4.95 4.09 4.22 4.63 5.12 1.03
--------------------------------------------------------------------------------------------- ---------------
</TABLE>
Current Yield Curve
[CHART APPEARS HERE]
14
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT I
<PAGE>
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
Hurst, 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 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.
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 10
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 approximately 30 years of experience providing professional
services to and managing financial institutions. He worked on the audit staff of
a "Big Five" accounting firm for 12 years, served as CFO of a thrift for 3
years, and has worked in financial institution consulting for the last 15 years.
He is a co-founder of F&C. He holds a B.S. degree from East Carolina University.
He is a CPA.
1
<PAGE>
EXHIBIT II
<PAGE>
Exhibit II.1 - Selected Southeast Region Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current Current Price/
Insurance Stock Market LTM
Agency Price Value Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AFBC Advance Financial Bancorp Wellsburg WV SE SAIF NASDAQ 01/02/97 12.500 12.88 16.9
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 15.000 34.47 19.5
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85 9.063 161.19 32.4
CENB Century Bancorp Inc. Thomasville NC SE SAIF NASDAQ 12/23/96 13.125 16.68 12.5
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 19.000 118.86 22.9
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 11.813 30.36 17.9
CFNC Carolina Fincorp Inc. Rockingham NC SE SAIF NASDAQ 11/25/96 8.125 15.48 12.0
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 14.750 64.87 25.4
CMSV Community Savings Bnkshrs(MHC) North Palm Beach FL SE SAIF NASDAQ 10/24/94 22.375 114.20 24.1
CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 19.500 97.85 16.3
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 13.000 39.56 19.1
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 18.250 106.03 12.8
FFBH First Federal Bancshares of AR Harrison AR SE SAIF NASDAQ 05/03/96 19.250 89.54 16.3
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 19.250 262.94 16.7
FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/91 9.750 23.74 15.0
FFFL Fidelity Bankshares Inc. (MHC) West Palm Beach FL SE SAIF NASDAQ 01/07/94 23.563 160.29 25.3
FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 15.875 58.64 14.4
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 8.750 41.99 23.0
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 12.875 66.64 25.8
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 19.875 269.35 24.5
FSPT FirstSpartan Financial Corp. Spartanburg SC SE SAIF NASDAQ 07/09/97 34.375 144.68 20.6
FSTC First Citizens Corp. Newnan GA SE SAIF NASDAQ 03/01/86 28.000 78.33 18.5
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 21.750 36.45 11.7
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 12.875 52.57 18.9
HBS Haywood Bancshares Inc. Waynesville NC SE SAIF AMSE 12/18/87 17.250 21.57 9.8
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/95 9.125 24.53 16.0
SCBS Southern Community Bancshares Cullman AL SE SAIF NASDAQ 12/23/96 13.000 14.79 14.3
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 13.500 7.83 19.9
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 22.750 84.73 17.5
SRN Southern Banc Co. Gadsden AL SE SAIF AMSE 10/05/95 12.750 15.69 26.0
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 15.000 27.05 18.8
SZB SouthFirst Bancshares Inc. Sylacauga AL SE SAIF AMSE 02/14/95 15.688 15.18 23.8
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 13.250 16.45 18.4
UFBS Union Financial Bcshs Inc. Union SC SE SAIF NASDAQ NA 15.000 19.13 16.1
Maximum 34.375 269.35 32.4
Minimum 8.125 7.83 9.8
Average 16.177 68.96 18.9
Median 15.000 40.78 18.5
</TABLE>
1
<PAGE>
Exhibit II.1 - Selected Southeast Region Publicly Held Thrifts
<TABLE>
<CAPTION>
Tangible
Current Current Current Total Equity/ Equity/ Core Core Core NPAs/
Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS OAA ROAE Merger Current Assets
Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing (%)
Ticker (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AFBC 86.3 86.3 11.3 2.56 114,185 13.1 13.1 0.74 0.68 4.62 N 10/30/98 0.33
BFSB 166.3 166.3 22.1 2.13 156,308 13.3 13.3 0.77 1.23 8.79 N 10/30/98 0.21
BKUNA 88.1 105.4 4.5 - 3,584,123 5.4 4.6 0.28 0.19 3.70 N 10/30/98 0.46
CENB 89.0 89.0 17.2 5.18 96,866 19.3 19.3 1.05 1.18 4.48 N 10/30/98 0.35
CFCP 326.5 326.5 19.3 1.47 616,887 5.9 5.9 0.83 0.99 16.06 N 10/30/98 0.48
CFFC 117.5 118.0 16.6 2.71 183,230 14.1 14.0 0.66 0.96 7.01 N 10/30/98 1.30
CFNC 100.6 100.6 13.6 2.95 113,911 13.5 13.5 0.68 1.03 4.74 N 10/30/98 0.13
CFTP 99.3 99.3 24.6 2.17 263,246 22.3 22.3 0.58 1.07 4.27 N 10/30/98 0.28
CMSV 134.3 134.3 14.9 4.02 765,488 10.9 10.9 0.93 0.65 5.82 N 10/30/98 0.27
CNIT 179.9 194.2 15.0 2.26 651,857 7.9 7.4 1.20 0.84 11.65 N 10/30/98 0.17
COOP 127.1 127.1 10.2 - 389,409 8.0 8.0 0.68 0.58 7.40 N 10/30/98 -
EBSI 136.6 136.6 9.5 3.51 1,120,232 6.9 6.9 1.43 0.89 11.51 N 10/30/98 1.20
FFBH 110.3 110.3 16.2 1.46 578,142 14.7 14.7 1.18 0.99 6.63 N 10/30/98 0.85
FFCH 210.2 210.2 14.3 2.49 1,839,708 6.8 6.8 1.15 0.90 13.71 N 10/30/98 0.71
FFDB 133.4 144.4 13.2 2.87 179,893 9.9 9.2 0.65 0.89 9.22 N 10/30/98 0.89
FFFL 177.4 182.7 10.9 4.24 1,468,351 6.2 6.0 0.93 0.52 7.22 N 10/30/98 0.27
FFLC 111.0 111.0 13.9 2.27 422,228 12.5 12.5 1.10 1.03 7.99 N 10/30/98 0.19
FGHC 285.0 304.9 23.2 - 180,806 8.2 7.7 0.38 1.16 14.15 N 10/30/98 1.65
FLAG 172.6 172.6 15.0 1.86 442,879 8.7 8.7 0.50 0.68 7.69 N 10/30/98 1.26
FLFC 226.4 247.2 17.6 1.51 1,511,776 7.8 7.2 0.81 0.76 10.18 N 10/30/98 0.77
FSPT 120.3 120.3 27.3 2.33 530,412 22.7 22.7 1.67 1.34 5.26 N 10/30/98 0.31
FSTC 206.5 251.6 20.6 1.29 379,694 10.0 8.3 1.51 1.28 12.77 N 10/30/98 1.08
FTF 133.0 133.0 19.2 2.94 189,451 14.5 14.5 1.86 1.69 11.24 N 10/30/98 NA
GSFC 86.9 86.9 30.3 3.73 173,265 34.9 34.9 0.68 1.58 4.46 N 10/30/98 0.07
HBS 97.6 100.8 14.2 3.48 151,718 14.6 14.2 1.77 1.44 9.97 N 10/30/98 0.60
PDB 115.5 115.5 19.2 5.26 127,607 16.7 16.7 0.57 1.22 7.42 N 10/30/98 NA
SCBS 125.5 125.5 21.8 2.31 67,920 17.3 17.3 0.91 1.22 6.49 N 10/30/98 0.18
SCCB 83.1 83.1 16.3 4.74 47,992 19.6 19.6 0.68 0.88 4.00 N 10/30/98 1.87
SOPN 121.5 121.5 27.8 4.40 304,168 22.9 22.9 1.30 1.76 7.64 N 10/30/98 0.18
SRN 84.5 85.1 14.9 2.75 105,087 17.7 17.6 0.49 0.52 2.96 N 10/30/98 0.01
SSM 90.1 90.1 24.6 3.07 112,253 27.3 27.3 0.80 1.40 4.84 N 10/30/98 -
SZB 93.7 96.1 9.3 3.83 162,975 9.9 9.7 0.66 0.41 3.71 N 10/30/98 0.05
TWIN 117.4 117.4 14.9 3.02 110,610 12.7 12.7 0.72 0.82 6.41 N 10/30/98 0.37
UFBS 129.8 NA 10.5 2.48 183,066 8.1 NA 0.93 0.70 8.86 N 10/30/98 NA
Maximum 326.5 326.5 30.3 5.26 3,584,123 34.9 34.9 1.86 1.76 16.06 1.87
Minimum 83.1 83.1 4.5 - 47,992 5.4 4.6 0.28 0.19 2.96 -
Average 137.7 142.2 16.9 2.68 509,581 13.6 13.6 0.91 0.98 7.73 0.53
Median 120.9 120.3 15.6 2.63 186,341 12.9 13.1 0.81 0.98 7.31 0.33
<CAPTION>
Price/ Core
Core EPS
EPS ($)
Ticker (x) MRQ
<S> <C> <C>
AFBC 31.3 0.10
BFSB 17.1 0.22
BKUNA NM -
CENB 13.1 0.25
CFCP 21.6 0.22
CFFC 18.5 0.16
CFNC 10.7 0.19
CFTP 24.6 0.15
CMSV 22.4 0.25
CNIT 18.1 0.27
COOP 20.3 0.16
EBSI 10.1 0.45
FFBH 16.0 0.30
FFCH 15.0 0.32
FFDB 16.3 0.15
FFFL 26.8 0.22
FFLC 13.2 0.30
FGHC 21.9 0.10
FLAG 29.3 0.11
FLFC 23.7 0.21
FSPT 23.2 0.37
FSTC 20.6 0.34
FTF 10.5 0.52
GSFC 18.9 0.17
HBS 13.1 0.33
PDB 16.3 0.14
SCBS 11.2 0.29
SCCB 21.1 0.16
SOPN 17.2 0.33
SRN 22.8 0.14
SSM 23.4 0.16
SZB 56.0 0.07
TWIN 18.4 0.18
UFBS 16.3 0.23
Maximum 56.0 0.52
Minimum 10.1 -
Average 20.0 0.22
Median 18.5 0.22
</TABLE>
2
<PAGE>
Exhibit II.1 - Selected Southeast Region Publicly Held Thrifts
<TABLE>
<CAPTION>
Core Core
ROAA ROAE
(%) (%)
Ticker MRQ MRQ
<S> <C> <C>
AFBC 0.34 2.49
BFSB 1.33 9.92
BKUNA 0.03 0.50
CENB 1.18 6.35
CFCP 0.95 15.91
CFFC 0.95 6.78
CFNC 1.15 6.38
CFTP 1.01 4.51
CMSV 0.67 6.18
CNIT 0.76 10.30
COOP 0.53 6.61
EBSI 0.95 14.68
FFBH 0.99 6.72
FFCH 0.99 14.88
FFDB 0.83 8.49
FFFL 0.43 6.73
FFLC 1.08 8.55
FGHC 1.15 14.40
FLAG 0.58 6.74
FLFC 0.83 10.98
FSPT 1.13 4.79
FSTC 1.11 11.10
FTF 1.83 12.48
GSFC 1.60 4.52
HBS 1.09 7.38
PDB 1.19 7.17
SCBS 1.57 9.46
SCCB 0.82 4.12
SOPN 1.76 7.68
SRN 0.56 3.18
SSM 1.07 4.02
SZB 0.15 1.49
TWIN 0.80 6.29
UFBS 0.68 8.70
Maximum 1.83 15.91
Minimum 0.03 0.50
Average 0.94 7.66
Median 0.97 6.76
</TABLE>
3
<PAGE>
Exhibit II.2 - Selected North Carolina Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CENB Century Bancorp Inc. Thomasville NC SE SAIF NASDAQ 12/23/96 13.125 16.68
CFNC Carolina Fincorp Inc. Rockingham NC SE SAIF NASDAQ 11/25/96 8.125 15.48
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 13.000 39.56
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 12.875 52.57
HBS Haywood Bancshares Inc. Waynesville NC SE SAIF AMSE 12/18/87 17.250 21.57
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/95 9.125 24.53
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 22.750 84.73
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 15.000 27.05
Maximum 22.750 84.73
Minimum 8.125 15.48
Average 13.906 35.27
Median 13.063 25.79
<CAPTION>
Price/
LTM
Ticker Core EPS
(x)
<S> <C>
CENB 12.5
CFNC 12.0
COOP 19.1
GSFC 18.9
HBS 9.8
PDB 16.0
SOPN 17.5
SSM 18.8
Maximum 19.1
Minimum 9.8
Average 15.6
Median 16.8
</TABLE>
4
<PAGE>
Exhibit II.2 - Selected North Carolina Publicly Held Thrifts
<TABLE>
<CAPTION>
Tangible
Current Current Current Total Equity/ Equity/ Core Core Core
Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Merger
Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target?
Ticker (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CENB 89.0 89.0 17.2 5.18 96,866 19.3 19.3 1.05 1.18 4.48 N
CFNC 100.6 100.6 13.6 2.95 113,911 13.5 13.5 0.68 1.03 4.74 N
COOP 127.1 127.1 10.2 - 389,409 8.0 8.0 0.68 0.58 7.40 N
GSFC 86.9 86.9 30.3 3.73 173,265 34.9 34.9 0.68 1.58 4.46 N
HBS 97.6 100.8 14.2 3.48 151,718 14.6 14.2 1.77 1.44 9.97 N
PDB 115.5 115.5 19.2 5.26 127,607 16.7 16.7 0.57 1.22 7.42 N
SOPN 121.5 121.5 27.8 4.40 304,168 22.9 22.9 1.30 1.76 7.64 N
SSM 90.1 90.1 24.6 3.07 112,253 27.3 27.3 0.80 1.40 4.84 N
Maximum 127.1 127.1 30.3 5.26 389,409 34.9 34.9 1.77 1.76 9.97
Minimum 86.9 86.9 10.2 - 96,866 8.0 8.0 0.57 0.58 4.46
Average 103.5 103.9 19.6 3.51 183,650 19.6 19.6 0.94 1.27 6.37
Median 99.1 100.7 18.2 3.60 139,663 18.0 18.0 0.74 1.31 6.12
<CAPTION>
NPAs/ Price/ Core
Current Assets Core EPS
Pricing (%) EPS ($)
Ticker Date MRQ (x) MRQ
<S> <C> <C> <C> <C>
CENB 10/30/98 0.35 13.1 0.25
CFNC 10/30/98 0.13 10.7 0.19
COOP 10/30/98 - 20.3 0.16
GSFC 10/30/98 0.07 18.9 0.17
HBS 10/30/98 0.60 13.1 0.33
PDB 10/30/98 NA 16.3 0.14
SOPN 10/30/98 0.18 17.2 0.33
SSM 10/30/98 - 23.4 0.16
Maximum 0.60 23.4 0.33
Minimum - 10.7 0.14
Average 0.19 16.6 0.22
Median 0.13 16.8 0.18
</TABLE>
5
<PAGE>
Exhibit II.2 - Selected North Carolina Publicly Held Thrifts
<TABLE>
<CAPTION>
Core Core
ROAA ROAE
(%) (%)
Ticker MRQ MRQ
<S> <C> <C>
CENB 1.18 6.35
CFNC 1.15 6.38
COOP 0.53 6.61
GSFC 1.60 4.52
HBS 1.09 7.38
PDB 1.19 7.17
SOPN 1.76 7.68
SSM 1.07 4.02
Maximum 1.76 7.68
Minimum 0.53 4.02
Average 1.20 6.26
Median 1.17 6.50
</TABLE>
6
<PAGE>
Exhibit 11.3 - Comparatives General Characteristics
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City State Offices MRQ IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANA Acadiana Bancshares Inc. Lafayette LA 5 289,187 07/16/96 17.188 39.17
ASBI Ameriana Bancorp New Castle IN 9 375,297 03/02/87 18.000 58.55
CBK Citizens First Financial Corp. Bloomington IL 6 281,068 05/01/96 15.000 34.33
FFFD North Central Bancshares Inc. Fort Dodge IA 7 334,718 03/21/96 16.750 51.99
HBFW Home Bancorp Fort Wayne IN 9 360,286 03/30/95 26.625 62.60
HRBF Harbor Federal Bancorp Inc. Baltimore MD 9 231,693 08/12/94 20.500 38.19
JXVL Jacksonville Bancorp Inc. Jacksonville TX 7 242,673 04/01/96 14.750 35.72
MFBC MFB Corp. Mishawaka IN 5 310,030 03/25/94 20.750 30.59
MFFC Milton Federal Financial Corp. West Milton OH 4 235,275 10/07/94 14.375 32.15
OHSL OHSL Financial Corp. Cincinnati OH 5 252,396 02/10/93 14.625 36.50
PFDC Peoples Bancorp Auburn IN 7 304,320 07/07/87 20.000 67.50
SOPN First Savings Bancorp Inc. Southern Pines NC 5 304,168 01/06/94 22.750 84.73
Maximum 9 375,297 26.625 84.73
Minimum 4 231,693 14.375 30.59
Average 7 293,426 18.443 47.67
Median 7 296,678 17.594 38.68
</TABLE>
7
<PAGE>
Exhibit II.4 - Comparatives Balance Sheet Characteristics
<TABLE>
<CAPTION>
Total Mortgage- Investment & Loan
Total Cash and Backed Net Foreclosed Servicing Total Other Total
Assets Investments Securities Loans Real Estate Rights Intangibles Assets Deposits
($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Acadiana Bancshares Inc. 289,187 61,676 NA NA 34 - - 6,509 205,652
Ameriana Bancorp 375,297 94,570 25,425 265,239 154 760 806 11,703 310,624
Citizens First Financial Corp. 281,068 41,922 9,547 223,223 577 596 - 12,385 202,757
North Central Bancshares Inc. 334,718 57,764 - 258,576 107 - 6,506 11,765 245,659
Home Bancorp 360,286 37,753 - 318,108 - - - 4,338 306,424
Harbor Federal Bancorp Inc. 231,693 72,106 17,584 150,457 86 - - 5,678 176,243
Jacksonville Bancorp Inc. 242,673 49,385 18,167 185,805 498 508 - 6,477 198,904
MFB Corp. 310,030 59,429 NA 232,832 - - - 4,253 180,666
Milton Federal Financial Corp. 235,275 57,864 16,808 169,347 - 189 - 5,875 154,647
OHSL Financial Corp. 252,396 79,051 NA NA - NA - 4,529 186,532
Peoples Bancorp 304,320 44,946 403 254,909 - - - 4,465 249,054
First Savings Bancorp Inc. 304,168 92,216 4,837 208,094 - - - 3,858 211,925
Maximum 375,297 94,570 25,425 318,108 577 760 6,506 12,385 310,624
Minimum 231,693 37,753 - 150,457 - - - 3,858 154,647
Average 293,426 62,390 10,308 226,659 121 187 609 6,820 219,091
Median 296,678 58,647 9,547 228,028 17 - - 5,777 204,205
</TABLE>
8
<PAGE>
Exhibit II.4 - Comparatives Balance Sheet Characteristics
<TABLE>
<CAPTION>
Regulatory Regulatory
Total Subordinated Other Total Preferred Common Total Tangible Core
Borrowings Debt Liabilities Liabilities Equity Equity Equity Capital Capital
($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Acadiana Bancshares Inc. 41,728 - 2,333 249,713 - 39,474 39,474 NA NA
Ameriana Bancorp 12,778 - 6,254 329,656 - 45,641 45,641 39,663 39,663
Citizens First Financial Corp. 35,577 - 3,518 241,852 - 39,216 39,216 31,227 31,227
North Central Bancshares Inc. 37,088 - 2,236 284,983 - 49,735 49,735 NA NA
Home Bancorp 7,000 - 3,915 317,339 - 42,947 42,947 33,778 33,778
Harbor Federal Bancorp Inc. 23,310 - 2,537 202,090 - 29,603 29,603 23,182 23,182
Jacksonville Bancorp Inc. 4,051 - 4,639 207,594 - 35,079 35,079 33,425 33,425
MFB Corp. 95,092 - 3,386 279,144 - 30,886 30,886 NA NA
Milton Federal Financial Corp. 52,430 - 1,915 208,992 - 26,283 26,283 21,681 21,681
OHSL Financial Corp. 36,708 - 1,984 225,224 - 27,172 27,172 NA NA
Peoples Bancorp 8,315 - 1,406 258,775 - 45,545 45,545 37,049 37,049
First Savings Bancorp Inc. 20,000 - 2,722 234,647 - 69,521 69,521 NA 69,146
Maximum 95,092 - 6,254 329,656 - 69,521 69,521 39,663 69,146
Minimum 4,051 - 1,406 202,090 - 26,283 26,283 21,681 21,681
Average 31,173 - 3,070 253,334 - 40,092 40,092 31,429 36,144
Median 29,444 - 2,630 245,783 - 39,345 39,345 33,425 33,602
</TABLE>
9
<PAGE>
Exhibit II.4 - Comparative Balance Sheet Characteristics
<TABLE>
<CAPTION>
Regulatory Loan Loss Publicly Tangible
Total Tangible Core Risk-Based NPAs/ Reserves/ Reserves/ Reported Publicly Rep
Capital Capital/ Capital/ Capital/ Assets Assets NPLs Book V Book V
($000) Tangible Adj Tangible Risk-Weightd (%) (%) (%) ($) ($)
Short Name MRQ Assets (%) Assets (%) Assets (%) MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Acadiana Bancshares Inc. NA NA NA NA NA NA NA 17.32 17.32
Ameriana Bancorp 40,343 10.1 10.1 19.2 0.49 0.31 67.63 14.03 13.78
Citizens First Financial Corp. 32,250 10.2 10.2 19.0 0.48 0.37 133.46 15.53 15.53
North Central Bancshares Inc. NA 21.8 21.8 41.1 NA 0.81 NA 16.02 13.92
Home Bancorp 35,168 12.1 12.1 27.1 - 0.39 NM 18.27 18.27
Harbor Federal Bancorp Inc. 23,883 11.0 11.0 26.7 0.69 0.23 35.26 15.89 15.89
Jacksonville Bancorp Inc. 34,596 13.1 13.1 26.7 0.62 0.48 116.75 14.48 14.48
MFB Corp. NA 13.8 13.8 32.7 NA 0.15 NA 20.95 20.95
Milton Federal Financial Corp. 22,323 11.6 11.6 24.3 0.17 0.29 166.91 12.63 12.63
OHSL Financial Corp. NA 9.6 9.6 19.5 NA NA NA 11.12 11.12
Peoples Bancorp 37,944 12.1 12.1 25.6 0.16 0.30 191.29 13.57 13.57
First Savings Bancorp Inc. 69,742 NA NA NA 0.18 0.20 109.36 18.73 18.73
Maximum 69,742 21.8 21.8 41.1 0.69 0.81 191.29 20.95 20.95
Minimum 22,323 9.6 9.6 19.0 - 0.15 35.26 11.12 11.12
Average 37,031 12.5 12.5 26.2 0.35 0.35 117.24 15.71 15.52
Median 34,882 11.8 11.8 26.1 0.33 0.31 116.75 15.71 15.01
</TABLE>
10
<PAGE>
Exhibit II.4 - Comparatives Balance Sheet Characteristics
<TABLE>
<CAPTION>
Earn Assets/ Full-Time Loans Cash and
Int Bearing Equivalent Serviced Invetments/ MBS/
Liabilities Employees For Others Assets Assets
(%) (Actual) ($000) (%) (%)
Short Name MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
Acadiana Bancshares Inc. 115.83 NA NA 21.33 NA
Ameriana Bancorp 114.36 160 145,005 18.42 6.77
Citizens First Financial Corp. 112.94 98 105,697 11.52 3.40
North Central Bancshares Inc. 114.65 NA NA 17.26 -
Home Bancorp 113.64 84 2,231 10.48 -
Harbor Federal Bancorp Inc. 114.14 51 13,211 23.53 7.59
Jacksonville Bancorp Inc. 116.36 86 74,532 12.86 7.49
MFB Corp. 111.68 NA NA 19.17 NA
Milton Federal Financial Corp. 110.53 53 15,615 17.45 7.14
OHSL Financial Corp. 110.85 NA NA 31.32 NA
Peoples Bancorp 117.55 82 - 14.64 0.13
First Savings Bancorp Inc. 131.66 43 - 28.73 1.59
Maximum 131.66 160 145,005 31.32 7.59
Minimum 110.53 43 - 10.48 -
Average 115.35 82 44,536 18.89 3.79
Median 114.25 83 14,413 17.94 3.40
</TABLE>
11
<PAGE>
Exhibit II.5 - Comparatives Operations Characteristics
<TABLE>
<CAPTION>
Net Income ROAA ROAE
Average Net Before Before Core Before Core
Assets Income Extra Items ROAA Extra ROAA ROAE Extra ROAE
($000) ($000) ($000) (%) (%) (%) (%) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Acadiana Bancshares Inc. 287,300 2,770 2,770 0.96 0.96 0.94 6.28 6.28 6.13
Ameriana Bancorp 389,725 3,810 3,810 0.98 0.98 0.84 8.55 8.55 7.33
Citizens First Financial Corp. 276,933 1,969 1,969 0.71 0.71 0.41 5.13 5.13 2.93
North Central Bancshares Inc. 304,214 4,391 4,391 1.44 1.44 1.38 8.73 8.73 8.34
Home Bancorp 348,591 2,957 2,957 0.85 0.85 0.83 6.84 6.84 6.68
Harbor Federal Bancorp Inc. 229,826 1,827 1,827 0.79 0.79 0.77 6.24 6.24 6.03
Jacksonville Bancorp Inc. 235,220 3,138 3,138 1.33 1.33 1.33 9.13 9.13 9.13
MFB Corp. 282,976 2,236 2,236 0.79 0.79 0.71 6.94 6.94 6.24
Milton Federal Financial Corp. 225,056 1,502 1,502 0.67 0.67 0.54 5.82 5.82 4.67
OHSL Financial Corp. 244,934 2,102 2,102 0.86 0.86 0.78 7.93 7.93 7.17
Peoples Bancorp 295,736 4,282 4,282 1.45 1.45 1.45 9.56 9.56 9.56
First Savings Bancorp Inc. 298,775 5,258 5,258 1.76 1.76 1.76 7.64 7.64 7.64
Maximum 389,725 5,258 5,258 1.76 1.76 1.76 9.56 9.56 9.56
Minimum 225,056 1,502 1,502 0.67 0.67 0.41 5.13 5.13 2.93
Average 284,941 3,020 3,020 1.05 1.05 0.98 7.40 7.40 6.82
Median 285,138 2,864 2,864 0.91 0.91 0.84 7.29 7.29 6.93
<CAPTION>
Loan Total Total
Loss Noninterest Noninterest
Provision Income Expense
($000) ($000) ($000)
LTM LTM LTM
<C> <C> <C>
Short Name 135 1,065 6,198
<S> 227 2,375 9,160
Acadiana Bancshares Inc. 591 925 7,392
Ameriana Bancorp 240 3,343 6,750
Citizens First Financial Corp. 4 291 4,856
North Central Bancshares Inc. 110 557 4,138
Home Bancorp 20 1,352 5,426
Harbor Federal Bancorp Inc. 120 591 5,646
Jacksonville Bancorp Inc. 229 326 4,131
MFB Corp. 26 446 4,726
Milton Federal Financial Corp. 58 711 4,526
OHSL Financial Corp. - 608 3,750
Peoples Bancorp
First Savings Bancorp Inc. 591 3,343 9,160
- 291 3,750
Maximum 147 1,049 5,558
Minimum 115 660 5,141
Average
Median
</TABLE>
12
<PAGE>
Exhibit II.5 - Comparatives Operations Characteristics
<TABLE>
<CAPTION>
Net Loan Common Dividend Interest Interest Net Interest
Chargeoffs/ LTM EPS Dividends Payout Income/ Expense/ Income/
Avg Loans After Extra Per Share Ratio Avg Assets Avg Assets Avg Assets
(%) ($) ($) (%) (%) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C>
Acadiana Bancshares Inc. NA 1.18 0.44 37.29 7.46 4.13 3.33
Ameriana Bancorp 0.07 1.16 0.64 55.17 7.35 4.25 3.09
Citizens First Financial Corp. 0.07 0.77 - - 7.53 4.29 3.24
North Central Bancshares Inc. NA 1.38 0.30 21.92 7.18 3.82 3.36
Home Bancorp - 1.28 0.28 21.88 7.37 4.61 2.76
Harbor Federal Bancorp Inc. - 1.02 0.48 46.62 7.39 4.47 2.91
Jacksonville Bancorp Inc. 0.02 1.26 0.50 39.68 7.63 3.99 3.64
MFB Corp. NA 1.39 0.34 24.10 7.38 4.31 3.07
Milton Federal Financial Corp. 0.08 0.71 0.60 84.51 7.21 4.60 2.61
OHSL Financial Corp. NA 0.85 0.47 55.29 7.53 4.55 2.98
Peoples Bancorp 0.01 1.26 0.44 34.66 7.70 4.05 3.65
First Savings Bancorp Inc. - 1.30 0.94 72.31 7.55 3.71 3.84
Maximum 0.08 1.39 0.94 84.51 7.70 4.61 3.84
Minimum - 0.71 - - 7.18 3.71 2.61
Average 0.03 1.13 0.45 41.12 7.44 4.23 3.21
Median 0.02 1.22 0.46 38.49 7.43 4.27 3.17
<CAPTION>
Gain on Real Net Interest
Sale/ Estate Income/
Avg Assets Expense Avg Assets
(%) ($000) (%)
Short Name LTM LTM LTM
<S> <C> <C> <C>
Acadiana Bancshares Inc. 0.04 (407) 0.37
Ameriana Bancorp 0.22 (34) 0.61
Citizens First Financial Corp. 0.47 71 0.33
North Central Bancshares Inc. 0.10 (3) 1.10
Home Bancorp 0.03 - 0.08
Harbor Federal Bancorp Inc. 0.04 - 0.24
Jacksonville Bancorp Inc. - (158) 0.57
MFB Corp. 0.05 - 0.21
Milton Federal Financial Corp. 0.20 (15) 0.14
OHSL Financial Corp. 0.13 (16) 0.18
Peoples Bancorp - 57 0.24
First Savings Bancorp Inc. - (8) 0.20
Maximum 0.47 71 1.10
Minimum - (407) 0.08
Average 0.11 (43) 0.36
Median 0.05 (6) 0.24
</TABLE>
13
<PAGE>
Exhibit II.5 - Comparatives Operations Characteristics
<TABLE>
<CAPTION>
G&A Noninterest Net Oper Total Amortization Extra and
Expense/ Expense/ Expenses/ Nonrecurring of Tax After Tax Efficiency
Avg Assets Avg Assets Avg Assets Expense Intangibles Provision Items Ratio
(%) (%) (%) ($000) ($000) ($000) ($000) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Acadiana Bancshares Inc. 2.30 2.16 1.93 - - 1,636 - 62.09
Ameriana Bancorp 2.34 2.35 1.73 32 62 2,060 - 63.32
Citizens First Financial Corp. 2.64 2.67 2.31 - - 1,249 - 73.93
North Central Bancshares Inc. 2.12 2.22 1.02 - 314 2,489 - 47.47
Home Bancorp 1.39 1.39 1.31 - - 2,202 - 49.00
Harbor Federal Bancorp Inc. 1.80 1.80 1.56 - - 1,275 - 57.04
Jacksonville Bancorp Inc. 2.37 2.31 1.80 - - 1,325 - 56.35
MFB Corp. 2.00 2.00 1.79 - - 1,617 - 60.90
Milton Federal Financial Corp. 1.84 1.84 1.70 - - 790 - 66.90
OHSL Financial Corp. 1.94 1.93 1.75 - - 1,200 - 61.23
Peoples Bancorp 1.51 1.53 1.27 - - 2,628 - 38.88
First Savings Bancorp Inc. 1.26 1.26 1.05 - - 3,060 - 31.14
Maximum 2.64 2.67 2.31 32 314 3,060 - 73.93
Minimum 1.26 1.26 1.02 - - 790 - 31.14
Average 1.96 1.96 1.60 3 31 1,794 - 55.69
Median 1.97 1.97 1.72 - - 1,627 - 58.97
<CAPTION>
Yield on
Preferred Int Earning
Dividends Assets
($000) (%)
Short Name LTM LTM
<S> <C> <C>
Acadiana Bancshares Inc. - 7.64
Ameriana Bancorp - 7.71
Citizens First Financial Corp - 7.86
North Central Bancshares Inc. - 7.54
Home Bancorp - 7.51
Harbor Federal Bancorp Inc. - 7.55
Jacksonville Bancorp Inc. - 7.82
MFB Corp. - 7.47
Milton Federal Financial Corp - 7.38
OHSL Financial Corp. - 7.69
Peoples Bancorp - 7.81
First Savings Bancorp Inc. - 7.70
Maximum - 7.86
Minimum - 7.38
Average - 7.64
Median - 7.67
</TABLE>
14
<PAGE>
Exhibit II.5 - Comparatives Operations Characteristics
<TABLE>
<CAPTION>
Cost of Interest Loan Loss
Int Bearing Effective Yield Provision/
Liabilities Tax Rate Spread Avg Assets
(%) (%) (%) (%)
Short Name LTM LTM LTM LTM
<S> <C> <C> <C> <C>
Acadiana Bancshares Inc. 5.08 37.13 2.56 0.05
Ameriana Bancorp 5.01 35.09 2.70 0.06
Citizens First Financial Corp. 5.05 38.81 2.81 0.21
North Central Bancshares Inc. 4.72 36.18 2.82 0.08
Home Bancorp 5.35 42.68 2.16 0.00
Harbor Federal Bancorp Inc. 5.21 41.10 2.34 0.05
Jacksonville Bancorp Inc. 4.78 29.69 3.04 0.01
MFB Corp. 4.93 41.97 2.54 0.04
Milton Federal Financial Corp. 5.24 34.47 2.14 0.10
OHSL Financial Corp. 5.22 36.34 2.47 0.01
Peoples Bancorp 4.81 38.03 3.00 0.02
First Savings Bancorp Inc. 4.88 36.79 2.82 -
Maximum 5.35 42.68 3.04 0.21
Minimum 4.72 29.69 2.14 -
Average 5.02 37.36 2.62 0.05
Median 5.03 36.96 2.63 0.04
</TABLE>
15
<PAGE>
Exhibit II.6 - Comparatives Pricing Characteristics
<TABLE>
<CAPTION>
Current Current Price/ Current Current
Stock Market LTM Price/ Price/ T
Abbreviated Price Value Core EPS Book V Book V
Ticker Name City State ($) ($M) (x) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANA AcadianaBcshs-LA Lafayette LA 17.188 39.17 14.8 99.2 99.2
ASBI AmerianaBancorp-IN New Castle IN 18.000 58.55 18.0 128.3 130.6
CBK CitizensFirst-IL Bloomington IL 15.000 34.33 34.9 96.6 96.6
FFFD NorthCentral-IA Fort Dodge IA 16.750 51.99 12.7 104.6 120.3
HBFW HomeBancorp-IN Fort Wayne IN 26.625 62.60 21.3 145.7 145.7
HRBF HarborFedBncp-MD Baltimore MD 20.500 38.19 20.7 129.0 129.0
JXVL Jacksonville-TX Jacksonville TX 14.750 35.72 11.7 101.9 101.9
MFBC MFBCorp-IN Mishawaka IN 20.750 30.59 16.6 99.1 99.1
MFFC MiltonFedFinl-OH West Milton OH 14.375 32.15 25.2 113.8 113.8
OHSL OHSLFinancial-OH Cincinnati OH 14.625 36.50 19.0 131.5 131.5
PFDC PeoplesBancorp-IN Auburn IN 20.000 67.50 15.9 147.4 147.4
SOPN FirstSvngsBncp-NC Southern Pines NC 22.750 84.73 17.5 121.5 121.5
Maximum 26.625 84.73 34.9 147.4 147.4
Minimum 14.375 30.59 11.7 96.6 96.6
Average 18.443 47.67 19.0 118.2 119.7
Median 17.594 38.68 17.8 117.6 120.9
</TABLE>
16
<PAGE>
Exhibit II.6 - Comparatives Pricing Characteristics
<TABLE>
<CAPTION>
Tangible ROACE
Current Total Equity/ Equity/ Core Core Core Before
Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Extra Merger Current
Assets Yield ($000) (%) (%) ($) (%) (%) (%) Target? Pricing
Ticker (%) (%) MRQ MRQ MRQ LTM LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANA 13.5 2.56 289,187 13.7 13.7 1.16 0.94 6.13 6.28 N 10/30/98
ASBI 15.6 3.56 375,297 12.2 12.0 1.00 0.84 7.33 8.55 N 10/30/98
CBK 13.5 - 281,068 14.0 14.0 0.43 0.41 2.93 5.13 N 10/30/98
FFFD 15.5 1.91 334,718 14.9 13.2 1.32 1.38 8.34 8.73 N 10/30/98
HBFW 17.4 1.20 360,286 11.9 11.9 1.25 0.83 6.68 6.84 N 10/30/98
HRBF 16.5 2.54 231,693 12.8 12.8 0.99 0.77 6.03 6.24 N 10/30/98
JXVL 14.7 3.39 242,673 14.5 14.5 1.26 1.33 9.13 9.13 N 10/30/98
MFBC 9.9 1.64 310,030 10.0 10.0 1.25 0.71 6.24 6.94 N 10/30/98
MFFC 13.7 4.17 235,275 11.2 11.2 0.57 0.54 4.67 5.82 N 10/30/98
OHSL 14.5 3.42 252,396 10.8 10.8 0.77 0.78 7.17 7.93 N 10/30/98
PFDC 22.1 2.40 304,320 15.0 15.0 1.26 1.45 9.56 9.56 N 10/30/98
SOPN 27.8 4.40 304,168 22.9 22.9 1.30 1.76 7.64 7.64 N 10/30/98
Maximum 27.8 4.40 375,297 22.9 22.9 1.32 1.76 9.56 9.56
Minimum 9.9 - 231,693 10.0 10.0 0.43 0.41 2.93 5.13
Average 16.2 2.60 293,426 13.6 13.5 1.05 0.98 6.82 7.40
Median 15.1 2.55 296,678 13.2 13.0 1.21 0.84 6.93 7.29
</TABLE>
17
<PAGE>
Exhibit II.6 - Comparatives Pricing Characteristics
<TABLE>
<CAPTION>
NPAs/ Price/ Core Core Core
Assets Core EPS ROAA ROAE
(%) EPS ($) (%) (%)
Ticker MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
ANA NA 15.4 0.28 0.80 5.77
ASBI 0.49 18.8 0.24 0.83 7.02
CBK 0.48 34.1 0.11 0.41 2.94
FFFD NA 12.0 0.35 1.29 8.69
HBFW - 20.2 0.33 0.84 6.99
HRBF 0.69 19.0 0.27 0.82 6.47
JXVL 0.62 11.9 0.31 1.26 8.64
MFBC NA 19.2 0.27 0.54 5.10
MFFC 0.17 24.0 0.15 0.53 4.80
OHSL NA 19.2 0.19 0.77 7.09
PFDC 0.16 16.7 0.30 1.32 8.86
SOPN 0.18 17.2 0.33 1.76 7.68
Maximum 0.69 34.1 0.35 1.76 8.86
Minimum - 11.9 0.11 0.41 2.94
Average 0.35 19.0 0.26 0.93 6.67
Median 0.33 18.9 0.28 0.83 7.01
</TABLE>
18
<PAGE>
Exhibit II.7 - Comparatives Risk Characteristics
<TABLE>
<CAPTION>
NPAs + Loans Net Loan
NPAs/ 90+ Pst Due NPAs/ Reserves/ Reserves/ Chargeoffs/
Assets Assets Equity Loans NPAs Avg Loans
(%) (%) (%) (%) (%) (%)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C>
Acadiana Bancshares Inc. NA NA NA NA NA NA
Ameriana Bancorp 0.49 0.56 4.07 0.43 62.02 0.07
Citizens First Financial Corp. 0.48 0.67 3.44 0.45 76.34 0.05
North Central Bancshares Inc. NA 0.19 NA 1.03 NA NA
Home Bancorp - 0.10 - 0.43 NM -
Harbor Federal Bancorp Inc. 0.69 0.69 5.37 0.34 33.35 -
Jacksonville Bancorp Inc. 0.62 0.62 4.28 0.63 78.01 -
MFB Corp. NA NA NA 0.18 NA NA
Milton Federal Financial Corp. 0.17 0.41 1.54 0.39 166.91 0.02
OHSL Financial Corp. NA NA NA NA NA NA
Peoples Bancorp 0.16 0.18 1.06 0.36 191.29 0.01
First Savings Bancorp Inc. 0.18 0.18 0.78 0.29 109.36 0.02
Maximum 0.69 0.69 5.37 1.03 191.29 0.07
Minimum - 0.10 - 0.18 33.35 -
Average 0.35 0.40 2.57 0.45 102.47 0.02
Median 0.33 0.41 2.49 0.41 78.01 0.02
</TABLE>
19
<PAGE>
Exhibit II.7 - Comparatives Risk Characteristics
<TABLE>
<CAPTION>
Intangible One Year Earn Assets/
Loans/ Assets/ Cum Gap/ Net Int Bearing
Assets Equity Assets Loans Liabilities
(%) (%) (%) ($000) (%)
Short Name MRQ MRQ MRY MRQ MRQ
<S> <C> <C> <C> <C> <C>
Acadiana Bancshares Inc. NA - 2.39 NA 115.83
Ameriana Bancorp 71.53 1.77 (17.48) 265,239.00 114.36
Citizens First Financial Corp. 80.63 - (5.40) 223,223.00 112.94
North Central Bancshares Inc. 78.06 13.08 0.28 258,576.00 114.65
Home Bancorp 88.70 - (43.57) 318,108.00 113.64
Harbor Federal Bancorp Inc. 66.62 - NA 150,457.00 114.14
Jacksonville Bancorp Inc. 77.05 - NA 185,805.00 116.36
MFB Corp. 79.61 - NA 232,832.00 111.68
Milton Federal Financial Corp. 73.12 - NA 169,347.00 110.53
OHSL Financial Corp. NA - (14.92) NA 110.85
Peoples Bancorp 84.07 - (37.77) 254,909.00 117.55
First Savings Bancorp Inc. 68.61 - (37.15) 208,094.00 131.66
Maximum 88.70 13.08 2.39 318,108.00 131.66
Minimum 66.62 - (43.57) 150,457.00 110.53
Average 76.80 1.24 (19.20) 226,659.00 115.35
Median 77.56 - (16.20) 228,027.50 114.25
</TABLE>
20
<PAGE>
EXHIBIT III
<PAGE>
BK Financial Highlights
First State Svgs Bk SSB, Burlington, NC 445 S Main St
ID Number: 27789 Burlington, NC 27215-5838
Top HC Name:Not held by a HC. (336) 227-8861
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YE) (YE) (YE) (YE) (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 284,691 260,047 242,167 226,428 217,954 208,426
Securities 39,346 32,785 39,650 36,281 37,995 35,298
Held-to-Maturity Secs(AmortCost) 31,001 23,506 28,458 24,977 24,162 N/A
Avail for Sale Secs (Fair Value) 8,345 9,279 11,192 11,304 13,833 N/A
Total Loans & Leases(C) 205,628 204,399 181,545 173,599 164,797 155,110
Total Deposits 234,845 232,858 219,120 206,322 198,495 191,916
Total Loans/Total Deposits 87.56 87.78 82.85 84.14 83.02 80.82
Provision for Credit Loss 120 240 240 454 240 1,114
CAPITAL:
Total Equity Capital 25,515 23,950 21,346 19,670 17,019 15,880
Total Capital (Tier 1+2+3) 27,553 25,922 23,062 21,606 19,097 17,462
Tangible Equity Ratio 9.08 9.21 8.83 8.70 8.96 8.16
Risk-Adjusted Capital Ratio 16.08 15.50 15.69 14.96 14.42 13.80
Core Capital/Risk Weighted Assets 14.82 14.24 14.43 13.71 13.16 12.55
Core Capital/Adjusted Total Assets 9.08 9.21 8.83 8.70 8.96 8.16
Dividend Payout 0.00 0.00 0.00 0.00 0.00 0.00
PROFITABILITY:
Net Income (Loss) 1,582 2,578 1,736 2,356 1,436 852
Return on Average Assets 1.15 1.02 0.74 1.06 0.67 0.22
Return on Average Equity 12.79 11.35 8.46 12.84 8.73 2.85
Net Interest Spread/AEA 3.61 4.03 3.70 3.61 3.37 2.94
Net Interest Margin/AA 3.41 3.81 3.47 3.40 3.16 2.72
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 2.31 2.05 1.47 17.58 18.33 0.58
Loan Loss Reserve/Nonperf Loans 448.55 514.81 730.86 59.14 51.91 1,574.26
Adjusted Nonperf Assets/TA 0.23 0.21 0.14 1.74 1.63 1.59
PastDue 90 Days:Loans & Leases/GL 0.01 0.06 0.00 0.00 0.00 0.00
Loan Loss Reserve/TL 1.43 1.38 1.41 1.32 1.11 1.03
Net Charge-Offs(YTD)/Average Loans 0.00 -0.01 -0.01 -0.01 0.00 0.78
Real Estate Loans/GDL 87.59 87.09 90.47 88.34 89.73 90.41
LIQUIDITY:
Brokered Deposits/TD 0.00 0.00 0.00 0.00 0.00 0.00
Avg Int-Bear Asset/Avg Int-Bear Liab 108.61 107.95 105.78 105.43 103.88 101.87
Pledged Securities/Total Securities 5.07 9.12 10.09 2.76 38.03 1.35
Tot Secs:Fair Val to Amrtzd Cost 99.79 99.90 99.52 100.41 96.48 101.79
</TABLE>
1
<PAGE>
BK Financial Highlights
First State Svgs Bk SSB, Burlington, NC 445 S Main St
ID Number: 27789 Burlington, NC 27215-5838
Top HC Name:Not held by a HC. (336) 227-8861
<TABLE>
<CAPTION>
Jun 1998 Mar 1998 Dec 1997 Sep 1997 Jun 1997 Jun 1998
(QTR) (QTR) (QTR) (QTR) (QTR) (LTM)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 284,691 282,781 260,047 258,730 252,263 284,691
Securities 39,346 28,806 32,785 35,939 39,223 39,346
Held-to-Maturity Secs(AmortCost) 31,001 21,461 23,506 26,686 29,013 31,001
Avail for Sale Secs (Fair Value) 8,345 7,345 9,279 9,253 10,210 8,345
Total Loans & Leases(C) 205,628 198,757 204,399 200,540 198,334 205,628
Total Deposits 234,845 233,437 232,858 232,627 227,056 234,845
Total Loans/Total Deposits 87.56 85.14 87.78 86.21 87.35 87.56
Provision for Credit Loss 60 60 60 60 60 240
CAPITAL:
Total Equity Capital 25,515 24,771 23,950 23,179 23,029 25,515
Total Capital (Tier 1+2+3) 27,553 26,696 25,922 25,108 24,917 27,553
Tangible Equity Ratio 9.08 9.19 9.21 9.02 9.18 9.08
Risk-Adjusted Capital Ratio 16.08 16.30 15.50 15.30 15.52 16.08
Core Capital/Risk Weighted Assets 14.82 15.05 14.24 14.05 14.27 14.82
Core Capital/Adjusted Total Assets 9.08 9.19 9.21 9.02 9.18 9.08
Dividend Payout 0.00 0.00 0.00 0.00 0.00 0.00
PROFITABILITY:
Net Income (Loss) 760 822 757 126 914 2,465
Return on Average Assets 1.07 1.21 1.17 0.20 1.46 0.92
Return on Average Equity 12.09 13.50 12.85 2.18 16.21 10.23
Net Interest Spread/AEA 3.52 3.66 3.87 4.50 3.94 3.87
Net Interest Margin/AA 3.33 3.45 3.64 4.26 3.74 3.66
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 2.31 1.24 2.05 1.10 1.32 2.31
Loan Loss Reserve/Nonperf Loans 448.55 841.23 514.81 973.14 794.69 448.55
Adjusted Nonperf Assets/TA 0.23 0.12 0.21 0.11 0.13 0.23
PastDue 90 Days:Loans & Leases/GL 0.01 0.00 0.06 0.00 0.00 0.01
Loan Loss Reserve/TL 1.43 1.45 1.38 1.37 1.36 1.43
Net Charge-Offs(YTD)/Average Loans 0.00 0.00 0.00 0.00 0.00 0.00
Real Estate Loans/GDL 87.59 87.08 87.09 87.02 88.37 87.59
LIQUIDITY:
Brokered Deposits/TD 0.00 0.00 0.00 0.00 0.00 0.00
Avg Int-Bear Asset/Avg Int-Bear Liab 108.96 107.86 108.41 108.85 108.21 108.70
Pledged Securities/Total Securities 5.07 10.41 9.12 16.69 5.04 5.07
Tot Secs:Fair Val to Amrtzd Cost 99.79 99.84 99.90 99.83 99.49 99.79
</TABLE>
2
<PAGE>
EXHIBIT IV
<PAGE>
LBA Svgs Bk, Lafayette, LA 101 W Vermilion
ID Number: 28361 Lafayette, LA 70501-6944
Top HC Name:ACADIANA BANCSHARES, INC., LAFAYETTE LA (318) 232-4631
TICKER ANA
- ----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 276,710 265,936 250,909 225,674 223,236 233,445
Securities 33,653 41,565 54,956 45,317 54,454 48,759
Held-to-Maturity Secs(AmortCost) 12,610 12,806 13,087 13,492 47,659 N/A
Avail for Sale Secs (Fair Value) 21,043 28,759 41,869 31,825 6,795 N/A
Total Loans & Leases(C) 223,243 215,600 185,317 160,107 152,851 155,008
Total Deposits 203,044 195,043 194,192 207,218 204,993 216,900
Total Loans/Total Deposits 109.95 110.54 95.43 77.27 74.56 71.47
Provision for Credit Loss 90 180 355 1,274 63 235
CAPITAL:
Total Equity Capital 23,042 33,652 33,857 17,697 17,270 15,450
Total Capital (Tier 1+2+3) 24,616 35,017 35,076 18,428 18,474 16,465
Tangible Equity Ratio 8.05 12.46 13.37 7.57 7.77 6.59
Risk-Adjusted Capital Ratio 16.33 24.43 27.19 16.21 16.55 14.13
Core Capital/Risk Weighted Assets 15.07 23.18 25.93 14.95 15.58 13.26
Core Capital/Adjusted Total Assets 8.05 12.46 13.37 7.57 7.77 6.59
Dividend Payout 896.86 121.26 8.36 N/A - -
PROFITABILITY:
Net Income (Loss) 1,338 2,700 598 (966) 1,937 1,803
Return on Average Assets 0.97 1.05 0.25 (0.43) 0.85 0.81
Return on Average Equity 8.82 7.80 2.32 (5.53) 11.84 12.20
Net Interest Spread/AEA 3.43 3.52 3.31 3.17 3.45 3.54
Net Interest Margin/AA 3.38 3.47 3.25 3.10 3.35 3.44
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 1.39 1.15 2.42 3.83 3.06 16.99
Loan Loss Reserve/Nonperf Loans 796.05 666.67 296.91 314.73 192.05 36.29
Adjusted Nonperf Assets/TA 0.12 0.22 0.34 0.66 1.34 2.30
PastDue 90 Days:Loans & Leases/GL - - - - 0.31 1.29
Loan Loss Reserve/TL 1.26 1.28 1.40 1.45 0.71 0.65
Net Charge-Offs(YTD)/Average Loans 0.01 0.01 0.05 0.02 (0.01) 0.13
Real Estate Loans/GDL 86.61 85.48 86.79 90.36 90.51 87.24
LIQUIDITY:
Brokered Deposits/TD - - - - - -
Avg Int-Bear Asset/Avg Int-Bear Liab 116.71 119.26 113.05 108.01 106.63 105.90
Pledged Securities/Total Securities 1.52 1.24 0.94 1.18 0.88 1.03
Tot Secs:Fair Val to Amrtzd Cost 102.20 101.45 100.76 102.51 96.53 102.83
</TABLE>
1
<PAGE>
Ameriana Bank Indiana, FSB, New Castle, IN PO Box H
Docket Number: 2798 New Castle, IN 47362-1048
Top HC Name:AMERIANA BANCORP, NEW CASTLE IN (765) 529-2230
Ticker ASBI
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 303,104 315,435 324,557 291,459 276,268 269,587
%CH:Total Assets (4.76) (2.81) 11.36 5.50 2.48 0.40
Total Loans $(000) 214,481 236,906 229,669 212,619 205,177 176,269
Total Deposits 261,587 274,522 270,185 241,674 227,104 227,790
Deps:Broker Originated -- -- -- -- -- --
CAPITAL:
Consol:Equity Capital 35,329 33,692 36,561 37,285 38,318 36,818
Total Equity Capital 35,329 33,692 36,561 37,285 38,318 36,818
Tier 1 (Core) Capital 33,968 33,263 35,828 36,778 38,042 36,818
Total Risk-based Capital 34,437 33,712 36,237 37,180 38,397 37,260
Total Equity Capital/TA 11.66 10.68 11.26 12.79 13.87 13.66
Tier 1 Risk-Based Capital Ratio 19.72 18.58 19.79 23.69 27.23 29.44
Tier 1 Leverage Capital Ratio 11.26 10.56 11.06 12.69 13.90 13.69
Tangible Capital/Tang Assets 11.26 10.56 11.06 12.69 13.90 13.69
Total Risk-Based Capital Ratio 20.00 18.84 20.02 23.95 27.48 29.79
PROFITABILITY
Net Income (Loss) 1,637 3,131 2,276 2,967 4,500 3,277
Return on Average Assets 1.05 0.98 0.72 1.03 1.12 1.15
Return on Average Equity 9.49 8.92 6.20 7.77 8.12 8.58
Net Interest Margin/AA 3.10 2.97 3.00 3.12 3.34 3.34
Total Noninterest Income/AA 0.95 0.76 0.62 0.51 0.47 0.49
Total Overhead Expense/AA 2.26 2.07 2.43 1.95 2.02 1.86
Yield on Average Earning Assets 7.53 7.62 7.50 7.48 6.73 7.02
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 111.86 110.94 113.37 114.86 114.78 113.59
Brokered Deposits/TD -- -- -- -- -- --
ASSET QUALITY:
Nonaccruing Loans/GL 0.02 0.10 0.10 0.14 0.12 0.21
Nonperf Lns/Loan Loss Reserve 29.28 42.46 59.25 94.04 42.16 83.29
Repossessed Assets (incl OREO)/TA 0.01 0.01 0.03 0.01 0.01 0.32
Net Charge-Offs(YTD)/Average Loans 0.02 0.03 0.02 0.03 0.06 0.07
</TABLE>
2
<PAGE>
Citizens Savings Bank, FSB, Bloomington, IL PO Box 1207
Docket Number: 1570 Bloomington, IL 61702-1207
Top HC Name:CITIZENS FIRST FNCL CORP, NORMAL IL (309) 661-8700
Ticker CBK
- ----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 274,693 271,193 258,271 228,674 228,251 230,317
%CH:Total Assets 1.23 5.00 12.94 0.19 (0.90) 0.08
Total Loans $(000) 228,256 234,082 215,821 189,897 178,100 157,855
Total Deposits 203,222 198,722 202,336 209,909 209,301 213,919
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 31,266 29,940 27,021 15,518 13,652 13,600
Total Equity Capital 31,266 29,940 27,021 15,518 13,652 13,600
Tier 1 (Core) Capital 31,227 29,947 27,296 15,685 14,653 13,600
Total Risk-based Capital 32,250 30,770 27,791 16,085 14,942 13,890
Total Equity Capital/TA 11.38 11.04 10.46 6.79 5.98 5.90
Tier 1 Risk-Based Capital Ratio 17.71 17.99 19.32 12.66 12.55 13.26
Tier 1 Leverage Capital Ratio 11.37 11.04 10.56 6.86 6.39 5.91
Tangible Capital/Tang Assets 11.37 11.04 10.56 6.86 6.39 5.91
Total Risk-Based Capital Ratio 18.29 18.49 19.67 12.98 12.80 13.54
PROFITABILITY
Net Income (Loss) 968 1,849 380 1,012 1,210 1,765
Return on Average Assets 0.71 0.69 0.16 0.44 0.53 0.77
Return on Average Equity 6.33 6.49 1.70 6.88 8.88 13.89
Net Interest Margin/AA 3.16 2.89 2.94 2.85 2.77 2.70
Total Noninterest Income/AA 0.85 0.87 0.66 0.63 0.47 1.03
Total Overhead Expense/AA 2.69 2.46 3.29 2.70 2.36 2.42
Yield on Average Earning Assets 8.02 7.91 7.76 7.60 6.88 7.09
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 111.85 110.17 109.57 106.50 105.60 105.00
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL 0.19 0.32 0.09 0.16 0.21 0.32
Nonperf Lns/Loan Loss Reserve 94.82 115.19 87.70 184.75 159.94 192.27
Repossessed Assets (incl OREO)/TA 0.21 0.22 0.27 - 0.02 0.09
Net Charge-Offs(YTD)/Average Loans - 0.01 0.01 0.01 0.07 0.16
</TABLE>
3
<PAGE>
First Federal Savings Bank O, Fort Dodge, IA PO Box 1237
Docket Number: 5843 Fort Dodge, IA 50501-1237
Top HC Name:NORTH CENTRAL BANCSHARES, FORT DODGE IA (515) 576-7531
Ticker FFFD
- -----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997(YE) Dec 1996 (YE) Dec 1995(YE) Dec 1994(YE) Dec 1993(YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 329,857 221,163 202,601 180,672 157,275 147,192
%CH:Total Assets 56.18 9.16 12.14 14.88 6.85 0.64
Total Loans $(000) 255,710 194,561 168,878 150,108 126,535 118,557
Total Deposits 246,477 141,766 129,856 127,943 124,458 131,256
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 46,658 39,251 44,952 29,586 27,713 14,760
Total Equity Capital 46,658 39,251 44,952 29,586 27,713 14,760
Tier 1 (Core) Capital 38,979 37,935 43,861 28,570 27,713 14,760
Total Risk-based Capital 41,383 39,478 45,255 29,752 28,736 15,702
Total Equity Capital/TA 14.14 17.75 22.19 16.38 17.62 10.03
Tier 1 Risk-Based Capital Ratio 22.83 30.87 39.52 30.37 34.07 19.65
Tier 1 Leverage Capital Ratio 12.10 17.26 21.77 15.90 17.63 10.02
Tangible Capital/Tang Assets 12.10 17.26 21.77 15.90 17.63 10.02
Total Risk-Based Capital Ratio 24.23 32.13 40.77 31.63 35.33 20.91
PROFITABILITY
Net Income (Loss) 2,202 3,804 3,059 2,503 2,180 2,201
Return on Average Assets 1.50 1.81 1.58 1.47 1.43 1.42
Return on Average Equity 10.06 9.25 7.50 8.77 10.27 15.25
Net Interest Margin/AA 3.57 3.84 4.02 3.47 3.56 3.48
Total Noninterest Income/AA 1.23 1.19 1.04 0.90 0.77 0.73
Total Overhead Expense/AA 2.37 2.14 2.50 1.95 1.97 1.86
Yield on Average Earning Assets 8.28 8.03 8.06 7.81 7.67 8.14
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 114.50 122.46 126.20 120.37 116.61 110.49
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL 0.04 0.08 0.11 0.11 0.13 0.08
Nonperf Lns/Loan Loss Reserve 7.47 7.13 9.47 10.01 11.02 7.34
Repossessed Assets (incl OREO)/TA 0.05 0.03 0.06 0.07 0.10 0.01
Net Charge-Offs(YTD)/Average Loans - 0.03 0.01 0.04 - 0.01
</TABLE>
4
<PAGE>
Home Loan Bank, FSB, Fort Wayne, IN PO Box 989
Docket Number: 12632 Fort Wayne, IN 46801-0989
Top HC Name:HOME BANCORP, FORT WAYNE IN (219) 422-3502
Ticker HBFW
- -----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 353,363 343,425 320,436 301,144 281,129 N/A
%CH:Total Assets 8.49 7.17 6.41 7.12 N/A N/A
Total Loans $(000) 320,997 297,237 259,255 224,186 206,454 N/A
Total Deposits 306,793 303,160 277,294 258,245 256,797 N/A
Deps:Broker Originated - - - - - N/A
CAPITAL:
Consol:Equity Capital 33,778 33,360 38,575 38,196 21,869 N/A
Total Equity Capital 33,778 33,360 38,575 38,196 21,869 N/A
Tier 1 (Core) Capital 33,778 33,333 38,549 38,196 21,869 N/A
Total Risk-based Capital 35,168 34,721 39,935 39,574 23,179 N/A
Total Equity Capital/TA 9.56 9.71 12.04 12.68 7.78 N/A
Tier 1 Risk-Based Capital Ratio 18.69 19.84 25.58 29.02 19.70 N/A
Tier 1 Leverage Capital Ratio 9.56 9.71 12.03 12.68 7.78 N/A
Tangible Capital/Tang Assets 9.56 9.71 12.03 12.68 7.78 N/A
Total Risk-Based Capital Ratio 19.46 20.66 26.50 30.07 20.87 N/A
PROFITABILITY
Net Income (Loss) 1,489 2,681 1,495 2,218 499 N/A
Return on Average Assets 0.86 0.81 0.48 0.76 0.18 N/A
Return on Average Equity 8.86 7.57 3.86 6.49 2.28 N/A
Net Interest Margin/AA 2.62 2.66 2.74 2.64 0.69 N/A
Total Noninterest Income/AA 0.20 0.16 0.13 0.13 0.03 N/A
Total Overhead Expense/AA 1.36 1.40 2.01 1.50 0.42 N/A
Yield on Average Earning Assets 7.36 7.50 7.38 7.32 1.75 N/A
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 111.40 112.53 115.20 114.01 109.03 N/A
Brokered Deposits/TD - - - - - N/A
ASSET QUALITY:
Nonaccruing Loans/GL - - - - - N/A
Nonperf Lns/Loan Loss Reserve 26.62 21.53 14.79 18.00 7.94 N/A
Repossessed Assets (incl OREO)/TA 0.06 - - - 0.01 N/A
Net Charge-Offs(YTD)/Average Loans - - - - - N/A
</TABLE>
5
<PAGE>
Harbor FSB, Towson, MD 705 York Rd
Docket Number: 4829 Baltimore, MD 21204-2562
Top HC Name:HARBOR FEDERAL BANCORP, BALTIMORE MD (410) 321-7041
Ticker HRBF
- -----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 236,635 234,486 219,911 155,641 147,155 127,510
%CH:Total Assets 8.79 6.63 41.29 5.77 15.41 0.34
Total Loans $(000) 154,084 151,365 145,148 103,648 101,291 87,452
Total Deposits 187,882 187,191 175,966 126,139 118,945 112,608
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 23,062 22,110 23,985 23,230 25,537 13,566
Total Equity Capital 23,062 22,110 23,985 23,230 25,537 13,566
Tier 1 (Core) Capital 22,701 21,775 24,029 23,166 25,480 13,566
Total Risk-based Capital 23,201 22,235 24,409 23,631 25,945 14,066
Total Equity Capital/TA 9.75 9.43 10.91 14.93 17.35 10.64
Tier 1 Risk-Based Capital Ratio 21.48 21.34 26.16 34.15 39.70 24.24
Tier 1 Leverage Capital Ratio 9.72 9.41 10.92 14.89 17.33 10.64
Tangible Capital/Tang Assets 9.72 9.41 10.92 14.89 17.33 10.64
Total Risk-Based Capital Ratio 21.95 21.79 26.58 34.84 40.42 25.13
PROFITABILITY
Net Income (Loss) 890 1,647 678 1,278 1,539 1,190
Return on Average Assets 0.76 0.74 0.34 0.83 1.12 0.93
Return on Average Equity 7.90 7.05 2.89 5.32 7.87 9.17
Net Interest Margin/AA 2.76 2.76 2.66 3.60 3.68 3.70
Total Noninterest Income/AA 0.35 0.30 0.37 0.18 0.28 0.24
Total Overhead Expense/AA 1.75 1.82 2.46 2.44 2.14 1.99
Yield on Average Earning Assets 7.55 7.43 7.41 7.73 7.42 7.90
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 109.39 110.19 111.95 115.89 113.85 108.72
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL 0.36 0.27 - - - -
Nonperf Lns/Loan Loss Reserve 174.05 266.59 218.11 117.38 64.16 89.62
Repossessed Assets (incl OREO)/TA - - - 0.03 - 0.07
Net Charge-Offs(YTD)/Average Loans - - 0.09 - 0.04 0.18
</TABLE>
6
<PAGE>
Jacksonville Svg Bk SSB, Jacksonville, TX Commerce & Neches Sts
ID Number: 28066 Jacksonville, TX 75766
Top HC Name:Not held by a HC. (903) 586-9861
TICKER JXVL
- -----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 242,445 235,523 N/A N/A N/A N/A
Securities 42,752 49,525 N/A N/A N/A N/A
Held-to-Maturity Secs(AmortCost) 27,946 31,090 N/A N/A N/A N/A
Avail for Sale Secs (Fair Value) 14,806 18,435 N/A N/A N/A N/A
Total Loans & Leases(C) 186,795 175,972 N/A N/A N/A N/A
Total Deposits 202,359 198,315 N/A N/A N/A N/A
Total Loans/Total Deposits 92.31 88.73 N/A N/A N/A N/A
Provision for Credit Loss 20 105 N/A N/A N/A N/A
CAPITAL:
Total Equity Capital 33,473 32,451 N/A N/A N/A N/A
Total Capital (Tier 1+2+3) 34,596 33,548 N/A N/A N/A N/A
Tangible Equity Ratio 13.89 13.76 N/A N/A N/A N/A
Risk-Adjusted Capital Ratio 26.26 26.58 N/A N/A N/A N/A
Core Capital/Risk Weighted Assets 25.37 25.66 N/A N/A N/A N/A
Core Capital/Adjusted Total Assets 13.89 13.76 N/A N/A N/A N/A
Dividend Payout 46.06 18.01 N/A N/A N/A N/A
PROFITABILITY:
Net Income (Loss) 1,433 3,303 N/A N/A N/A N/A
Return on Average Assets 1.20 1.41 N/A N/A N/A N/A
Return on Average Equity 8.70 10.30 N/A N/A N/A N/A
Net Interest Spread/AEA 3.84 3.82 N/A N/A N/A N/A
Net Interest Margin/AA 3.71 3.70 N/A N/A N/A N/A
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 1.80 2.14 N/A N/A N/A N/A
Loan Loss Reserve/Nonperf Loans 187.96 162.03 N/A N/A N/A N/A
Adjusted Nonperf Assets/TA 0.48 0.55 N/A N/A N/A N/A
PastDue 90 Days:Loans & Leases/GL - - N/A N/A N/A N/A
Loan Loss Reserve/TL 0.63 0.66 N/A N/A N/A N/A
Net Charge-Offs(YTD)/Average Loans 0.01 0.02 N/A N/A N/A N/A
Real Estate Loans/GDL 92.20 93.06 N/A N/A N/A N/A
LIQUIDITY:
Brokered Deposits/TD - - N/A N/A N/A N/A
Avg Int-Bear Asset/Avg Int-Bear Liab 116.00 115.84 N/A N/A N/A N/A
Pledged Securities/Total Securities - - N/A N/A N/A N/A
Tot Secs:Fair Val to Amrtzd Cost 100.25 100.31 N/A N/A N/A N/A
</TABLE>
7
<PAGE>
Jacksonville S&LA, Jacksonville, TX PO Box 401
Docket Number: 832 Jacksonville, TX 75766
Top HC Name:JACKSONVILLE BANCORP, INC., JACKSONVILLE TX (903) 586-9861
Ticker JXVL
- -----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets N/A N/A 215,849 196,690 185,928 185,825
%CH:Total Assets N/A N/A 9.74 5.79 0.06 (2.85)
Total Loans $(000) N/A N/A 159,882 141,242 126,175 123,752
Total Deposits N/A N/A 178,339 173,743 157,478 172,864
Deps:Broker Originated N/A N/A - - - -
CAPITAL:
Consol:Equity Capital N/A N/A 29,240 20,741 19,374 11,621
Total Equity Capital N/A N/A 29,240 20,741 19,374 11,621
Tier 1 (Core) Capital N/A N/A 29,281 20,747 19,595 11,621
Total Risk-based Capital N/A N/A 30,381 21,747 20,595 12,608
Total Equity Capital/TA N/A N/A 13.55 10.55 10.42 6.25
Tier 1 Risk-Based Capital Ratio N/A N/A 26.42 21.12 22.25 13.43
Tier 1 Leverage Capital Ratio N/A N/A 13.56 10.57 10.54 6.26
Tangible Capital/Tang Assets N/A N/A 13.56 10.57 10.54 6.26
Total Risk-Based Capital Ratio N/A N/A 27.41 22.14 23.38 14.57
PROFITABILITY
Net Income (Loss) N/A N/A 1,761 1,478 2,061 2,142
Return on Average Assets N/A N/A 0.83 0.77 1.11 1.14
Return on Average Equity N/A N/A 6.55 7.39 13.30 20.30
Net Interest Margin/AA N/A N/A 3.51 3.07 3.62 3.81
Total Noninterest Income/AA N/A N/A 0.57 0.48 0.49 0.68
Total Overhead Expense/AA N/A N/A 2.80 2.48 2.41 2.40
Yield on Average Earning Assets N/A N/A 7.83 7.45 7.05 7.78
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab N/A N/A 111.33 106.61 103.11 99.14
Brokered Deposits/TD N/A N/A - - - -
ASSET QUALITY:
Nonaccruing Loans/GL N/A N/A 0.45 0.23 0.30 0.67
Nonperf Lns/Loan Loss Reserve N/A N/A 66.85 33.10 35.43 81.52
Repossessed Assets (incl OREO)/TA N/A N/A 0.55 1.08 1.56 2.45
Net Charge-Offs(YTD)/Average Loans N/A N/A - 0.07 (0.11) 0.16
</TABLE>
8
<PAGE>
MMFB Financial, Mishawaka, IN PO Box 528
Docket Number: 1004 Mishawaka, IN 46546-0528
Top HC Name:MFB CORPORATION, MISHAWAKA IN (219) 255-3146
Ticker MBFC
- -----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 290,463 263,828 224,238 186,325 181,955 168,095
%CH:Total Assets 16.94 17.66 20.35 2.40 8.25 1.12
Total Loans $(000) 239,755 208,884 166,290 127,119 117,949 108,689
Total Deposits 176,666 173,522 162,055 145,331 143,670 149,052
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 30,448 32,511 31,803 30,538 28,513 17,302
Total Equity Capital 30,448 32,511 31,803 30,538 28,513 17,302
Tier 1 (Core) Capital 30,473 32,492 31,880 30,322 28,513 17,302
Total Risk-based Capital 30,893 32,877 32,228 30,623 28,784 17,555
Total Equity Capital/TA 10.48 12.32 14.18 16.39 15.67 10.29
Tier 1 Risk-Based Capital Ratio 18.40 24.39 31.01 39.21 40.01 25.89
Tier 1 Leverage Capital Ratio 10.49 12.32 14.21 16.30 15.68 10.32
Tangible Capital/Tang Assets 10.49 12.32 14.21 16.30 15.68 10.32
Total Risk-Based Capital Ratio 18.65 24.68 31.35 39.60 40.39 26.27
PROFITABILITY
Net Income (Loss) 1,172 2,054 1,158 1,241 1,577 1,353
Return on Average Assets 0.83 0.84 0.55 0.67 0.90 0.81
Return on Average Equity 7.50 6.40 3.73 4.21 6.88 8.15
Net Interest Margin/AA 3.03 3.08 3.03 2.90 3.22 3.04
Total Noninterest Income/AA 0.35 0.27 0.26 0.24 0.20 0.21
Total Overhead Expense/AA 2.00 1.93 2.36 2.00 1.97 1.71
Yield on Average Earning Assets 7.63 7.65 7.33 6.94 6.90 7.04
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 112.25 114.21 117.47 118.60 113.87 109.73
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL 0.08 - - 0.01 0.02 0.05
Nonperf Lns/Loan Loss Reserve 76.19 61.56 13.22 108.28 34.15 185.43
Repossessed Assets (incl OREO)/TA - - - 0.01 0.01 0.02
Net Charge-Offs(YTD)/Average Loans - - - - - -
</TABLE>
9
<PAGE>
Milton Federal Savings Bank, W Milton, OH 25 Lowry Dr
Docket Number: 3569 West Milton, OH 45383-1320
Top HC Name:MILTON FED FINANCIAL
CORP W., W MILTON OH (937) 698-4168
Ticker MFFC
- -----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 233,724 217,386 172,068 155,596 138,281 125,288
%CH:Total Assets 18.21 26.34 10.59 12.52 10.37 6.79
Total Loans $(000) 161,600 139,361 111,244 103,350 92,148 84,775
Total Deposits 152,771 145,864 132,762 123,270 110,138 110,991
Deps:Broker Originated - - 57 1,394 1,592 1,592
CAPITAL:
Consol:Equity Capital 22,956 21,737 20,991 24,593 24,993 13,527
Total Equity Capital 22,956 21,737 20,991 24,593 24,993 13,527
Tier 1 (Core) Capital 22,908 21,802 21,083 24,404 25,156 13,615
Total Risk-based Capital 23,516 22,287 21,442 24,603 25,435 13,842
Total Equity Capital/TA 9.82 10.00 12.20 15.81 18.07 10.80
Tier 1 Risk-Based Capital Ratio 19.80 21.29 25.31 34.22 40.09 23.09
Tier 1 Leverage Capital Ratio 9.80 10.02 12.24 15.71 18.17 10.86
Tangible Capital/Tang Assets 9.80 10.02 12.24 15.71 18.17 10.86
Total Risk-Based Capital Ratio 20.32 21.77 25.74 34.50 40.53 23.47
PROFITABILITY
Net Income (Loss) 813 1,127 697 1,222 1,213 1,528
Return on Average Assets 0.72 0.58 0.42 0.84 0.92 1.26
Return on Average Equity 7.28 5.26 3.01 4.88 6.30 11.97
Net Interest Margin/AA 2.44 2.69 3.04 3.39 3.57 3.75
Total Noninterest Income/AA 0.59 0.25 0.32 0.21 0.24 0.21
Total Overhead Expense/AA 1.77 2.02 2.63 2.29 2.19 2.12
Yield on Average Earning Assets 7.33 7.51 7.60 7.63 7.35 7.86
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 108.93 110.18 113.81 118.11 114.14 108.90
Brokered Deposits/TD - - 0.04 1.13 1.44 1.43
ASSET QUALITY:
Nonaccruing Loans/GL 0.23 0.14 0.26 0.14 0.07 0.12
Nonperf Lns/Loan Loss Reserve 158.06 119.14 114.57 132.76 194.27 118.06
Repossessed Assets (incl OREO)/TA - - - 0.02 0.08 0.03
Net Charge-Offs(YTD)/Average Loans 0.03 (0.04) - - - 0.01
</TABLE>
10
<PAGE>
Oak Hills S&LC, FA, Cincinnati, OH 5889 Bridgetown Rd
Docket Number: 2062 Cincinnati, OH 45248-3199
Top HC Name:OHSL FINANCIAL CORPORATION,
CINCINNATI OH (513) 574-3322
Ticker OHSL
- -----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 242,851 234,060 210,828 198,380 171,315 164,255
%CH:Total Assets 7.67 11.02 6.27 15.80 4.30 4.10
Total Loans $(000) 170,642 174,066 159,377 144,517 139,011 128,515
Total Deposits 186,615 184,766 169,549 159,370 135,668 135,972
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 21,742 20,545 19,426 19,334 18,438 19,419
Total Equity Capital 21,742 20,545 19,426 19,334 18,438 19,419
Tier 1 (Core) Capital 21,696 20,515 19,481 19,303 18,551 19,419
Total Risk-based Capital 22,222 21,035 19,968 19,813 19,059 19,919
Total Equity Capital/TA 8.95 8.78 9.21 9.75 10.76 11.82
Tier 1 Risk-Based Capital Ratio 17.60 16.80 17.95 19.61 20.96 23.08
Tier 1 Leverage Capital Ratio 8.94 8.77 9.24 9.73 10.82 11.83
Tangible Capital/Tang Assets 8.94 8.77 9.24 9.73 10.82 11.83
Total Risk-Based Capital Ratio 18.03 17.22 18.40 20.13 21.53 23.67
PROFITABILITY
Net Income (Loss) 1,076 1,857 1,135 1,733 1,560 1,416
Return on Average Assets 0.89 0.83 0.55 0.94 0.93 0.83
Return on Average Equity 10.18 9.14 5.75 9.24 8.24 8.68
Net Interest Margin/AA 2.95 2.99 3.18 3.13 3.48 3.45
Total Noninterest Income/AA 0.40 0.31 0.28 0.73 0.47 0.40
Total Overhead Expense/AA 1.91 2.02 2.62 2.44 2.56 2.57
Yield on Average Earning Assets 7.76 7.84 7.90 7.78 7.25 7.80
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 109.34 109.38 110.86 112.17 113.38 110.45
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL 0.10 0.04 0.01 0.03 0.01 0.02
Nonperf Lns/Loan Loss Reserve 62.17 139.42 195.20 127.77 58.27 61.28
Repossessed Assets (incl OREO)/TA 0.04 - - - - -
Net Charge-Offs(YTD)/Average Loans 0.01 (0.01) 0.01 (0.05) (0.01) 0.01
</TABLE>
11
<PAGE>
Peoples FSB of Dekalb Cty, Auburn, IN PO Box 231
Docket Number: 4091 Auburn, IN 46706-0231
Top HC Name:PEOPLES BANCORP, AUBURN IN (219) 925-2500
Ticker PFDC
- -----------
<TABLE>
<CAPTION>
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 297,516 287,504 274,077 275,034 266,242 254,652
%CH:Total Assets 6.01 4.90 (0.35) 3.30 4.55 5.33
Total Loans $(000) 257,043 243,721 224,586 220,586 214,363 200,565
Total Deposits 248,789 243,401 233,936 234,516 229,654 216,286
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 37,105 35,123 34,056 34,692 33,241 35,193
Total Equity Capital 37,105 35,123 34,056 34,692 33,241 35,193
Tier 1 (Core) Capital 37,049 35,073 34,061 34,680 33,241 35,193
Total Risk-based Capital 37,944 35,948 34,929 35,520 34,074 36,029
Total Equity Capital/TA 12.47 12.22 12.43 12.61 12.49 13.82
Tier 1 Risk-Based Capital Ratio 24.12 24.18 25.63 26.32 25.71 29.02
Tier 1 Leverage Capital Ratio 12.46 12.20 12.43 12.62 12.49 13.82
Tangible Capital/Tang Assets 12.46 12.20 12.43 12.62 12.49 13.82
Total Risk-Based Capital Ratio 24.70 24.78 26.28 26.96 26.35 29.71
PROFITABILITY
Net Income (Loss) 1,976 3,978 2,881 3,743 3,744 3,820
Return on Average Assets 1.35 1.42 1.05 1.39 1.44 1.56
Return on Average Equity 10.94 11.41 8.28 10.93 10.94 11.62
Net Interest Margin/AA 3.63 3.59 3.70 3.60 3.74 4.06
Total Noninterest Income/AA 0.32 0.28 0.30 0.31 0.28 0.27
Total Overhead Expense/AA 1.69 1.51 2.22 1.58 1.66 1.69
Yield on Average Earning Assets 7.96 7.96 8.02 7.93 7.44 7.80
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 112.87 113.11 113.11 112.78 113.65 114.69
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL 0.19 0.23 0.27 0.30 0.31 0.41
Nonperf Lns/Loan Loss Reserve 59.55 80.00 92.80 90.38 78.19 88.89
Repossessed Assets (incl OREO)/TA - 0.03 0.03 0.01 0.02 0.06
Net Charge-Offs(YTD)/Average Loans - 0.01 0.01 0.02 0.01 0.01
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
First Svg Bk Moore Cty, Southern Pines, NC 205 SE Broad St
ID Number: 28074 Southern Pines, NC 28388-6106
Top HC Name:FIRST SAVINGS BANCORP, INC., SOUTHERN PINES NC (910) 692-6222
TICKER SOPN
- -----------
Jun 1998 (YTD) Dec 1997 (YE) Dec 1996 (YE) Dec 1995 (YE) Dec 1994 (YE) Dec 1993 (YE)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 293,621 290,260 248,209 246,967 245,677 270,284
Securities 74,235 80,495 52,746 71,073 87,685 75,382
Held-to-Maturity Secs(AmortCost) 9,737 10,944 1,548 4,870 6,989 N/A
Avail for Sale Secs (Fair Value) 64,498 69,551 51,198 66,203 80,696 N/A
Total Loans & Leases(C) 208,702 201,035 185,218 170,321 151,204 140,214
Total Deposits 215,904 214,789 199,522 186,033 178,939 241,368
Total Loans/Total Deposits 96.66 93.60 92.83 91.55 84.50 58.09
Provision for Credit Loss - - - - - 500
CAPITAL:
Total Equity Capital 54,675 51,981 46,966 56,340 62,213 27,829
Total Capital (Tier 1+2+3) 54,933 52,262 47,318 56,122 65,200 28,442
Tangible Equity Ratio 18.67 17.99 18.64 21.81 26.58 11.65
Risk-Adjusted Capital Ratio 38.34 38.06 40.60 52.39 70.16 29.91
Core Capital/Risk Weighted Assets 37.93 37.62 40.08 51.82 69.50 29.27
Core Capital/Adjusted Total Assets 18.67 17.99 18.64 21.81 26.58 11.65
Dividend Payout - - 393.66 65.90 54.11 -
PROFITABILITY:
Net Income (Loss) 2,521 4,677 3,074 3,660 2,399 2,666
Return on Average Assets 1.73 1.71 1.24 1.49 0.93 1.16
Return on Average Equity 9.45 9.47 5.95 6.17 5.33 11.27
Net Interest Spread/AEA 3.85 3.85 3.81 3.81 3.72 3.02
Net Interest Margin/AA 3.76 3.76 3.70 3.72 3.64 2.96
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 0.99 1.14 0.51 0.47 0.60 4.42
Loan Loss Reserve/Nonperf Loans 109.36 101.34 250.62 229.81 155.36 48.73
Adjusted Nonperf Assets/TA 0.21 0.23 0.12 0.13 0.18 0.49
PastDue 90 Days:Loans & Leases/GL - - 0.01 - - 0.57
Loan Loss Reserve/TL 0.29 0.30 0.33 0.36 0.40 0.44
Net Charge-Offs(YTD)/Average Loans 0.01 - - - - 0.01
Real Estate Loans/GDL 98.63 98.75 98.76 99.41 99.56 99.47
LIQUIDITY:
Brokered Deposits/TD - - - - - -
Avg Int-Bear Asset/Avg Int-Bear Liab 124.98 124.74 125.41 130.38 119.41 110.13
Pledged Securities/Total Securities 8.05 8.79 15.17 22.30 14.20 12.34
Tot Secs:Fair Val to Amrtzd Cost 101.06 100.83 100.89 101.92 95.92 103.70
</TABLE>
13
<PAGE>
EXHIBIT V
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ABBK Abington Bancorp Inc. Abington MA NE BIF NASDAQ 06/10/86 14.750 51.66
ABCL Alliance Bancorp Hinsdale IL MW SAIF NASDAQ 07/07/92 19.125 219.12
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92 21.500 366.77
AFBC Advance Financial Bancorp Wellsburg WV SE SAIF NASDAQ 01/02/97 12.500 12.88
AHCI Ambanc Holding Co. Amsterdam NY MA BIF NASDAQ 12/27/95 15.500 63.63
ALBC Albion Banc Corp. Albion NY MA SAIF NASDAQ 07/26/93 8.000 6.02
ALLB Alliance Bank (MHC) Broomall PA MA SAIF NASDAQ 03/03/95 12.750 41.75
AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96 12.625 10.98
ANA Acadiana Bancshares Inc. Lafayette LA SW SAIF AMSE 07/16/96 17.188 39.17
ANDB Andover Bancorp Inc. Andover MA NE BIF NASDAQ 05/08/86 31.250 202.59
ANE Alliance Bncp of New England Vernon CT NE BIF AMSE 12/19/86 10.000 22.92
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 18.000 58.55
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95 11.813 19.55
ASFC Astoria Financial Corp. Lake Success NY MA SAIF NASDAQ 11/18/93 43.000 1,143.52
BDJI First Federal Bancorp. Bemidji MN MW SAIF NASDAQ 04/04/95 13.500 13.48
BFD BostonFed Bancorp Inc. Burlington MA NE SAIF AMSE 10/24/95 18.063 96.97
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 15.000 34.47
BKC American Bank of Connecticut Waterbury CT NE BIF AMSE 12/01/81 21.625 101.70
BKCT Bancorp Connecticut Inc. Southington CT NE BIF NASDAQ 07/03/86 14.750 75.44
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85 9.063 161.19
BNKU Bank United Corp. Houston TX SW SAIF NASDAQ 08/09/96 39.844 1,258.39
BPLS Bank Plus Corp. Los Angeles CA WE SAIF NASDAQ NA 4.063 78.78
BVCC Bay View Capital Corp. San Mateo CA WE SAIF NASDAQ 05/09/86 17.250 337.87
BWFC Bank West Financial Corp. Grand Rapids MI MW SAIF NASDAQ 03/30/95 9.375 24.60
CAFI Camco Financial Corp. Cambridge OH MW SAIF NASDAQ NA 15.750 86.21
CASB Cascade Financial Corp. Everett WA WE SAIF NASDAQ 09/16/92 13.500 58.16
CASH First Midwest Financial Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 15.500 40.39
CATB Catskill Financial Corp. Catskill NY MA BIF NASDAQ 04/18/96 13.938 60.75
CBES CBES Bancorp Inc. Excelsior Springs MO MW SAIF NASDAQ 09/30/96 15.875 14.92
CBK Citizens First Financial Corp. Bloomington IL MW SAIF AMSE 05/01/96 15.000 34.33
CBSA Coastal Bancorp Inc. Houston TX SW SAIF NASDAQ NA 19.000 139.87
CEBK Central Co-operative Bank Somerville MA NE BIF NASDAQ 10/24/86 18.625 36.60
CENB Century Bancorp Inc. Thomasville NC SE SAIF NASDAQ 12/23/96 13.125 16.68
CFB Commercial Federal Corp. Omaha NE MW SAIF NYSE 12/31/84 22.688 1,370.15
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 19.000 118.86
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 11.813 30.36
CFNC Carolina Fincorp Inc. Rockingham NC SE SAIF NASDAQ 11/25/96 8.125 15.48
CFSB CFSB Bancorp Inc. Lansing MI MW SAIF NASDAQ 06/22/90 25.000 204.14
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 14.750 64.87
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 12.250 15.22
CKFB CKF Bancorp Inc. Danville KY MW SAIF NASDAQ 01/04/95 15.250 12.86
CLAS Classic Bancshares Inc. Ashland KY MW SAIF NASDAQ 12/29/95 13.500 17.54
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 15.375 37.42
CMSB Commonwealth Bancorp Inc. Norristown PA MA SAIF NASDAQ 06/17/96 14.250 210.38
CMSV Community Savings Bnkshrs(MHC) North Palm Beach FL SE SAIF NASDAQ 10/24/94 22.375 114.20
CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 19.500 97.85
CNSB CNS Bancorp Inc. Jefferson City MO MW SAIF NASDAQ 06/12/96 13.000 19.40
CNY Carver Bancorp Inc. New York NY MA SAIF AMSE 10/25/94 9.000 20.83
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 27.438 3,695.15
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 13.000 39.56
CRSB Crusader Holding Corp. Philadelphia PA MA SAIF NASDAQ NA 12.125 46.47
CRZY Crazy Woman Creek Bancorp Buffalo WY WE SAIF NASDAQ 03/29/96 13.500 11.98
CSBF CSB Financial Group Inc. Centralia IL MW SAIF NASDAQ 10/09/95 9.875 8.11
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 29.500 68.69
DCBI Delphos Citizens Bancorp Inc. Delphos OH MW SAIF NASDAQ 11/21/96 17.500 30.73
DCOM Dime Community Bancshares Inc. Brooklyn NY MA BIF NASDAQ 06/26/96 23.938 280.41
DME Dime Bancorp Inc. New York NY MA BIF NYSE 08/19/86 23.813 2,667.70
DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/85 19.250 176.41
DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/71 23.438 659.35
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 18.250 106.03
EFBC Empire Federal Bancorp Inc. Livingston MT WE SAIF NASDAQ 01/27/97 12.750 31.63
EMLD Emerald Financial Corp. Strongsville OH MW SAIF NASDAQ 10/05/93 10.750 110.69
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 22.000 27.02
</TABLE>
1
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ESBF ESB Financial Corp. Ellwood City PA MA SAIF NASDAQ 06/13/90 16.000 86.22
ESBK Elmira Savings Bank (The) Elmira NY MA BIF NASDAQ 03/01/85 21.000 15.26
ETFS East Texas Financial Services Tyler TX SW SAIF NASDAQ 01/10/95 10.500 15.37
FAB FIRSTFED AMERICA BANCORP INC. Swansea MA NE SAIF AMSE 01/15/97 14.625 14.93
FBBC First Bell Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/29/95 14.500 90.32
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 13.250 28.67
FCB Falmouth Bancorp Inc. Falmouth MA NE BIF AMSE 03/28/96 15.375 21.55
FCBF FCB Financial Corp. Oshkosh WI MW SAIF NASDAQ 09/24/93 24.500 93.94
FCME First Coastal Corp. Westbrook ME NE BIF NASDAQ NA 9.875 13.44
FDEF First Defiance Financial Defiance OH MW SAIF NASDAQ 10/02/95 14.250 116.41
FED FirstFed Financial Corp. Santa Monica CA WE SAIF NYSE 12/16/83 16.375 346.95
FESX First Essex Bancorp Inc. Andover MA NE BIF NASDAQ 08/04/87 16.875 127.64
FFBH First Federal Bancshares of AR Harrison AR SE SAIF NASDAQ 05/03/96 19.250 89.54
FFBZ First Federal Bancorp Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 12.000 37.81
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 19.250 262.94
FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/91 9.750 23.74
FFDF FFD Financial Corp. Dover OH MW SAIF NASDAQ 04/03/96 16.000 23.13
FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/87 25.500 70.06
FFFD North Central Bancshares Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 16.750 51.99
FFFL Fidelity Bankshares Inc. (MHC) West Palm Beach FL SE SAIF NASDAQ 01/07/94 23.563 160.29
FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/94 15.000 43.46
FFHS First Franklin Corp. Cincinnati OH MW SAIF NASDAQ 01/26/88 13.500 23.01
FFIC Flushing Financial Corp. Flushing NY MA BIF NASDAQ 11/21/95 15.313 173.61
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87 25.750 106.34
FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 15.875 58.64
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 10.250 9.83
FFSX First Fed SB of Siouxland(MHC) Sioux City IA MW SAIF NASDAQ 07/13/92 20.000 56.90
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 15.000 21.87
FFWD Wood Bancorp Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 13.000 34.90
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93 31.000 122.57
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 8.750 41.99
FISB First Indiana Corp. Indianapolis IN MW SAIF NASDAQ 08/02/83 18.750 238.28
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 15.375 37.11
FKKY Frankfort First Bancorp Inc. Frankfort KY MW SAIF NASDAQ 07/10/95 15.375 24.35
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 12.875 66.64
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 19.875 269.35
FLGS Flagstar Bancorp Inc. Bloomfield Hills MI MW SAIF NASDAQ NA 24.000 328.08
FLKY First Lancaster Bancshares Lancaster KY MW SAIF NASDAQ 07/01/96 12.750 12.22
FMCO FMS Financial Corp. Burlington NJ MA SAIF NASDAQ 12/14/88 10.000 72.20
FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/85 12.500 53.07
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 11.500 101.22
FSBI Fidelity Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 17.000 33.56
FSPT FirstSpartan Financial Corp. Spartanburg SC SE SAIF NASDAQ 07/09/97 34.375 144.68
FSTC First Citizens Corp. Newnan GA SE SAIF NASDAQ 03/01/86 28.000 78.33
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 21.750 36.45
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89 15.250 281.70
FTNB Fulton Bancorp Inc. Fulton MO MW SAIF NASDAQ 10/18/96 15.500 26.65
FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/95 11.000 16.22
FWWB First Washington Bancorp Inc. Walla Walla WA WE SAIF NASDAQ 11/01/95 22.000 256.23
GAF GA Financial Inc. Pittsburgh PA MA SAIF AMSE 03/26/96 14.000 100.00
GDW Golden West Financial Oakland CA WE SAIF NYSE 05/29/59 90.688 184.84
GOSB GSB Financial Corp. Goshen NY MA BIF NASDAQ 07/09/97 13.000 28.76
GPT GreenPoint Financial Corp. New York NY MA BIF NYSE 01/28/94 32.813 121.27
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 12.875 52.57
GSLA GS Financial Corp. Metairie LA SW SAIF NASDAQ 04/01/97 13.500 44.10
GTPS Great American Bancorp Champaign IL MW SAIF NASDAQ 06/30/95 17.000 23.30
GUPB GFSB Bancorp Inc. Gallup NM SW SAIF NASDAQ 06/30/95 14.250 15.78
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94 12.375 36.37
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 29.125 48.83
HAVN Haven Bancorp Inc. Westbury NY MA SAIF NASDAQ 09/23/93 13.875 122.80
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 26.625 62.60
HBNK Highland Bancorp Inc. Burbank CA WE SAIF NASDAQ NA 34.000 74.10
HBS Haywood Bancshares Inc. Waynesville NC SE SAIF AMSE 12/18/87 17.250 21.57
</TABLE>
2
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HCFC Home City Financial Corp. Springfield OH MW SAIF NASDAQ 12/30/96 13.750 12.44
HFFB Harrodsburg First Fin Bancorp Harrodsburg KY MW SAIF NASDAQ 10/04/95 14.500 27.93
HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/92 14.000 59.98
HFSA Hardin Bancorp Inc. Hardin MO MW SAIF NASDAQ 09/29/95 18.125 14.80
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 12.000 10.55
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 16.750 32.90
HMLK Hemlock Federal Financial Corp Oak Forest IL MW SAIF NASDAQ 04/02/97 14.500 27.22
HMNF HMN Financial Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 13.375 72.40
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 23.750 122.13
HPBC Home Port Bancorp Inc. Nantucket MA NE BIF NASDAQ 08/25/88 20.125 37.07
HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 20.500 38.19
HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/86 14.000 104.78
HTHR Hawthorne Financial Corp. El Segundo CA WE SAIF NASDAQ NA 15.375 79.76
HWEN Home Financial Bancorp Spencer IN MW SAIF NASDAQ 07/02/96 6.500 5.87
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 14.125 12.43
IFSB Independence Federal Svgs Bank Washington DC MA SAIF NASDAQ 06/06/85 12.500 16.01
INBI Industrial Bancorp Inc. Bellevue OH MW SAIF NASDAQ 08/01/95 19.000 94.99
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 13.000 31.10
ITLA ITLA Capital Corp. La Jolla CA WE BIF NASDAQ 10/24/95 15.250 116.06
IWBK InterWest Bancorp Inc. Oak Harbor WA WE SAIF NASDAQ NA 26.563 415.75
JSB JSB Financial Inc. Lynbrook NY MA BIF NYSE 06/27/90 52.438 511.75
JSBA Jefferson Savings Bancorp Inc. Ballwin MO MW SAIF NASDAQ 04/08/93 16.125 161.87
JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 14.750 35.72
KFBI Klamath First Bancorp Klamath Falls OR WE SAIF NASDAQ 10/05/95 18.250 180.98
KNK Kankakee Bancorp Inc. Kankakee IL MW SAIF AMSE 01/06/93 24.500 33.65
KSBK KSB Bancorp Inc. Kingfield ME NE BIF NASDAQ 06/24/93 13.000 16.40
KYF Kentucky First Bancorp Inc. Cynthiana KY MW SAIF AMSE 08/29/95 12.500 14.96
LARK Landmark Bancshares Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 21.375 31.91
LARL Laurel Capital Group Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 19.000 41.92
LFCO Life Financial Corp. Riverside CA WE SAIF NASDAQ NA 4.000 26.25
LFED Leeds Federal Bankshares (MHC) Baltimore MD MA SAIF NASDAQ 05/02/94 14.250 73.22
LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 14.250 17.98
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 29.500 27.51
LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/86 12.750 55.22
LVSB Lakeview Financial Corp. Paterson NJ MA SAIF NASDAQ 12/22/93 18.500 90.28
LXMO Lexington B&L Financial Corp. Lexington MO MW SAIF NASDAQ 06/06/96 11.750 11.85
MAFB MAF Bancorp Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 24.500 548.63
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 22.125 35.83
MASB MASSBANK Corp. Reading MA NE BIF NASDAQ 05/28/86 36.500 129.71
MBBC Monterey Bay Bancorp Inc. Watsonville CA WE SAIF NASDAQ 02/15/95 11.000 43.15
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 20.250 25.25
MCBN Mid-Coast Bancorp Inc. Waldoboro ME NE SAIF NASDAQ 11/02/89 9.000 6.42
MDBK Medford Bancorp Inc. Medford MA NE BIF NASDAQ 03/18/86 15.500 135.12
MECH MECH Financial Inc. Hartford CT NE BIF NASDAQ 06/26/96 24.250 128.41
METF Metropolitan Financial Corp. Mayfield Heights OH MW SAIF NASDAQ NA 10.250 72.28
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 20.750 30.59
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 14.375 32.15
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 21.000 18.89
MRKF Market Financial Corp. Mount Healthy OH MW SAIF NASDAQ 03/27/97 11.000 14.69
MSBF MSB Financial Inc. Marshall MI MW SAIF NASDAQ 02/06/95 15.250 20.34
MWBI Midwest Bancshares Inc. Burlington IA MW SAIF NASDAQ 11/12/92 12.000 12.86
MWBX MetroWest Bank Framingham MA NE BIF NASDAQ 10/10/86 6.625 94.46
NBN Northeast Bancorp Auburn ME NE BIF AMSE 08/19/87 11.125 29.08
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 18.000 29.22
NHTB New Hampshire Thrift Bncshrs Newport NH NE SAIF NASDAQ 05/22/86 17.000 35.66
NMSB NewMil Bancorp Inc. New Milford CT NE BIF NASDAQ 02/01/86 12.000 46.04
NSLB NS&L Bancorp Inc. Neosho MO MW SAIF NASDAQ 06/08/95 13.500 8.76
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 17.750 14.65
NWSB Northwest Bancorp Inc. (MHC) Warren PA MA SAIF NASDAQ 11/07/94 11.875 562.16
OCFC Ocean Financial Corp. Toms River NJ MA SAIF NASDAQ 07/03/96 14.500 213.98
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 21.000 116.30
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 14.625 36.50
PBCI Pamrapo Bancorp Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 23.750 67.52
</TABLE>
3
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PBCT People's Bank (MHC) Bridgeport CT NE BIF NASDAQ 07/06/88 25.563 1,639.78
PBKB People's Bancshares Inc. New Bedford MA NE BIF NASDAQ 10/30/86 20.750 68.83
PBOC PBOC Holdings Inc. Los Angeles CA WE SAIF NASDAQ NA 9.625 210.56
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 19.750 16.35
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/95 9.125 24.53
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 13.625 38.97
PERM Permanent Bancorp Inc. Evansville IN MW SAIF NASDAQ 04/04/94 12.000 50.99
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 20.000 67.50
PFED Park Bancorp Inc. Chicago IL MW SAIF NASDAQ 08/12/96 14.625 31.27
PFFB PFF Bancorp Inc. Pomona CA WE SAIF NASDAQ 03/29/96 14.688 226.79
PFFC Peoples Financial Corp. Massillon OH MW SAIF NASDAQ 09/13/96 11.000 14.87
PFNC Progress Financial Corp. Blue Bell PA MA SAIF NASDAQ 07/18/83 14.188 73.66
PFSB PennFed Financial Services Inc West Orange NJ MA SAIF NASDAQ 07/15/94 13.813 127.49
PHBK Peoples Heritage Finl Group Portland ME NE BIF NASDAQ 12/04/86 18.000 1,580.11
PHFC Pittsburgh Home Financial Corp Pittsburgh PA MA SAIF NASDAQ 04/01/96 12.625 24.00
PHSB Peoples Home Savings Bk (MHC) Beaver Falls PA MA SAIF NASDAQ 07/10/97 13.750 37.95
PLSK Pulaski Savings Bank (MHC) Springfield NJ MA SAIF NASDAQ 04/03/97 10.750 22.66
PRBC Prestige Bancorp Inc. Pleasant Hills PA MA SAIF NASDAQ 06/27/96 13.000 13.00
PSFC Peoples-Sidney Financial Corp. Sidney OH MW SAIF NASDAQ 04/28/97 16.375 29.07
PSFI PS Financial Inc. Chicago IL MW SAIF NASDAQ 11/27/96 10.375 19.20
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 14.000 12.95
PULB Pulaski Bank, FSB (MHC) St. Louis MO MW SAIF NASDAQ 05/11/94 19.375 40.80
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 11.125 44.40
PVSA Parkvale Financial Corp. Monroeville PA MA SAIF NASDAQ 07/16/87 21.000 134.00
PWBK Pennwood Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 07/15/96 10.875 7.58
QCBC Quaker City Bancorp Inc. Whittier CA WE SAIF NASDAQ 12/30/93 15.000 86.99
QCFB QCF Bancorp Inc. Virginia MN MW SAIF NASDAQ 04/03/95 26.000 30.55
QCSB Queens County Bancorp Inc. Flushing NY MA BIF NASDAQ 11/23/93 29.813 638.56
RELY Reliance Bancorp Inc. Garden City NY MA SAIF NASDAQ 03/31/94 24.750 222.35
RIVR River Valley Bancorp Madison IN MW SAIF NASDAQ 12/20/96 13.875 16.51
RSLN Roslyn Bancorp Inc. Roslyn NY MA BIF NASDAQ 01/13/97 17.125 708.97
SCBS Southern Community Bancshares Cullman AL SE SAIF NASDAQ 12/23/96 13.000 14.79
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 13.500 7.83
SFED SFS Bancorp Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 22.000 26.59
SFFC StateFed Financial Corp. Des Moines IA MW SAIF NASDAQ 01/05/94 11.875 18.46
SFIN Statewide Financial Corp. Jersey City NJ MA SAIF NASDAQ 10/02/95 15.500 67.58
SGVB SGV Bancorp Inc. West Covina CA WE SAIF NASDAQ 06/29/95 13.000 28.84
SKAN Skaneateles Bancorp Inc. Skaneateles NY MA BIF NASDAQ 06/02/86 13.875 20.08
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 16.625 23.47
SOBI Sobieski Bancorp Inc. South Bend IN MW SAIF NASDAQ 03/31/95 14.500 11.34
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 22.750 84.73
SPBC St. Paul Bancorp Inc. Chicago IL MW SAIF NASDAQ 05/18/87 20.563 834.81
SRN Southern Banc Co. Gadsden AL SE SAIF AMSE 10/05/95 12.750 15.69
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 15.000 27.05
STFR St. Francis Capital Corp. Brookfield WI MW SAIF NASDAQ 06/21/93 40.875 195.70
STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ NA 16.375 124.54
SVRN Sovereign Bancorp Inc. Wyomissing PA MA SAIF NASDAQ 08/12/86 13.125 2,148.90
SZB SouthFirst Bancshares Inc. Sylacauga AL SE SAIF AMSE 02/14/95 15.688 15.18
THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/95 15.125 11.85
THRD TF Financial Corp. Newtown PA MA SAIF NASDAQ 07/13/94 18.500 59.04
TRIC Tri-County Bancorp Inc. Torrington WY WE SAIF NASDAQ 09/30/93 12.750 14.89
TSH Teche Holding Co. Franklin LA SW SAIF AMSE 04/19/95 15.125 46.81
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 13.250 16.45
UFBS Union Financial Bcshs Inc. Union SC SE SAIF NASDAQ NA 15.000 19.13
USAB USABancshares Inc. Philadelphia PA MA BIF NASDAQ NA 7.250 14.52
WAMU Washington Mutual Inc. Seattle WA WE BIF NASDAQ 03/11/83 37.438 22,200.73
WAYN Wayne Savings Bancshares (MHC) Wooster OH MW SAIF NASDAQ 06/25/93 18.250 45.38
WBST Webster Financial Corp. Waterbury CT NE SAIF NASDAQ 12/12/86 24.688 936.75
WCFB Webster City Federal SB (MHC) Webster City IA MW SAIF NASDAQ 08/15/94 16.000 33.82
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 16.500 27.26
WFI Winton Financial Corp. Cincinnati OH MW SAIF AMSE 08/04/88 12.125 48.67
WFSL Washington Federal Inc. Seattle WA WE SAIF NASDAQ 11/17/82 26.688 1,372.99
WHGB WHG Bancshares Corp. Lutherville MD MA SAIF NASDAQ 04/01/96 10.750 14.93
</TABLE>
4
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WRNB Warren Bancorp Inc. Peabody MA NE BIF NASDAQ 07/09/86 9.688 76.64
WSB Washington Savings Bank, FSB Bowie MD MA SAIF AMSE NA 4.250 18.79
WSFS WSFS Financial Corp. Wilmington DE MA BIF NASDAQ 11/26/86 17.125 209.49
WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/94 18.250 102.00
WVFC WVS Financial Corp. Pittsburgh PA MA SAIF NASDAQ 11/29/93 15.375 55.58
YFCB Yonkers Financial Corp. Yonkers NY MA SAIF NASDAQ 04/18/96 14.188 38.68
YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/84 20.000 179.36
Maximum 90.688 22,200.73
Minimum 4.000 5.87
Average 17.165 267.87
Median 15.250 43.46
</TABLE>
5
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Tangible
Price/ Current Current Current Total Equity/ Equity/ Core Core Core
LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Merger Current
Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ABBK 16.8 149.8 164.3 9.5 1.36 546,208 6.4 5.8 0.88 0.65 9.70 N 10/30/98
ABCL 14.3 118.1 119.0 10.4 2.30 2,099,559 8.8 8.8 1.34 0.81 8.89 N 10/30/98
ABCW 20.7 282.2 286.3 17.4 0.93 2,113,909 6.2 6.1 1.04 0.98 15.01 N 10/30/98
AFBC 16.9 86.3 86.3 11.3 2.56 114,185 13.1 13.1 0.74 0.68 4.62 N 10/30/98
AHCI 27.2 109.0 109.0 11.3 1.55 565,387 10.3 10.3 0.57 0.41 3.52 N 10/30/98
ALBC 16.7 95.6 95.6 8.1 1.50 74,118 8.5 8.5 0.48 0.50 5.82 N 10/30/98
ALLB 20.9 138.0 138.0 14.9 2.82 279,849 10.8 10.8 0.61 0.73 6.72 N 10/30/98
AMFC 20.7 81.9 81.9 10.4 2.54 111,338 12.7 12.7 0.61 0.53 3.77 N 10/30/98
ANA 14.8 99.2 99.2 13.5 2.56 289,187 13.7 13.7 1.16 0.94 6.13 N 10/30/98
ANDB 12.5 171.4 171.4 14.8 - 1,366,375 8.7 8.7 2.50 1.24 15.45 N 10/30/98
ANE 17.9 131.8 134.8 9.1 2.00 252,004 6.9 6.8 0.56 0.57 7.87 N 10/30/98
ASBI 18.0 128.3 130.6 15.6 3.56 375,297 12.2 12.0 1.00 0.84 7.33 N 10/30/98
ASBP 17.9 134.9 134.9 16.8 3.39 116,437 12.4 12.4 0.66 0.94 6.29 N 10/30/98
ASFC 14.1 125.6 172.6 9.0 1.86 12,713,056 7.6 5.7 3.04 0.76 9.24 N 10/30/98
BDJI 13.8 106.3 106.3 11.1 - 121,315 10.5 10.5 0.98 0.71 6.72 N 10/30/98
BFD 17.2 109.3 NA 8.8 2.21 1,096,441 7.7 NA 1.05 0.56 6.80 N 10/30/98
BFSB 19.5 166.3 166.3 22.1 2.13 156,308 13.3 13.3 0.77 1.23 8.79 N 10/30/98
BKC 11.4 165.3 169.9 15.7 3.70 648,245 9.5 9.3 1.89 1.41 16.66 N 10/30/98
BKCT 14.8 154.0 154.0 15.2 3.66 495,178 9.9 9.9 1.00 1.22 11.90 N 10/30/98
BKUNA 32.4 88.1 105.4 4.5 - 3,584,123 5.4 4.6 0.28 0.19 3.70 N 10/30/98
BNKU 12.3 183.9 201.4 9.2 1.61 13,664,992 5.0 4.6 3.25 0.82 16.31 N 10/30/98
BPLS 7.4 42.5 46.4 1.8 - 4,286,237 4.3 4.0 0.55 0.27 6.35 N 10/30/98
BVCC 12.5 88.7 137.8 6.1 2.32 5,522,374 6.9 4.6 1.38 0.53 8.03 N 10/30/98
BWFC 27.6 105.7 105.7 13.6 2.56 181,469 12.8 12.8 0.34 0.51 3.72 N 10/30/98
CAFI 17.1 148.4 157.8 14.7 2.60 588,220 9.9 9.4 0.92 0.89 9.23 N 10/30/98
CASB 19.9 178.3 178.3 12.6 - 460,469 7.1 7.1 0.68 0.73 10.40 N 10/30/98
CASH 16.7 94.5 105.8 9.6 3.10 421,258 10.2 9.2 0.93 0.64 5.95 N 10/30/98
CATB 15.3 89.6 89.6 19.3 2.66 314,752 21.6 21.6 0.91 1.27 5.47 N 10/30/98
CBES 19.8 88.5 88.5 12.0 3.02 123,856 13.6 13.6 0.80 0.67 4.36 N 10/30/98
CBK 34.9 96.6 96.6 13.5 - 281,068 14.0 14.0 0.43 0.41 2.93 N 10/30/98
CBSA 8.8 122.8 168.9 4.5 1.68 3,126,286 3.7 2.7 2.17 0.57 15.48 N 10/30/98
CEBK 15.5 98.3 108.0 9.6 1.72 381,857 9.7 9.0 1.20 0.63 6.45 N 10/30/98
CENB 12.5 89.0 89.0 17.2 5.18 96,866 19.3 19.3 1.05 1.18 4.48 N 10/30/98
CFB 12.1 150.0 187.8 12.4 0.97 11,084,114 8.2 6.7 1.87 0.93 13.02 N 10/30/98
CFCP 22.9 326.5 326.5 19.3 1.47 616,887 5.9 5.9 0.83 0.99 16.06 N 10/30/98
CFFC 17.9 117.5 118.0 16.6 2.71 183,230 14.1 14.0 0.66 0.96 7.01 N 10/30/98
CFNC 12.0 100.6 100.6 13.6 2.95 113,911 13.5 13.5 0.68 1.03 4.74 N 10/30/98
CFSB 20.5 300.8 300.8 23.5 2.08 867,387 7.8 7.8 1.22 1.23 15.73 N 10/30/98
CFTP 25.4 99.3 99.3 24.6 2.17 263,246 22.3 22.3 0.58 1.07 4.27 N 10/30/98
CIBI 17.8 149.6 149.6 13.4 1.96 113,953 8.9 8.9 0.69 0.87 8.12 N 10/30/98
CKFB 15.3 88.2 88.2 20.5 3.54 62,759 21.6 21.6 1.00 1.34 5.97 N 10/30/98
CLAS 22.1 85.5 99.4 12.7 2.37 137,984 14.9 13.1 0.61 0.56 3.72 N 10/30/98
CMRN 15.4 85.3 85.3 17.0 1.82 220,784 19.9 19.9 1.00 1.12 5.36 N 10/30/98
CMSB 27.9 110.2 140.5 9.2 2.25 2,277,725 8.4 6.7 0.51 0.34 3.74 N 10/30/98
CMSV 24.1 134.3 134.3 14.9 4.02 765,488 10.9 10.9 0.93 0.65 5.82 N 10/30/98
CNIT 16.3 179.9 194.2 15.0 2.26 651,857 7.9 7.4 1.20 0.84 11.65 N 10/30/98
CNSB 30.2 88.3 88.3 20.2 2.31 95,949 22.9 22.9 0.43 0.71 2.91 N 10/30/98
CNY 21.4 58.0 60.0 4.9 - 427,371 8.4 8.1 0.42 0.22 2.65 N 10/30/98
COFI 15.2 242.0 256.4 18.3 2.04 19,841,639 7.6 7.2 1.81 1.21 16.56 N 10/30/98
COOP 19.1 127.1 127.1 10.2 - 389,409 8.0 8.0 0.68 0.58 7.40 N 10/30/98
CRSB 10.5 200.1 211.2 23.0 - 202,034 11.5 11.0 1.16 2.04 33.43 N 10/30/98
CRZY 18.2 85.4 85.4 19.3 2.96 62,132 22.6 22.6 0.74 1.14 4.94 N 10/30/98
CSBF 28.2 74.0 78.4 17.2 - 47,218 23.2 22.2 0.35 0.60 2.55 N 10/30/98
CVAL 21.1 226.4 226.4 19.1 1.49 377,012 8.5 8.5 1.40 1.01 11.66 N 10/30/98
DCBI 18.4 118.0 118.0 26.5 1.37 115,901 22.5 22.5 0.95 1.48 6.03 N 10/30/98
DCOM 20.8 155.7 179.0 16.1 2.01 1,743,657 10.3 9.1 1.15 0.88 7.38 N 10/30/98
DME 31.8 199.1 241.0 12.6 0.84 21,242,833 6.3 5.3 0.75 0.41 6.78 N 10/30/98
DNFC 15.2 157.5 169.3 8.8 1.04 1,998,299 5.6 5.2 1.27 0.65 11.74 N 10/30/98
DSL 13.2 140.0 141.5 11.2 1.37 5,910,579 8.0 7.9 1.78 0.86 11.35 N 10/30/98
EBSI 12.8 136.6 136.6 9.5 3.51 1,120,232 6.9 6.9 1.43 0.89 11.51 N 10/30/98
EFBC 19.0 81.6 81.6 29.6 2.67 106,940 36.2 36.2 0.67 1.45 3.94 N 10/30/98
EMLD 17.9 205.9 208.3 17.2 1.49 642,991 8.4 8.3 0.60 1.05 12.68 N 10/30/98
EQSB 13.3 150.0 150.0 7.7 - 350,555 5.1 5.1 1.66 0.66 12.91 N 10/30/98
<CAPTION>
NPAs/ Price/
Assets Core
(%) EPS
Ticker MRQ (x)
<S> <C> <C>
ABBK 0.14 23.1
ABCL 0.17 14.9
ABCW NA 19.2
AFBC 0.33 31.3
AHCI 0.52 24.2
ALBC 0.47 16.7
ALLB 0.82 19.9
AMFC 0.19 19.7
ANA NA 15.4
ANDB 0.31 12.0
ANE NA 11.4
ASBI 0.49 18.8
ASBP 0.28 16.4
ASFC 0.35 12.8
BDJI 0.16 12.1
BFD NA 16.7
BFSB 0.21 17.1
BKC 1.43 7.2
BKCT 0.61 13.7
BKUNA 0.46 NM
BNKU NA 16.3
BPLS 1.75 NM
BVCC 0.34 13.5
BWFC 0.57 29.3
CAFI 0.47 17.9
CASB 0.48 21.1
CASH 1.24 12.5
CATB 0.20 14.5
CBES 0.59 22.1
CBK 0.48 34.1
CBSA 0.56 9.9
CEBK 0.40 16.1
CENB 0.35 13.1
CFB 0.77 14.5
CFCP 0.48 21.6
CFFC 1.30 18.5
CFNC 0.13 10.7
CFSB 0.19 20.2
CFTP 0.28 24.6
CIBI NA 16.1
CKFB 0.08 17.3
CLAS 0.28 21.1
CMRN 0.40 13.7
CMSB 0.46 39.6
CMSV 0.27 22.4
CNIT 0.17 18.1
CNSB 0.23 36.1
CNY 1.91 16.1
COFI 0.29 14.3
COOP - 20.3
CRSB 0.64 10.1
CRZY NA 17.8
CSBF 1.13 20.6
CVAL 0.33 24.6
DCBI NA 18.2
DCOM 0.33 17.6
DME 0.97 39.7
DNFC 0.50 17.2
DSL 0.75 14.3
EBSI 1.20 10.1
EFBC - 18.8
EMLD NA 17.9
EQSB 0.22 14.5
</TABLE>
6
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Tangible
Price/ Current Current Current Total Equity/ Equity/ Core Core Core
LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Merger Current
Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ESBF 15.5 135.1 151.4 9.55 2.25 956,146 7.0 6.3 1.03 0.66 8.61 N 10/30/98
ESBK 14.7 100.2 100.2 6.66 3.05 232,499 6.4 6.4 1.43 0.44 7.05 N 10/30/98
ETFS 28.4 76.3 76.3 13.22 1.91 122,594 17.3 17.3 0.37 0.46 2.62 N 10/30/98
FAB 20.3 93.0 93.0 8.99 1.37 1,292,730 8.6 8.6 0.72 0.45 4.49 N 10/30/98
FBBC 11.2 121.9 121.9 12.00 2.76 750,365 9.9 9.9 1.30 1.08 10.25 N 10/30/98
FBSI 15.6 120.4 125.5 17.00 0.91 172,173 14.2 13.7 0.85 1.08 7.79 N 10/30/98
FCB 25.2 96.9 96.9 19.11 1.56 112,793 19.7 19.7 0.61 0.82 3.82 N 10/30/98
FCBF 15.4 125.4 125.4 18.33 3.59 515,516 14.6 14.6 1.59 1.16 8.14 N 10/30/98
FCME 12.3 87.4 87.4 7.88 - 171,719 9.0 9.0 0.80 0.73 7.42 N 10/30/98
FDEF 22.6 112.6 112.6 20.00 2.53 582,124 17.7 17.7 0.63 0.89 4.72 N 10/30/98
FED 11.8 138.9 139.7 9.11 - 3,826,779 6.5 6.5 1.39 0.74 12.92 N 10/30/98
FESX 14.3 133.1 180.3 10.33 3.32 1,241,432 7.7 5.8 1.18 0.74 9.94 N 10/30/98
FFBH 16.3 110.3 110.3 16.22 1.46 578,142 14.7 14.7 1.18 0.99 6.63 N 10/30/98
FFBZ 25.5 229.5 229.5 18.22 1.33 207,381 8.0 8.0 0.47 0.77 10.08 N 10/30/98
FFCH 16.7 210.2 210.2 14.33 2.49 1,839,708 6.8 6.8 1.15 0.90 13.71 N 10/30/98
FFDB 15.0 133.4 144.4 13.22 2.87 179,893 9.9 9.2 0.65 0.89 9.22 N 10/30/98
FFDF 32.0 146.1 146.1 25.44 1.88 90,966 17.4 17.4 0.50 0.75 3.29 N 10/30/98
FFES 11.3 99.1 99.1 7.11 2.67 980,415 7.2 7.2 2.26 0.64 9.39 N 10/30/98
FFFD 12.7 104.6 120.3 15.55 1.91 334,718 14.9 13.2 1.32 1.38 8.34 N 10/30/98
FFFL 25.3 177.4 182.7 10.99 4.24 1,468,351 6.2 6.0 0.93 0.52 7.22 N 10/30/98
FFHH 15.5 92.3 93.9 10.44 3.33 416,326 10.2 10.1 0.97 0.69 6.40 N 10/30/98
FFHS 15.2 110.3 110.8 9.99 2.22 231,879 9.0 9.0 0.89 0.68 7.39 N 10/30/98
FFIC 16.0 126.6 131.4 15.22 1.57 1,143,182 12.0 11.6 0.96 0.95 7.47 N 10/30/98
FFKY 17.6 194.5 204.9 26.00 2.33 409,651 13.4 12.8 1.46 1.55 11.40 N 10/30/98
FFLC 14.4 111.0 111.0 13.99 2.27 422,228 12.5 12.5 1.10 1.03 7.99 N 10/30/98
FFSL 11.1 81.3 81.3 7.99 2.93 124,337 9.7 9.7 0.92 0.76 7.63 N 10/30/98
FFSX 16.5 131.8 162.2 10.00 2.40 569,826 7.6 6.3 1.21 0.70 8.49 N 10/30/98
FFWC 13.0 114.3 124.3 10.88 2.80 203,311 9.4 8.7 1.15 0.87 9.17 N 10/30/98
FFWD 18.6 153.9 153.9 20.99 2.77 166,150 13.6 13.6 0.70 1.17 9.09 N 10/30/98
FFYF 16.0 147.6 147.6 19.11 2.90 651,746 12.9 12.9 1.94 1.22 9.08 N 10/30/98
FGHC 23.0 285.0 304.9 23.22 - 180,806 8.2 7.7 0.38 1.16 14.15 N 10/30/98
FISB 20.2 146.1 147.6 13.77 2.56 1,738,652 9.4 9.3 0.93 0.74 7.90 N 10/30/98
FKFS 14.4 146.0 146.0 9.55 1.30 390,970 6.5 6.5 1.07 0.67 9.87 N 10/30/98
FKKY 15.9 109.2 109.2 18.11 5.20 134,734 16.6 16.6 0.97 1.20 6.82 N 10/30/98
FLAG 25.8 172.6 172.6 15.00 1.86 442,879 8.7 8.7 0.50 0.68 7.69 N 10/30/98
FLFC 24.5 226.4 247.2 17.66 1.51 1,511,776 7.8 7.2 0.81 0.76 10.18 N 10/30/98
FLGS 11.2 229.9 236.2 12.88 1.33 2,573,280 5.6 5.4 2.15 1.37 23.46 N 10/30/98
FLKY 22.4 86.6 86.6 22.77 4.71 53,747 26.3 26.3 0.57 0.95 4.08 N 10/30/98
FMCO 14.1 170.1 170.9 10.88 1.20 667,423 6.4 6.3 0.71 0.81 13.16 N 10/30/98
FMSB 13.0 150.4 150.4 11.22 1.60 474,092 7.4 7.4 0.96 0.89 12.73 N 10/30/98
FNGB 16.4 134.2 134.2 14.33 3.13 710,428 10.6 10.6 0.70 0.91 8.32 N 10/30/98
FSBI 12.2 119.5 119.5 8.55 2.12 396,180 7.1 7.1 1.39 0.72 10.49 N 10/30/98
FSPT 20.6 120.3 120.3 27.33 2.33 530,412 22.7 22.7 1.67 1.34 5.26 N 10/30/98
FSTC 18.5 206.5 251.6 20.66 1.29 379,694 10.0 8.3 1.51 1.28 12.77 N 10/30/98
FTF 11.7 133.0 133.0 19.22 2.94 189,451 14.5 14.5 1.86 1.69 11.24 N 10/30/98
FTFC 29.3 230.0 240.9 16.22 1.84 1,736,593 7.1 6.8 0.52 0.64 8.96 N 10/30/98
FTNB 28.7 104.5 104.5 24.22 1.94 110,110 23.2 23.2 0.54 0.82 3.45 N 10/30/98
FTSB 13.6 99.6 99.6 16.00 2.27 101,352 16.1 16.1 0.81 1.18 7.39 N 10/30/98
FWWB 19.0 134.6 162.8 18.99 1.64 1,362,063 12.6 10.6 1.16 1.06 7.88 N 10/30/98
GAF 12.8 90.6 91.4 12.22 4.00 818,893 13.5 13.4 1.09 0.93 6.76 N 10/30/98
GDW 12.9 173.6 173.6 13.22 0.55 39,383,006 7.6 7.6 7.04 1.04 14.58 N 10/30/98
GOSB 32.5 91.3 91.3 21.88 0.92 131,935 23.9 23.9 0.40 0.67 2.59 N 10/30/98
GPT 15.9 153.3 357.8 22.99 1.95 13,612,611 13.2 6.1 2.07 1.20 11.83 N 10/30/98
GSFC 18.9 86.9 86.9 30.33 3.73 173,265 34.9 34.9 0.68 1.58 4.46 N 10/30/98
GSLA 31.4 84.3 84.3 30.44 2.07 145,151 36.0 36.0 0.43 1.01 2.41 N 10/30/98
GTPS 25.8 100.2 100.2 15.66 2.59 149,114 15.6 15.6 0.66 0.71 3.81 N 10/30/98
GUPB 18.8 116.9 116.9 13.55 2.11 123,209 11.5 11.5 0.76 0.84 5.97 N 10/30/98
HALL 14.2 100.2 100.2 7.99 - 461,715 7.5 7.5 0.87 0.60 7.86 N 10/30/98
HARL 14.4 192.4 192.4 12.33 1.65 395,383 6.4 6.4 2.02 0.97 14.71 N 10/30/98
HAVN 15.3 100.3 104.7 5.33 2.16 2,322,466 5.3 5.1 0.91 0.40 7.18 N 10/30/98
HBFW 21.3 145.7 145.7 17.44 1.20 360,286 11.9 11.9 1.25 0.83 6.68 N 10/30/98
HBNK 11.6 177.9 177.9 12.55 1.47 594,672 7.0 7.0 2.92 1.27 16.58 N 10/30/98
HBS 9.8 97.6 100.8 14.22 3.48 151,718 14.6 14.2 1.77 1.44 9.97 N 10/30/98
<CAPTION>
NPAs/ Price/
Assets Core
(%) EPS
Ticker MRQ (x)
<S> <C> <C>
ESBF 0.60 15.4
ESBK 0.75 11.9
ETFS 0.41 43.8
FAB 0.27 18.3
FBBC 0.08 10.7
FBSI 0.03 17.4
FCB NA 27.5
FCBF 0.22 16.6
FCME 0.21 13.0
FDEF 0.29 18.8
FED 0.73 10.8
FESX 0.53 13.2
FFBH 0.85 16.0
FFBZ 0.54 23.1
FFCH 0.71 15.0
FFDB 0.89 16.3
FFDF 0.09 40.0
FFES 0.30 11.4
FFFD NA 12.0
FFFL 0.27 26.8
FFHH 0.19 16.3
FFHS 0.37 17.8
FFIC 0.22 14.7
FFKY 0.03 17.4
FFLC 0.19 13.2
FFSL NA 9.9
FFSX NA 15.2
FFWC 0.43 20.8
FFWD 0.02 20.3
FFYF 0.51 16.2
FGHC 1.65 21.9
FISB 1.11 22.3
FKFS 1.21 13.3
FKKY NA 15.4
FLAG 1.26 29.3
FLFC 0.77 23.7
FLGS 2.26 8.2
FLKY 1.43 21.3
FMCO NA 13.2
FMSB 0.05 12.5
FNGB 0.08 15.1
FSBI 0.17 12.5
FSPT 0.31 23.2
FSTC 1.08 20.6
FTF NA 10.5
FTFC NA 29.3
FTNB 0.44 38.8
FTSB 1.93 13.8
FWWB 0.42 19.0
GAF 0.23 11.3
GDW NA 12.7
GOSB 0.07 40.6
GPT 2.27 15.2
GSFC 0.07 18.9
GSLA 0.12 56.3
GTPS NA 23.6
GUPB 0.70 17.8
HALL NA 15.5
HARL - 14.0
HAVN 0.40 21.7
HBFW - 20.2
HBNK 1.65 11.6
HBS 0.60 13.1
</TABLE>
7
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Tangible
Price/ Current Current Current Total Equity/ Equity/ Core Core Core
LTM Price/ Price/T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Merger Current
Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HCFC 13.8 112.8 112.8 15.4 2.62 80,766 13.7 13.7 1.00 1.26 7.40 N 10/30/98
HFFB 17.9 89.6 89.6 25.7 2.76 109,033 26.5 26.5 0.81 1.35 5.06 N 10/30/98
HFFC 12.1 108.9 108.9 10.7 2.57 560,648 9.8 9.8 1.16 0.92 9.46 N 10/30/98
HFSA 19.9 108.1 108.1 11.1 3.31 132,997 10.3 10.3 0.91 0.58 5.40 N 10/30/98
HHFC 21.1 102.6 102.6 11.0 3.67 96,085 10.7 10.7 0.57 0.56 4.98 N 10/30/98
HIFS 12.0 140.6 140.6 13.3 1.59 246,844 9.5 9.5 1.40 1.23 12.72 N 10/30/98
HMLK 16.9 97.3 97.3 13.8 2.21 197,580 14.2 14.2 0.86 0.85 5.24 N 10/30/98
HMNF 21.2 102.6 111.7 10.0 1.79 725,180 9.8 9.0 0.63 0.57 4.50 N 10/30/98
HOMF 16.3 175.8 180.2 16.9 1.68 722,614 9.6 9.4 1.46 1.13 12.46 N 10/30/98
HPBC 10.1 158.3 158.3 14.1 3.98 263,830 8.9 8.9 2.00 1.56 16.61 N 10/30/98
HRBF 20.7 129.0 129.0 16.5 2.54 231,693 12.8 12.8 0.99 0.77 6.03 N 10/30/98
HRZB 12.5 120.4 120.4 18.4 3.14 568,984 15.3 15.3 1.12 1.57 10.03 N 10/30/98
HTHR 8.5 102.0 102.0 4.1 - 1,201,331 4.0 4.0 1.80 1.18 23.83 N 10/30/98
HWEN 18.1 80.5 80.5 14.2 1.54 42,560 17.6 17.6 0.36 0.71 4.09 N 10/30/98
HZFS 17.2 146.4 146.4 13.8 1.27 89,947 9.4 9.4 0.82 0.79 8.26 N 10/30/98
IFSB 18.9 75.7 82.8 6.0 2.00 265,940 8.0 7.3 0.66 0.32 4.39 N 10/30/98
INBI 16.4 152.7 152.7 24.4 3.16 388,649 16.0 16.0 1.16 1.50 9.16 N 10/30/98
IPSW 12.4 226.5 226.5 12.5 1.23 249,459 5.5 5.5 1.05 1.13 21.09 N 10/30/98
ITLA 8.5 106.9 NA 11.5 - 1,007,042 10.8 NA 1.79 1.45 13.93 N 10/30/98
IWBK 22.7 241.5 263.8 17.0 2.11 2,448,386 7.0 6.5 1.17 0.78 11.36 N 10/30/98
JSB 13.7 135.7 135.7 33.0 3.05 1,563,460 24.3 24.3 3.82 2.52 10.72 N 10/30/98
JSBA 20.7 123.8 152.8 13.0 1.74 1,248,923 9.7 8.0 0.78 0.62 6.66 N 10/30/98
JXVL 11.7 101.9 101.9 14.7 3.39 242,673 14.5 14.5 1.26 1.33 9.13 N 10/30/98
KFBI 18.8 112.0 121.5 17.6 1.97 1,031,302 14.1 13.1 0.97 0.92 6.40 N 10/30/98
KNK 14.1 84.4 98.4 8.3 1.96 405,163 9.8 8.6 1.74 0.67 6.63 N 10/30/98
KSBK 9.3 125.4 141.2 10.1 1.85 162,885 8.0 7.2 1.40 1.14 14.72 N 10/30/98
KYF 16.9 107.7 107.7 18.9 4.00 82,046 17.6 17.6 0.74 1.06 6.28 N 10/30/98
LARK 18.0 110.5 110.5 14.4 2.81 229,337 13.1 13.1 1.19 0.90 6.45 N 10/30/98
LARL 14.1 170.7 170.7 18.9 3.16 221,369 11.1 11.1 1.35 1.45 13.73 N 10/30/98
LFCO 2.2 42.6 42.6 6.9 - 380,343 16.2 16.2 1.79 2.79 21.42 N 10/30/98
LFED 22.3 150.2 150.2 24.5 3.93 302,737 16.3 16.3 0.64 1.13 6.86 N 10/30/98
LOGN 14.0 105.9 105.9 19.9 3.09 90,264 18.8 18.8 1.02 1.50 7.90 N 10/30/98
LSBI 18.1 142.2 142.2 12.1 1.36 227,044 8.0 8.0 1.63 0.70 8.38 N 10/30/98
LSBX 5.8 124.2 124.2 16.3 - 339,832 13.1 13.1 2.21 2.85 25.76 N 10/30/98
LVSB 18.7 159.5 237.8 15.2 1.35 593,856 9.5 6.6 0.99 0.75 6.96 N 10/30/98
LXMO 19.0 77.5 83.0 12.4 2.55 95,301 16.1 15.1 0.62 0.77 3.80 N 10/30/98
MAFB 15.8 195.1 218.0 15.2 1.14 3,605,904 7.8 7.0 1.55 1.04 13.38 N 10/30/98
MARN 17.8 100.5 102.8 18.2 3.98 196,714 18.1 17.8 1.24 1.14 5.64 N 10/30/98
MASB 14.4 117.5 119.1 13.9 2.74 934,458 11.8 11.7 2.54 1.01 8.82 N 10/30/98
MBBC 34.4 86.0 93.9 9.9 1.09 436,193 10.8 9.9 0.32 0.31 2.82 N 10/30/98
MBLF 14.3 90.7 90.7 12.4 2.96 203,228 13.7 13.7 1.42 0.85 6.57 N 10/30/98
MCBN 17.0 122.5 122.5 9.8 2.22 65,309 8.0 8.0 0.53 0.61 7.27 N 10/30/98
MDBK 12.9 131.0 137.8 11.9 2.58 1,134,102 9.1 8.7 1.20 1.02 11.22 N 10/30/98
MECH 13.9 136.0 136.0 13.4 2.47 960,017 9.8 9.8 1.75 1.01 10.25 N 10/30/98
METF 12.8 182.7 197.1 6.8 - 1,058,887 3.7 3.5 0.80 0.61 15.47 N 10/30/98
MFBC 16.6 99.1 99.1 9.9 1.64 310,030 10.0 10.0 1.25 0.71 6.24 N 10/30/98
MFFC 25.2 113.8 113.8 13.7 4.17 235,275 11.2 11.2 0.57 0.54 4.67 N 10/30/98
MFLR 15.8 143.2 145.2 13.2 3.81 142,965 9.2 9.1 1.33 0.93 9.67 N 10/30/98
MRKF 21.6 93.4 93.4 27.4 2.55 53,653 29.3 29.3 0.51 1.09 3.15 N 10/30/98
MSBF 18.8 153.3 153.3 25.5 1.97 79,967 16.7 16.7 0.81 1.35 8.10 N 10/30/98
MWBI 11.2 108.8 108.8 8.0 3.00 160,583 7.4 7.4 1.07 0.76 10.74 N 10/30/98
MWBX 12.1 189.8 189.8 14.1 3.02 669,111 7.4 7.4 0.55 1.23 16.51 N 10/30/98
NBN 14.1 120.5 131.0 9.0 1.91 322,533 7.8 7.2 0.79 0.76 9.53 N 10/30/98
NEIB 12.7 112.0 112.0 14.6 2.20 203,263 13.0 13.0 1.42 1.18 8.55 N 10/30/98
NHTB 13.4 134.9 154.4 11.0 3.53 324,320 8.1 7.2 1.27 0.86 11.02 N 10/30/98
NMSB 20.7 133.2 133.2 12.5 3.00 369,777 9.4 9.4 0.58 0.67 7.13 N 10/30/98
NSLB 20.8 80.0 80.6 14.8 3.70 62,648 18.5 18.4 0.65 0.67 3.48 N 10/30/98
NWEQ 13.1 122.1 122.1 14.8 3.83 99,113 12.1 12.1 1.36 1.15 9.80 N 10/30/98
NWSB 27.0 251.1 282.1 20.9 1.35 2,667,257 8.3 7.5 0.44 0.87 9.76 N 10/30/98
OCFC 15.0 108.9 NA 13.9 3.31 1,544,344 12.7 NA 0.97 0.89 6.39 N 10/30/98
OFCP 18.4 158.7 193.7 13.1 1.91 919,865 8.2 6.8 1.14 0.79 9.33 N 10/30/98
OHSL 19.0 131.5 131.5 14.5 3.42 252,396 10.8 10.8 0.77 0.78 7.17 N 10/30/98
PBCI 15.4 136.5 137.1 17.0 4.72 397,216 12.5 12.4 1.54 1.14 8.92 N 10/30/98
<CAPTION>
NPAs/ Price/
Assets Core
(%) EPS
Ticker MRQ (x)
<S> <C> <C>
HCFC NA 12.7
HFFB - 17.3
HFFC 069 13.5
HFSA 015 21.6
HHFC 009 21.4
HIFS 020 12.0
HMLK NA 16.5
HMNF 005 22.3
HOMF 072 15.2
HPBC - 9.2
HRBF 069 19.0
HRZB 003 12.5
HTHR 528 6.9
HWEN 110 20.3
HZFS 103 16.8
IFSB 131 7.3
INBI 014 15.3
IPSW 071 13.5
ITLA NA 8.1
IWBK 064 22.1
JSB 014 10.3
JSBA 070 25.2
JXVL 062 11.9
KFBI NA 16.3
KNK 056 17.5
KSBK NA 8.6
KYF 004 19.5
LARK 006 20.6
LARL 027 14.4
LFCO 227 3.7
LFED 083 23.8
LOGN 026 14.3
LSBI NA 18.4
LSBX 027 5.7
LVSB 056 35.6
LXMO 047 19.6
MAFB NA 14.9
MARN 082 17.8
MASB 016 14.0
MBBC 055 137.5
MBLF 045 16.9
MCBN 038 32.1
MDBK 017 13.4
MECH 051 12.1
METF 130 17.1
MFBC NA 19.2
MFFC 017 24.0
MFLR 059 19.4
MRKF - 22.9
MSBF 041 17.3
MWBI 054 10.3
MWBX 037 11.0
NBN 081 10.7
NEIB 041 11.8
NHTB 100 13.3
NMSB NA 16.7
NSLB 001 16.1
NWEQ 170 13.5
NWSB 052 27.0
OCFC 041 14.5
OFCP 049 17.5
OHSL NA 19.2
PBCI 135 15.6
</TABLE>
8
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Tangible
Price/ Current Current Current Total Equity/ Equity/ Core Core Core
LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Merger Current
Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PBCT 24.6 191.3 228.2 17.1 3.60 9,619,500 8.9 7.6 1.04 0.76 8.26 N 10/30/98
PBKB 25.9 211.7 NA 7.7 3.66 891,442 3.7 NA 0.80 0.33 8.48 N 10/30/98
PBOC 12.7 120.2 120.2 6.6 - 3,210,974 5.5 5.5 0.76 0.37 8.65 N 10/30/98
PCBC 18.5 98.7 98.7 18.2 2.53 89,761 18.5 18.5 1.07 0.97 5.11 N 10/30/98
PDB 16.0 115.5 115.5 19.2 5.26 127,607 16.7 16.7 0.57 1.22 7.42 N 10/30/98
PEEK 19.8 90.7 90.7 19.5 2.64 199,898 21.5 21.5 0.69 0.96 4.13 N 10/30/98
PERM 20.7 114.1 139.9 10.1 2.00 506,725 8.6 7.1 0.58 0.58 5.97 N 10/30/98
PFDC 15.9 147.4 147.4 22.1 2.40 304,320 15.0 15.0 1.26 1.45 9.56 N 10/30/98
PFED 18.8 88.4 88.4 18.0 - 196,813 20.3 20.3 0.78 0.93 4.36 N 10/30/98
PFFB 14.3 98.2 99.2 7.5 - 3,044,586 7.6 7.5 1.03 0.58 6.53 N 10/30/98
PFFC 31.4 98.9 98.9 17.2 5.46 86,297 17.4 17.4 0.35 0.57 3.09 N 10/30/98
PFNC 19.2 175.2 NA 11.9 1.13 618,049 6.8 NA 0.74 0.74 12.03 N 10/30/98
PFSB 12.3 114.0 130.1 8.1 1.16 1,566,418 6.7 5.9 1.12 0.72 10.38 N 10/30/98
PHBK 13.4 210.3 250.0 16.0 2.44 9,882,729 7.6 6.5 1.34 1.22 16.36 N 10/30/98
PHFC 12.1 96.2 97.3 6.7 1.90 372,533 6.9 6.9 1.04 0.62 7.19 N 10/30/98
PHSB 25.0 129.5 129.5 16.0 2.04 236,916 12.4 12.4 0.55 0.66 5.14 N 10/30/98
PLSK 21.5 100.7 100.7 11.9 2.79 191,316 11.8 11.8 0.50 0.54 4.56 N 10/30/98
PRBC 18.6 85.2 85.2 7.7 1.54 169,983 9.0 9.0 0.70 0.44 4.31 N 10/30/98
PSFC 22.1 136.9 136.9 27.6 1.71 105,903 18.5 18.5 0.74 1.18 5.44 N 10/30/98
PSFI 15.3 92.0 92.0 24.6 5.01 85,000 26.8 26.8 0.68 1.72 5.52 N 10/30/98
PTRS 15.9 121.9 121.9 10.4 2.00 128,149 8.5 8.5 0.88 0.69 7.69 N 10/30/98
PULB 25.8 163.2 163.2 21.8 5.68 186,917 13.4 13.4 0.75 0.87 6.54 N 10/30/98
PVFC 9.9 142.3 142.3 10.3 - 433,279 7.2 7.2 1.12 1.15 16.01 N 10/30/98
PVSA 12.4 159.6 160.3 11.9 2.29 1,123,324 7.5 7.5 1.69 1.06 14.36 N 10/30/98
PWBK 29.4 88.1 88.1 16.5 2.58 46,080 17.3 17.3 0.37 0.53 2.91 N 10/30/98
QCBC 12.3 109.8 109.8 9.7 - 893,511 8.9 8.9 1.22 0.81 9.27 N 10/30/98
QCFB 11.6 130.5 130.5 22.8 - 150,486 17.5 17.5 2.24 1.67 9.55 N 10/30/98
QCSB 24.4 373.1 373.1 37.4 2.68 1,706,583 8.7 8.7 1.22 1.54 15.43 N 10/30/98
RELY 12.8 119.9 174.1 8.9 2.91 2,493,186 7.4 5.3 1.93 0.81 9.78 N 10/30/98
RIVR 13.6 89.3 90.5 12.2 1.59 135,683 13.6 13.5 1.02 0.82 6.27 N 10/30/98
RSLN 14.6 119.8 120.3 19.1 2.34 3,719,166 15.9 15.9 1.17 1.24 7.52 N 10/30/98
SCBS 14.3 125.5 125.5 21.8 2.31 67,920 17.3 17.3 0.91 1.22 6.49 N 10/30/98
SCCB 19.9 83.1 83.1 16.3 4.74 47,992 19.6 19.6 0.68 0.88 4.00 N 10/30/98
SFED 22.7 121.4 121.4 14.9 1.46 178,093 12.3 12.3 0.97 0.64 5.23 N 10/30/98
SFFC 18.0 115.6 115.6 20.7 1.68 89,802 17.9 17.9 0.66 1.16 6.50 N 10/30/98
SFIN 12.9 106.8 107.0 10.4 3.36 656,635 9.7 9.7 1.20 0.75 7.85 N 10/30/98
SGVB 22.0 94.7 95.8 7.5 - 408,346 7.9 7.8 0.59 0.36 4.70 N 10/30/98
SKAN 13.3 109.3 111.9 7.5 2.02 266,730 6.9 6.7 1.04 0.61 8.69 N 10/30/98
SMBC 23.8 102.4 102.4 15.8 3.01 155,924 15.5 15.5 0.70 0.69 4.23 N 10/30/98
SOBI 19.9 80.5 80.5 12.0 2.21 92,497 13.9 13.9 0.73 0.61 4.22 N 10/30/98
SOPN 17.5 121.5 121.5 27.8 4.40 304,168 22.9 22.9 1.30 1.76 7.64 N 10/30/98
SPBC 16.2 166.5 NA 14.0 2.92 5,948,226 8.4 NA 1.27 0.93 10.11 N 10/30/98
SRN 26.0 84.5 85.1 14.9 2.75 105,087 17.7 17.6 0.49 0.52 2.96 N 10/30/98
SSM 18.8 90.1 90.1 24.6 3.07 112,253 27.3 27.3 0.80 1.40 4.84 N 10/30/98
STFR 19.4 160.2 180.2 10.5 1.57 1,864,176 6.5 5.8 2.11 0.64 8.35 N 10/30/98
STSA 12.4 111.2 252.3 6.0 - 2,082,182 5.4 2.4 1.32 0.52 9.64 N 10/30/98
SVRN 14.9 182.0 297.0 10.0 0.61 21,496,822 5.3 3.3 0.88 0.74 13.04 N 10/30/98
SZB 23.8 93.7 96.1 9.3 3.83 162,975 9.9 9.7 0.66 0.41 3.71 N 10/30/98
THR 15.8 93.4 93.7 12.0 2.91 98,885 12.8 12.8 0.96 0.76 5.80 N 10/30/98
THRD 17.3 102.2 119.5 8.5 2.60 696,155 7.6 6.5 1.07 0.54 6.91 N 10/30/98
TRIC 18.0 102.6 102.6 17.2 3.45 86,714 16.7 16.7 0.71 1.01 6.32 N 10/30/98
TSH 13.3 89.1 89.1 11.5 3.31 408,823 12.9 12.9 1.14 0.92 6.97 N 10/30/98
TWIN 18.4 117.4 117.4 14.9 3.02 110,610 12.7 12.7 0.72 0.82 6.41 N 10/30/98
UFBS 16.1 129.8 NA 10.5 2.48 183,066 8.1 NA 0.93 0.70 8.86 N 10/30/98
USAB 33.0 116.8 117.5 10.8 - 134,688 9.7 9.7 0.22 0.73 7.79 N 10/30/98
WAMU 14.0 242.5 256.4 13.4 2.21 108,359,066 5.4 5.1 2.67 1.00 18.35 N 10/30/98
WAYN 28.1 183.6 183.6 17.5 3.40 259,402 9.5 9.5 0.65 0.65 6.81 N 10/30/98
WBST 13.3 165.6 193.3 10.2 1.78 9,163,686 6.2 5.3 1.85 0.75 13.35 N 10/30/98
WCFB 25.0 148.8 148.8 34.8 5.00 97,096 23.4 23.4 0.64 1.40 5.96 N 10/30/98
WEFC 14.1 108.2 108.2 14.7 3.64 185,891 13.6 13.6 1.17 1.11 7.65 N 10/30/98
WFI 16.8 181.0 183.7 13.7 2.06 354,193 7.6 7.5 0.72 0.90 12.12 N 10/30/98
WFSL 13.0 179.0 192.4 24.4 3.45 5,637,011 13.6 12.8 2.05 1.94 14.43 N 10/30/98
WHGB 21.9 74.0 74.0 11.3 2.98 131,967 15.3 15.3 0.49 0.59 3.21 N 10/30/98
<CAPTION>
NPAs/ Price/
Assets Core
(%) EPS
Ticker MRQ (x)
<S> <C> <C>
PBCT 0.59 19.4
PBKB NA 17.9
PBOC NA 13.4
PCBC - 19.0
PDB NA 16.3
PEEK 0.60 18.9
PERM 0.18 23.1
PFDC 0.16 16.7
PFED 0.07 15.2
PFFB 1.02 12.7
PFFC NA 27.5
PFNC NA 16.9
PFSB NA 12.3
PHBK 0.66 12.5
PHFC 1.24 11.7
PHSB NA 28.7
PLSK NA 19.2
PRBC 0.40 14.8
PSFC 0.67 29.2
PSFI 0.41 14.4
PTRS 0.32 15.9
PULB 0.39 28.5
PVFC 0.92 12.1
PVSA NA 12.5
PWBK 0.72 135.9
QCBC 0.83 10.7
QCFB 0.08 11.6
QCSB 0.38 21.9
RELY NA 12.4
RIVR 0.55 13.3
RSLN 0.16 13.8
SCBS 0.18 11.2
SCCB 1.87 21.1
SFED 0.74 21.2
SFFC 1.54 18.6
SFIN 0.42 16.2
SGVB 1.12 19.1
SKAN 1.74 12.9
SMBC 0.98 18.9
SOBI 0.08 15.8
SOPN 0.18 17.2
SPBC NA 21.4
SRN 0.01 22.8
SSM - 23.4
STFR 0.16 17.3
STSA 0.57 13.7
SVRN NA 14.9
SZB 0.05 56.0
THR 0.83 15.8
THRD 0.30 17.1
TRIC NA 17.7
TSH NA 14.0
TWIN 0.37 18.4
UFBS NA 16.3
USAB 0.13 8.2
WAMU 0.69 13.0
WAYN 0.48 26.8
WBST 0.39 12.3
WCFB 0.05 25.0
WEFC NA 13.8
WFI NA 19.0
WFSL 0.52 12.8
WHGB 0.59 17.9
</TABLE>
9
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Tangible
Price/ Current Current Current Total Equity/ Equity/ Core Core Core
LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Merger Current
Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WRNB 13.8 188.5 188.5 20.0 3.72 383,814 10.6 10.6 0.70 1.51 14.05 N 10/30/98
WSB 14.2 81.6 81.6 6.9 2.35 273,549 8.4 8.4 0.30 0.50 5.92 N 10/30/98
WSFS 12.8 220.4 221.3 13.1 0.70 1,595,692 6.0 5.9 1.34 1.10 18.26 N 10/30/98
WSTR 14.6 91.5 111.4 10.2 2.96 999,595 11.2 9.3 1.25 0.69 6.46 N 10/30/98
WVFC 14.4 168.4 168.4 17.8 3.90 311,509 10.6 10.6 1.07 1.29 11.44 N 10/30/98
YFCB 14.8 92.6 92.6 10.1 2.26 383,024 10.9 10.9 0.96 0.74 6.03 N 10/30/98
YFED 23.8 164.2 164.2 14.6 2.60 1,229,268 8.9 8.9 0.84 0.67 7.58 N 10/30/98
Maximum 34.9 373.1 373.1 37.4 5.68 108,359,066 36.2 36.2 7.04 2.85 33.43
Minimum 2.2 42.5 42.6 1.8 - 42,560 3.7 2.4 0.22 0.19 2.41
Average 17.6 131.7 138.7 14.7 2.23 1,787,673 11.9 11.7 1.08 0.92 8.60
Median 16.5 120.3 122.3 13.8 2.26 360,286 10.2 9.9 0.96 0.85 7.64
<CAPTION>
NPAs/ Price/
Assets Core
(%) EPS
Ticker MRQ (x)
<S> <C> <C>
WRNB 0.74 15.1
WSB NA 13.3
WSFS 0.95 11.6
WSTR 0.41 16.3
WVFC NA 14.8
YFCB 0.28 14.2
YFED 0.98 23.8
Maximum 5.28 137.5
Minimum - 3.7
Average 0.56 18.7
Median 0.42 16.5
</TABLE>
10
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Core Core Core
EPS ROAA ROAE
($) (%) (%)
Ticker MRQ MRQ MRQ
<S> <C> <C> <C>
ABBK 0.16 0.46 7.25
ABCL 0.32 0.75 8.41
ABCW 0.28 1.00 16.07
AFBC 0.10 0.34 2.49
AHCI 0.16 0.40 3.56
ALBC 0.12 0.47 5.56
ALLB 0.16 0.76 7.03
AMFC 0.16 0.49 3.68
ANA 0.28 0.80 5.77
ANDB 0.65 1.27 15.03
ANE 0.22 0.85 12.86
ASBI 0.24 0.83 7.02
ASBP 0.18 1.00 7.21
ASFC 0.84 0.77 9.80
BDJI 0.28 0.80 7.48
BFD 0.27 0.54 6.85
BFSB 0.22 1.33 9.92
BKC 0.75 2.17 25.36
BKCT 0.27 1.26 12.52
BKUNA - 0.03 0.50
BNKU 0.61 0.59 11.56
BPLS - - 0.12
BVCC 0.32 0.46 7.57
BWFC 0.08 0.52 3.99
CAFI 0.22 0.84 8.49
CASB 0.16 0.64 9.19
CASH 0.31 0.81 7.82
CATB 0.24 1.21 5.65
CBES 0.18 0.54 3.90
CBK 0.11 0.41 2.94
CBSA 0.48 0.49 12.98
CEBK 0.29 0.60 6.11
CENB 0.25 1.18 6.35
CFB 0.39 0.85 10.54
CFCP 0.22 0.95 15.91
CFFC 0.16 0.95 6.78
CFNC 0.19 1.15 6.38
CFSB 0.31 1.23 15.65
CFTP 0.15 1.01 4.51
CIBI 0.19 0.86 9.08
CKFB 0.22 1.12 5.21
CLAS 0.16 0.58 3.83
CMRN 0.28 1.19 5.88
CMSB 0.09 0.21 2.53
CMSV 0.25 0.67 6.18
CNIT 0.27 0.76 10.30
CNSB 0.09 0.59 2.46
CNY 0.14 0.29 3.59
COFI 0.48 1.31 17.44
COOP 0.16 0.53 6.61
CRSB 0.30 2.22 19.82
CRZY 0.19 1.04 4.53
CSBF 0.12 0.77 3.34
CVAL 0.30 0.82 9.54
DCBI 0.24 1.54 6.63
DCOM 0.34 0.94 8.52
DME 0.15 0.34 5.21
DNFC 0.28 0.54 9.66
DSL 0.41 0.79 10.04
EBSI 0.45 0.95 14.68
EFBC 0.17 1.44 3.95
EMLD 0.15 1.02 11.99
EQSB 0.38 0.58 11.33
</TABLE>
11
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Core Core Core
EPS ROAA ROAE
($) (%) (%)
Ticker MRQ MRQ MRQ
<S> <C> <C> <C>
ESBF 0.26 0.63 8.83
ESBK 0.44 0.54 8.53
ETFS 0.06 0.33 1.87
FAB 0.20 0.44 5.04
FBBC 0.34 1.03 10.67
FBSI 0.19 0.99 7.18
FCB 0.14 0.71 3.44
FCBF 0.37 1.09 7.52
FCME 0.19 0.65 6.88
FDEF 0.19 1.00 5.62
FED 0.38 0.83 13.26
FESX 0.32 0.78 10.33
FFBH 0.30 0.99 6.72
FFBZ 0.13 0.83 10.67
FFCH 0.32 0.99 14.88
FFDB 0.15 0.83 8.49
FFDF 0.10 0.59 2.98
FFES 0.56 0.64 9.08
FFFD 0.35 1.29 8.69
FFFL 0.22 0.43 6.73
FFHH 0.23 0.61 5.87
FFHS 0.19 0.56 6.16
FFIC 0.26 0.95 7.68
FFKY 0.37 1.51 11.37
FFLC 0.30 1.08 8.55
FFSL 0.26 0.83 8.63
FFSX 0.33 0.69 9.03
FFWC 0.18 0.51 5.37
FFWD 0.16 1.04 7.79
FFYF 0.48 1.15 8.81
FGHC 0.10 1.15 14.40
FISB 0.21 0.63 6.83
FKFS 0.29 0.68 10.30
FKKY 0.25 1.24 7.43
FLAG 0.11 0.58 6.74
FLFC 0.21 0.83 10.98
FLGS 0.73 1.49 29.40
FLKY 0.15 1.00 3.77
FMCO 0.19 0.83 13.29
FMSB 0.25 0.90 12.29
FNGB 0.19 0.94 8.74
FSBI 0.34 0.70 10.04
FSPT 0.37 1.13 4.79
FSTC 0.34 1.11 11.10
FTF 0.52 1.83 12.48
FTFC 0.13 0.60 8.28
FTNB 0.10 0.67 2.86
FTSB 0.20 1.16 7.30
FWWB 0.29 0.98 7.44
GAF 0.31 0.98 7.75
GDW 1.78 1.06 14.06
GOSB 0.08 0.59 2.41
GPT 0.54 1.31 11.33
GSFC 0.17 1.60 4.52
GSLA 0.06 0.54 1.38
GTPS 0.18 0.69 3.99
GUPB 0.20 0.70 5.84
HALL 0.20 0.51 6.83
HARL 0.52 0.95 14.49
HAVN 0.16 0.25 4.90
HBFW 0.33 0.84 6.99
HBNK 0.73 1.20 16.14
HBS 0.33 1.09 7.38
</TABLE>
12
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Core Core Core
EPS ROAA ROAE
($) (%) (%)
Ticker MRQ MRQ MRQ
<S> <C> <C> <C>
HCFC 0.27 1.26 9.15
HFFB 0.21 1.38 5.22
HFFC 0.26 0.84 8.50
HFSA 0.21 0.51 4.95
HHFC 0.14 0.56 5.13
HIFS 0.35 1.19 12.26
HMLK 0.22 0.76 5.21
HMNF 0.15 0.45 4.18
HOMF 0.39 1.17 12.45
HPBC 0.55 1.49 17.57
HRBF 0.27 0.82 6.47
HRZB 0.28 1.54 10.01
HTHR 0.56 1.17 27.46
HWEN 0.08 0.63 3.53
HZFS 0.21 0.76 8.17
IFSB 0.43 0.82 10.87
INBI 0.31 1.51 9.50
IPSW 0.24 1.00 18.17
ITLA 0.47 1.48 13.96
IWBK 0.30 0.81 11.39
JSB 1.27 3.31 13.90
JSBA 0.16 0.53 5.53
JXVL 0.31 1.26 8.64
KFBI 0.28 1.00 7.11
KNK 0.35 0.51 5.21
KSBK 0.38 1.27 15.89
KYF 0.16 0.96 5.56
LARK 0.26 0.76 5.59
LARL 0.33 1.37 12.60
LFCO 0.27 1.34 11.95
LFED 0.15 1.01 6.16
LOGN 0.25 1.44 7.65
LSBI 0.40 0.67 8.12
LSBX 0.56 2.98 23.70
LVSB 0.13 0.36 3.71
LXMO 0.15 0.66 3.88
MAFB 0.41 1.07 13.64
MARN 0.31 1.06 5.64
MASB 0.65 1.04 8.79
MBBC 0.02 0.07 0.64
MBLF 0.30 0.76 5.62
MCBN 0.07 0.33 4.01
MDBK 0.29 0.95 10.65
MECH 0.50 1.11 11.35
METF 0.15 0.43 11.01
MFBC 0.27 0.54 5.10
MFFC 0.15 0.53 4.80
MFLR 0.27 0.74 7.83
MRKF 0.12 1.03 3.17
MSBF 0.22 1.32 7.89
MWBI 0.29 0.80 11.04
MWBX 0.15 1.23 16.59
NBN 0.26 0.91 11.75
NEIB 0.38 1.16 8.82
NHTB 0.32 0.86 10.76
NMSB 0.18 0.77 8.38
NSLB 0.21 0.87 4.68
NWEQ 0.33 1.11 9.23
NWSB 0.11 0.78 9.24
OCFC 0.25 0.86 6.48
OFCP 0.30 0.81 9.91
OHSL 0.19 0.77 7.09
PBCI 0.38 1.10 8.86
</TABLE>
13
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Core Core Core
EPS ROAA ROAE
($) (%) (%)
Ticker MRQ MRQ MRQ
<S> <C> <C> <C>
PBCT 0.33 0.92 9.94
PBKB 0.29 0.44 11.98
PBOC 0.18 0.48 8.61
PCBC 0.26 0.92 4.94
PDB 0.14 1.19 7.17
PEEK 0.18 0.91 4.23
PERM 0.13 0.53 5.28
PFDC 0.30 1.32 8.86
PFED 0.24 1.08 5.35
PFFB 0.29 0.57 7.25
PFFC 0.10 0.64 3.70
PFNC 0.21 0.81 11.68
PFSB 0.28 0.65 9.96
PHBK 0.36 1.29 17.20
PHFC 0.27 0.55 7.81
PHSB 0.12 0.56 4.42
PLSK 0.14 0.57 4.79
PRBC 0.22 0.50 5.39
PSFC 0.14 0.85 3.90
PSFI 0.18 1.65 6.05
PTRS 0.22 0.68 7.74
PULB 0.17 0.79 5.91
PVFC 0.23 0.90 12.56
PVSA 0.42 1.01 13.86
PWBK 0.02 0.09 0.48
QCBC 0.35 0.92 10.32
QCFB 0.56 1.67 9.48
QCSB 0.34 1.65 17.86
RELY 0.50 0.76 9.94
RIVR 0.26 0.87 6.38
RSLN 0.31 1.26 8.03
SCBS 0.29 1.57 9.46
SCCB 0.16 0.82 4.12
SFED 0.26 0.68 5.58
SFFC 0.16 1.13 6.34
SFIN 0.24 0.62 6.23
SGVB 0.17 0.43 5.41
SKAN 0.27 0.61 8.76
SMBC 0.22 0.89 5.45
SOBI 0.23 0.70 5.01
SOPN 0.33 1.76 7.68
SPBC 0.24 0.70 7.58
SRN 0.14 0.56 3.18
SSM 0.16 1.07 4.02
STFR 0.59 0.65 9.20
STSA 0.30 0.44 8.68
SVRN 0.22 0.69 12.45
SZB 0.07 0.15 1.49
THR 0.24 0.74 5.58
THRD 0.27 0.50 6.67
TRIC 0.18 1.03 6.21
TSH 0.27 0.85 6.34
TWIN 0.18 0.80 6.29
UFBS 0.23 0.68 8.70
USAB 0.22 1.65 15.09
WAMU 0.72 1.04 18.90
WAYN 0.17 0.65 6.82
WBST 0.50 0.84 14.02
WCFB 0.16 1.36 5.80
WEFC 0.30 1.11 7.65
WFI 0.16 0.77 10.31
WFSL 0.52 1.97 14.19
WHGB 0.15 0.63 3.93
</TABLE>
14
<PAGE>
Exhibit V - Selected Publicly Held Thrifts
<TABLE>
<CAPTION>
Core Core Core
EPS ROAA ROAE
($) (%) (%)
Ticker MRQ MRQ MRQ
<S> <C> <C> <C>
WRNB 0.16 1.40 13.16
WSB 0.08 0.51 5.96
WSFS 0.37 1.17 19.03
WSTR 0.28 0.63 5.72
WVFC 0.26 1.25 11.52
YFCB 0.25 0.64 6.07
YFED 0.21 0.64 7.30
Maximum 1.78 3.31 29.40
Minimum - - 0.12
Average 0.27 0.89 8.44
Median 0.25 0.83 7.65
</TABLE>
15
<PAGE>
EXHIBIT VI
<PAGE>
EXHIBIT VI - COMPARATIVE GROUP SELECTION
To search for a comparative group for 1st State, we selected all thrifts from
the entire U.S. with assets between $200 million and $400 million that have
sufficient trading volume to produce meaningful market information. All of these
thrifts are listed on either AMEX, NYSE, or Nasdaq.
We found 92 thrifts in the asset size described above. We eliminated 80 and
retained a group of 12. Normally, we consider 10 to 12 to be the desired sample
size.
We eliminated thrifts for the following reasons: 1) Mutual holding company; 2)
No PE for the last fiscal year or PE ratio for the last year *35; 3) Tangible
equity ** 10% of assets or * 25% of assets; 4) Merger agreement has been
executed; 5) Non-performing assets * 1.0% of assets; 6) Loans ** 60% of assets;
and 7) Loans serviced * 40% of assets.
After eliminating thrifts as discussed above, we had 19 left. We then eliminated
all thrifts with assets under $225 million, eliminating 5 and reducing our group
to 14. We then eliminated the one remaining with the most assets (ticker INBI)
and the one remaining with the least assets (ticker LARK).
The group of 92 from which the comparative group was selected is listed on
Exhibit VI.1 and the selected comparative group is listed on Exhibit VI.2. On
Exhibit VI.1, we have blocked the cells that indicate which ones were not
selected and why. Set forth below is a legend for the column summarizing reasons
individual thrifts were not selected.
A Mutual holding company.
B No core EPS for most recent quarter or PR ratio over 35.
C Assets ** $225 million (plus INBI and LARK).
D Equity either ** 10% of assets or * 25% of assets.
E Merger agreement has been executed.
F Non-performing assets * 1.0% of total assets.
G Loans ** 60% of assets.
H Loans serviced exceeds 40% of assets.
_________________________
* greater than sign
** less than sign
<PAGE>
Exhibit VI.I - Comparatives Group Selection
A
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------
ALLB Alliance Bank (MHC) Broomall PA MA SAIF NASDAQ 03/03/95 14.750 48.28
- ---------------------------------------------
ANA Acadiana Bancshares Inc. Lafayette LA SW SAIF AMSE 07/16/96 16.875 38.45
- --------
ANE Alliance Bncp of New England Vernon CT NE BIF AMSE 12/19/86 10.125 23.21
- --------
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 18.000 58.55
- ---------------------------------------------
BCSB BCSB Bankcorp Inc. (MHC) Baltimore MD MA SAIF NASDAQ 07/08/98 11.063 67.67
- ---------------------------------------------
BFFC Big Foot Financial Corp. Long Grove IL MW SAIF NASDAQ 12/20/96 14.250 35.81
- --------
BRBI Blue River Bancshares Inc. Shelbyville IN MW SAIF NASDAQ NA 9.000 13.50
- --------
BYS Bay State Bancorp Brookline MA NE SAIF AMSE 03/30/98 21.250 53.87
- --------
CATB Catskill Financial Corp. Catskill NY MA BIF NASDAQ 04/18/96 13.250 58.78
- --------
CAVB Cavalry Bancorp Inc. Murfreesboro TN SE SAIF NASDAQ 03/17/98 18.750 141.34
- --------
CBK Citizens First Financial Corp. Bloomington IL MW SAIF AMSE 05/01/96 14.750 35.53
- --------
CEBK Central Co-operative Bank Somerville MA NE BIF NASDAQ 10/24/86 19.375 38.07
- --------
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 14.750 64.87
- --------
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 17.500 42.59
- --------
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 14.000 42.50
- --------
CRSB Crusader Holding Corp. Philadelphia PA MA SAIF NASDAQ NA 11.875 45.51
- --------
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 28.250 65.75
- --------
EBI Equality Bancorp Inc. St. Louis MO MW SAIF AMSE 12/02/97 12.500 31.50
- --------
EFC EFC Bancorp Inc. Elgin IL MW SAIF AMSE 04/07/98 10.250 76.79
- --------
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 24.000 29.48
- --------
ESBK Elmira Savings Bank (The) Elmira NY MA BIF NASDAQ 03/01/85 24.000 17.44
- --------
ESX Essex Bancorp Inc. Norfolk VA SE SAIF AMSE NA 2.188 2.32
- --------
FBCV 1ST Bancorp Vincennes IN MW SAIF NASDAQ 04/07/87 43.813 47.83
- --------
FBER 1st Bergen Bancorp Wood-Ridge NJ MA SAIF NASDAQ 04/01/96 17.375 44.92
- --------
FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/93 20.000 36.34
- --------
FFBZ First Federal Bancorp Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 10.125 31.90
- --------
FFFD North Central Bancshares Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 17.000 52.75
- --------
FFHS First Franklin Corp. Cincinnati OH MW SAIF NASDAQ 01/26/88 14.500 25.85
- --------
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 15.375 22.42
- --------
FIBC Financial Bancorp Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 31.000 52.91
- --------
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 13.000 31.37
- --------
FMBD First Mutual Bancorp Inc. Decatur IL MW SAIF NASDAQ 07/05/95 16.750 59.14
- --------
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 39.125 93.96
- --------
FSBI Fidelity Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 18.000 35.53
- --------
FSFF First SecurityFed Financial Chicago IL MW SAIF NASDAQ 10/31/97 12.000 76.90
- --------
FSTC First Citizens Corp. Newnan GA SE SAIF NASDAQ 03/01/86 27.500 76.93
- ---------------------------------------------
GBNK Gaston Federal Bancorp (MHC) Gastonia NC SE SAIF NASDAQ 04/13/98 12.625 56.77
- ---------------------------------------------
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90 21.000 47.95
- --------
GFED Guaranty Federal Bcshs Inc. Springfield MO MW SAIF NASDAQ 12/31/97 11.000 68.51
- --------
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 29.375 49.21
- --------
HBEI Home Bancorp of Elgin Inc. Elgin IL MW SAIF NASDAQ 09/27/96 12.375 84.84
- --------
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 26.875 63.18
- --------
HBSC Heritage Bancorp Inc. Laurens SC SE SAIF NASDAQ 04/06/98 16.750 77.53
- --------
HCBB HCB Bancshares Inc. Camden AR SE SAIF NASDAQ 05/07/97 11.125 29.43
- --------
HFBC HopFed Bancorp Inc. Hopkinsville KY MW SAIF NASDAQ 02/09/98 15.500 62.52
- --------
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 25.500 33.39
- --------
HPBC Home Port Bancorp Inc. Nantucket MA NE BIF NASDAQ 08/25/88 20.000 36.84
- --------
HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 18.750 34.93
- --------
IFSB Independence Federal Svgs Bank Washington DC MA SAIF NASDAQ 06/06/85 15.250 19.54
- --------
INBI Industrial Bancorp Inc. Bellevue OH MW SAIF NASDAQ 08/01/95 17.375 87.13
- --------
</TABLE>
2
<PAGE>
Exhibit VI.I - Comparatives Group Selection
A
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 13.750 32.86
- --------
JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 16.000 38.75
- --------
LARK Landmark Bancshares Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 22.875 34.14
- --------
LARL Laurel Capital Group Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 17.250 37.80
- --------
LFBI Little Falls Bancorp Inc. Little Falls NJ MA SAIF NASDAQ 01/05/96 14.375 35.61
- ---------------------------------------------
LFED Leeds Federal Bankshares (MHC) Baltimore MD MA SAIF NASDAQ 05/02/94 15.500 80.32
- ---------------------------------------------
LIBB Liberty Bancorp Inc. (MHC) Avenel NJ MA SAIF NASDAQ 07/01/98 9.375 36.58
- ---------------------------------------------
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 30.500 29.00
- --------
LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/86 12.250 53.04
- --------
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 19.375 24.16
- --------
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 20.000 31.80
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 12.500 27.96
- --------
NBN Northeast Bancorp Auburn ME NE BIF AMSE 08/19/87 11.000 27.07
- --------
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 16.875 27.39
- --------
NHTB New Hampshire Thrift Bncshrs Newport NH NE SAIF NASDAQ 05/22/86 15.250 31.94
- --------
NMSB NewMil Bancorp Inc. New Milford CT NE BIF NASDAQ 02/01/86 10.625 40.74
- --------
NTBK Net.B@nk Inc. Alpharetta GA SE SAIF NASDAQ NA 17.875 109.89
- --------
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 12.875 32.14
- --------
OTFC Oregon Trail Financial Corp. Baker City OR WE SAIF NASDAQ 10/06/97 12.500 58.69
- --------
PBCI Pamrapo Bancorp Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 24.000 68.23
- --------
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 14.500 41.99
- --------
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 20.250 68.35
- --------
PHFC Pittsburgh Home Financial Corp Pittsburgh PA MA SAIF NASDAQ 04/01/96 13.500 25.66
- ---------------------------------------------
PHSB Peoples Home Savings Bk (MHC) Beaver Falls PA MA SAIF NASDAQ 07/10/97 14.750 40.71
- ---------------------------------------------
RVSB Riverview Bancorp Inc. Camas WA WE SAIF NASDAQ 10/01/97 13.125 81.19
- --------
SBAN SouthBanc Shares Inc. Anderson SC SE SAIF NASDAQ 04/15/98 17.125 73.75
- ---------------------------------------------
SBFL Finger Lakes Financial (MHC) Geneva NY MA SAIF NASDAQ 11/11/94 12.375 44.18
- ---------------------------------------------
SKAN Skaneateles Bancorp Inc. Skaneateles NY MA BIF NASDAQ 06/02/86 14.438 20.86
- --------
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 22.000 81.64
- --------
SSFC South Street Financial Corp. Albemarle NC SE SAIF NASDAQ 10/03/96 8.500 39.75
- --------
THTL Thistle Group Holdings Co. Philadelphia PA MA SAIF NASDAQ 07/14/98 8.500 76.50
- --------
TSBK Timberland Bancorp Inc. Hoquiam WA WE SAIF NASDAQ 01/13/98 12.563 78.92
- --------
UBMT United Financial Corp. Great Falls MT WE SAIF NASDAQ NA 24.000 40.76
- --------
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 17.250 56.64
- ---------------------------------------------
WAYN Wayne Savings Bancshares (MHC) Wooster OH MW SAIF NASDAQ 06/25/93 19.000 47.25
- ---------------------------------------------
WCBI Westco Bancorp Inc. Westchester IL MW SAIF NASDAQ 06/26/92 29.125 72.41
- --------
WFI Winton Financial Corp. Cincinnati OH MW SAIF AMSE 08/04/88 11.375 45.66
- --------
WOFC Western Ohio Financial Corp. Springfield OH MW SAIF NASDAQ 07/29/94 20.000 45.95
- --------
WRNB Warren Bancorp Inc. Peabody MA NE BIF NASDAQ 07/09/86 9.000 71.19
- --------
WSB Washington Savings Bank, FSB Bowie MD MA SAIF AMSE NA 4.875 21.55
- --------
WVFC WVS Financial Corp. Pittsburgh PA MA SAIF NASDAQ 11/29/93 15.250 55.16
- --------
WYNE Wayne Bancorp Inc. Wayne NJ MA SAIF NASDAQ 06/27/96 29.000 58.38
- --------
Maximum 43.813 141.34
Minimum 2.188 2.32
Average 17.012 49.12
Median 15.438 44.55
</TABLE>
3
<PAGE>
Exhibit VI.I - Comparatives Group Selection
<TABLE>
<CAPTION>
B C D
Tangible ROAA
Price/ Price/ Current Current Current Total Equity/ Equity/ Core Before
LTM Core Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS Extra
Core EPS EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%)
Ticker (x) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------
ALLB 23.8 23.1 162.8 162.8 17.4 - 277,490 10.7 10.7 0.62 0.76
- --------
ANA 14.8 16.2 96.3 96.3 14.2 2.61 298,148 14.7 14.7 1.14 1.05
- -------- ------
ANE 23.0 19.5 128.2 131.0 10.0 1.98 252,287 7.8 7.7 0.44 0.95
- -------- ------
ASBI 18.0 18.8 128.3 130.6 15.6 3.56 375,297 12.2 12.0 1.00 0.98
- ---------------------- ------
BCSB NA NA NA NA NA - 320,627 8.0 8.0 NA 0.76
- ---------------------- -------------------
BFFC 39.6 59.4 94.0 94.0 16.2 - 220,604 17.3 17.3 0.36 0.53
- ---------------------- -------------------
BRBI NA NA NA NA NA - 350,208 (44.6) (44.6) NA NA
- ---------------------- ------
BYS NA 19.7 78.0 78.0 18.7 - 287,617 22.3 22.3 NA (0.63)
- ----------------------
CATB 14.7 14.4 84.3 84.3 19.2 2.79 309,566 22.0 22.0 0.90 1.32
- ---------------------- ------
CAVB NA 26.0 140.2 140.2 41.6 1.07 339,846 29.7 29.7 NA NA
- ---------------------- ------
CBK 34.3 33.5 95.0 95.0 13.3 - 281,068 14.0 14.0 0.43 0.71
- -------- ------
CEBK 16.2 16.7 102.3 112.3 10.0 1.65 381,857 9.7 9.0 1.20 0.85
- -------- ------
CFTP 25.4 24.6 99.3 99.3 24.6 2.17 263,246 22.3 22.3 0.58 1.23
- -------- -------
CMRN 17.5 15.6 97.1 97.1 19.3 1.60 220,784 19.9 19.9 1.00 1.14
- -------- -------------------
COOP 20.6 16.7 140.0 140.0 11.1 - 381,054 8.0 8.0 0.68 0.65
- -------- -------------------
CRSB 10.2 9.9 196.0 206.9 22.5 - 202,034 11.5 11.0 1.16 2.34
- -------- -------------------
CVAL 20.2 23.5 216.8 206.5 18.3 1.48 377,012 8.5 8.5 1.40 1.03
- ---------------------- ------
EBI NA NM 120.2 120.2 11.5 1.92 273,361 9.6 9.6 NA 0.59
- ---------------------- ------
EFC NA NA 81.6 81.6 19.3 - 397,644 23.7 23.7 NA (0.14)
- ---------------------- ------
EQSB 14.5 15.8 163.6 163.6 8.4 - 350,555 5.1 5.1 1.66 0.70
- -------- ------
ESBK 19.5 14.0 117.9 117.9 7.5 2.67 231,725 6.3 6.3 1.23 0.47
- ---------------------- -------------------
ESX NM NM NM 31.4 1.1 - 214,391 7.0 7.0 (2.06) (0.24)
- ---------------------- -------------------
FBCV 35.9 57.7 200.5 204.5 18.4 0.61 260,149 9.2 9.0 1.22 0.73
- ---------------------- ------
FBER 20.7 18.9 128.8 128.8 14.9 1.61 300,755 11.6 11.6 0.84 0.72
- -------- ------
FBHC 31.8 31.3 159.7 168.9 11.4 - 318,348 7.2 6.8 0.63 0.66
- -------- -------------------
FFBZ 21.5 19.5 193.6 193.6 15.4 1.58 207,381 8.0 8.0 0.47 0.82
- -------- -------------------
FFFD 13.4 12.1 108.1 124.7 16.1 1.88 331,124 14.9 13.1 1.27 1.56
- -------- ------
FFHS 16.1 15.8 119.2 119.7 10.9 2.07 237,679 9.1 9.1 0.90 0.81
- -------- -------------------
FFWC 13.4 21.4 117.2 127.4 11.0 2.73 203,311 9.4 8.7 1.15 0.99
- -------- -------------------
FIBC 18.7 17.6 184.2 185.0 15.5 - 340,999 8.4 8.4 1.66 0.96
- -------- ------
FKFS 12.2 11.2 123.5 123.5 8.0 1.54 390,970 6.5 6.5 1.07 0.75
- ---------------------- ------
FMBD 50.8 32.2 106.6 136.9 15.6 1.91 379,534 14.6 11.8 0.33 0.35
- ----------------------
FOBC 31.8 34.9 217.6 226.2 25.1 1.59 373,837 11.2 10.8 1.23 0.82
- -------- ------
FSBI 13.0 13.2 126.5 126.5 9.0 - 396,180 7.1 7.1 1.39 0.74
- ---------------------- ------
FSFF NA 13.6 85.4 85.7 23.2 - 331,044 27.2 27.1 NA 1.12
- ---------------------- ------
FSTC 18.2 20.2 202.8 247.1 20.2 1.16 379,694 10.0 8.3 1.51 1.50
- ---------------------- -------
GBNK NA NA 138.1 138.1 28.0 1.58 202,615 20.3 20.3 NA NA
- ---------------------- -------------------
GFCO 19.3 17.5 166.7 168.1 16.0 2.10 300,448 9.6 9.5 1.09 0.86
- ---------------------- ------
GFED NA 18.3 91.6 91.6 26.4 2.91 260,043 27.2 27.2 NA 1.25
- ---------------------- ------
HARL 14.5 14.1 194.0 194.0 12.5 - 395,383 6.4 6.4 2.02 0.97
- -------- ------
HBEI 31.7 28.1 88.4 88.4 23.1 3.23 367,656 26.1 26.1 0.39 0.68
- -------- ------
HBFW 21.5 20.4 147.1 147.1 17.5 1.19 360,286 11.9 11.9 1.25 0.85
- ---------------------- ------
HBSC NA NA 81.9 81.9 25.8 1.79 300,868 31.5 31.5 NA 0.95
- ---------------------- -------------------
HCBB NA 34.8 77.0 77.9 13.3 2.16 221,631 17.2 17.1 NA 0.33
- ---------------------- -------------------
HFBC NA 18.5 107.2 107.2 28.7 1.94 217,837 26.8 26.8 NA 1.11
- ---------------------- --------------------
HIFS 12.3 12.0 147.5 147.5 13.9 2.20 239,148 9.4 9.4 2.08 1.26
- -------- ------
HPBC 10.5 9.4 162.3 162.3 14.1 4.00 260,456 8.7 8.7 1.90 1.45
- -------- ------
HRBF 19.7 17.4 117.6 117.6 14.8 2.52 235,733 12.6 12.6 0.95 0.78
- -------- ------
IFSB 23.1 8.9 92.3 101.1 7.4 1.64 265,940 8.0 7.3 0.66 1.24
- -------- -------------------
INBI 15.8 15.0 142.5 142.5 22.8 3.45 382,841 16.0 16.0 1.10 1.47
- -------- -------
<CAPTION>
E
ROACE
Before
Extra Merger
(%) Target?
Ticker LTM (Y/N)
<S> <C> <C>
- --------
ALLB 6.88 N
- --------
ANA 6.48 N
- --------
ANE 12.84 N
- --------
ASBI 8.55 N
- --------
BCSB 8.14 N
- --------
BFFC 3.10 N
- --------
BRBI NA N
- --------
BYS (4.58) N
- --------
CATB 5.48 N
- --------
CAVB NA N
- --------
CBK 5.13 N
- --------
CEBK 8.64 N
- --------
CFTP 4.91 N
- --------
CMRN 5.45 N
- --------
COOP 8.36 N
- --------
CRSB 28.61 N
- --------
CVAL 12.31 N
- --------
EBI NA N
- --------
EFC (1.27) N
- --------
EQSB 13.60 N
- --------
ESBK 7.43 N
- --------
ESX NM N
- -------- -----
FBCV 8.30 Y
- -------- -----
FBER 5.49 N
- --------
FBHC 10.00 N
- --------
FFBZ 10.73 N
- --------
FFFD 8.56 N
- --------
FFHS 8.87 N
- --------
FFWC 10.33 N
- -------- -----
FIBC 10.50 Y
- -------- -----
FKFS 11.13 N
- --------
FMBD 2.51 N
- -------- -----
FOBC 7.44 Y
- -------- -----
FSBI 10.77 N
- --------
FSFF 4.87 N
- --------
FSTC 15.02 N
- --------
GBNK NA N
- --------
GFCO 9.12 N
- --------
GFED 5.09 N
- --------
HARL 14.71 N
- -------- -----
HBEI 2.57 Y
- -------- -----
HBFW 6.84 N
- --------
HBSC NA N
- --------
HCBB 1.86 N
- --------
HFBC 7.58 N
- --------
HIFS 13.06 N
- --------
HPBC 14.53 N
- --------
HRBF 6.09 N
- --------
IFSB 17.15 N
- --------
INBI 8.81 N
- --------
</TABLE>
4
<PAGE>
Exhibit VI.I - Comparatives Group Selection
<TABLE>
<CAPTION>
B C D
Tangible ROAA
Price/ Price/ Current Current Current Total Equity/ Equity/ Core Before
LTM Core Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS Extra
Core EPS EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%)
Ticker (x) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------- ------
IPSW 13.2 14.3 251.8 251.8 14.1 1.16 233,662 5.6 5.6 1.04 1.19
- -------- ------
JXVL 12.7 12.9 110.5 110.5 16.0 3.13 242,673 14.5 14.5 1.26 1.33
- -------- -------
LARK 19.2 22.0 118.3 118.3 15.5 - 229,337 13.1 13.1 1.19 1.06
- -------- -------
LARL 12.8 11.4 160.8 160.8 17.1 3.48 220,986 10.6 10.6 1.35 1.43
- -------- --------
LFBI 18.0 16.3 96.4 103.9 10.1 1.67 351,347 10.5 9.8 0.80 0.57
- --------
LFED 23.5 22.8 162.8 162.8 26.9 3.61 298,997 16.5 16.5 0.66 1.19
- ----------------------
LIBB NA NA NA NA NA - 255,357 13.1 13.1 NA 0.62
- ---------------------- -------------------
LSBI 18.7 19.6 149.1 149.1 13.3 1.31 218,633 8.4 8.4 1.63 0.84
- ------- -------------------
LSBX 6.1 7.7 127.3 127.3 15.4 - 344,874 12.1 12.1 2.00 2.58
- ------- -------
MBLF 13.5 12.4 86.6 86.6 11.7 3.10 207,453 13.5 13.5 1.44 0.87
- ------- -------
MFBC 15.9 17.2 96.1 96.1 10.9 1.70 290,936 11.4 11.4 1.26 0.80
MFFC 21.9 22.3 99.4 99.4 11.9 4.80 235,105 11.1 11.1 0.57 0.69
- ------- ------
NBN 14.7 10.6 113.2 124.6 7.9 1.93 310,623 7.6 7.1 0.75 0.73
- ------- -------------------
NEIB 11.9 11.1 105.0 105.0 13.7 2.02 203,263 13.0 13.0 1.42 1.18
- ------- -------------------
NHTB 12.0 11.9 121.0 138.5 9.9 3.93 324,320 8.1 7.2 1.27 0.92
- ------- ------
NMSB 18.3 66.4 122.0 122.0 11.1 - 367,569 9.1 9.1 0.58 0.88
- ---------------------- ------
NTBK NM 8.8 294.5 297.4 44.5 - 246,714 15.1 15.0 0.03 0.66
- ----------------------
OHSL 16.3 16.1 116.8 116.8 13.0 3.88 247,853 10.8 10.8 0.79 0.86
- ---------------------- ------
OTFC NA 17.4 78.7 78.7 22.9 1.60 256,460 26.5 26.5 NA 1.09
- ---------------------- ------
PBCI 15.0 16.2 138.7 139.5 17.3 4.67 394,271 12.5 12.4 1.60 1.25
- -------- -------
PEEK 21.6 21.3 97.2 97.2 21.0 2.48 200,341 21.6 21.6 0.67 0.98
- -------- -------
PFDC 16.1 16.9 149.2 149.2 22.3 2.37 304,320 15.0 15.0 1.26 1.45
- -------- ------
PHFC 13.0 12.5 102.9 104.0 7.1 1.78 372,533 6.9 6.9 1.04 0.69
- ---------------------- ------
PHSB NA 28.4 141.8 141.8 18.0 1.90 226,742 12.7 12.7 NA 0.81
- ----------------------
RVSB NA 16.4 123.7 127.7 30.2 1.83 268,608 23.1 22.5 NA 1.71
- ----------------------
SBAN NA NA 96.6 96.6 20.1 2.80 367,666 20.8 20.8 NA 0.86
- ---------------------- ------
SBFL 56.3 51.6 202.2 202.2 17.1 - 258,394 8.5 8.5 0.22 0.41
- ---------------------- ------
SKAN 13.9 13.4 113.7 116.4 7.8 1.94 266,730 6.9 6.7 1.04 0.62
- -------- ------
SOPN 16.9 16.7 117.5 117.5 26.9 4.55 304,088 22.9 22.9 1.30 1.76
- ---------------------- -------
SSFC NA 35.4 100.0 100.0 19.5 4.71 203,673 16.9 16.9 NA 0.55
- ---------------------- -------------------
THTL NA NA NA NA NA 2.35 343,956 8.6 8.6 NA NA
- ---------------------- ------
TSBK NA 13.7 97.5 97.5 31.6 1.91 263,112 32.4 32.4 NA 1.84
- ---------------------- -------------------
UBMT NA 18.2 134.6 139.3 19.9 4.17 205,345 14.7 14.3 NA 1.10
- ---------------------- -------------------
UFRM 35.9 28.8 241.9 241.9 18.8 1.39 301,924 7.8 7.8 0.48 0.62
- ---------------------- ------
WAYN 29.2 27.9 191.2 191.2 18.2 3.26 259,402 9.5 9.5 0.65 0.72
- -------- ------
WCBI 17.6 17.3 144.3 144.3 22.6 2.34 320,295 15.7 15.7 1.66 1.49
- -------- ------
WFI 15.8 15.0 175.3 178.0 12.7 2.20 358,573 7.3 7.2 0.72 1.17
- ---------------------- ------
WOFC 153.9 35.7 88.6 94.7 12.9 5.00 357,295 14.5 13.7 0.13 0.07
- ----------------------
WRNB 12.7 12.5 179.3 179.3 18.8 4.00 378,137 10.5 10.5 0.71 1.72
- -------- ------
WSB 16.3 15.2 93.6 93.6 7.9 2.05 273,549 8.4 8.4 0.30 0.74
- -------- ------
WVFC 14.4 14.1 167.2 167.2 18.6 3.93 297,054 11.1 11.1 1.06 1.20
- --------
WYNE 29.9 26.9 166.0 166.0 21.2 0.69 275,335 12.8 12.8 0.97 0.70
- --------
<CAPTION>
E
ROACE
Before
Extra Merger
(%) Target
Ticker (Y/N)
<S> <C> <C>
- --------
IPSW 21.98 N
- --------
JXVL 9.13 N
- --------
LARK 7.64 N
- --------
LARL 13.58 N
- -------- -----
LFBI 5.01 Y
- -------- -----
LFED 7.22 N
- --------
LIBB 7.96 N
- --------
LSBI 9.90 N
- -------
LSBX 25.27 N
- -------
MBLF 6.79 N
- -------
MFBC 6.44 N
MFFC 5.80 N
- -------
NBN 9.60 N
- -------
NEIB 8.55 N
- -------
NHTB 11.82 N
- -------
NMSB 9.04 N
- --------
NTBK 2.52 N
- --------
OHSL 7.94 N
- --------
OTFC 4.76 N
- --------
PBCI 9.69 N
- --------
PEEK 4.02 N
- --------
PFDC 9.56 N
- --------
PHFC 8.03 N
- --------
PHSB 6.20 N
- --------
RVSB 8.52 N
- --------
SBAN 7.37 N
- --------
SBFL 4.62 N
- --------
SKAN 8.92 N
- --------
SOPN 7.64 N
- --------
SSFC 2.71 N
- --------
THTL NA N
- --------
TSBK NA N
- --------
UBMT 7.96 N
- -------- -----
UFRM 8.46 Y
- -------- -----
WAYN 7.53 N
- -------- -----
WCBI 9.64 Y
- -------- -----
WFI 16.06 N
- --------
WOFC 0.49 N
- --------
WRNB 15.99 N
- --------
WSB 8.67 N
- --------
WVFC 10.45 N
- -------- -----
WYNE 5.44 Y
- -------- -----
Maximum 153.9 66.4 294.5 297.4 44.5 5.00 397,644 32.4 32.4 2.08 2.58 28.61
Minimum 6.1 7.7 77.0 31.4 1.1 - 200,341 (44.6) (44.6) (2.06) (0.63) (4.58)
Average 21.8 20.4 133.8 135.1 17.0 1.85 292,998 12.9 12.7 0.97 0.94 8.58
Median 17.6 17.3 122.0 126.9 16.0 1.89 289,277 11.4 11.2 1.04 0.86 8.22
</TABLE>
5
<PAGE>
Exhibit VI.1 - Comparatives Group Selection
<TABLE>
<CAPTION>
F G H
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Current Assets Deposits Assets Assets Assets For Others Assets
Pricing (%) (%) (%) (%) (%) ($000) (%)
Ticker Date MRQ MRQ MRQ MRQ MRY MRY MRY Reasons Not Selected
--------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------- --------
ALLB 09/18/98 0.99 71.32 54.94 77.02 11.87 811 0.3 A, G
- ------- --------
ANA 09/18/98 0.29 110.57 74.88 67.72 16.68 21,186 7.1 SELECTED
- -------
ANE 09/18/98 0.47 73.12 65.44 89.50 2.25 7,248 2.9 D
- -------
ASBI 09/18/98 0.49 86.42 71.53 82.77 3.40 117,000 31.2 SELECTED
- ------- --------
BCSB 09/18/98 NA 77.62 53.93 69.48 - 8,156 2.5 A, B, D, G
- ------- --------
BFFC 09/18/98 NA 93.49 52.48 56.13 24.02 NA NA B, C, G
- ------- --------
BRBI 09/18/98 - NM - - 49.05 NA NA B, D
- -------
BYS 09/18/98 0.71 114.60 81.50 71.12 5.22 15,588 5.4 B
- ------- --------
CATB 09/18/98 0.22 64.11 43.38 67.66 8.36 - - G
- ------- --------
CAVB 09/18/98 0.05 99.95 69.00 69.03 - 116,000 34.1 B, D
- -------
CBK 09/18/98 0.48 111.77 80.63 72.14 12.66 93,021 33.1 SELECTED
- -------
CEBK 09/18/98 0.40 103.31 75.71 73.28 15.97 10,806 2.8 D
- ------- --------
CFTP 09/18/98 0.28 98.59 53.59 54.36 20.74 1,519 0.6 G
- ------- --------
CMRN 09/18/98 0.40 136.16 82.37 60.49 18.23 - - C
- -------
COOP 09/18/98 - 102.12 80.05 78.39 13.15 65,061 17.1 D
- -------
CRSB 09/18/98 0.64 143.25 84.26 58.82 28.43 - - C
- -------
CVAL 09/18/98 0.33 93.11 73.64 79.09 11.05 28,867 7.7 D
- ------- -------- --------
EBI 09/18/98 0.36 86.17 37.41 43.41 46.29 254,415 93.1 B, D, G, H
- ------- -------- --------
EFC 09/18/98 0.53 107.12 71.37 66.62 8.05 - - B
- -------
EQSB 09/18/98 0.22 86.02 64.46 74.93 19.11 85,389 24.4 D
- -------
ESBK 09/18/98 0.82 85.87 78.64 91.57 1.41 34,250 14.8 D
- ------- ------ --------
ESX 09/18/98 1.26 112.47 86.99 77.34 14.59 355,675 165.9 B, C, D, F, H
- ------- ------ --------
FBCV 09/18/98 1.70 160.67 72.73 45.27 44.35 120,811 46.4 B, D, E, F, H
- ------- ------ -------- --------
FBER 09/18/98 0.96 59.39 44.27 74.54 13.13 - - G
- ------- -------- --------
FBHC 09/18/98 0.27 67.44 56.69 84.06 4.68 898,855 282.3 D, G, H
- ------- -------- -----
FFBZ 09/18/98 0.54 127.10 85.71 67.44 24.11 14,730 7.1 C, D
- -------
FFFD 09/18/98 0.12 102.67 76.40 74.41 9.77 2,963 0.9 SELECTED
- -------
FFHS 09/18/98 0.34 74.66 64.56 86.46 3.87 57,842 24.3 D
- -------
FFWC 09/18/98 0.43 112.07 69.04 61.61 27.79 25,862 12.7 C, D
- ------- ------ --------
FIBC 09/18/98 1.76 84.49 56.75 67.16 22.87 8,191 2.4 D, E, F, G
- ------- ------ --------
FKFS 09/18/98 1.21 83.82 51.83 61.84 25.63 114,554 29.3 D, F, G
- ------- ------ --------
FMBD 09/18/98 0.15 96.85 80.16 82.76 1.32 52,783 13.9 B
- ------- --------
FOBC 09/18/98 0.11 65.09 45.26 69.53 18.77 8,567 2.3 E, G
- ------- --------
FSBI 09/18/98 0.17 80.04 52.68 65.81 23.27 5,317 1.3 D, G
- ------- --------
FSFF 09/18/98 - 96.24 62.93 65.39 6.34 309 0.1 B, D
- ------- ------
FSTC 09/18/98 1.08 84.59 73.24 86.58 2.44 102,489 27.0 F
- ------- ------
GBNK 09/18/98 0.50 100.46 69.31 68.99 9.13 - - A, B, C
- -------
GFCO 09/18/98 0.19 114.40 85.87 75.06 14.21 61,130 20.3 D
- -------
GFED 09/18/98 0.35 147.83 80.14 54.21 17.34 15,971 6.1 B, D
- -------
HARL 09/18/98 - 88.86 64.85 72.98 19.32 12,647 3.2 D
- -------
HBEI 09/18/98 0.28 120.11 87.32 72.70 - - - D, E
- -------
HBFW 09/18/98 - 104.30 88.70 85.05 1.94 2,531 0.7 SELECTED
- -------
HBSC 09/18/98 0.44 97.07 65.53 67.50 - 5,400 1.8 B, D
- ------- --------
HCBB 09/18/98 0.44 76.44 48.63 63.62 18.21 - - B, C, G
- ------- --------
HFBC 09/18/98 - 67.14 48.25 71.86 - - - B, C, D, G
- ------- --------
HIFS 09/18/98 0.17 107.52 76.60 71.25 18.47 5,615 2.3 D
- -------
HPBC 09/18/98 - 128.67 85.01 66.07 24.48 65,055 25.0 D
- -------
HRBF 09/18/98 0.32 84.98 64.18 75.52 9.89 13,718 5.8 SELECTED
- ------- --------
IFSB 09/18/98 NA 79.99 60.18 75.23 15.18 144,708 54.4 D, H
- ------- --------
INBI 09/18/98 0.23 119.70 88.12 73.62 9.66 4,775 1.2 C
- -------
</TABLE>
6
<PAGE>
Exhibit VI.I - Comparatives Group Selection
<TABLE>
<CAPTION>
F G H
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Current Assets Deposits Assets Assets Assets For Others Assets
Pricing (%) (%) (%) (%) (%) ($000) (%)
Ticker Date MRQ MRQ MRQ MRQ MRQ MRY MRY Reasons Not Selected
--------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----
IPSW 09/18/98 0.80 105.69 79.51 75.23 17.79 45,358 19.4 D
- ----
JXVL 09/18/98 NA NA NA 81.96 1.67 62,078 25.6 SELECTED
- ----
LARK 09/18/98 0.06 116.11 74.99 64.59 20.58 55,767 24.3 C
- ----
LARL 09/18/98 0.32 88.15 69.96 79.37 7.71 1,118 0.5 C
- ---- -----
LFBI 09/18/98 0.33 67.49 43.95 65.11 23.87 - - E, G
- ---- -----
LFED 09/18/98 0.03 77.54 62.97 81.21 0.19 - - A
- ----
LIBB 09/18/98 0.35 80.10 65.52 81.80 - 337 0.1 A, B
- ---- ----
LSBI 09/18/98 1.20 129.22 87.15 67.44 23.63 51,681 23.6 C, D, F
- ---- ---- -----
LSBX 09/18/98 0.24 71.13 53.05 74.59 12.11 76,616 22.2 G
- ---- -----
MBLF 09/18/98 0.55 117.52 64.43 54.83 31.19 - - C
- ----
MFBC 09/18/98 0.06 136.15 82.18 60.35 27.59 - - SELECTED
MFFC 09/18/98 0.16 105.10 68.39 65.07 23.11 9,843 4.2 SELECTED
- ---- ----
NBN 09/18/98 1.08 155.62 87.16 56.01 35.61 42,509 13.7 D, F
- ---- ----
NEIB 09/18/98 0.41 146.84 88.16 60.04 26.62 2,406 1.2 C
- ---- ----
NHTB 09/18/98 1.00 92.12 78.33 85.03 5.57 77,761 24.0 D
- ---- ---- -----
NMSB 09/18/98 0.29 57.12 45.67 79.95 10.20 24,778 6.7 D, G
- ---- -----
NTBK 09/18/98 - 102.68 77.76 75.73 8.31 - - B
- ----
OHSL 09/18/98 0.04 90.87 68.38 75.26 13.21 26,042 10.5 SELECTED
- ----
OTFC 09/18/98 0.18 88.06 63.24 71.82 - - - B, D
- ---- ---- -----
PBCI 09/18/98 1.48 70.09 57.25 81.69 3.51 4,943 1.3 F, G
- ---- ---- -----
PEEK 09/18/98 0.61 34.54 24.12 69.81 6.49 - - C, G
- ---- -----
PFDC 09/18/98 0.16 102.72 84.07 81.84 2.73 - - SELECTED
- ---- ---- -----
PHFC 09/18/98 1.24 140.09 55.83 39.85 48.39 - - D, F, G
- ---- ---- -----
PHSB 09/18/98 0.28 54.99 42.96 78.11 8.32 - - A, B, G
- ---- -----
RVSB 09/18/98 0.28 89.96 61.55 68.42 7.28 87,400 32.5 B
- ---- -----
SBAN 09/18/98 0.37 102.58 56.74 55.31 22.27 62,148 16.9 B, G
- ---- -----
SBFL 09/18/98 0.32 71.64 51.99 72.57 17.91 8,796 3.4 A, B, D, G
- ---- ---- -----
SKAN 09/18/98 1.74 95.69 81.08 84.73 6.52 23,279 8.7 D, F
- ---- ----
SOPN 09/18/98 0.18 98.47 68.63 69.69 6.58 - - SELECTED
- ---- -----
SSFC 09/18/98 0.23 72.61 52.85 72.79 8.84 460 0.2 B, C, G
- ---- -----
THTL 09/18/98 0.22 39.86 28.91 72.54 2.29 3,695 1.1 B, D, G
- ---- ---- -----
TSBK 09/18/98 3.01 115.11 72.26 62.77 4.43 54,353 20.7 B, C, D, F
- ---- ----
UBMT 09/18/98 0.25 90.05 63.93 70.99 13.25 19,114 9.3 B, C
- ---- ---- -----
UFRM 09/18/98 1.01 97.11 84.87 87.39 1.82 460,555 152.5 B, D, E, F, H
- ---- ---- -----
WAYN 09/18/98 0.48 95.33 79.90 83.81 6.17 37,765 14.6 A, D
- ----
WCBI 09/18/98 0.44 93.83 76.29 81.31 - - - E
- ---- -----
WFI 09/18/98 NA NA NA 70.81 20.89 145,200 40.5 D, H
- ---- ---- -----
WOFC 09/18/98 1.29 98.32 70.40 71.61 13.47 NA NA B, F
- ---- ----
WRNB 09/18/98 1.15 74.97 65.48 87.35 1.43 3,983 1.1 F
- ---- ---- -----
WSB 09/18/98 NA 48.64 43.25 88.93 1.96 10,156 3.7 D, G
- ---- -----
WVFC 09/18/98 0.20 95.19 53.73 56.44 30.21 963 0.3 G
- ---- -----
WYNE 09/18/98 0.80 93.36 70.47 75.48 10.90 - - E
- ----
Maximum 3.01 160.67 88.70 91.57 49.05 898,855 282.3
Minimum - 34.54 - - - - -
Average 0.51 95.42 66.09 70.73 13.60 48,977 16.8
Median 0.34 95.19 68.51 72.00 11.46 9,843 3.2
</TABLE>
7
<PAGE>
Exhibit VI.2 - Comparatives Group Selected
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANA Acadiana Bancshares Inc. Lafayette LA SW SAIF AMSE 07/16/96 16.875 38.45
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 18.000 58.55
CBK Citizens First Financial Corp. Bloomington IL MW SAIF AMSE 05/01/96 14.750 35.53
FFFD North Central Bancshares Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 17.000 52.75
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 26.875 63.18
HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 18.750 34.93
JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 16.000 38.75
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 20.000 31.80
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 12.500 27.96
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 12.875 32.14
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 20.250 68.35
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 22.000 81.64
Maximum 26.875 81.64
Minimum 12.500 27.96
Average 17.990 47.00
Median 17.500 38.60
</TABLE>
8
<PAGE>
Exhibit VI.2 - Comparatives Group Selected
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Price/ Price/ Current Current Current Total Equity/ Equity/ Core Before Before
LTM Core Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS Extra Extra Merger
Core EPS EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target?
Ticker (x) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANA 14.8 16.2 96.3 96.3 14.2 2.61 298,148 14.7 14.7 1.14 1.05 6.48 N
ASBI 18.0 18.8 128.3 130.6 15.6 3.56 375,297 12.2 12.0 1.00 0.98 8.55 N
CBK 34.3 33.5 95.0 95.0 13.3 - 281,068 14.0 14.0 0.43 0.71 5.13 N
FFFD 13.4 12.1 108.1 124.7 16.1 1.88 331,124 14.9 13.1 1.27 1.56 8.56 N
HBFW 21.5 20.4 147.1 147.1 17.5 1.19 360,286 11.9 11.9 1.25 0.85 6.84 N
HRBF 19.7 17.4 117.6 117.6 14.8 2.52 235,733 12.6 12.6 0.95 0.78 6.09 N
JXVL 12.7 12.9 110.5 110.5 16.0 3.13 242,673 14.5 14.5 1.26 1.33 9.13 N
MFBC 15.9 17.2 96.1 96.1 10.9 1.70 290,936 11.4 11.4 1.26 0.80 6.44 N
MFFC 21.9 22.3 99.4 99.4 11.9 4.80 235,105 11.1 11.1 0.57 0.69 5.80 N
OHSL 16.3 16.1 116.8 116.8 13.0 3.88 247,853 10.8 10.8 0.79 0.86 7.94 N
PFDC 16.1 16.9 149.2 149.2 22.3 2.37 304,320 15.0 15.0 1.26 1.45 9.56 N
SOPN 16.9 16.7 117.5 117.5 26.9 4.55 304,088 22.9 22.9 1.30 1.76 7.64 N
Maximum 34.3 33.5 149.2 149.2 26.9 4.80 375,297 22.9 22.9 1.30 1.76 9.56
Minimum 12.7 12.1 95.0 95.0 10.9 - 235,105 10.8 10.8 0.43 0.69 5.13
Average 18.5 18.4 115.2 116.7 16.0 2.68 292,219 13.8 13.7 1.04 1.07 7.35
Median 16.6 17.1 113.7 117.1 15.2 2.56 294,542 13.3 12.9 1.20 0.92 7.24
</TABLE>
9
<PAGE>
Exhibit VI.2 - Comparatives Group Selected
<TABLE>
<CAPTION>
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Current Assets Deposits Assets Assets Assets For Others Assets
Pricing (%) (%) (%) (%) (%) ($000) (%)
Ticker Date MRQ MRQ MRQ MRQ MRQ MRY MRY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANA 09/18/98 0.29 110.57 74.88 67.72 16.68 21,186 7.1
ASBI 09/18/98 0.49 86.42 71.53 82.77 3.40 117,000 31.2
CBK 09/18/98 0.48 111.77 80.63 72.14 12.66 93,021 33.1
FFFD 09/18/98 0.12 102.67 76.40 74.41 9.77 2,963 0.9
HBFW 09/18/98 - 104.30 88.70 85.05 1.94 2,531 0.7
HRBF 09/18/98 0.32 84.98 64.18 75.52 9.89 13,718 5.8
JXVL 09/18/98 NA NA NA 81.96 1.67 62,078 25.6
MFBC 09/18/98 0.06 136.15 82.18 60.35 27.59 - -
MFFC 09/18/98 0.16 105.10 68.39 65.07 23.11 9,843 4.2
OHSL 09/18/98 0.04 90.87 68.38 75.26 13.21 26,042 10.5
PFDC 09/18/98 0.16 102.72 84.07 81.84 2.73 - -
SOPN 09/18/98 0.18 98.47 68.63 69.69 6.58 - -
Maximum 0.49 136.15 88.70 85.05 27.59 117,000 33.1
Minimum - 84.98 64.18 60.35 1.67 - -
Average 0.21 103.09 75.27 74.32 10.77 29,032 9.9
Median 0.16 102.72 74.88 74.84 9.83 11,781 5.0
</TABLE>
10
<PAGE>
EXHIBIT VII
<PAGE>
EXHIBIT VII
PRO FORMA ASSUMPTIONS
1. Net proceeds from the conversion were invested at the beginning of the period
at 4.50%, which was the approximate rate on the one-year treasury bill on June
30, 1998. This rate was selected because it is considered more representative of
the rate the Bank is likely to earn.
2. 1st State'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 10% annually of the initial purchase.
3. 1st State's RP will acquire 4% of the stock through open market purchases at
$20 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 36.0%, with the exception of the $3,000,000
foundation contribution, on which the assumed tax benefit is 34.0%. The lower
rate was used because most of the benefit is expected to be realized during the
carryforward period, and the State of North Carolina does not permit
contribution carryforwards.
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 ("EPS") calculations have ignored AICPA SOP 93-6.
Calculating EPS under SOP 93-6 and assuming 10% of the ESOP shares are committed
to be released and allocated to the individual accounts at the beginning of the
period would yield EPS of $2.34, $2.07, $1.86, and $1.67, and price to earnings
ratios of 8.5, 9.7, 10.8, and 12.0, at the minimum, midpoint, maximum, and
supermaximum of the range, respectively.
1
<PAGE>
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the Minimum of the Conversion Valuation Range
Valuation Date as of October 30, 1998
1st State Bank, Burlington, NC
- ----------------------------------------------
<TABLE>
<S> <C>
1. Conversion Proceeds
Pro Forma Market Value $ 25,500,000
Less: Estimated Expenses (978,000)
----------------------
Net Conversion Proceeds $ 24,522,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 24,522,000
Less: ESOP Contributions (2,280,000)
RP Contributions (1,140,000)
----------------------
Net Conversion Proceeds after ESOP & RP $ 21,102,000
Estimated Incremental Rate of Return(1) 2.88%
----------------------
Estimated Additional Income $ 607,738
Less: ESOP Expense (145,920)
RP Expense (145,920)
----------------------
$ 315,898
======================
</TABLE>
3. Pro Forma Calculations
<TABLE>
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
---------------------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
September 30, 1998 $ 2,782,000 $ 315,898 $ 3,097,898
b. Pro Forma Net Worth
September 30, 1998 $ 25,966,000 $ 22,122,000 $ 48,088,000
c. Pro Forma Net Assets
September 30, 1998 $ 288,223,000 $ 21,102,000 $ 309,325,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 4.50% and earnings taxed at a rate of
36.0 percent.
(2) Pro forma effect on capital includes $1,020,000 increase
related to contribution to charitable foundation.
2
<PAGE>
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the Midpoint of the Conversion Valuation Range
Valuation Date as of October 30, 1998
1st State Bank, Burlington, NC
- ----------------------------------------------
<TABLE>
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 30,000,000
Less: Estimated Expenses (1,040,000)
----------------------
Net Conversion Proceeds $ 28,960,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 28,960,000
Less: ESOP Contributions (2,640,000)
RP Contributions (1,320,000)
----------------------
Net Conversion Proceeds after ESOP & RP $ 25,000,000
Estimated Incremental Rate of Return(1) 2.88%
----------------------
Estimated Additional Income $ 720,000
Less: ESOP Expense (168,960)
RP Expense (168,960)
----------------------
$ 382,080
======================
</TABLE>
3. Pro Forma Calculations
<TABLE>
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
-------------------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
September 30, 1998 $ 2,782,000 $ 382,080 $ 3,164,080
b. Pro Forma Net Worth
September 30, 1998 $ 25,966,000 $ 26,020,000 $ 51,986,000
c. Pro Forma Net Assets
September 30, 1998 $ 288,223,000 $ 25,000,000 $ 313,223,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 4.50% and earnings taxed at a rate of
36.0 percent.
(2) Pro forma effect on capital includes $1,020,000 increase related to
contribution to charitable foundation.
3
<PAGE>
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the Maximum of the Conversion Valuation Range
Valuation Date as of October 30, 1998
1st State Bank, Burlington, NC
- ----------------------------------------------
<TABLE>
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 34,500,000
Less: Estimated Expenses (1,102,000)
----------------------
Net Conversion Proceeds $ 33,398,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 33,398,000
Less: ESOP Contributions (3,000,000)
RP Contributions (1,500,000)
----------------------
Net Conversion Proceeds after ESOP & RP $ 28,898,000
Estimated Incremental Rate of Return(1) 2.88%
----------------------
Estimated Additional Income $ 832,262
Less: ESOP Expense (192,000)
RP Expense (192,000)
----------------------
$ 448,262
======================
</TABLE>
3. Pro Forma Calculations
<TABLE>
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
-------------------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
September 30, 1998 $ 2,782,000 $ 448,262 $ 3,230,262
b. Pro Forma Net Worth
September 30, 1998 $ 25,966,000 $ 29,918,000 $ 55,884,000
c. Pro Forma Net Assets
September 30, 1998 $ 288,223,000 $ 28,898,000 $ 317,121,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 4.50% and earnings taxed at a rate of
36.0 percent.
(2) Pro forma effect on capital includes $1,020,000 increase related to
contribution to charitable foundation.
4
<PAGE>
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the SuperMax of the Conversion Valuation Range
Valuation Date as of October 30, 1998
1st State Bank, Burlington, NC
- ----------------------------------------------
<TABLE>
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 39,675,000
Less: Estimated Expenses $ (1,173,000)
----------------------
Net Conversion Proceeds $ 38,502,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 38,502,000
Less: ESOP Contributions $ (3,414,000)
RP Contributions $ (1,707,000)
Net Conversion Proceeds after ESOP & RP $ 33,381,000
Estimated Incremental Rate of Return(1) 2.88%
----------------------
Estimated Additional Income $ 961,373
Less: ESOP Expense $ (218,496)
RP Expense $ (218,496)
----------------------
$ 524,381
======================
</TABLE>
3. Pro Forma Calculations
<TABLE>
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
------------------------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
September 30, 1998 $ 2,782,000 $ 524,381 $ 3,306,381
b. Pro Forma Net Worth
September 30, 1998 $ 25,966,000 $ 34,401,000 $ 60,367,000
c. Pro Forma Net Assets
September 30, 1998 $ 288,223,000 $ 33,381,000 $ 321,604,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 4.50% and earnings taxed at a rate of
36.0 percent.
(2) Pro forma effect on capital includes $1,020,000 increase related to
contribution to charitable foundation.
5
<PAGE>
Exhibit VII
Pro Forma Analysis Sheet
<TABLE>
<CAPTION>
Name of Association: 1st State Bank, Burlington, NC
Date of Market Prices: October 30, 1998 N. Carolina 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 9.2
-----------------------------------------------------------------------------------------
At Midpoint of Range 10.4 19.0 17.8 15.6 16.8 17.6 16.5
-----------------------------------------------------------------------------------------
At Maximum of Range 11.6
At Supermax of Range 12.9
Price-Book Ratio P/B
- ----------------
At Minimum of Range 59.3%
-----------------------------------------------------------------------------------------
At Midpoint of Range 63.5% 118.2 117.6 103.5 99.1 131.7 120.3
-----------------------------------------------------------------------------------------
At Maximum of Range 67.1%
At Supermax of Range 70.7%
Price-Asset Ratio P/A
- -----------------
At Minimum of Range 9.2%
At Midpoint of Range 10.5%
-----------------------------------------------------------------------------------------
At Maximum of Range 11.8% 16.2 15.1 19.6 18.2 14.7 13.8
-----------------------------------------------------------------------------------------
At Supermax of Range 13.3%
Twelve Mo. Earnings Base Y $ 2,782,000
Period Ended September 30, 1998
Book Value B $ 25,966,000
As of September 30, 1998
Total Assets A $ 288,223,000
As of September 30, 1998
Return on Money (1) R 2.88%
Conversion Expense X $ 1,040,000
Underwriting Commission C 0.00%
Percentage Underwritten S 0.00%
Estimated Dividend
Dollar Amount DA $ 660,000
Yield DY 2.00%
ESOP Contributions P $ 2,640,000
RP Contributions I $ 1,320,000
ESOP Annual Expense E $ 168,960
RP Annual Contributions M $ 168,960
Cost of ESOP Borrowings F 0.00%
Charity Contribution CC $ 3,000,000
Tax Effect of Contribution TEC $ 1,020,000
After Tax Effect of Contri. ATEC $ 1,980,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 4.50% and earnings taxed at a rate of
36.0 percent.
(2) Pro forma effect on capital includes $1,020,000 increase related to
contribution to charitable foundation.
6
<PAGE>
Exhibit VII
Pro Forma Analysis Sheet
Calculation of Estimated Value (V) at Midpoint Value (including foundation
shares):
1. V= P/A(A-X-P-I-CC) $ 33,000,000
-------------------------
1-P/A(1-(CxS))
2. V= P/B(B-X-P-I-ATEC) $ 33,000,000
-------------------------
1-P/B(1-(CxX))
3. V= P/E(Y-R(X+P+I+CC)-(E+M)) $ 33,000,000
-----------------------------
1-P/E(R(1-(CxX))
Calculation of Shares Being Offered for Sale (excluding foundation shares):
<TABLE>
<CAPTION>
Value
Estimated Value Per Share Total Shares Date
----------------------- ------------- ----------------- -----------------------
<S> <C> <C> <C>
$30,000,000 $20.00 1,500,000 October 30, 1998
</TABLE>
Range of Value
$30.0 million x 1.15 = $34.5 million or 1,725,000 shares at $20.00 per share
$30.0 million x 0.85 = $25.5 million or 1,275,000 shares at $20.00 per share
7
<PAGE>
CONVERSION VALUATION REPORT UPDATE
_______________________________
Valued as of January 27, 1999
1ST STATE BANK
Burlington, North Carolina
Prepared By:
Ferguson & Company
Suite 305
860 West Airport Freeway
Hurst, Texas 76054
817/577-9558
<PAGE>
[LETTERHEAD OF FERGUSON & COMPANY APPEARS HERE]
FEBRUARY 1, 1999
BOARD OF DIRECTORS
1ST STATE BANK
445 S. MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
DEAR DIRECTORS:
We have completed and hereby provide, as of January 27, 1999, an updated
independent appraisal of the estimated pro forma market value of 1st State Bank,
Burlington, North Carolina ("1st State" or the "Bank"), in connection with the
conversion of 1st State from the mutual to stock form of organization
("Conversion"). This appraisal report update is furnished pursuant to the filing
of an amendment to the Holding Company's Registration Statement, to recognize
the change in the amount of contribution to the charitable foundation, and in
response to comments received from the banking regulatory authorities. Our
original appraisal report, dated October 30, 1998, is incorporated herein by
reference.
In preparing this appraisal update, we reviewed our original appraisal and the
various filings and applications filed with the Federal Deposit Insurance
Corporation ("FDIC"), Securities and Exchange Commission ("SEC"), Federal
Reserve Board ("FRB"), and the Savings Institutions Division of the North
Carolina Department of Commerce ("Division"). We considered, among other items,
recent developments in stock market conditions. 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. This updated appraisal also considered comments and
questions from the FDIC regarding the original appraisal report.
Our appraisal update is based on the Bank's representation that the
information in the applications for conversion and additional evidence furnished
us by the Bank are accurate and complete. We did not independently verify the
financial statements and other information furnished by the Bank, nor did we
independently value its assets and liabilities. The appraisal update considers
the Bank as a going concern and should not be considered as an indication of its
liquidation value.
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.
Ferguson & Company ("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.
<PAGE>
BOARD OF DIRECTORS
FEBRUARY 1, 1999
PAGE 2
RECENT FINANCIAL PERFORMANCE
- ----------------------------
The Bank has a September 30 fiscal year. The initial conversion application
and appraisal are based on its September 30, 1998, financial information. This
amendment to the registration will include capsule information with recent
operating results presented on the December 31, 1998 quarter. Therefore, this
update is based on December 31, 1998 information, the most recent information
that will be available to stock subscribers.
Net income for the December 31, 1998 quarter was $751,000, or $7,000 less than
the $758,000 net income reported for the December 31, 1997 quarter. There were
no appraisal earnings adjustments in either of the December quarters. Appraisal
earnings for the trailing twelve months ended September 30, 1998 were
$2,782,000. Therefore, appraisal earnings for the trailing twelve months ended
December 31, 1998 were $2,775,000.
RECENT THRIFT EQUITY MARKET CONDITIONS
- --------------------------------------
Since our original appraisal as of October 30, 1998, the overall thrift equity
market has stabilized with some minor up and down movement. Just prior to the
date of the original appraisal, the thrift equities market was erratic, with
some significant up and down movement. For example, the SNL thrift index dropped
18.7% between September 30, 1998 and October 8, 1998. Then it increased 24.1%
between October 8, 1998 and October 16, 1998. Exhibit I shows the movement of
the SNL Thrift index from December 31, 1997, to January 27, 1999, the date of
this update. The table shows that the index increased by 2.8% during the update
period. The general level of interest rates has increased slightly during the
update period (see Exhibit II).
Exhibit III provides information on thrift conversions completed since June
30, 1998. Seventeen of the 26 thrifts have increased in value since conversion,
8 have declined in value, and 1 experienced no change. The thrifts have averaged
an increase of 9.0%, with a median increase of 4.4%. Individual changes have
ranged from a 20.0% decrease to an increase of 69.6%. Short term price increases
have occurred as follows: One day--average 10.9%, median 5.6%; one week--average
11.0%, median 7.5%; and one month--average 10.7%, median 0.6%. Standard
conversions have performed better than mutual holding companies.
The group of comparative institutions, which is included in Exhibit V,
experienced an average increase in per share value of 0.7% and a median increase
in value of 0.4% during the update period, with six increasing in value, five
decreasing in value, and one experiencing no change. The total market value of
the group decreased an average of 3.3% and a median of 3.0%, with nine
decreasing in value and three increasing in value. Much of the decrease in total
market value is related to stock repurchases.
During 1993, it was not unusual for conversion stocks to increase in price by
30% immediately. As pointed out above, most recent conversions have experienced
more modest increases. However, conversions completed since December 15, 1998
have generally shown higher immediate results. Closings between mid July and mid
December have had dismal after market performance, as they were generally priced
higher than subsequent deals.
<PAGE>
BOARD OF DIRECTORS
FEBRUARY 1, 1999
PAGE 3
VALUATION APPROACH
- ------------------
Exhibit VI indicates the pro forma market valuation of 1st State versus the
comparative group and all publicly held thrifts. Pro forma pricing ratios for
1st State are based on the financial information shown in Exhibit VIII. Pro
forma earnings are based on currently available interest rates and pro forma
assets and book value information are taken from the December 31, 1998 financial
data included in the offering circular.
At the adjusted $33,000,000 midpoint of the range, 1st State is valued at
64.5% of pro forma book value, representing a discount of 45.4% from the mean
and 43.8% from the median of the comparative group. The midpoint price is 11.1
times pro forma earnings, representing a discount of 34.3% from the mean and a
discount of 31.5% from the median of the comparative group.
As compared to all publicly held thrifts, at the midpoint of the range, 1st
State's price earnings ratio represents a discount of 31.9% from the mean and a
27.9% discount from the median. 1st State's value of 64.5% of pro forma book
value is well below the mean of 131.4% and median of 119.2% of all publicly held
thrifts.
As compared to thrift conversions completed within the past six months (see
Exhibit III), 1st State's price to pro forma book of 64.5% represents a 5.4%
discount from the mean and a discount of 7.7% from the median. And its price
earnings ratio of 11.1 represents a 37.3% discount from the mean and a 27.5%
discount from the median.
At the maximum, 1st State's price to book ratio of 68.7% represents a premium
of 0.7% over the mean and a 1.7% discount from the median, while, at the
supermaximum, 1st State's price to book ratio of 72.3% represents a premium of
6.0% over the mean and 3.4% over the median of recent conversions. At the
supermaximum, 1st State's price earnings ratio is below but generally between a
10% to 20% discount from all of the groups for comparison.
CONCLUSION
- ----------
In our opinion, 1st State's estimated pro forma market value at January 27,
1999, was $33,000,000, which increased $3,000,000, or 10.0% from our original
appraisal as of October 30, 1998. The resulting valuation range is $28,050,000
at the minimum to $37,950,000 at the maximum, based on a range of 15% below and
15% above the midpoint valuation. The supermaximum is $43,642,500 based on 1.15
times the maximum. Pro forma comparisons with the comparative group are
presented in Exhibit VI based on calculations shown in Exhibit VIII. 1st State
will also contribute to a charitable foundation a number of shares of its stock
equal to 8% of the number of shares sold in the conversion, with the
contribution being subject to a maximum of $3,000,000 in value.
<PAGE>
BOARD OF DIRECTORS
FEBRUARY 1, 1999
PAGE 4
During the update period from October 30, 1998, to January 27, 1999, thrift
equity markets have shown some upward movement, stabilizing after an erratic
October. Interest rates have changed very little. The SNL Thrift Index increased
2.8%, the average value of the comparative group increased 0.7%, and the median
value of the comparative group increased 0.4%. Recent conversions have shown
improving receptivity. Considering all of the above factors together, we believe
the 10.0% increase in the midpoint value is justified.
Our opinion is based upon 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 1st
State, could materially affect the assumptions used in preparing this opinion.
Respectfully,
Ferguson & Company
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
<TABLE>
<CAPTION>
LIST OF EXHIBITS
EXHIBIT
NUMBER Title PAGE
- ---------- ------------------------------------ ---------
<S> <C> <C>
I SNL Index 1
II Selected Interest Rates 2
III Recent Conversions 3
IV Selected Publicly Held Thrifts 6
V Comparative Group Price Changes 21
VI Pro Forma Comparisons 23
VII Comparison of Pricing Ratios 25
VIII Pro Forma Assumptions 26
Pro Forma Effect of Conversion Proceeds 27
Pro Forma Analysis Sheet 31
IX Recent Operating Results 33
</TABLE>
<PAGE>
FERGUSON & COMPANY EXHIBIT I - SNL INDEX
- ------------------
<TABLE>
<CAPTION>
% CHANGE SINCE
------------------------------------
SNL PREVIOUS
DATE INDEX DATE 12/31/97 10/30/98
---- ----- ---- -------- --------
<S> <C> <C> <C> <C>
12/31/97 814.1
1/31/98 768.3 -5.6% -5.6%
2/27/98 818.7 6.6% 0.6%
3/31/98 869.3 6.2% 6.8%
4/30/98 882.1 1.5% 8.4%
5/31/98 897.2 1.7% 10.2%
6/30/98 833.5 -7.1% 2.4%
7/31/98 783.7 -6.0% -3.7%
8/28/98 631.5 -19.4% -22.4%
9/30/98 651.3 3.1% -20.0%
10/8/98 529.7 -18.7% -34.9%
10/16/98 657.1 24.1% -19.3%
10/30/98 676.3 2.9% -16.9%
11/30/98 710.6 5.1% -12.7% 5.1%
12/31/98 705.9 -0.7% -13.3% 4.4%
1/27/99 695.1 -1.5% -14.6% 2.8%
</TABLE>
[GRAPH APPEARS HERE]
1
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT II - SELECTED INTEREST RATES
<TABLE>
<CAPTION>
1/29/99 vs.
10/30/98
--------------
Increase
1/29/99 10/30/98 (Decrease)
------------------ ----------------- --------------
<S> <C> <C> <C>
Federal funds rate 4.66 4.95 (0.29)
3 month T-bill discount (1) 4.33 4.12 0.21
1 year T-bill discount (1) 4.30 3.93 0.37
5 year treasury rate 4.57 4.22 0.35
10 year treasury rate 4.68 4.63 0.05
Long term treasury rate 5.13 5.12 0.01
</TABLE>
(1) Rates presented represent discounts, not yields.
2
<PAGE>
FERGUSON & COMPANY EXHIBIT III - RECENT CONVERSIONS
- ------------------
(COMPLETED SINCE JUNE 30, 1998)
<TABLE>
<CAPTION>
GROSS
ASSETS PROCEEDS IPO PRICE
TICKER COMPANY'S SHORT NAME STATE IPO DATE ($000) ($000) ($)
<S> <C> <C> <C> <C> <C> <C>
PBCP Provident Bancorp Inc. (MHC) NY 01/08/1999 679,104 38,640 10.000
RSBI Ridgewood Financial Inc. (MHC) NJ 01/08/1999 242,662 10,462 7.000
COHB Cohoes Bancorp Inc. NY 01/04/1999 535,716 92,575 10.000
FCAP First Capital Inc. IN 01/04/1999 NA NA 10.000
FPFC First Place Financial Corp. OH 01/04/1999 609,398 104,386 10.000
LNCB Lincoln Bancorp IN 12/30/1998 304,500 68,093 10.000
ONFC Oneida Financial Corp. (MHC) NY 12/30/1998 217,642 15,946 10.000
SPN Security of PA Financial Corp. PA 12/30/1998 111,990 15,116 10.000
ISFC Innes Street Financial Corp. NC 12/29/1998 192,716 22,483 10.000
WGBC Willow Grove Bncp Inc. (MHC) PA 12/24/1998 405,374 22,409 10.000
VCAP Virginia Capital Bancshares VA 12/23/1998 472,280 105,600 10.000
CMSV Community Savings Bankshares FL 12/16/1998 NA NA 10.000
PULB Pulaski Financial Corp. MO 12/03/1998 NA NA 10.000
SCFS Seacoast Financial Services MA 11/20/1998 1,106,590 140,000 10.000
FNFI First Niles Financial Inc. OH 10/27/1998 72,497 17,544 10.000
SFFS Sound Federal Bancorp (MHC) NY 10/08/1998 254,749 22,995 10.000
CNYF CNY Financial Corp. NY 10/06/1998 233,729 52,516 10.000
WEBK West Essex Bancorp (MHC) NJ 10/05/1998 299,025 17,729 10.000
CITZ CFS Bancorp Inc. IN 07/24/1998 746,050 178,538 10.000
HSTD Homestead Bancorp Inc. LA 07/20/1998 NA NA 10.000
PSBI PSB Bancorp Inc. PA 07/17/1998 NA NA 10.000
THTL Thistle Group Holdings Co. PA 07/14/1998 NA NA 10.000
UCFC United Community Finl Corp. OH 07/09/1998 1,044,993 334,656 10.000
BCSB BCSB Bankcorp Inc. (MHC) MD 07/08/1998 251,738 22,866 10.000
HRBT Hudson River Bancorp NY 07/01/1998 664,996 173,337 10.000
LIBB Liberty Bancorp Inc. (MHC) NJ 07/01/1998 217,437 18,336 10.000
Maximum 1,106,590 334,656 10.000
Minimum 72,497 10,462 7.000
Average 465,685 92,620 10.000
Median 299,025 22,995 10.000
W/O MHC's:
- ----------
Maximum 1,106,590 334,656 10.000
Minimum 72,497 15,116 10.000
Average 507,955 108,737 10.000
Median 503,998 98,481 10.000
</TABLE>
3
SOURCE: SNL & F&C CALCULATIONS
<PAGE>
FERGUSON & COMPANY EXHIBIT III - RECENT CONVERSIONS
- ------------------
(COMPLETED SINCE JUNE 30, 1998)
<TABLE>
<CAPTION>
CONVERSION PRICING RATIOS CURRENT PRICING RATIOS
------------------------------------------------- ----------------------------------
PRO FORMA PRICE TO CURRENT PRICE TO PRICE TO
BOOK TANG. BOOK EARNINGS ASSETS PRICE BOOK TANG.BOOK
TICKER (%) (%) (x) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
PBCP 95.6 95.6 15.7 5.4 12.188 NA NA
RSBI 85.8 85.8 19.3 4.1 11.875 NA NA
COHB 69.9 69.9 13.6 14.7 11.000 NA NA
FCAP 100.0 NA NA NA 10.625 NA NA
FPFC 70.5 70.5 14.1 14.6 10.813 NA NA
LNCB 67.4 67.4 16.4 18.3 11.063 NA NA
ONFC 85.0 85.0 18.7 6.8 10.313 NA NA
SPN 70.0 70.0 16.5 11.9 9.688 NA NA
ISFC 65.4 65.4 11.8 10.4 13.250 NA NA
WGBC 92.5 92.5 17.8 5.2 10.438 NA NA
VCAP 60.9 60.9 11.6 18.3 13.375 NA NA
CMSV 100.0 1.0 NA NA 12.250 NA NA
PULB 100.0 NA NA NA 9.938 NA NA
SCFS 52.6 52.6 2.9 11.2 11.000 NA NA
FNFI 62.7 62.7 23.9 19.5 10.875 NA NA
SFFS 100.0 100.0 15.6 8.3 9.750 NA NA
CNYF 70.0 70.0 47.2 18.3 10.563 NA NA
WEBK 95.4 95.4 40.2 5.6 10.000 NA NA
CITZ 71.7 NA 18.2 19.3 10.250 91.0 91.0
HSTD 100.0 NA NA NA 8.625 79.9 79.9
PSBI 100.0 NA NA NA 8.000 82.2 82.2
THTL 100.0 NA NA NA 9.000 80.8 80.8
UCFC 77.8 77.8 14.1 24.3 14.000 97.1 97.1
BCSB 142.3 142.3 26.1 8.3 9.375 127.0 127.0
HRBT 80.1 NA 22.3 20.7 11.875 85.8 85.9
LIBB 121.6 121.6 20.4 7.8 9.375 107.0 107.0
Maximum 142.3 142.3 47.2 24.3 14.000 127.0 127.0
Minimum 52.6 1.0 2.9 4.1 8.000 79.9 79.9
Average 87.9 80.4 21.0 14.1 10.778 97.5 97.6
Median 85.0 70.2 17.8 11.9 10.438 88.4 88.4
W/O MHC's:
- ----------
Maximum 80.1 77.8 47.2 24.3 14.000 97.1 97.1
Minimum 52.6 52.6 2.9 10.4 9.688 85.8 85.9
Average 68.2 66.7 17.7 16.8 11.479 91.3 91.3
Median 69.9 68.6 15.3 18.3 11.000 91.0 91.0
</TABLE>
4
SOURCE: SNL & F&C CALCULATIONS
<PAGE>
FERGUSON & COMPANY EXHIBIT III - RECENT CONVERSIONS
- ------------------
(COMPLETED SINCE JUNE 30, 1998)
<TABLE>
<CAPTION>
POST CONVERSION PRICE CHANGES
-------------------------------------
ONE ONE ONE TO
DAY WEEK MONTH DATE
TICKER (%) (%) (%) (%)
<S> <C> <C> <C> <C>
PBCP 20.0 19.4 NA 21.9
RSBI 14.3 27.7 NA 69.6
COHB 13.8 15.3 NA 10.0
FCAP - 2.5 NA 6.3
FPFC 7.5 14.4 NA 8.1
LNCB 8.8 10.0 NA 10.6
ONFC 10.0 7.5 NA 3.1
SPN 5.6 - NA (3.1)
ISFC 30.0 31.3 NA 32.5
WGBC 1.9 4.4 5.0 4.4
VCAP 26.9 30.6 34.4 33.8
CMSV 5.6 7.5 17.5 22.5
PULB (0.2) (2.5) (1.3) (0.6)
SCFS 3.1 0.6 - 10.0
FNFI 15.0 8.8 13.8 8.8
SFFS (15.0) (11.3) - (2.5)
CNYF (5.0) (4.4) (7.5) 5.6
WEBK - (7.5) 0.6 -
CITZ 14.4 10.6 - 2.5
HSTD (6.9) (10.6) (18.8) (13.8)
PSBI (8.1) (8.1) (21.3) (20.0)
THTL (0.6) (1.3) (8.1) (10.0)
UCFC 50.0 50.0 57.5 40.0
BCSB 25.6 26.3 16.3 (6.3)
HRBT 25.6 33.8 33.8 18.8
LIBB 14.4 16.3 12.5 (6.3)
Maximum 50.0 50.0 57.5 69.6
Minimum (15.0) (11.3) (21.3) (20.0)
Average 10.9 11.0 10.7 9.0
Median 5.6 7.5 0.6 4.4
W/O MHC's:
- ----------
Maximum 50.0 50.0 57.5 40.0
Minimum (5.0) (4.4) (7.5) (3.1)
Average 16.3 16.7 18.8 14.8
Median 14.1 12.5 13.8 10.0
</TABLE>
5
SOURCE: SNL & F&C CALCULATIONS
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
Deposit
Ticker Company's Short Name City State Region Insur. Exchange IPO Date (%)
<S> <C> <C> <C> <C> <C> <C> <C>
AABC Access Anytime Bancorp Inc. Clovis NM SW SAIF NASDAQ 08/08/1986
ABBK Abington Bancorp Inc. Abington MA NE BIF NASDAQ 06/10/1986
ABCL Alliance Bancorp Hinsdale IL MW SAIF NASDAQ 07/07/1992
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/1992
AFBC Advance Financial Bancorp Wellsburg WV SE SAIF NASDAQ 01/02/1997
AHCI Ambanc Holding Co. Amsterdam NY MA BIF NASDAQ 12/27/1995
ALBC Albion Banc Corp. Albion NY MA SAIF NASDAQ 07/26/1993
ALLB Greater Delaware Valley (MHC) Broomall PA MA SAIF NASDAQ 03/03/1995
AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/1996
ANA Acadiana Bancshares Inc. Lafayette LA SW SAIF AMSE 07/16/1996
ANDB Andover Bancorp Inc. Andover MA NE BIF NASDAQ 05/08/1986
ANE Alliance Bncp of New England Vernon CT NE BIF AMSE 12/19/1986
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/1987
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/1995
ASFC Astoria Financial Corp. Lake Success NY MA SAIF NASDAQ 11/18/1993
BDJI First Federal Bancorp. Bemidji MN MW SAIF NASDAQ 04/04/1995
BFD BostonFed Bancorp Inc. Burlington MA NE SAIF AMSE 10/24/1995
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/1994
BKC American Bank of Connecticut Waterbury CT NE BIF AMSE 12/01/1981
BKCT Bancorp Connecticut Inc. Southington CT NE BIF NASDAQ 07/03/1986
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/1985
BNKU Bank United Corp. Houston TX SW SAIF NASDAQ 08/09/1996
BVCC Bay View Capital Corp. San Mateo CA WE SAIF NASDAQ 05/09/1986
CAFI Camco Financial Corp. Cambridge OH MW SAIF NASDAQ NA
CASB Cascade Financial Corp. Everett WA WE SAIF NASDAQ 09/16/1992
CASH First Midwest Financial Inc. Storm Lake IA MW SAIF NASDAQ 09/20/1993
CATB Catskill Financial Corp. Catskill NY MA BIF NASDAQ 04/18/1996
CBES CBES Bancorp Inc. Excelsior Springs MO MW SAIF NASDAQ 09/30/1996
CBK Citizens First Financial Corp. Bloomington IL MW SAIF AMSE 05/01/1996
CBSA Coastal Bancorp Inc. Houston TX SW SAIF NASDAQ NA
CENB Century Bancorp Inc. Thomasville NC SE SAIF NASDAQ 12/23/1996
CFB Commercial Federal Corp. Omaha NE MW SAIF NYSE 12/31/1984
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/1990
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/1988
CFNC Carolina Fincorp Inc. Rockingham NC SE SAIF NASDAQ 11/25/1996
CFSB CFSB Bancorp Inc. Lansing MI MW SAIF NASDAQ 06/22/1990
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/1996
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/1995
CKFB CKF Bancorp Inc. Danville KY MW SAIF NASDAQ 01/04/1995
CLAS Classic Bancshares Inc. Ashland KY MW SAIF NASDAQ 12/29/1995
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/1995
CMSB Commonwealth Bancorp Inc. Norristown PA MA SAIF NASDAQ 06/17/1996
CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/1992
CNSB CNS Bancorp Inc. Jefferson City MO MW SAIF NASDAQ 06/12/1996
CNY Carver Bancorp Inc. New York NY MA SAIF AMSE 10/25/1994
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/1988
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/1991
CRSB Crusader Holding Corp. Philadelphia PA MA SAIF NASDAQ NA
CRZY Crazy Woman Creek Bancorp Buffalo WY WE SAIF NASDAQ 03/29/1996
CSBF CSB Financial Group Inc. Centralia IL MW SAIF NASDAQ 10/09/1995
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/1987
DCBI Delphos Citizens Bancorp Inc. Delphos OH MW SAIF NASDAQ 11/21/1996
DCOM Dime Community Bancshares Inc. Brooklyn NY MA BIF NASDAQ 06/26/1996
DME Dime Bancorp Inc. New York NY MA BIF NYSE 08/19/1986
DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/1985
DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/1971
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/1986
EFBC Empire Federal Bancorp Inc. Livingston MT WE SAIF NASDAQ 01/27/1997
<CAPTION>
Price
Closing Market LTM
Price Value Core EPS
Ticker ($) ($M) (x)
<S> <C> <C> <C>
AABC 6.563 8.06 28.5
ABBK 14.500 48.53 16.1
ABCL 19.938 228.42 14.5
ABCW 19.000 340.10 15.6
AFBC 13.500 13.91 16.9
AHCI 16.125 66.03 26.4
ALBC 9.250 6.96 18.1
ALLB 12.625 41.34 20.4
AMFC 11.250 9.79 17.1
ANA 18.188 33.57 15.2
ANDB 30.625 199.68 11.8
ANE 10.625 24.35 19.0
ASBI 16.500 57.86 15.9
ASBP 12.000 19.86 17.9
ASFC 44.000 2,409.52 14.8
BDJI 13.750 13.66 14.0
BFD 18.500 94.58 12.9
BFSB 12.250 28.15 13.3
BKC 22.375 105.22 10.8
BKCT 15.375 78.75 15.1
BKUNA 9.000 163.33 23.1
BNKU 38.500 1,215.17 10.3
BVCC 18.750 358.38 13.2
CAFI 15.125 82.83 12.5
CASB 13.625 58.98 16.6
CASH 15.750 39.61 16.2
CATB 14.875 64.83 15.8
CBES 14.875 14.42 13.4
CBK 13.250 29.61 18.9
CBSA 17.250 121.93 7.6
CENB 13.750 17.27 15.0
CFB 22.750 1,380.84 12.4
CFCP 19.875 124.49 20.3
CFFC 11.625 29.90 17.6
CFNC 7.563 14.41 12.0
CFSB 22.250 181.63 16.6
CFTP 14.000 60.46 29.8
CIBI 11.750 14.46 17.0
CKFB 18.000 14.29 20.2
CLAS 14.500 18.84 20.4
CMRN 14.500 31.76 15.3
CMSB 14.875 218.98 17.1
CNIT 23.000 111.49 18.0
CNSB 11.000 16.41 20.8
CNY 7.500 17.36 17.4
COFI 25.563 4,228.02 10.8
COOP 11.625 35.38 15.7
CRSB 10.500 40.24 8.0
CRZY 12.500 11.37 16.2
CSBF 8.875 6.50 21.1
CVAL 18.750 68.88 20.8
DCBI 18.000 31.61 18.4
DCOM 21.438 246.64 16.5
DME 24.000 2,677.68 11.3
DNFC 21.438 199.76 14.7
DSL 22.000 618.90 11.8
EBSI 17.625 100.84 11.7
EFBC 13.875 32.46 19.5
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 6
<PAGE>
FERGUSSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- -------------------
<TABLE>
<CAPTION>
Deposit
Ticker Company's Short Name City State Region Insur. Exchange IPO Date
<S> <C> <C> <C> <C> <C> <C> <C>
EGLB Eagle BancGroup Inc. Bloomington IL MW SAIF NASDAQ 07/01/1996
EMLD Emerald Financial Corp. Strongsville OH MW SAIF NASDAQ 10/05/1993
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/1993
ESBF ESB Financial Corp. Ellwood City PA MA SAIF NASDAQ 06/13/1990
ESBK Elmira Savings Bank (The) Elmira NY MA BIF NASDAQ 03/01/1985
FAB FIRSTFED AMERICA BANCORP INC. Swansea MA NE SAIF AMSE 01/15/1997
FBBC First Bell Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/29/1995
FBCI Fidelity Bancorp Inc. Chicago IL MW SAIF NASDAQ 12/15/1993
FBER 1st Bergen Bancorp Wood-Ridge NJ MA SAIF NASDAQ 04/01/1996
FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/1993
FBNW FirstBank Corp. Lewiston ID WE SAIF NASDAQ 07/02/1997
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/1993
FCB Falmouth Bancorp Inc. Falmouth MA NE BIF AMSE 03/28/1996
FCBK First Coastal Bankshares Virginia Beach VA SE SAIF NASDAQ 11/01/1980
FCME First Coastal Corp. Westbrook ME NE BIF NASDAQ NA
FDEF First Defiance Financial Defiance OH MW SAIF NASDAQ 10/02/1995
FED FirstFed Financial Corp. Santa Monica CA WE SAIF NYSE 12/16/1983
FESX First Essex Bancorp Inc. Andover MA NE BIF NASDAQ 08/04/1987
FFBH First Federal Bancshares of AR Harrison AR SE SAIF NASDAQ 05/03/1996
FFBZ First Federal Bancorp Inc. Zanesville OH MW SAIF NASDAQ 07/13/1992
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/1983
FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/1991
FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/1987
FFFD North Central Bancshares Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/1996
FFFL Fidelity Bankshares Inc. (MHC) West Palm Beach FL SE SAIF NASDAQ 01/07/1994
FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/1994
FFHS First Franklin Corp. Cincinnati OH MW SAIF NASDAQ 01/26/1988
FFIC Flushing Financial Corp. Flushing NY MA BIF NASDAQ 11/21/1995
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/1987
FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/1994
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/1993
FFSX First Fed SB of Siouxland(MHC) Sioux City IA MW SAIF NASDAQ 07/13/1992
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/1993
FFWD Wood Bancorp Inc. Bowling Green OH MW SAIF NASDAQ 08/31/1993
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/1993
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/1987
FISB First Indiana Corp. Indianapolis IN MW SAIF NASDAQ 08/02/1983
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/1995
FKKY Frankfort First Bancorp Inc. Frankfort KY MW SAIF NASDAQ 07/10/1995
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/1986
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/1983
FLGS Flagstar Bancorp Inc. Bloomfield Hills MI MW SAIF NASDAQ NA
FLKY First Lancaster Bancshares Lancaster KY MW SAIF NASDAQ 07/01/1996
FMCO FMS Financial Corp. Burlington NJ MA SAIF NASDAQ 12/14/1988
FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/1985
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/1983
FSBI Fidelity Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/1988
FSPT FirstSpartan Financial Corp. Spartanburg SC SE SAIF NASDAQ 07/09/1997
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/1995
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/1989
FTNB Fulton Bancorp Inc. Fulton MO MW SAIF NASDAQ 10/18/1996
FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/1995
FWWB First Washington Bancorp Inc. Walla Walla WA WE SAIF NASDAQ 11/01/1995
GAF GA Financial Inc. Pittsburgh PA MA SAIF AMSE 03/26/1996
GDW Golden West Financial Oakland CA WE SAIF NYSE 05/29/1959
GPT GreenPoint Financial Corp. New York NY MA BIF NYSE 01/28/1994
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/1996
GSLA GS Financial Corp. Metairie LA SW SAIF NASDAQ 04/01/1997
<CAPTION>
Price
Closing Market LTM
Price Value Core EPS
Ticker ($) ($M) (x)
<S> <C> <C> <C>
EGLB 20.500 22.14 25.6
EMLD 12.000 123.40 16.9
EQSB 19.000 23.34 12.4
ESBF 15.938 85.83 15.6
ESBK 24.500 17.80 16.7
FAB 14.375 107.31 15.1
FBBC 15.375 93.79 11.4
FBCI 24.625 57.17 18.2
FBER 22.500 58.17 25.6
FBHC 19.000 52.95 20.4
FBNW 14.625 25.50 13.1
FBSI 12.625 27.30 15.4
FCB 15.875 22.25 26.0
FCBK 23.125 115.31 27.2
FCME 9.625 13.10 11.5
FDEF 13.625 103.21 34.1
FED 15.875 335.40 10.6
FESX 18.063 136.62 14.1
FFBH 18.813 86.07 14.9
FFBZ 10.000 31.51 26.3
FFCH 19.250 259.61 15.7
FFDB 9.000 22.00 14.3
FFES 25.688 70.61 11.5
FFFD 16.750 49.65 12.7
FFFL 20.250 137.75 19.7
FFHH 15.125 44.96 13.8
FFHS 12.625 21.52 12.8
FFIC 15.125 169.92 15.6
FFKY 25.063 103.50 17.2
FFLC 16.625 60.77 14.3
FFSL 9.922 11.06 10.8
FFSX 20.625 58.68 17.5
FFWC 15.500 22.35 12.6
FFWD 19.125 51.46 22.0
FFYF 35.250 136.48 17.5
FGHC 8.375 40.19 20.9
FISB 18.750 238.19 13.4
FKFS 12.250 27.80 10.0
FKKY 14.625 22.77 14.8
FLAG 10.625 70.13 15.2
FLFC 20.750 281.30 17.3
FLGS 27.500 375.93 11.3
FLKY 12.625 11.71 20.7
FMCO 8.750 63.28 12.3
FMSB 12.875 54.66 14.0
FNGB 11.875 104.08 15.8
FSBI 17.125 33.92 12.0
FSPT 30.000 113.64 16.8
FTF 22.750 37.07 11.3
FTFC 15.000 275.41 15.6
FTNB 15.625 26.59 21.7
FTSB 14.250 21.01 21.6
FWWB 23.000 262.86 17.7
GAF 16.125 115.02 14.7
GDW 91.563 5,206.35 11.5
GPT 32.125 3,104.62 16.3
GSFC 12.750 52.06 18.5
GSLA 12.000 35.37 27.9
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 7
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
DEPOSIT
TICKER COMPANY'S SHORT NAME CITY STATE REGION INSUR. EXCHANGE IPO DATE
<S> <C> <C> <C> <C> <C> <C> <C>
GTPS Great American Bancorp Champaign IL MW SAIF NASDAQ 06/30/1995
GUPB GFSB Bancorp Inc. Gallup NM SW SAIF NASDAQ 06/30/1995
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/1994
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/1987
HARS Harris Financial Inc. (MHC) Harrisburg PA MA SAIF NASDAQ 01/25/1994
HAVN Haven Bancorp Inc. Westbury NY MA SAIF NASDAQ 09/23/1993
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/1995
HBNK Highland Bancorp Inc. Burbank CA WE SAIF NASDAQ NA
HBS Haywood Bancshares Inc. Waynesville NC SE SAIF AMSE 12/18/1987
HCFC Home City Financial Corp. Springfield OH MW SAIF NASDAQ 12/30/1996
HFFB Harrodsburg First Fin Bancorp Harrodsburg KY MW SAIF NASDAQ 10/04/1995
HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/1992
HFSA Hardin Bancorp Inc. Hardin MO MW SAIF NASDAQ 09/29/1995
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/1994
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/1988
HMLK Hemlock Federal Financial Corp Oak Forest IL MW SAIF NASDAQ 04/02/1997
HMNF HMN Financial Inc. Spring Valley MN MW SAIF NASDAQ 06/30/1994
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/1988
HPBC Home Port Bancorp Inc. Nantucket MA NE BIF NASDAQ 08/25/1988
HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/1994
HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/1986
HTHR Hawthorne Financial Corp. El Segundo CA WE SAIF NASDAQ NA
HWEN Home Financial Bancorp Spencer IN MW SAIF NASDAQ 07/02/1996
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/1994
IFSB Independence Federal Svgs Bank Washington DC MA SAIF NASDAQ 06/06/1985
INBI Industrial Bancorp Inc. Bellevue OH MW SAIF NASDAQ 08/01/1995
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/1993
ITLA ITLA Capital Corp. La Jolla CA WE BIF NASDAQ 10/24/1995
IWBK InterWest Bancorp Inc. Oak Harbor WA WE SAIF NASDAQ NA
JSB JSB Financial Inc. Lynbrook NY MA BIF NYSE 06/27/1990
JSBA Jefferson Savings Bancorp Inc. Ballwin MO MW SAIF NASDAQ 04/08/1993
JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/1996
KFBI Klamath First Bancorp Klamath Falls OR WE SAIF NASDAQ 10/05/1995
KNK Kankakee Bancorp Inc. Kankakee IL MW SAIF AMSE 01/06/1993
KSBK KSB Bancorp Inc. Kingfield ME NE BIF NASDAQ 06/24/1993
KYF Kentucky First Bancorp Inc. Cynthiana KY MW SAIF AMSE 08/29/1995
LARK Landmark Bancshares Inc. Dodge City KS MW SAIF NASDAQ 03/28/1994
LARL Laurel Capital Group Inc. Allison Park PA MA SAIF NASDAQ 02/20/1987
LFCO Life Financial Corp. Riverside CA WE SAIF NASDAQ NA
LFED Leeds Federal Bankshares (MHC) Baltimore MD MA SAIF NASDAQ 05/02/1994
LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/1995
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/1995
LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/1986
LVSB Lakeview Financial Corp. Paterson NJ MA SAIF NASDAQ 12/22/1993
LXMO Lexington B&L Financial Corp. Lexington MO MW SAIF NASDAQ 06/06/1996
MAFB MAF Bancorp Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/1990
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/1993
MASB MASSBANK Corp. Reading MA NE BIF NASDAQ 05/28/1986
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/1993
MCBN Mid-Coast Bancorp Inc. Waldoboro ME NE SAIF NASDAQ 11/02/1989
MDBK Medford Bancorp Inc. Medford MA NE BIF NASDAQ 03/18/1986
MECH MECH Financial Inc. Hartford CT NE BIF NASDAQ 06/26/1996
METF Metropolitan Financial Corp. Mayfield Heights OH MW SAIF NASDAQ NA
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/1994
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/1994
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/1987
MONT Montgomery Financial Corp. Crawfordsville IN MW SAIF NASDAQ 07/01/1997
MRKF Market Financial Corp. Mount Healthy OH MW SAIF NASDAQ 03/27/1997
<CAPTION>
PRICE
CLOSING MARKET LTM
PRICE VALUE CORE EPS
TICKER ($) ($M) (X)
<S> <C> <C> <C>
GTPS 14.000 19.04 24.6
GUPB 14.500 15.25 18.1
HALL 10.625 30.60 10.5
HARL 23.250 39.01 11.5
HARS 14.438 484.87 30.1
HAVN 14.063 124.48 15.3
HBFW 29.500 64.46 22.9
HBNK 35.000 76.34 10.5
HBS 14.500 18.13 10.6
HCFC 14.000 12.66 14.0
HFFB 14.875 27.18 18.8
HFFC 15.500 66.40 11.9
HFSA 16.625 12.29 17.5
HHFC 15.000 12.94 26.3
HIFS 16.000 31.43 10.7
HMLK 12.813 22.83 14.4
HMNF 11.750 63.30 15.9
HOMF 22.750 115.55 11.9
HPBC 23.500 43.28 11.5
HRBF 19.500 35.04 18.9
HRZB 13.500 101.20 12.4
HTHR 16.938 87.99 6.8
HWEN 7.250 6.49 20.7
HZFS 12.750 11.22 15.2
IFSB 12.875 16.49 12.3
INBI 19.000 92.99 16.4
IPSW 10.438 24.97 10.3
ITLA 13.750 101.45 7.7
IWBK 22.625 354.63 13.6
JSB 55.500 531.45 13.1
JSBA 15.500 155.59 19.6
JXVL 15.938 37.73 11.6
KFBI 18.313 162.98 17.8
KNK 23.125 31.60 12.7
KSBK 15.063 19.12 10.7
KYF 12.500 15.01 17.6
LARK 23.625 31.16 17.6
LARL 16.250 35.58 11.9
LFCO 4.625 30.35 2.6
LFED 13.625 70.79 20.6
LOGN 14.000 16.78 13.7
LSBI 27.000 25.19 14.1
LSBX 10.813 46.84 5.6
LVSB 21.500 103.60 22.9
LXMO 12.000 12.10 18.2
MAFB 23.375 583.68 13.8
MARN 21.750 33.84 17.5
MASB 38.000 132.97 15.5
MBLF 20.875 26.03 14.7
MCBN 8.000 5.72 16.0
MDBK 18.125 157.87 15.2
MECH 34.000 180.13 20.9
METF 11.250 87.26 12.1
MFBC 22.000 32.21 15.3
MFFC 14.250 31.54 22.6
MFLR 22.500 20.26 16.2
MONT 10.000 15.90 14.7
MRKF 11.188 14.94 24.9
</TABLE>
8
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
DEPOSIT
TICKER COMPANY'S SHORT NAME CITY STATE REGION INSUR. EXCHANGE IPO DATE
<S> <C> <C> <C> <C> <C> <C> <C>
MSBF MSB Financial Inc. Marshall MI MW SAIF NASDAQ 02/06/1995
MSBK Mutual Savings Bank FSB Bay City MI MW SAIF NASDAQ 07/17/1992
MWBI Midwest Bancshares Inc. Burlington IA MW SAIF NASDAQ 11/12/1992
MWBX MetroWest Bank Framingham MA NE BIF NASDAQ 10/10/1986
NBN Northeast Bancorp Auburn ME NE BIF AMSE 08/19/1987
NBSI North Bancshares Inc. Chicago IL MW SAIF NASDAQ 12/21/1993
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/1995
NHTB New Hampshire Thrift Bncshrs Newport NH NE SAIF NASDAQ 05/22/1986
NMSB NewMil Bancorp Inc. New Milford CT NE BIF NASDAQ 02/01/1986
NSLB NS&L Bancorp Inc. Neosho MO MW SAIF NASDAQ 06/08/1995
NTMG Nutmeg Federal S&LA Danbury CT NE SAIF NASDAQ NA
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/1994
NWSB Northwest Bancorp Inc. (MHC) Warren PA MA SAIF NASDAQ 11/07/1994
OCFC Ocean Financial Corp. Toms River NJ MA SAIF NASDAQ 07/03/1996
OCN Ocwen Financial Corp. West Palm Beach FL SE SAIF NYSE NA
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/1994
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/1993
PBCI Pamrapo Bancorp Inc. Bayonne NJ MA SAIF NASDAQ 11/14/1989
PBCT People's Bank (MHC) Bridgeport CT NE BIF NASDAQ 07/06/1988
PBKB People's Bancshares Inc. New Bedford MA NE BIF NASDAQ 10/30/1986
PBOC PBOC Holdings Inc. Los Angeles CA WE SAIF NASDAQ NA
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/1995
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/1995
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/1995
PERM Permanent Bancorp Inc. Evansville IN MW SAIF NASDAQ 04/04/1994
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/1987
PFED Park Bancorp Inc. Chicago IL MW SAIF NASDAQ 08/12/1996
PFFB PFF Bancorp Inc. Pomona CA WE SAIF NASDAQ 03/29/1996
PFFC Peoples Financial Corp. Massillon OH MW SAIF NASDAQ 09/13/1996
PFNC Progress Financial Corp. Blue Bell PA MA SAIF NASDAQ 07/18/1983
PFSB PennFed Financial Services Inc West Orange NJ MA SAIF NASDAQ 07/15/1994
PHBK Peoples Heritage Finl Group Portland ME NE BIF NASDAQ 12/04/1986
PHFC Pittsburgh Home Financial Corp Pittsburgh PA MA SAIF NASDAQ 04/01/1996
PLSK Pulaski Savings Bank (MHC) Springfield NJ MA SAIF NASDAQ 04/03/1997
PRBC Prestige Bancorp Inc. Pleasant Hills PA MA SAIF NASDAQ 06/27/1996
PROV Provident Financial Holdings Riverside CA WE SAIF NASDAQ 06/28/1996
PSFC Peoples-Sidney Financial Corp. Sidney OH MW SAIF NASDAQ 04/28/1997
PSFI PS Financial Inc. Chicago IL MW SAIF NASDAQ 11/27/1996
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/1993
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/1992
PVSA Parkvale Financial Corp. Monroeville PA MA SAIF NASDAQ 07/16/1987
PWBK Pennwood Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 07/15/1996
QCBC Quaker City Bancorp Inc. Whittier CA WE SAIF NASDAQ 12/30/1993
QCFB QCF Bancorp Inc. Virginia MN MW SAIF NASDAQ 04/03/1995
QCSB Queens County Bancorp Inc. Flushing NY MA BIF NASDAQ 11/23/1993
RELY Reliance Bancorp Inc. Garden City NY MA SAIF NASDAQ 03/31/1994
RIVR River Valley Bancorp Madison IN MW SAIF NASDAQ 12/20/1996
RSLN Roslyn Bancorp Inc. Roslyn NY MA BIF NASDAQ 01/13/1997
RVSB Riverview Bancorp Inc. Camas WA WE SAIF NASDAQ 10/01/1997
SCBS Southern Community Bancshares Cullman AL SE SAIF NASDAQ 12/23/1996
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/1994
SFFC StateFed Financial Corp. Des Moines IA MW SAIF NASDAQ 01/05/1994
SFIN Statewide Financial Corp. Jersey City NJ MA SAIF NASDAQ 10/02/1995
SGVB SGV Bancorp Inc. West Covina CA WE SAIF NASDAQ 06/29/1995
SIB Staten Island Bancorp Inc. Staten Island NY MA BIF NYSE 12/22/1997
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/1994
SOBI Sobieski Bancorp Inc. South Bend IN MW SAIF NASDAQ 03/31/1995
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/1994
<CAPTION>
PRICE
CLOSING MARKET LTM
PRICE VALUE CORE EPS
TICKER ($) ($M) (X)
<S> <C> <C> <C>
MSBF 14.063 18.74 14.4
MSBK 9.625 41.30 15.8
MWBI 11.875 12.72 11.1
MWBX 6.438 91.78 11.3
NBN 11.063 28.97 11.4
NBSI 11.563 14.58 32.1
NEIB 16.500 27.59 12.0
NHTB 15.500 32.59 10.6
NMSB 11.750 45.06 14.0
NSLB 14.188 8.75 18.9
NTMG 10.000 13.25 21.7
NWEQ 21.000 17.33 14.0
NWSB 9.688 458.60 22.0
OCFC 15.375 224.89 15.7
OCN 8.813 535.77 6.1
OFCP 23.000 127.38 16.9
OHSL 14.000 34.97 16.5
PBCI 24.125 68.59 15.7
PBCT 27.563 1,756.18 30.6
PBKB 20.500 68.00 10.5
PBOC 10.375 218.30 10.4
PCBC 21.125 17.49 20.5
PDB 9.125 23.87 15.5
PEEK 15.000 42.63 21.7
PERM 13.250 52.73 22.8
PFDC 20.375 66.45 15.9
PFED 13.938 30.48 16.6
PFFB 16.375 252.87 14.1
PFFC 10.875 13.96 31.1
PFNC 13.250 67.39 15.1
PFSB 14.063 123.66 11.6
PHBK 18.250 1,597.71 13.7
PHFC 14.625 26.92 13.1
PLSK 10.375 21.87 20.8
PRBC 13.438 12.76 19.2
PROV 16.750 77.36 12.9
PSFC 16.688 29.04 27.4
PSFI 10.125 18.74 14.7
PTRS 15.625 14.66 16.5
PVFC 11.750 46.89 10.0
PVSA 21.000 132.78 12.4
PWBK 11.125 7.31 31.8
QCBC 15.000 85.95 11.6
QCFB 25.500 29.38 11.2
QCSB 31.688 673.39 25.8
RELY 30.625 266.62 15.0
RIVR 15.313 18.24 13.6
RSLN 18.188 752.96 14.7
RVSB 12.250 75.32 15.3
SCBS 12.250 13.24 14.1
SCCB 14.000 8.11 19.4
SFFC 9.875 15.25 15.0
SFIN 18.250 77.34 23.1
SGVB 12.500 27.74 17.9
SIB 19.313 844.05 18.4
SMBC 15.000 20.12 20.6
SOBI 12.750 9.71 16.6
SOPN 21.875 81.09 16.6
</TABLE>
9
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
DEPOSIT
TICKER COMPANY'S SHORT NAME CITY STATE REGION INSUR. EXCHANGE IPO DATE
<S> <C> <C> <C> <C> <C> <C> <C>
SPBC St. Paul Bancorp Inc. Chicago IL MW SAIF NASDAQ 05/18/1987
SRN Southern Banc Co. Gadsden AL SE SAIF AMSE 10/05/1995
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/1996
STFR St. Francis Capital Corp. Brookfield WI MW SAIF NASDAQ 06/21/1993
STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ NA
SVRN Sovereign Bancorp Inc. Wyomissing PA MA SAIF NASDAQ 08/12/1986
SZB SouthFirst Bancshares Inc. Sylacauga AL SE SAIF AMSE 02/14/1995
THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/1995
THRD TF Financial Corp. Newtown PA MA SAIF NASDAQ 07/13/1994
TRIC Tri-County Bancorp Inc. Torrington WY WE SAIF NASDAQ 09/30/1993
TSH Teche Holding Co. Franklin LA SW SAIF AMSE 04/19/1995
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/1995
UFBS Union Financial Bcshs Inc. Union SC SE SAIF NASDAQ NA
UPFC United PanAm Financial Corp. San Mateo CA WE SAIF NASDAQ NA
WAMU Washington Mutual Inc. Seattle WA WE BIF NASDAQ 03/11/1983
WAYN Wayne Savings Bancshares (MHC) Wooster OH MW SAIF NASDAQ 06/25/1993
WBST Webster Financial Corp. Waterbury CT NE SAIF NASDAQ 12/12/1986
WCFB Webster City Federal SB (MHC) Webster City IA MW SAIF NASDAQ 08/15/1994
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/1995
WEHO Westwood Homestead Fin. Corp. Cincinnati OH MW SAIF NASDAQ 09/30/1996
WFI Winton Financial Corp. Cincinnati OH MW SAIF AMSE 08/04/1988
WFSL Washington Federal Inc. Seattle WA WE SAIF NASDAQ 11/17/1982
WHGB WHG Bancshares Corp. Lutherville MD MA SAIF NASDAQ 04/01/1996
WRNB Warren Bancorp Inc. Peabody MA NE BIF NASDAQ 07/09/1986
WSB Washington Savings Bank, FSB Bowie MD MA SAIF AMSE NA
WSFS WSFS Financial Corp. Wilmington DE MA BIF NASDAQ 11/26/1986
WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/1994
WVFC WVS Financial Corp. Pittsburgh PA MA SAIF NASDAQ 11/29/1993
YFCB Yonkers Financial Corp. Yonkers NY MA SAIF NASDAQ 04/18/1996
YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/1984
<CAPTION>
PRICE
CLOSING MARKET LTM
PRICE VALUE CORE EPS
TICKER ($) ($M) (X)
<S> <C> <C> <C>
SPBC 22.500 935.91 16.9
SRN 11.750 14.46 23.5
SSM 14.688 25.24 17.5
STFR 40.250 200.32 14.2
STSA 16.500 125.49 12.5
SVRN 12.625 2,071.36 13.0
SZB 15.000 13.72 23.8
THR 13.063 9.41 14.4
THRD 16.875 53.86 15.3
TRIC 11.688 10.27 15.8
TSH 14.875 44.64 12.6
TWIN 14.688 17.90 15.3
UFBS 13.095 17.58 11.9
UPFC 4.500 77.74 5.2
WAMU 39.625 23,513.81 13.8
WAYN 18.500 46.05 26.8
WBST 28.813 1,075.47 15.5
WCFB 16.125 34.12 25.2
WEFC 15.375 25.40 11.1
WEHO 10.250 23.87 19.7
WFI 14.125 56.72 14.1
WFSL 25.875 1,315.90 12.3
WHGB 11.500 15.94 22.6
WRNB 9.000 69.49 12.7
WSB 4.313 19.08 16.0
WSFS 16.875 194.11 10.9
WSTR 18.000 81.21 13.6
WVFC 14.875 52.65 14.2
YFCB 15.063 41.06 14.6
YFED 15.063 144.11 17.1
Maximum 91.563 23,513.81 34.1
Minimum 4.313 5.72 2.6
Average 17.055 284.24 16.3
Median 15.063 45.56 15.4
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
T Common ROAA ROAE
Current Common Equity/ Before Before
Price/ Price/ Price/ Dividend Equity/ Assets Core EPS Extra Extra
Book T Book Assets Yield Total Assets Assets MRQ LTM LTM LTM Acquisition
Ticker (%) (%) (%) (%) ($000) (%) (%) ($) (%) (%) Target
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AABC 85.5 85.5 6.8 3.05 116,921 7.9 7.9 1.22 1.37 16.61 No
ABBK 141.6 155.1 8.7 1.38 546,208 6.4 5.8 0.94 0.85 12.78 No
ABCL 123.1 124.0 10.9 2.81 2,068,197 8.7 8.7 1.49 0.75 8.15 No
ABCW 249.3 253.0 15.3 1.05 2,057,635 6.4 6.3 1.22 1.15 17.69 No
AFBC 92.3 92.3 11.9 2.37 114,185 13.1 13.1 0.85 0.78 5.34 No
AHCI 110.1 110.1 11.9 1.74 565,387 10.3 10.3 0.56 0.41 3.45 No
ALBC 109.2 109.2 9.5 1.30 74,118 8.5 8.5 0.51 0.53 6.18 No
ALLB 138.9 138.9 14.7 2.85 281,949 10.6 10.6 0.62 0.75 6.94 No
AMFC 73.7 73.7 8.3 2.84 111,338 12.7 12.7 0.61 0.30 2.20 No
ANA 105.0 105.0 14.3 2.42 298,148 14.7 14.7 1.17 1.05 6.48 No
ANDB 164.8 164.8 14.2 2.74 1,392,342 8.2 8.2 2.31 1.19 15.04 No
ANE 140.0 143.2 9.7 1.88 252,287 7.8 7.7 0.44 0.95 12.84 No
ASBI 128.6 134.7 14.6 3.63 375,297 12.2 12.0 1.17 0.98 8.55 No
ASBP 135.4 135.4 16.9 3.33 116,437 12.4 12.4 0.66 0.95 6.38 No
ASFC 170.6 206.6 11.7 2.18 11,575,551 7.7 5.7 3.10 0.83 10.04 No
BDJI 104.4 104.4 10.9 - 121,315 10.5 10.5 0.98 0.71 6.67 No
BFD 109.9 113.7 8.3 2.16 1,058,207 7.8 7.6 1.29 0.72 8.46 No
BFSB 130.2 130.2 17.6 2.61 159,563 13.6 13.6 0.92 1.38 10.18 No
BKC 166.4 171.2 15.7 3.58 669,976 9.4 9.2 2.07 1.64 18.98 No
BKCT 160.2 160.2 15.3 3.64 495,178 9.9 9.9 0.99 1.44 14.00 No
BKUNA 85.7 103.1 4.4 - 3,584,123 5.1 4.3 0.47 0.29 5.62 No
BNKU 172.1 187.6 8.2 1.66 14,823,561 4.8 4.4 3.73 0.91 18.21 No
BVCC 94.8 147.1 6.4 2.13 5,522,374 6.9 4.6 1.38 0.34 5.05 No
CAFI 140.1 148.7 13.8 2.84 588,220 9.9 9.4 1.28 1.25 12.89 No
CASB 175.6 175.6 12.0 - 489,807 6.9 6.9 0.82 0.90 12.86 No
CASH 95.1 106.4 8.4 3.30 421,258 10.2 9.2 0.93 0.71 6.60 No
CATB 95.2 95.2 20.0 2.49 323,793 21.0 21.0 0.94 1.28 5.72 No
CBES 81.6 81.6 9.5 3.76 123,710 13.6 13.6 1.11 0.94 6.09 No
CBK 83.9 83.9 11.1 - 281,068 14.0 14.0 0.63 0.71 5.13 No
CBSA 109.8 150.9 4.1 1.86 2,982,161 3.8 2.8 2.26 0.55 14.96 No
CENB 92.2 92.2 18.9 4.95 96,866 19.3 19.3 1.05 1.19 4.51 No
CFB 146.3 183.2 11.4 1.14 12,076,377 7.8 6.3 1.83 0.75 9.58 No
CFCP 329.1 329.1 19.3 1.41 616,887 5.9 5.9 0.96 1.23 19.93 No
CFFC 114.5 115.0 15.9 2.75 183,230 14.1 14.0 0.67 1.00 7.30 No
CFNC 92.2 92.2 13.0 3.17 113,911 13.5 13.5 0.72 0.95 5.24 No
CFSB 267.8 267.8 21.0 2.34 847,769 7.8 7.8 1.31 1.37 17.50 No
CFTP 95.6 95.6 22.0 2.43 263,246 22.3 22.3 0.58 1.23 4.91 No
CIBI 143.5 143.5 12.8 2.04 102,535 10.1 10.1 0.68 0.90 8.22 No
CKFB 104.8 104.8 24.2 3.00 62,759 21.6 21.6 1.00 1.34 5.97 No
CLAS 91.0 105.5 13.1 2.21 137,984 14.9 13.1 0.60 0.74 4.90 No
CMRN 79.4 79.4 15.6 1.93 220,784 19.9 19.9 1.01 1.14 5.45 No
CMSB 114.0 143.7 9.7 2.15 2,368,247 8.4 6.8 0.96 0.58 6.23 No
CNIT 213.6 230.7 18.1 2.61 651,857 7.9 7.4 1.29 0.91 12.66 No
CNSB 74.7 74.7 17.1 2.73 97,988 24.8 24.8 0.53 0.89 3.62 No
CNY 48.0 49.5 4.0 - 427,371 8.4 8.1 0.42 0.25 3.00 No
COFI 225.4 246.3 17.3 2.19 24,467,255 7.7 7.1 2.36 1.14 14.77 No
COOP 113.6 113.6 9.1 - 381,054 8.0 8.0 0.74 0.65 8.36 No
CRSB 164.6 173.0 17.4 - 202,034 11.5 11.0 1.27 2.24 36.72 No
CRZY 81.0 81.0 18.3 3.20 62,154 22.6 22.6 0.77 1.16 4.96 No
CSBF 64.2 68.3 14.0 - 47,218 23.2 22.2 0.35 0.63 2.68 No
CVAL 208.8 208.8 18.1 1.56 377,012 8.5 8.5 1.40 1.07 12.06 No
DCBI 119.4 119.4 26.2 1.33 113,585 24.2 24.2 0.90 1.45 5.56 No
DCOM 139.0 159.5 13.5 2.61 1,829,675 9.7 8.6 1.30 0.99 8.80 No
DME 193.2 231.9 12.0 0.83 20,913,891 6.4 5.3 1.61 0.84 14.41 No
DNFC 173.0 185.5 9.9 0.93 1,998,299 5.6 NA 1.53 0.86 15.71 No
DSL 128.8 NA 9.9 1.45 6,270,419 7.7 NA 1.86 0.98 12.71 No
EBSI 131.7 131.7 8.2 3.63 1,120,232 6.9 6.9 1.43 0.91 11.80 No
EFBC 86.7 86.7 30.9 2.45 106,940 36.2 36.2 0.67 1.45 3.94 No
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
T Common ROAA ROAE
Current Common Equity/ Before Before
Price/ Price/ Price/ Dividend Equity/ Assets Core EPS Extra Extra
Book T Book Assets Yield Total Assets Assets MRQ LTM LTM LTM Acquisition
Ticker (%) (%) (%) (%) ($000) (%) (%) ($) (%) (%) Target
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EGLB 112.4 112.4 12.3 1.95 180,101 10.9 10.9 0.80 0.52 4.53 No
EMLD 225.1 227.3 18.5 1.67 668,459 8.2 8.1 0.71 1.22 14.60 No
EQSB 120.0 120.0 6.5 - 350,555 5.1 5.1 1.74 0.70 13.60 No
ESBF 138.7 156.4 8.9 2.26 956,146 7.0 6.3 1.03 0.67 8.73 No
ESBK 117.0 117.0 7.7 2.61 231,725 6.3 6.3 1.26 0.47 7.43 No
FAB 91.0 91.0 7.5 1.39 1,438,152 7.4 7.4 0.95 0.54 5.97 No
FBBC 127.0 127.0 12.2 2.60 756,638 10.2 10.2 1.28 1.09 10.25 No
FBCI 131.8 131.9 10.6 1.79 501,708 10.6 10.6 1.00 0.19 1.80 No
FBER 159.9 159.9 19.0 1.24 300,755 11.6 11.6 0.84 0.72 5.49 No
FBHC 150.3 158.5 10.8 2.11 318,348 7.2 6.8 0.94 0.66 10.00 No
FBNW 89.4 89.4 12.5 2.46 194,432 15.6 15.6 1.06 1.12 7.62 No
FBSI 112.9 117.8 15.8 0.95 172,173 14.2 13.7 0.84 1.08 7.83 No
FCB 100.0 100.0 19.7 1.76 110,523 21.4 21.4 0.60 1.11 4.72 No
FCBK 250.0 250.0 19.9 1.04 603,753 7.5 7.5 0.84 0.69 9.79 No
FCME 80.5 80.5 7.4 - 171,719 9.0 9.0 0.80 0.80 8.23 No
FDEF 110.2 NA 13.1 2.94 785,399 11.9 NA 0.40 0.46 3.10 No
FED 134.7 135.5 8.8 - 4,010,381 6.0 6.0 1.37 0.72 13.22 No
FESX 142.5 193.0 11.0 3.54 1,241,432 7.7 5.8 1.28 0.86 11.49 No
FFBH 106.8 106.8 14.6 1.49 578,142 14.7 14.7 1.20 1.00 6.71 No
FFBZ 190.8 190.8 14.8 1.60 207,381 8.0 8.0 0.50 0.82 10.73 No
FFCH 210.2 210.2 14.3 2.49 1,874,198 6.5 6.5 1.14 0.89 14.08 No
FFDB 121.3 131.0 12.1 3.11 179,893 9.9 9.2 0.66 0.89 9.22 No
FFES 95.5 95.5 7.1 2.80 980,415 7.2 7.2 2.26 0.59 8.70 No
FFFD 104.6 120.3 15.5 1.91 331,124 14.9 13.1 1.27 1.56 8.56 No
FFFL 150.9 155.1 9.2 4.94 1,468,351 6.2 6.0 1.10 0.65 8.94 No
FFHH 94.1 NA 10.4 3.31 414,072 10.4 10.4 1.10 0.79 7.31 No
FFHS 103.2 103.6 9.3 2.38 237,679 9.1 9.1 0.99 0.81 8.87 No
FFIC 125.0 129.8 15.0 1.59 1,091,908 12.8 12.4 0.90 0.93 7.01 No
FFKY 186.8 235.6 22.2 2.39 409,651 13.4 12.8 1.46 1.60 11.84 No
FFLC 114.2 114.2 13.1 2.65 463,820 11.5 11.5 1.16 1.05 8.37 No
FFSL 78.7 78.7 7.7 3.02 123,366 9.6 9.6 0.85 0.72 7.31 No
FFSX 136.0 167.3 10.3 2.33 569,612 7.6 6.3 1.18 0.71 8.66 No
FFWC 113.7 123.0 10.6 2.71 203,311 9.4 8.7 1.20 0.99 10.33 No
FFWD 222.4 222.4 30.8 2.09 166,150 13.6 13.6 0.86 1.43 11.12 No
FFYF 165.7 165.7 20.3 2.55 651,746 12.9 12.9 1.94 1.24 9.29 No
FGHC 256.1 271.9 21.1 0.72 180,806 8.2 7.7 0.38 1.16 14.15 No
FISB 143.5 144.9 13.3 2.56 1,750,819 9.2 9.1 1.40 1.17 12.23 No
FKFS 107.0 107.0 6.9 1.96 390,970 6.5 6.5 1.20 0.75 11.13 No
FKKY 103.6 103.6 16.7 6.02 134,485 16.9 16.9 0.96 1.18 6.58 No
FLAG 138.9 138.9 12.1 2.26 442,879 8.7 8.7 0.71 0.91 10.36 No
FLFC 230.0 252.7 18.7 1.83 1,511,776 7.8 7.2 0.63 0.90 11.96 No
FLGS 247.1 253.0 12.2 1.16 2,573,280 5.6 5.4 2.15 1.37 23.46 No
FLKY 86.0 86.0 21.2 4.75 53,747 26.3 26.3 0.57 0.95 4.08 No
FMCO 148.8 149.6 9.5 1.37 673,699 6.1 6.0 0.71 0.85 13.58 No
FMSB 154.9 154.9 11.5 1.55 474,092 7.4 7.4 0.92 1.09 15.48 No
FNGB 136.8 136.8 14.5 3.37 690,372 10.9 10.9 0.72 0.98 8.87 No
FSBI 115.7 115.7 7.7 2.10 438,182 6.7 6.7 1.43 0.73 10.50 No
FSPT 105.3 105.3 21.4 2.67 530,830 20.3 20.3 1.79 1.36 5.64 No
FTF 137.7 137.7 19.4 2.81 189,557 14.9 14.9 1.84 1.74 11.41 No
FTFC 224.6 252.1 15.4 1.87 1,786,504 6.9 6.2 0.96 1.19 16.59 No
FTNB 101.5 101.5 22.9 1.92 110,110 23.2 23.2 0.70 1.06 4.44 No
FTSB 165.3 165.3 20.3 1.75 101,352 16.1 16.1 0.81 1.18 7.39 No
FWWB 143.1 172.3 18.4 1.57 1,362,063 12.6 10.6 1.30 1.14 8.76 No
GAF 104.4 105.3 14.1 3.97 838,272 12.9 12.8 1.09 1.04 7.21 No
GDW 166.6 166.6 13.5 0.61 39,067,229 7.5 7.5 6.96 1.04 15.21 No
GPT 149.4 343.2 22.2 1.99 12,853,902 9.9 5.9 2.00 1.11 11.57 No
GSFC 86.3 86.3 30.1 3.76 173,265 34.9 34.9 0.68 1.58 4.46 No
GSLA 73.6 73.6 24.5 2.33 145,151 36.0 36.0 0.43 1.16 2.78 No
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
T Common ROAA ROAE
Current Common Equity/ Before Before
Price/ Price/ Price/ Dividend Equity/ Assets Core EPS Extra Extra
Book T Book Assets Yield Total Assets Assets MRQ LTM LTM LTM Acquisition
Ticker (%) (%) (%) (%) ($000) (%) (%) ($) (%) (%) Target
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GTPS 82.3 82.3 12.1 3.14 157,066 14.7 14.7 0.57 0.57 3.30 No
GUPB 119.0 119.0 12.3 2.07 123,209 11.5 11.5 0.76 0.85 6.00 No
HALL 85.1 85.1 6.4 - 481,457 7.2 7.2 1.01 0.67 8.87 No
HARL 149.3 149.3 9.3 2.06 395,383 6.4 6.4 2.02 0.97 14.71 No
HARS 255.5 280.4 19.4 1.66 2,495,909 7.6 7.0 0.48 0.82 10.43 No
HAVN 101.6 106.1 5.4 2.13 2,265,248 5.2 5.0 1.03 0.45 7.84 No
HBFW 162.1 162.1 17.9 1.08 360,286 11.9 11.9 1.25 0.85 6.84 No
HBNK 175.7 175.7 12.6 - 573,412 7.9 7.9 2.78 1.36 17.66 No
HBS 84.8 87.7 12.1 4.41 151,718 14.6 14.2 1.77 0.92 6.34 No
HCFC 114.9 114.9 15.7 2.86 78,042 13.9 13.9 1.02 1.29 6.94 No
HFFB 91.6 91.6 26.0 2.69 109,033 26.5 26.5 0.81 1.36 5.07 No
HFFC 120.5 120.5 11.8 2.32 570,060 9.9 9.9 1.39 1.13 11.73 No
HFSA 99.1 99.1 9.5 3.85 133,320 10.1 10.1 0.95 0.84 8.04 No
HHFC 129.7 129.7 13.4 2.93 96,085 10.7 10.7 0.57 0.59 5.26 No
HIFS 132.8 132.8 12.1 2.50 239,148 9.4 9.4 1.40 1.26 13.06 No
HMLK 83.9 83.9 11.2 2.81 204,424 13.3 13.3 0.89 0.80 5.33 No
HMNF 92.7 101.2 8.9 2.04 725,180 9.8 9.0 0.74 0.80 6.34 No
HOMF 168.4 172.6 16.2 1.93 719,549 9.3 9.1 1.90 1.47 16.66 No
HPBC 184.9 184.9 16.4 3.40 260,456 8.7 8.7 1.92 1.45 14.53 No
HRBF 120.7 120.7 15.4 2.67 227,562 12.8 12.8 1.03 0.79 6.25 No
HRZB 116.1 116.1 17.8 3.26 568,984 15.3 15.3 1.09 1.56 9.99 No
HTHR 111.2 111.2 6.3 - 1,201,331 4.0 4.0 2.50 1.18 23.80 No
HWEN 90.4 90.4 15.4 1.66 42,560 17.6 17.6 0.36 0.93 5.34 No
HZFS 131.4 131.4 13.0 1.41 89,947 9.4 9.4 0.82 0.67 6.97 No
IFSB 75.0 81.6 6.6 1.94 265,940 8.0 7.3 0.88 1.24 17.15 No
INBI 152.7 152.7 24.4 3.37 382,841 16.0 16.0 1.10 1.47 8.81 No
IPSW 175.4 175.4 9.2 1.92 233,662 5.6 5.6 1.04 1.19 21.98 No
ITLA 96.4 96.6 10.4 - 1,021,343 10.4 10.4 1.72 1.44 13.80 No
IWBK 202.4 220.1 13.6 2.48 2,601,561 6.7 6.2 1.67 0.98 13.88 No
JSB 142.1 142.1 34.9 3.24 1,552,436 24.6 24.6 4.24 3.17 13.32 No
JSBA 118.4 144.9 11.9 1.81 1,317,195 9.4 7.8 0.79 0.65 6.85 No
JXVL 107.1 107.1 14.5 3.14 242,673 14.5 14.5 1.26 1.33 9.13 No
KFBI 111.5 120.6 15.6 2.08 1,047,677 14.0 13.0 1.03 0.97 6.73 No
KNK 79.6 92.9 7.8 2.08 401,934 9.8 8.5 1.93 0.78 7.51 No
KSBK 139.7 155.8 11.2 - 157,745 8.0 7.1 1.41 1.13 14.97 No
KYF 107.9 107.9 19.1 4.00 78,573 17.7 17.7 0.71 1.05 6.10 No
LARK 126.1 126.1 13.9 2.54 229,337 13.1 13.1 1.32 1.06 7.64 No
LARL 146.0 146.0 16.2 3.69 220,986 10.6 10.6 1.36 1.43 13.58 No
LFCO 49.3 49.3 8.0 - 472,437 12.6 12.6 2.09 3.66 25.64 No
LFED 142.7 142.7 23.3 4.11 302,737 16.3 16.3 0.64 1.13 6.86 No
LOGN 103.6 103.6 18.1 3.14 90,264 18.8 18.8 1.02 1.48 7.79 No
LSBI 130.1 130.1 11.1 1.48 218,633 8.4 8.4 1.89 0.84 9.90 No
LSBX 100.3 100.3 13.8 - 344,874 12.1 12.1 2.03 2.58 25.27 No
LVSB 213.7 341.3 18.1 1.16 593,856 9.5 6.6 0.99 1.72 15.95 No
LXMO 77.6 83.0 12.9 2.50 95,301 16.1 15.1 0.62 0.78 3.83 No
MAFB 169.4 206.0 14.2 1.20 4,121,446 8.4 7.0 1.69 1.08 14.03 No
MARN 98.8 101.0 17.9 4.05 193,963 19.4 19.1 1.29 1.25 5.94 No
MASB 120.3 121.9 14.1 2.84 929,672 11.8 11.6 2.52 1.16 10.40 No
MBLF 91.7 91.7 12.5 2.87 203,228 13.7 13.7 1.43 0.86 6.65 No
MCBN 107.7 107.7 8.1 2.50 65,309 8.0 8.0 0.61 0.69 8.30 No
MDBK 154.4 162.0 13.7 2.21 1,134,102 9.1 8.7 1.25 1.07 11.83 No
MECH 188.9 NA 17.7 1.76 960,017 9.8 9.8 1.75 0.97 9.71 No
METF 204.6 218.5 6.4 - 1,058,887 3.7 3.5 1.00 0.74 18.75 No
MFBC 103.0 103.0 9.6 1.55 290,936 11.4 11.4 1.29 0.80 6.44 No
MFFC 112.8 112.8 13.6 4.21 235,105 11.1 11.1 0.65 0.69 5.80 No
MFLR 149.3 151.3 13.8 3.56 146,637 9.3 9.1 1.39 1.12 11.82 No
MONT 80.7 80.7 13.1 2.20 121,469 16.2 16.2 0.68 0.92 5.25 No
MRKF 99.1 99.1 27.4 2.50 53,653 29.3 29.3 0.51 1.09 3.15 No
</TABLE>
13
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
T Common ROAA ROAE
Current Common Equity/ Before Before
Price/ Price/ Price/ Dividend Equity/ Assets Core EPS Extra Extra
Book T Book Assets Yield Total Assets Assets MRQ LTM LTM LTM Acquisition
Ticker (%) (%) (%) (%) ($000) (%) (%) ($) (%) (%) Target
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MSBF 138.8 138.8 22.9 2.13 79,967 16.7 16.7 0.94 1.57 9.39 No
MSBK 114.3 114.3 7.3 - 613,798 5.6 5.6 (0.46) (1.26) (22.54) No
MWBI 107.7 107.7 7.9 3.37 159,460 7.2 7.2 1.05 0.95 13.56 No
MWBX 181.9 181.9 13.3 3.11 658,462 7.3 7.3 0.54 1.27 17.13 No
NBN 117.2 126.7 8.8 1.92 322,533 7.5 6.9 0.97 0.83 10.35 No
NBSI 111.0 111.0 11.6 3.81 123,311 10.8 10.8 0.30 0.37 2.94 No
NEIB 113.0 113.0 13.3 2.18 203,263 13.0 13.0 1.42 1.18 8.55 No
NHTB 119.1 135.3 9.9 3.87 324,320 8.1 7.2 1.26 0.92 11.82 No
NMSB 129.3 129.3 12.6 3.06 357,764 9.7 9.7 0.84 0.81 8.72 No
NSLB 84.1 84.8 13.8 4.51 62,648 18.5 18.4 0.65 0.69 3.58 No
NTMG 188.7 188.7 12.6 2.00 112,113 6.1 6.1 0.52 1.02 12.39 No
NWEQ 144.4 144.4 17.5 3.24 96,452 12.2 12.2 1.50 1.22 10.48 No
NWSB 204.8 230.1 17.0 1.65 2,562,584 8.5 7.7 0.43 0.94 10.29 No
OCFC 115.4 116.0 14.7 3.12 1,538,264 13.7 13.7 0.97 0.92 6.38 No
OCN 120.7 131.0 15.8 - 3,505,579 12.2 11.3 1.28 0.84 6.98 No
OFCP 173.6 212.2 13.7 1.91 919,865 8.2 6.8 1.27 0.89 10.46 No
OHSL 125.9 125.9 13.9 3.57 247,853 10.8 10.8 0.85 0.86 7.94 No
PBCI 138.7 139.2 17.3 4.64 394,271 12.5 12.4 1.60 1.25 9.69 No
PBCT 206.0 245.2 17.7 3.34 9,105,200 9.4 8.2 1.06 1.24 13.73 No
PBKB 207.7 211.1 7.6 3.71 858,377 3.8 3.6 1.64 0.74 17.97 No
PBOC 120.9 120.9 6.6 - 3,335,027 5.4 5.4 1.00 0.39 7.79 No
PCBC 103.6 103.6 18.1 2.37 89,761 18.5 18.5 1.07 0.98 5.14 No
PDB 115.4 115.4 19.2 5.26 130,541 16.6 16.6 0.61 1.27 7.75 No
PEEK 99.8 99.8 21.5 2.40 200,341 21.6 21.6 0.67 0.98 4.02 No
PERM 127.5 168.8 10.5 1.81 506,725 8.6 7.1 0.59 0.61 6.30 No
PFDC 147.9 147.9 21.0 2.36 304,320 15.0 15.0 1.26 1.45 9.56 No
PFED 81.8 81.8 15.4 - 196,813 20.3 20.3 0.78 0.92 4.28 No
PFFB 107.2 108.2 8.6 - 3,007,845 8.0 8.0 0.98 0.61 6.43 No
PFFC 97.8 97.8 17.0 5.52 84,906 17.3 17.3 0.37 1.06 5.35 No
PFNC 161.4 NA 10.4 1.21 618,049 6.8 NA 0.75 0.84 14.86 No
PFSB 114.2 130.0 8.0 1.14 1,542,468 6.5 5.8 1.21 0.75 10.97 No
PHBK 209.8 250.7 15.8 2.52 9,768,079 7.4 6.2 1.30 0.94 12.53 No
PHFC 111.6 112.9 7.0 1.91 386,522 6.2 6.2 1.12 0.51 7.33 No
PLSK 97.1 97.1 11.4 3.08 187,776 11.8 11.8 0.52 0.54 4.60 No
PRBC 88.1 88.1 7.9 1.49 164,656 9.7 9.7 0.69 0.47 4.44 No
PROV 90.4 90.4 8.9 - 870,241 9.8 9.8 1.30 0.70 6.62 No
PSFC 140.5 140.5 27.4 1.68 105,903 18.5 18.5 0.74 1.18 5.44 No
PSFI 88.2 88.2 19.7 5.14 85,000 26.8 26.8 0.68 1.00 3.20 No
PTRS 131.3 131.3 11.1 1.79 128,149 8.5 8.5 0.89 0.77 8.58 No
PVFC 144.4 144.4 11.0 - 433,279 7.2 7.2 1.20 1.23 17.11 No
PVSA 154.8 155.4 11.4 2.86 1,095,373 7.7 7.6 2.10 1.08 14.59 No
PWBK 89.0 89.0 14.6 2.70 46,080 17.3 17.3 0.37 0.59 3.24 No
QCBC 110.7 110.7 9.3 - 919,980 8.4 8.4 1.29 0.91 10.28 No
QCFB 134.0 134.0 19.7 - 150,486 17.5 17.5 2.24 1.72 9.82 No
QCSB 396.6 396.6 39.8 3.16 1,715,164 9.9 9.9 1.15 1.51 14.38 No
RELY 151.2 222.2 10.8 2.35 2,493,186 7.4 5.3 1.93 0.82 9.84 No
RIVR 99.3 100.5 13.4 1.57 135,683 13.6 13.5 1.15 0.93 7.11 No
RSLN 125.7 126.2 20.2 2.42 3,735,032 16.0 16.0 1.24 1.43 8.54 No
RVSB 114.6 118.1 24.7 1.96 268,608 23.1 22.5 NA 1.71 8.52 No
SCBS 119.3 119.3 19.8 2.45 67,920 17.3 17.3 0.91 1.22 6.45 No
SCCB 84.6 84.6 17.8 4.86 47,992 19.6 19.6 0.68 0.88 4.00 No
SFFC 95.1 95.1 17.1 2.03 89,802 17.9 17.9 0.66 1.16 6.49 No
SFIN 127.8 128.0 12.0 2.85 656,635 9.7 9.7 1.20 0.79 8.23 No
SGVB 89.7 90.8 6.1 - 408,346 7.9 7.8 0.59 0.37 4.80 No
SIB 126.2 129.6 22.4 1.86 3,351,470 20.6 20.2 NA 1.00 5.62 No
SMBC 92.8 92.8 13.6 3.33 155,924 15.5 15.5 0.70 0.67 4.06 No
SOBI 70.3 70.3 9.6 2.51 92,497 13.9 13.9 0.73 0.62 4.32 No
SOPN 116.7 116.7 28.2 4.57 304,088 22.9 22.9 1.30 1.76 7.64 No
</TABLE>
14
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
T Common ROAA ROAE
Current Common Equity/ Before Before
Price/ Price/ Price/ Dividend Equity/ Assets Core EPS Extra Extra
Book T Book Assets Yield Total Assets Assets MRQ LTM LTM LTM Acquisition
Ticker (%) (%) (%) (%) ($000) (%) (%) ($) (%) (%) Target
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPBC 182.2 182.5 15.4 2.67 4,564,869 9.6 9.6 1.42 1.08 11.81 No
SRN 76.7 77.2 13.6 2.98 105,087 17.7 17.6 0.49 0.52 2.96 No
SSM 88.1 88.1 20.3 3.13 112,253 27.3 27.3 0.80 1.40 4.84 No
STFR 163.3 184.8 9.2 1.59 2,024,008 5.6 5.0 2.83 0.84 11.62 No
STSA 112.0 254.2 6.0 - 2,076,759 5.1 2.1 1.30 0.37 6.74 No
SVRN 168.3 261.4 9.5 0.63 21,913,873 5.5 3.6 0.97 0.70 12.42 No
SZB 87.5 89.8 8.7 4.00 162,975 9.9 9.7 0.84 0.46 4.19 No
THR 80.5 80.8 10.3 3.52 98,885 12.8 12.8 1.07 0.85 6.45 No
THRD 93.2 109.0 7.7 2.84 689,284 7.5 6.4 1.10 0.70 7.90 No
TRIC 98.6 98.6 12.6 3.76 86,549 16.4 16.4 0.76 1.01 6.46 No
TSH 86.2 86.2 10.8 3.36 412,426 13.8 13.8 1.15 0.95 6.97 No
TWIN 126.6 126.6 16.1 2.72 110,610 12.7 12.7 0.85 1.02 7.89 No
UFBS 114.9 131.0 9.3 2.71 189,286 8.1 7.2 1.10 0.87 10.77 No
UPFC 89.6 90.0 17.8 - 411,798 19.9 19.9 NA NA NA No
WAMU 246.6 276.5 14.2 2.32 103,396,952 5.4 5.1 2.51 0.96 16.62 No
WAYN 185.4 185.4 17.7 3.35 259,981 9.5 9.5 0.69 0.69 7.21 No
WBST 193.8 225.6 11.9 1.53 9,163,686 6.2 5.3 1.89 0.65 12.08 No
WCFB 148.8 148.8 37.0 4.96 97,096 23.4 23.4 0.64 1.40 5.96 No
WEFC 98.1 98.1 13.2 3.90 188,677 15.4 15.4 1.26 1.19 8.19 No
WEHO 99.5 99.5 18.4 3.90 126,339 20.6 20.6 NA 0.68 2.72 No
WFI 205.0 208.0 15.3 2.12 358,573 7.3 7.2 0.94 1.17 16.06 No
WFSL 172.3 184.8 23.0 3.71 5,558,970 13.9 13.0 2.04 1.97 15.09 No
WHGB 98.4 98.4 12.0 3.13 131,967 15.3 15.3 0.49 0.58 3.16 No
WRNB 176.5 176.5 17.7 4.00 378,137 10.5 10.5 0.73 1.72 15.99 No
WSB 79.6 79.6 7.2 2.32 273,549 8.4 8.4 0.33 0.74 8.67 No
WSFS 226.5 227.4 11.9 0.71 1,551,631 6.2 6.1 1.34 1.13 19.29 No
WSTR 89.6 114.2 8.4 3.11 970,581 9.3 7.5 1.32 0.69 6.39 No
WVFC 161.5 161.5 16.4 4.30 297,054 11.1 11.1 1.05 1.16 10.65 No
YFCB 97.9 97.9 10.7 2.12 382,969 11.0 11.0 1.03 0.74 6.47 No
YFED 128.1 128.1 11.7 3.28 1,235,118 9.1 9.1 0.88 0.84 9.50 No
Maximum 396.6 396.6 39.8 6.02 103,396,952 36.2 36.2 6.96 3.66 36.72
Minimum 48.0 49.3 4.0 - 42,560 3.7 2.1 (0.46) (1.26) (22.54)
Average 131.4 139.0 14.2 2.28 1,787,317 11.9 11.6 1.15 0.99 9.32
Median 119.2 125.9 13.3 2.34 359,430 10.0 10.0 1.02 0.94 8.46
</TABLE>
15
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
ROAA ROAE
NPA's/ Price/ Before Before
Assets Core EPS Core EPS Extra Extra
Pricing MRQ MRQ MRQ MRQ MRQ
Ticker Date (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
AABC 01/27/1999 0.08 18.2 0.06 0.25 3.16
ABBK 01/27/1999 0.14 15.8 0.19 0.83 13.23
ABCL 01/27/1999 0.13 14.7 0.33 0.35 3.88
ABCW 01/27/1999 0.58 14.4 0.33 1.21 18.31
AFBC 01/27/1999 0.33 22.5 0.16 0.55 4.06
AHCI 01/27/1999 0.52 22.4 0.16 0.07 0.65
ALBC 01/27/1999 0.47 19.3 0.12 0.49 5.75
ALLB 01/27/1999 NA 21.0 0.15 0.68 6.35
AMFC 01/27/1999 0.19 12.2 0.16 0.35 2.61
ANA 01/27/1999 0.29 15.7 0.28 0.86 5.61
ANDB 01/27/1999 0.38 13.0 0.76 1.52 19.20
ANE 01/27/1999 0.47 12.1 0.13 1.01 12.97
ASBI 01/27/1999 0.49 16.5 0.29 0.96 8.06
ASBP 01/27/1999 0.28 20.0 0.18 1.04 7.51
ASFC 01/27/1999 0.38 18.6 0.78 0.84 10.18
BDJI 01/27/1999 0.16 14.3 0.28 0.80 7.48
BFD 01/27/1999 0.17 11.9 0.33 0.70 8.65
BFSB 01/27/1999 0.58 13.3 0.23 1.32 9.81
BKC 01/27/1999 1.40 12.2 0.46 1.46 16.02
BKCT 01/27/1999 0.61 14.8 0.27 1.46 14.55
BKUNA 01/27/1999 0.46 28.1 0.07 0.16 3.20
BNKU 01/27/1999 NA 11.3 0.85 0.78 15.71
BVCC 01/27/1999 0.38 12.3 0.32 0.39 5.35
CAFI 01/27/1999 0.47 13.5 0.31 1.20 12.17
CASB 01/27/1999 0.30 15.5 0.22 0.88 12.71
CASH 01/27/1999 1.24 11.3 0.31 0.86 8.35
CATB 01/27/1999 0.18 14.9 0.25 1.25 5.84
CBES 01/27/1999 0.59 12.0 0.33 1.00 7.18
CBK 01/27/1999 0.48 16.6 0.17 0.62 4.47
CBSA 01/27/1999 0.60 10.3 0.42 0.39 10.65
CENB 01/27/1999 0.35 15.6 0.25 1.21 6.53
CFB 01/27/1999 0.78 11.4 0.50 1.10 13.54
CFCP 01/27/1999 0.48 19.1 0.25 1.17 19.70
CFFC 01/27/1999 1.30 24.2 0.17 1.10 7.89
CFNC 01/27/1999 0.14 11.8 0.20 1.24 6.86
CFSB 01/27/1999 0.21 16.4 0.35 1.52 19.55
CFTP 01/27/1999 0.28 175.0 0.15 1.37 6.12
CIBI 01/27/1999 0.67 15.5 0.16 0.80 7.58
CKFB 01/27/1999 0.08 30.0 0.22 1.12 5.21
CLAS 01/27/1999 0.28 21.3 0.16 0.59 3.85
CMRN 01/27/1999 0.40 17.3 0.28 1.21 5.98
CMSB 01/27/1999 0.41 17.7 0.22 0.24 2.79
CNIT 01/27/1999 0.17 17.4 0.30 0.86 11.76
CNSB 01/27/1999 0.06 25.0 0.12 0.83 3.36
CNY 01/27/1999 1.91 11.7 0.14 0.29 3.59
COFI 01/27/1999 0.44 NM (1.12) 0.71 9.06
COOP 01/27/1999 - 18.2 0.21 0.70 8.95
CRSB 01/27/1999 0.64 8.0 0.34 2.49 22.22
CRZY 01/27/1999 0.41 16.5 0.19 1.06 4.65
CSBF 01/27/1999 1.13 27.7 0.12 0.80 3.45
CVAL 01/27/1999 0.33 18.8 0.30 0.73 8.50
DCBI 01/27/1999 - 16.1 0.23 1.41 5.76
DCOM 01/27/1999 NA 14.5 0.37 1.05 10.58
DME 01/27/1999 1.03 10.9 0.51 1.09 17.70
DNFC 01/27/1999 0.50 16.2 0.34 0.87 15.34
DSL 01/27/1999 0.44 12.2 0.45 0.83 10.67
EBSI 01/27/1999 1.20 11.3 0.45 1.04 16.14
EFBC 01/27/1999 - 16.5 0.17 1.44 3.95
</TABLE>
16
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
ROAA ROAE
NPA's/ Price/ Before Before
Assets Core EPS Core EPS Extra Extra
Pricing MRQ MRQ MRQ MRQ MRQ
Ticker Date (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
EGLB 01/27/1999 NA 18.3 0.28 0.67 6.08
EMLD 01/27/1999 NA 15.0 0.20 1.31 15.82
EQSB 01/27/1999 0.22 20.7 0.41 0.63 12.33
ESBF 01/27/1999 0.60 16.6 0.26 0.65 9.13
ESBK 01/27/1999 0.83 13.3 0.43 0.53 8.54
FAB 01/27/1999 0.22 11.2 0.32 0.64 8.07
FBBC 01/27/1999 0.05 10.7 0.33 1.10 10.27
FBCI 01/27/1999 0.24 17.1 0.32 0.76 7.00
FBER 01/27/1999 0.96 24.5 0.23 0.71 5.93
FBHC 01/27/1999 0.27 20.7 0.24 0.71 10.28
FBNW 01/27/1999 0.39 12.2 0.25 0.97 5.94
FBSI 01/27/1999 0.03 15.8 0.19 0.98 7.10
FCB 01/27/1999 - 28.4 0.14 1.04 4.76
FCBK 01/27/1999 0.47 25.1 0.20 0.67 9.19
FCME 01/27/1999 0.21 10.5 0.19 0.73 7.67
FDEF 01/27/1999 1.83 NM (0.20) (0.82) (6.46)
FED 01/27/1999 0.84 9.7 0.40 0.86 14.61
FESX 01/27/1999 0.53 13.3 0.34 0.89 11.76
FFBH 01/27/1999 0.85 13.4 0.31 1.02 6.91
FFBZ 01/27/1999 0.54 83.3 0.14 0.92 11.72
FFCH 01/27/1999 1.16 13.4 0.29 0.90 14.02
FFDB 01/27/1999 0.89 15.0 0.15 0.83 8.49
FFES 01/27/1999 0.30 12.8 0.56 0.64 9.08
FFFD 01/27/1999 0.12 12.0 0.35 1.35 8.79
FFFL 01/27/1999 0.27 22.0 0.29 0.57 8.91
FFHH 01/27/1999 0.20 12.6 0.27 0.74 7.09
FFHS 01/27/1999 0.34 14.4 0.24 0.75 8.20
FFIC 01/27/1999 0.31 14.0 0.25 1.01 7.93
FFKY 01/27/1999 0.03 17.4 0.37 1.60 12.01
FFLC 01/27/1999 0.15 13.4 0.31 1.07 8.89
FFSL 01/27/1999 0.49 9.5 0.27 0.87 9.15
FFSX 01/27/1999 0.36 20.6 0.25 0.73 9.57
FFWC 01/27/1999 0.43 11.4 0.20 0.90 9.39
FFWD 01/27/1999 0.02 20.8 0.22 1.45 10.86
FFYF 01/27/1999 0.51 16.3 0.48 1.18 9.10
FGHC 01/27/1999 1.65 19.0 0.10 1.15 14.40
FISB 01/27/1999 1.11 12.7 0.34 1.08 11.64
FKFS 01/27/1999 1.21 9.3 0.31 0.74 11.20
FKKY 01/27/1999 - 14.1 0.24 1.24 6.75
FLAG 01/27/1999 1.26 20.4 0.17 0.92 10.59
FLFC 01/27/1999 0.77 15.3 0.29 0.74 9.75
FLGS 01/27/1999 2.26 9.4 0.73 1.49 29.40
FLKY 01/27/1999 1.43 19.7 0.15 1.00 3.77
FMCO 01/27/1999 0.70 11.5 0.18 0.79 13.28
FMSB 01/27/1999 0.05 12.9 0.25 1.14 15.52
FNGB 01/27/1999 0.06 15.6 0.19 0.95 8.95
FSBI 01/27/1999 0.16 12.2 0.35 0.67 9.63
FSPT 01/27/1999 0.39 17.1 0.44 1.21 5.67
FTF 01/27/1999 - 11.2 0.49 1.79 11.93
FTFC 01/27/1999 NA 15.0 0.25 1.16 16.90
FTNB 01/27/1999 0.44 16.3 0.14 0.92 3.98
FTSB 01/27/1999 1.93 44.5 0.20 1.16 7.30
FWWB 01/27/1999 0.42 16.4 0.32 1.08 8.23
GAF 01/27/1999 0.24 13.0 0.25 0.88 6.42
GDW 01/27/1999 0.97 11.7 1.80 1.19 16.31
GPT 01/27/1999 2.54 20.6 0.54 1.21 12.64
GSFC 01/27/1999 0.07 16.8 0.17 1.60 4.52
GSLA 01/27/1999 0.12 17.7 0.06 0.52 1.34
</TABLE>
17
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
ROAA ROAE
NPA's/ Price/ Before Before
Assets Core EPS Core EPS Extra Extra
Pricing MRQ MRQ MRQ MRQ MRQ
Ticker Date (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
GTPS 01/27/1999 NA 70.0 0.05 0.18 1.19
GUPB 01/27/1999 0.70 19.1 0.20 0.71 5.98
HALL 01/27/1999 0.76 9.8 0.27 0.67 9.17
HARL 01/27/1999 - 11.6 0.52 0.95 14.49
HARS 01/27/1999 NA 32.8 0.11 0.67 8.58
HAVN 01/27/1999 0.45 20.7 0.20 0.23 4.21
HBFW 01/27/1999 - 21.7 0.33 0.85 7.01
HBNK 01/27/1999 1.84 8.4 0.79 1.37 17.38
HBS 01/27/1999 0.60 13.4 0.33 (1.03) (7.00)
HCFC 01/27/1999 0.59 13.0 0.26 1.24 7.67
HFFB 01/27/1999 - 20.7 0.21 1.38 5.22
HFFC 01/27/1999 0.44 13.4 0.35 1.24 12.48
HFSA 01/27/1999 NA 16.0 0.22 1.22 12.26
HHFC 01/27/1999 0.09 25.0 0.14 0.67 6.06
HIFS 01/27/1999 0.17 9.8 0.37 1.27 13.27
HMLK 01/27/1999 0.06 12.8 0.25 0.75 5.45
HMNF 01/27/1999 0.05 14.7 0.19 0.44 4.01
HOMF 01/27/1999 0.59 11.9 0.45 1.40 15.14
HPBC 01/27/1999 - 10.3 0.53 1.56 17.66
HRBF 01/27/1999 0.37 20.3 0.24 0.73 5.84
HRZB 01/27/1999 - 12.1 0.28 1.53 9.95
HTHR 01/27/1999 5.28 9.4 0.56 1.17 27.42
HWEN 01/27/1999 1.10 36.3 0.08 0.95 5.34
HZFS 01/27/1999 1.03 13.9 0.21 (0.44) (4.77)
IFSB 01/27/1999 1.31 8.9 0.45 2.80 36.90
INBI 01/27/1999 0.23 15.3 0.29 1.47 9.16
IPSW 01/27/1999 0.44 11.9 0.24 0.95 17.77
ITLA 01/27/1999 1.07 7.3 0.46 1.46 14.16
IWBK 01/27/1999 0.76 12.0 0.47 1.20 16.89
JSB 01/27/1999 0.16 13.0 1.07 2.92 11.99
JSBA 01/27/1999 0.67 24.2 0.16 0.48 5.04
JXVL 01/27/1999 0.62 8.5 0.31 1.26 8.64
KFBI 01/27/1999 0.23 17.0 0.27 0.94 6.68
KNK 01/27/1999 0.71 15.6 0.41 0.60 6.20
KSBK 01/27/1999 1.74 10.8 0.34 1.11 14.16
KYF 01/27/1999 0.04 16.5 0.19 1.12 6.36
LARK 01/27/1999 0.06 16.4 0.32 1.01 7.48
LARL 01/27/1999 0.32 11.6 0.38 1.41 13.80
LFCO 01/27/1999 2.02 4.3 0.17 1.03 7.78
LFED 01/27/1999 0.83 18.9 0.15 1.01 6.16
LOGN 01/27/1999 0.26 14.6 0.25 1.45 7.70
LSBI 01/27/1999 1.20 14.7 0.50 0.86 10.22
LSBX 01/27/1999 0.18 5.1 0.41 2.78 20.69
LVSB 01/27/1999 NA 22.4 0.13 1.71 17.72
LXMO 01/27/1999 0.47 14.3 0.15 0.66 3.88
MAFB 01/27/1999 NA 13.3 0.44 1.08 14.29
MARN 01/27/1999 1.02 17.5 0.36 1.33 6.64
MASB 01/27/1999 0.20 17.3 0.62 1.17 10.00
MBLF 01/27/1999 0.45 14.1 0.31 0.78 5.73
MCBN 01/27/1999 0.38 28.6 0.10 0.45 5.44
MDBK 01/27/1999 NA 16.2 0.31 1.00 11.08
MECH 01/27/1999 0.46 34.0 0.50 1.07 11.03
METF 01/27/1999 1.30 11.7 0.26 0.62 15.95
MFBC 01/27/1999 0.06 12.2 0.30 0.68 5.80
MFFC 01/27/1999 0.16 23.8 0.21 0.77 7.00
MFLR 01/27/1999 0.47 18.8 0.30 1.01 10.94
MONT 01/27/1999 NA 15.6 0.16 0.80 4.72
MRKF 01/27/1999 - 31.1 0.12 1.03 3.17
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
ROAA ROAE
NPA's/ Price/ Before Before
Assets Core EPS Core EPS Extra Extra
Pricing MRQ MRQ MRQ MRQ MRQ
Ticker Date (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
MSBF 01/27/1999 0.41 16.0 0.26 1.57 9.37
MSBK 01/27/1999 0.09 12.0 0.14 0.37 7.02
MWBI 01/27/1999 0.66 10.2 0.26 1.03 14.64
MWBX 01/27/1999 0.45 10.7 0.14 1.27 16.81
NBN 01/27/1999 0.81 12.0 0.26 0.94 12.19
NBSI 01/27/1999 - 20.7 0.04 0.22 1.96
NEIB 01/27/1999 0.41 11.2 0.38 1.16 8.82
NHTB 01/27/1999 1.00 10.8 0.34 0.94 11.78
NMSB 01/27/1999 NA 11.8 0.25 0.63 6.59
NSLB 01/27/1999 0.01 14.8 0.21 0.95 5.10
NTMG 01/27/1999 0.66 20.8 0.18 1.17 14.25
NWEQ 01/27/1999 1.71 13.8 0.39 1.33 11.28
NWSB 01/27/1999 0.50 22.0 0.11 0.93 10.85
OCFC 01/27/1999 0.40 15.4 0.23 0.84 6.11
OCN 01/27/1999 6.87 4.2 0.21 (3.80) (34.88)
OFCP 01/27/1999 0.49 15.5 0.36 0.97 11.82
OHSL 01/27/1999 0.04 16.7 0.22 0.88 8.14
PBCI 01/27/1999 1.48 15.9 0.37 1.10 8.52
PBCT 01/27/1999 0.70 NM 0.32 1.28 13.53
PBKB 01/27/1999 0.35 8.1 0.42 0.74 18.96
PBOC 01/27/1999 NA 5.3 0.49 1.28 23.33
PCBC 01/27/1999 - 21.1 0.26 0.94 5.01
PDB 01/27/1999 0.71 15.2 0.15 1.26 7.74
PEEK 01/27/1999 0.61 20.8 0.17 0.93 4.18
PERM 01/27/1999 0.18 22.1 0.13 0.59 5.82
PFDC 01/27/1999 0.16 15.4 0.30 1.32 8.86
PFED 01/27/1999 0.07 13.4 0.24 1.08 5.36
PFFB 01/27/1999 1.06 12.0 0.27 0.59 6.98
PFFC 01/27/1999 0.15 27.2 0.10 0.90 4.94
PFNC 01/27/1999 0.41 12.3 0.22 0.84 12.83
PFSB 01/27/1999 NA 11.3 0.31 0.72 10.87
PHBK 01/27/1999 0.68 13.0 0.33 0.34 4.55
PHFC 01/27/1999 1.51 11.1 0.33 0.53 8.16
PLSK 01/27/1999 0.63 18.5 0.12 0.34 2.93
PRBC 01/27/1999 0.35 15.3 0.19 0.47 4.91
PROV 01/27/1999 NA 10.7 0.39 0.75 7.56
PSFC 01/27/1999 0.67 59.6 0.14 0.85 3.90
PSFI 01/27/1999 0.41 12.7 0.18 1.70 6.22
PTRS 01/27/1999 0.32 12.6 0.23 0.85 9.62
PVFC 01/27/1999 0.92 9.8 0.25 0.97 13.45
PVSA 01/27/1999 0.43 12.2 0.54 1.08 14.48
PWBK 01/27/1999 0.72 17.4 0.02 0.09 0.48
QCBC 01/27/1999 0.88 10.7 0.35 0.95 10.83
QCFB 01/27/1999 NA 11.0 0.56 1.78 10.10
QCSB 01/27/1999 0.39 23.3 0.32 1.63 16.29
RELY 01/27/1999 NA 12.8 0.50 0.77 10.03
RIVR 01/27/1999 0.55 14.2 0.28 0.93 6.81
RSLN 01/27/1999 0.18 13.8 0.33 1.44 9.03
RVSB 01/27/1999 0.28 15.3 0.21 1.85 8.13
SCBS 01/27/1999 0.18 15.3 0.29 1.57 9.46
SCCB 01/27/1999 1.87 15.9 0.16 0.82 4.12
SFFC 01/27/1999 1.54 16.5 0.16 1.12 6.32
SFIN 01/27/1999 0.42 NM 0.24 0.74 7.46
SGVB 01/27/1999 1.12 13.0 0.17 0.43 5.40
SIB 01/27/1999 0.61 17.2 0.26 1.54 6.24
SMBC 01/27/1999 0.98 15.0 0.22 0.64 3.92
SOBI 01/27/1999 0.08 15.2 0.23 0.74 5.26
SOPN 01/27/1999 0.18 16.6 0.33 1.76 7.68
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
ROAA ROAE
NPA's/ Price/ Before Before
Assets Core EPS Core EPS Extra Extra
Pricing MRQ MRQ MRQ MRQ MRQ
Ticker Date (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
SPBC 01/27/1999 0.22 21.6 0.36 1.09 11.54
SRN 01/27/1999 0.01 21.0 0.14 0.56 3.18
SSM 01/27/1999 - 15.3 0.16 1.07 4.02
STFR 01/27/1999 0.17 12.4 0.81 0.80 13.02
STSA 01/27/1999 0.52 13.8 0.40 (0.20) (3.61)
SVRN 01/27/1999 NA 13.2 0.24 0.81 14.97
SZB 01/27/1999 0.05 93.8 0.10 0.23 2.29
THR 01/27/1999 0.83 16.3 0.28 0.84 6.38
THRD 01/27/1999 0.30 15.6 0.24 0.59 7.69
TRIC 01/27/1999 - 15.4 0.18 1.05 6.45
TSH 01/27/1999 0.18 11.6 0.30 1.00 7.15
TWIN 01/27/1999 0.37 11.1 0.21 0.93 7.28
UFBS 01/27/1999 0.39 12.6 0.26 0.83 10.33
UPFC 01/27/1999 2.56 4.3 0.26 3.76 21.96
WAMU 01/27/1999 0.73 12.2 0.71 0.40 6.61
WAYN 01/27/1999 0.50 27.2 0.17 0.66 7.02
WBST 01/27/1999 0.41 14.7 0.50 0.39 7.13
WCFB 01/27/1999 0.05 25.2 0.16 1.36 5.80
WEFC 01/27/1999 0.14 10.1 0.33 1.26 8.58
WEHO 01/27/1999 NA 16.0 0.12 1.03 5.42
WFI 01/27/1999 0.39 13.6 0.25 1.21 16.55
WFSL 01/27/1999 0.70 11.8 0.52 2.05 14.89
WHGB 01/27/1999 0.59 19.2 0.15 0.63 3.93
WRNB 01/27/1999 1.15 12.5 0.19 1.75 16.33
WSB 01/27/1999 NA 21.6 0.08 0.61 7.12
WSFS 01/27/1999 1.12 7.7 0.34 1.17 18.85
WSTR 01/27/1999 0.37 12.9 0.35 0.74 6.97
WVFC 01/27/1999 NA 13.8 0.27 1.24 11.99
YFCB 01/27/1999 0.24 14.0 0.27 0.70 6.37
YFED 01/27/1999 0.85 18.8 0.20 0.83 9.23
Maximum 6.87 175.0 1.80 3.76 36.90
Minimum - 4.2 (1.12) (3.80) (34.88)
Average 0.58 17.2 0.28 0.95 9.03
Median 0.42 14.9 0.26 0.94 8.22
</TABLE>
20
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT V - COMPARATIVE GROUP PRICE CHANGES
<TABLE>
<CAPTION>
Total
Number Assets
of ($000)
Ticker Short Name City State Offices Mst RctQ
<S> <C> <C> <C> <C> <C>
ANA (1) Acadiana Bancshares Inc. Lafayette LA 5 298,148
ASBI (2) Ameriana Bancorp New Castle IN 9 375,297
CBK Citizens First Financial Corp. Bloomington IL 6 281,068
FFFD (1) North Central Bancshares Inc. Fort Dodge IA 7 331,124
HBFW (1) Home Bancorp Fort Wayne IN 9 360,286
HRBF (1) Harbor Federal Bancorp Inc. Baltimore MD 9 227,562
JXVL Jacksonville Bancorp Inc. Jacksonville TX 7 242,673
MFBC MFB Corp. Mishawaka IN 5 290,936
MFFC (1) Milton Federal Financial Corp. West Milton OH 3 235,105
OHSL OHSL Financial Corp. Cincinnati OH 5 247,853
PFDC Peoples Bancorp Auburn IN 7 304,320
SOPN First Savings Bancorp Inc. Southern Pines NC 5 304,088
Maximum 9 375,297
Minimum 3 227,562
Average 6 291,538
Median 7 294,542
</TABLE>
(1) Market value is declining because of stock repurchases.
(2) Earlier per share price has been adjusted to recognized 10% stock
dividend issued 1-4-99.
21
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT V - COMPARATIVE GROUP PRICE CHANGES
<TABLE>
<CAPTION>
JANUARY 27, 1999 OCTOBER 30, 1998 1-27-99 VS. 10-30-98
---------------------- ---------------------
Current Current Current Current Increase (Decrease)
----------------------------
Stock Market Stock Market Stock Market
Price Value Price Value Price Value
Ticker IPO Date ($) ($M) ($) ($M) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
ANA (1) 07/16/96 18.188 33.57 17.188 39.17 5.8 (14.3)
ASBI (2) 03/02/87 16.500 57.86 16.360 58.55 0.9 (1.2)
CBK 05/01/96 13.250 29.61 15.000 34.33 (11.7) (13.7)
FFFD (1) 03/21/96 16.750 49.65 16.750 51.99 - (4.5)
HBFW (1) 03/30/95 29.500 64.46 26.625 62.60 10.8 3.0
HRBF (1) 08/12/94 19.500 35.04 20.500 38.19 (4.9) (8.2)
JXVL 04/01/96 15.938 37.73 14.750 35.72 8.1 5.6
MFBC 03/25/94 22.000 32.21 20.750 30.59 6.0 5.3
MFFC (1) 10/07/94 14.250 31.54 14.375 32.15 (0.9) (1.9)
OHSL 02/10/93 14.000 34.97 14.625 36.50 (4.3) (4.2)
PFDC 07/07/87 20.375 66.45 20.000 67.50 1.9 (1.6)
SOPN 01/06/94 21.875 81.09 22.750 84.73 (3.8) (4.3)
Maximum 29.500 81.09 26.625 84.73 10.8 5.6
Minimum 13.250 29.61 14.375 30.59 (11.7) (14.3)
Average 18.511 46.18 18.306 47.67 0.7 (3.3)
Median 17.469 36.39 16.969 38.68 0.4 (3.0)
</TABLE>
22
<PAGE>
FERGUSON & COMPANY EXHIBIT VI - PRO FORMA COMPARISONS
- ------------------
As of January 27, 1999
<TABLE>
<CAPTION>
Ticker Name Price Mk Value PE P/Book P/TBook P/Assets Div Yld
($) ($Mil) (X) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st State Bank
--------------
Before Conversion N/A N/A N/A N/A N/A N/A N/A
Pro Forma Supermaximum 20.000 43.64 13.8 72.3 72.3 14.2 2.00
Pro Forma Maximum 20.000 37.95 12.4 68.7 68.7 12.7 2.00
Pro Forma Midpoint 20.000 33.00 11.1 64.5 64.5 11.2 2.00
Pro Forma Minimum 15.000 28.05 9.6 59.5 59.5 9.6 2.00
Comparative Group
-----------------
Averages 18.511 46.18 16.9 118.2 120.0 15.8 2.59
Medians 17.469 36.39 16.2 114.8 118.5 14.5 2.55
North Carolina Thrifts
----------------------
Averages 13.235 33.43 15.2 98.7 99.0 18.9 3.66
Medians 13.250 24.56 15.6 92.2 92.2 19.1 4.09
Southeast Region Thrifts
------------------------
Averages 15.174 80.72 16.9 133.3 136.8 16.0 2.73
Medians 14.000 38.63 16.1 115.1 116.0 16.0 2.69
All Public Thrifts
------------------
Averages 17.055 284.24 16.3 131.4 139.0 14.2 2.28
Medians 15.063 45.56 15.4 119.2 125.9 13.3 2.34
Comparative Group
-----------------
ANA AcadianaBcshs-LA 18.188 33.57 15.2 105.0 105.0 14.3 2.42
ASBI AmerianaBancorp-IN 16.500 57.86 15.9 128.6 134.7 14.6 3.63
CBK CitizensFirst-IL 13.250 29.61 18.9 83.9 83.9 11.1 -
FFFD NorthCentral-IA 16.750 49.65 12.7 104.6 120.3 15.5 1.91
HBFW HomeBancorp-IN 29.500 64.46 22.9 162.1 162.1 17.9 1.08
HRBF HarborFedBncp-MD 19.500 35.04 18.9 120.7 120.7 15.4 2.67
JXVL Jacksonville-TX 15.938 37.73 11.6 107.1 107.1 14.5 3.14
MFBC MFBCorp-IN 22.000 32.21 15.3 103.0 103.0 9.6 1.55
MFFC MiltonFedFinl-OH 14.250 31.54 22.6 112.8 112.8 13.6 4.21
OHSL OHSLFinancial-OH 14.000 34.97 16.5 125.9 125.9 13.9 3.57
PFDC PeoplesBancorp-IN 20.375 66.45 15.9 147.9 147.9 21.0 2.36
SOPN FirstSvngsBncp-NC 21.875 81.09 16.6 116.7 116.7 28.2 4.57
</TABLE>
23
<PAGE>
FERGUSON & COMPANY EXHIBIT VI - PRO FORMA COMPARISONS
- ------------------
As of January 27, 1999
<TABLE>
<CAPTION>
Ticker Name Assets Eq/A TEq/A EPS ROAA ROAE
($000) (%) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
1st State Bank
--------------
Before Conversion 291,249 9.2 9.2 N/A 1.01 10.96
Pro Forma Supermaximum 328,067 19.7 19.7 1.45 1.08 5.35
Pro Forma Maximum 323,137 18.4 18.4 1.61 1.07 5.66
Pro Forma Midpoint 318,892 17.3 17.3 1.81 1.06 5.98
Pro Forma Minimum 314,651 16.2 16.2 1.56 1.05 6.37
Comparative Group
-----------------
Averages 291,538 13.8 13.7 1.09 1.07 7.36
Medians 294,542 13.4 12.9 1.21 0.92 7.24
North Carolina Thrifts
----------------------
Averages 182,962 19.6 19.6 0.96 1.22 6.14
Medians 141,130 17.9 17.9 0.77 1.23 5.79
Southeast Region Thrifts
------------------------
Averages 599,132 13.5 13.3 0.95 1.01 8.26
Medians 189,422 12.9 12.9 0.85 0.94 7.70
All Public Thrifts
------------------
Averages 1,787,317 11.9 11.6 1.15 0.99 9.32
Medians 359,430 10.0 10.0 1.02 0.94 8.46
Comparative Group
-----------------
ANA AcadianaBcshs-LA 298,148 14.7 14.7 1.17 1.05 6.48
ASBI AmerianaBancorp-IN 375,297 12.2 12.0 1.17 0.98 8.55
CBK CitizensFirst-IL 281,068 14.0 14.0 0.63 0.71 5.13
FFFD NorthCentral-IA 331,124 14.9 13.1 1.27 1.56 8.56
HBFW HomeBancorp-IN 360,286 11.9 11.9 1.25 0.85 6.84
HRBF HarborFedBncp-MD 227,562 12.8 12.8 1.03 0.79 6.25
JXVL Jacksonville-TX 242,673 14.5 14.5 1.26 1.33 9.13
MFBC MFBCorp-IN 290,936 11.4 11.4 1.29 0.80 6.44
MFFC MiltonFedFinl-OH 235,105 11.1 11.1 0.65 0.69 5.80
OHSL OHSLFinancial-OH 247,853 10.8 10.8 0.85 0.86 7.94
PFDC PeoplesBancorp-IN 304,320 15.0 15.0 1.26 1.45 9.56
SOPN FirstSvngsBncp-NC 304,088 22.9 22.9 1.30 1.76 7.64
</TABLE>
Note: Stock prices are closing prices or last trade. Pro forma
calculations for 1st State are based on sales at $20 a share ($15
at the minimum) with a minimum of $28,050,000, midpoint of
$33,000,000, maximum of $37,950,000, and supermaximum of
$43,642,500. Sources:1st State's audited and unaudited financial
Statements, SNL Securities, and F&C calculations.
24
<PAGE>
FERGUSON & COMPANY EXHIBIT VII
- ------------------ COMPARISON OF PRICING RATIOS
<TABLE>
<CAPTION>
Group Percent Premium
1st State Compared to (Discount) Versus
-------------------------------- ------------------------------
Bank Average Median Average Median
---------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Comparison of PE ratio at
midpoint to:
- ------------------------------------
Comparative group 11.1 16.9 16.2 (34.3) (31.5)
North Carolina thrifts 11.1 15.2 15.6 (27.0) (28.8)
Southeast Region thrifts 11.1 16.9 16.1 (34.3) (31.1)
All public thrifts 11.1 16.3 15.4 (31.9) (27.9)
Recent conversions 11.1 17.7 15.3 (37.3) (27.5)
Comparison of PE ratio at
maximum to:
- ------------------------------------
Comparative group 12.4 16.9 16.2 (26.6) (23.5)
North Carolina thrifts 12.4 15.2 15.6 (18.4) (20.5)
Southeast Region thrifts 12.4 16.9 16.1 (26.6) (23.0)
All public thrifts 12.4 16.3 15.4 (23.9) (19.5)
Recent conversions 12.4 17.7 15.3 (29.9) (19.0)
Comparison of PE ratio at
final value to:
- ------------------------------------
Comparative group 13.8 16.9 16.2 (18.3) (14.8)
North Carolina thrifts 13.8 15.2 15.6 (9.2) (11.5)
Southeast Region thrifts 13.8 16.9 16.1 (18.3) (14.3)
All public thrifts 13.8 16.3 15.4 (15.3) (10.4)
Recent conversions 13.8 17.7 15.3 (22.0) (9.8)
Comparison of PB ratio at
midpoint to:
- ------------------------------------
Comparative group 64.5 118.2 114.8 (45.4) (43.8)
North Carolina thrifts 64.5 98.7 92.2 (34.7) (30.0)
Southeast Region thrifts 64.5 133.3 115.1 (51.6) (44.0)
All public thrifts 64.5 131.4 119.2 (50.9) (45.9)
Recent conversions 64.5 68.2 69.9 (5.4) (7.7)
Comparison of PB ratio at
maximum to:
- ------------------------------------
Comparative group 68.7 118.2 114.8 (41.9) (40.2)
North Carolina thrifts 68.7 98.7 92.2 (30.4) (25.5)
Southeast Region thrifts 68.7 133.3 115.1 (48.5) (40.3)
All public thrifts 68.7 131.4 119.2 (47.7) (42.4)
Recent conversions 68.7 68.2 69.9 0.7 (1.7)
Comparison of PB ratio at
final value to:
- ------------------------------------
Comparative group 72.3 118.2 114.8 (38.8) (37.0)
North Carolina thrifts 72.3 98.7 92.2 (26.7) (21.6)
Southeast Region thrifts 72.3 133.3 115.1 (45.8) (37.2)
All public thrifts 72.3 131.4 119.2 (45.0) (39.3)
Recent conversions 72.3 68.2 69.9 6.0 3.4
</TABLE>
25
<PAGE>
FERGUSON & COMPANY EXHIBIT VIII
- ------------------ PRO FORMA ASSUMPTIONS
1. Net proceeds from the conversion were invested at the beginning of the period
at 4.60%, which was the approximate rate on the one-year treasury bill on
December 31, 1998. This rate was selected because it is considered more
representative of the rate the Bank is likely to earn.
2. 1st State'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 10% annually of the initial
purchase.
3. 1st State's RP will acquire 4% of the stock through open market purchases at
the same price per share as that paid for conversion stock 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 income tax rate of 36.0%, with the exception of the foundation
contribution, on which the assumed tax benefit is 34.0%. The lower rate was
used because most of the benefit is expected to be realized during the
carryforward period, and the State of North Carolina does not permit
contribution carryforwards.
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 ("EPS") have been calculated simply by dividing pro forma
net income by the total shares assumed issued. The price earnings ("P/E") ratio
is simply total pro forma market capitalization (i.e., value of shares to be
sold plus the assigned value of shares issued to the charitable foundation)
divided by pro forma net income. Calculating EPS under AICPA SOP 93-6 and
assuming 10% of the ESOP shares are committed to be released at the beginning of
the period and under SFAS 128 assuming 20% of the RP shares are vested at the
beginning of the period, basic EPS would be $1.74, $2.02, $1.80, and $1.62,
diluted EPS would be $1.68, $1.95, $1.73, and $1.56, and the PE ratio based on
basic EPS would be 8.6, 9.9, 11.1, and 12.3, respectively, at the minimum,
midpoint, maximum, and supermaximum of the range.
26
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT VIII
PRO FORMA EFFECT OF CONVERSION PROCEEDS
AT THE MINIMUM OF THE CONVERSION VALUATION RANGE
VALUATION DATE AS OF JANUARY 27, 1999
<TABLE>
<CAPTION>
1ST STATE BANK, BURLINGTON, NC
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Conversion Proceeds
Pro Forma Market Value $ 28,050,000
Less: Estimated Expenses (1,013,000)
----------------
Net Conversion Proceeds $ 27,037,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 27,037,000
Less: ESOP Contributions (2,423,520)
RP Contributions (1,211,760)
----------------
Net Conversion Proceeds after ESOP & RP $ 23,401,720
Estimated Incremental Rate of Return(1) 2.94%
----------------
Estimated Additional Income $ 688,947
Less: ESOP Expense (155,105)
RP Expense (155,105)
----------------
$ 378,736
----------------
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
------------------------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
December 31, 1998 $ 2,775,000 $ 378,736 $ 3,153,736
b. Pro Forma Net Worth
December 31, 1998 $ 26,707,000 $ 24,164,680 $ 50,871,680
c. Pro Forma Net Assets
December 31, 1998 $ 291,249,000 $ 23,401,720 $ 314,650,720
</TABLE>
(1) Assumes Proceeds can be reinvested at 4.60% and earnings taxed at a rate of
36.0 percent.
(2) Pro forma effect on capital includes tax effect related to contribution to
charitable foundation.
27
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT VIII
PRO FORMA EFFECT OF CONVERSION PROCEEDS
AT THE MIDPOINT OF THE CONVERSION VALUATION RANGE
VALUATION DATE AS OF JANUARY 27, 1999
<TABLE>
<CAPTION>
1ST STATE BANK, BURLINGTON, NC
- -------------------------------------------------------------------------------------------
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 33,000,000
Less: Estimated Expenses (1,080,000)
------------------------
Net Conversion Proceeds $ 31,920,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 31,920,000
Less: ESOP Contributions (2,851,200)
RP Contributions (1,425,600)
------------------------
Net Conversion Proceeds after ESOP & RP $ 27,643,200
Estimated Incremental Rate of Return(1) 2.94%
------------------------
Estimated Additional Income $ 813,816
Less: ESOP Expense (182,477)
RP Expense (182,477)
------------------------
$ 448,862
------------------------
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
------------------------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
December 31, 1998 $ 2,775,00 $ 448,8 $ 3,223,862
b. Pro Forma Net Worth
December 31, 1998 $ 26,707,000 $ 28,540,800 $ 55,247,800
c. Pro Forma Net Assets
December 31, 1998 $ 291,249,000 $ 27,643,200 $ 318,892,200
</TABLE>
(1) Assumes Proceeds can be reinvested at 4.60% and earnings taxed at a rate of
36.0 percent.
(2) Pro forma effect on capital includes tax effect related to contribution to
charitable foundation.
28
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VIII
Pro Forma Effect of Conversion Proceeds
At the Maximum of the Conversion Valuation Range
Valuation Date as of January 27, 1999
<TABLE>
<CAPTION>
1st State Bank, Burlington, NC
- -------------------------------------------------------------------------------------------
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 37,950,000
Less: Estimated Expenses (1,148,000)
------------------------
Net Conversion Proceeds $ 36,802,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 36,802,000
Less: ESOP Contributions (3,276,000)
RP Contributions (1,638,000)
------------------------
Net Conversion Proceeds after ESOP & RP $ 31,888,000
Estimated Incremental Rate of Return(1) 2.94%
------------------------
Estimated Additional Income $ 938,783
Less: ESOP Expense (209,664)
RP Expense (209,664)
------------------------
$ 519,455
------------------------
<CAPTION>
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
------------------------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
December 31, 1998 $ 2,775,00 $ 519,455 $ 3,294,455
b. Pro Forma Net Worth
December 31, 1998 $ 26,707,000 $ 32,908,000 $ 59,615,000
c. Pro Forma Net Assets
December 31, 1998 $ 291,249,000 $ 31,888,000 $ 323,137,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 4.60% and earnings taxed at a rate of
36.0 percent.
(2) Pro forma effect on capital includes tax effect related to contribution to
charitable foundation.
29
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT VIII
PRO FORMA EFFECT OF CONVERSION PROCEEDS
AT THE SUPERMAX OF THE CONVERSION VALUATION RANGE
VALUATION DATE AS OF JANUARY 27, 1999
<TABLE>
<CAPTION>
1ST STATE BANK, BURLINGTON, NC
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 43,642,500
Less: Estimated Expenses $ (1,227,000)
------------------
Net Conversion Proceeds $ 42,415,500
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 42,415,500
Less: ESOP Contributions $ (3,731,400)
RP Contributions $ (1,865,700)
Net Conversion Proceeds after ESOP & RP $ 36,818,400
Estimated Incremental Rate of Return(1) 2.94%
------------------
Estimated Additional Income $ 1,083,934
Less: ESOP Expense $ (238,810)
RP Expense $ (238,810)
------------------
$ 606,314
------------------
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
------------------------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
December 31, 1998 $ 2,775,000 $ 606,314 $ 3,381,314
b. Pro Forma Net Worth
December 31, 1998 $ 26,707,000 $ 37,838,400 $ 64,545,400
c. Pro Forma Net Assets
December 31, 1998 $ 291,249,000 $ 36,818,400 $ 328,067,400
</TABLE>
(1) Assumes Proceeds can be reinvested at 4.60% and earnings taxed at a rate of
36.0 percent.
(2) Pro forma effect on capital includes tax effect related to contribution to
charitable foundation.
30
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VIII
Pro Forma Analysis Sheet
<TABLE>
<CAPTION>
Name of Association: 1st State Bank, Burlington, NC
Date of Market Prices: January 27, 1999 N. Carolina Publicly All Publicly
Comparatives Held Thrifts Held Thrifts
------------ ------------ ------------
Symbols Value Mean Median Mean Median Mean Median
----------------------- ---- ----- ---- ------ ---- ------
Price-Earnings Ratio P/E
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Last Twelve Months N/A
At Minimum of Range 9.6
------------------------------------------------------------------------------------
At Midpoint of Range 11.1 16.9 16.2 15.2 15.6 16.3 15.4
------------------------------------------------------------------------------------
At Maximum of Range 12.4
At Supermax of Range 13.8
Price-Book Ratio P/B
- ----------------
At Minimum of Range 59.5%
------------------------------------------------------------------------------------
At Midpoint of Range 64.5% 118.2 114.8 98.7 92.2 131.4 119.2
------------------------------------------------------------------------------------
At Maximum of Range 68.7%
At Supermax of Range 72.3%
Price-Asset Ratio P/A
- -----------------
At Minimum of Range 9.6%
At Midpoint of Range 11.2%
------------------------------------------------------------------------------------
At Maximum of Range 12.7% 15.8 14.5 18.9 19.1 14.2 13.3
------------------------------------------------------------------------------------
At Supermax of Range 14.2%
Twelve Mo. Earnings Base Y $ 2,775,000
Period Ended December 31, 1998
Book Value B $ 26,707,000
As of December 31, 1998
Total Assets A $ 291,249,000
As of December 31, 1998
Return on Money (1) R 2.94%
Conversion Expense X $ 1,080,000
Underwriting Commission C 0.00%
Percentage Underwritten S 0.00%
Estimated Dividend
Dollar Amount DA $ 712,800
Yield DY 2.00%
ESOP Contributions P $ 2,851,200
RP Contributions I $ 1,425,600
ESOP Annual Expense E $ 182,477
RP Annual Contributions M $ 182,477
Cost of ESOP Borrowings F 0.00%
Charity Contribution CC $ 2,640,000
Tax Effect of Contribution TEC $ 897,600
After Tax Effect of Contri. ATEC $ 1,742,400
</TABLE>
(1) Assumes Proceeds can be reinvested at 4.60% and earnings taxed at a rate of
36.0 percent.
(2) Pro forma effect on capital includes tax effect related to contribution to
charitable foundation.
31
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VIII
Pro Forma Analysis Sheet
Calculation of Estimated Value (V) at Midpoint Value (including foundation
shares):
<TABLE>
<S> <C> <C> <C>
1. V= P/A(A-X-P-I-CC) $ 35,640,000
---------------------------
1-P/A(1-(CxS))
2. V= P/B(B-X-P-I-ATEC) $ 35,640,000
---------------------------
1-P/B(1-(CxX))
3. V= P/E(Y-R(X+P+I+CC)-(E+M)) $ 35,640,000
------------------------------------
1-P/E(R(1-(CxX))
Calculation of Shares Being Offered for Sale (excluding foundation shares):
Value
Estimated Value Per Share Total Shares Date
---------------------------- ------------- ------------------ -------------------------
$33,000,000 $20.00 1,650,000 January 27, 1999
</TABLE>
Range of Value
$33.0 million x 1.15 = $37.95 million or 1,897,500 shares at $20.00 per share
$33.0 million x 0.85 = $28.05 million or 1,870,000 shares at $15.00 per share
32
<PAGE>
FERGUSON & COMPANY EXHIBIT IX - RECENT OPERATING RESULTS
- ------------------
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
($000's)
<S> <C> <C>
Financial Condition Data:
Total assets $ 291,249 $ 288,223
Cash and securities 82,893 71,130
Loans receivable 189,142 196,782
Loans held for sale 6,185 7,540
Savings deposits 237,394 235,694
Borrowings 20,000 20,000
Equity 26,707 25,966
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
-------------------------------------
1998 1997
----------------- ---------------
($000's)
<S> <C> <C>
Operating Data:
Interest income $ 5,124 $ $ 4,983
Interest expense 2,846 2,620
----------------- -----------------
Net interest income 2,278 2,363
Provision for loan losses 60 60
----------------- -----------------
Net interest income after provision for loan losses 2,218 2,303
Other income 665 391
Other expense 1,718 1,497
----------------- -----------------
Pretax income 1,165 1,197
Income tax expense 414 439
-----------------
================= =================
Net income $ 751 $ 758
================= =================
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 TO SEPTEMBER 30, 1998
1st State's balance sheet experienced little change during the December 31, 1998
quarter. Assets increased by $3.0 million, cash and securities increased by
$11.8 million, loans decreased by $9.0 million, deposits increased by $1.7
million, and equity increased by $741 thousand.
COMPARISON OF OPERATING RESULTS FOR THREE MONTHS ENDING
DECEMBER 31, 1998 VERSUS 1997
Net income for the three months ended December 31, 1998, was $751,000 as
compared with $758,000 for the 1997 period, a decrease of $7,000. Net interest
income decreased $85 thousand, other income increased $274 thousand, and other
expense increased $221 thousand. 1st State's interest spread declined by 55
basis points for the quarter.
33
SOURCE OFFERING CIRCULAR
